UNITED STATES
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 April 6, 2001
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 000-05083
SAUCONY, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1465840
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
13 Centennial Drive, Peabody, MA 01960
(Address of principal executive offices)
978-532-9000
(Registrant's telephone number (including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Class Outstanding as of May 14, 2001
----- ------------------------------
Class A Common Stock-$.33 1/3 Par Value 2,566,747
Class B Common Stock-$.33 1/3 Par Value 3,500,093
---------
6,066,840
SAUCONY, INC. AND SUBSIDIARIES
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited
Condensed Consolidated Balance Sheets as of April 6, 2001
and January 5, 2001................................................3
Condensed Consolidated Statements of Income for the
thirteen weeks ended April 6, 2001 and March 31, 2000..............4
Condensed Consolidated Statements of Cash Flows for the
thirteen weeks ended April 6, 2001 and March 31, 2000..............5
Notes to Condensed Consolidated Financial Statements --
April 6, 2001....................................................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................9-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk........13
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.........................14
Item 6. Exhibits and Reports on Form 8-K..................................14
Signature..................................................................15
PART I. FINANCIAL INFORMATION
SAUCONY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(Amounts in thousands)
ASSETS
April 6, January 5,
2001 2001
---- ----
Current assets:
Cash and cash equivalents....................................................$ 2,328 $ 4,738
Accounts receivable.......................................................... 36,643 26,706
Inventories.................................................................. 31,291 38,404
Prepaid expenses and other current assets.................................... 3,945 3,683
--------- ----------
Total current assets....................................................... 74,207 73,531
--------- ----------
Property, plant and equipment, net.............................................. 7,628 7,581
--------- ----------
Other assets.................................................................... 1,902 2,173
--------- ----------
Total assets....................................................................$ 83,737 $ 83,285
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................................$ 6,271 $ 2,596
Current maturities of long-term debt......................................... 131 204
Accounts payable............................................................. 4,585 6,654
Accrued expenses and other current liabilities............................... 4,545 6,465
--------- ----------
Total current liabilities.................................................. 15,532 15,919
--------- ----------
Long-term obligations:
Long-term debt............................................................... 72 34
Deferred income taxes........................................................ 2,110 2,140
Other long-term obligations.................................................. 191 187
--------- ----------
Total long-term obligations................................................ 2,373 2,361
--------- ----------
Minority interest in consolidated subsidiaries.................................. 407 385
--------- ----------
Stockholders' equity:
Common stock, $.33 1/3 par value............................................. 2,244 2,244
Additional paid in capital................................................... 17,322 17,112
Retained earnings............................................................ 52,988 51,642
Accumulated other comprehensive income....................................... (1,220) (792)
---------- -----------
71,334 70,206
Less: Common stock held in treasury, at cost............................... (5,417) (5,285)
Notes receivable..................................................... (291) (296)
Unearned compensation................................................ (201) (5)
---------- -----------
Total stockholders' equity........................................ 65,425 64,620
--------- ----------
Total liabilities and stockholders' equity......................................$ 83,737 $ 83,285
========= ==========
See notes to condensed consolidated financial statements
SAUCONY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED APRIL 6, 2001 AND MARCH 31, 2000
(Unaudited)
(Amounts in thousands, except per share data)
Thirteen Weeks Thirteen Weeks
Ended Ended
April 6, 2001 March 31, 2000
------------- --------------
Net sales.......................................................................$ 43,693 $ 46,848
Other revenue .................................................................. 103 24
--------- ----------
Total revenue .................................................................. 43,796 46,872
--------- ----------
Costs and expenses
Cost of sales................................................................ 29,994 29,403
Selling expenses............................................................. 6,421 7,065
General and administrative expenses.......................................... 4,974 4,784
--------- ----------
Total costs and expenses................................................... 41,389 41,252
--------- ----------
Operating income................................................................ 2,407 5,620
Non-operating income (expense)
Interest, net................................................................ (60) (132)
Foreign currency............................................................. 87 (47)
Other........................................................................ (34) 87
---------- ----------
Income before income taxes and minority interest................................ 2,400 5,528
Provision for income taxes...................................................... 1,015 2,297
Minority interest in income of consolidated subsidiaries........................ 39 23
--------- ----------
Net income......................................................................$ 1,346 $ 3,208
========= ==========
Per share amounts:
Earnings per common share - basic...............................................$ 0.22 $ 0.51
========= ==========
Earnings per common share - diluted.............................................$ 0.22 $ 0.50
========= ==========
Weighted average common shares and
equivalents outstanding for diluted EPS...................................... 6,188 6,443
========= ==========
Cash dividends per share of common stock........................................ 0 0
========= ==========
See notes to condensed consolidated financial statements
SAUCONY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED APRIL 6, 2001 AND MARCH 31, 2000
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Unaudited)
(Amounts in thousands)
April 6, March 31,
2001 2000
---- ----
Cash flows from operating activities:
Net income.................................................................$ 1,346 $ 3,208
-------- ---------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization.............................................. 483 510
Provision for bad debts and discounts...................................... 1,877 1,532
Deferred income tax expense (benefit)...................................... (630) 427
Other...................................................................... 41 29
Changes in operating assets and liabilities, net of effect of acquisitions,
dispositions and foreign currency adjustments:
Decrease (increase) in assets:
Accounts receivable.................................................... (11,977) (16,468)
Inventories............................................................ 6,655 1,388
Prepaid expenses and other current assets.............................. 333 78
Increase (decrease) in liabilities:
Accounts payable....................................................... (2,042) (1,160)
Accrued expenses....................................................... (1,883) (227)
--------- ----------
Total adjustments............................................................ (7,143) (13,891)
--------- ----------
Net cash used by operating activities........................................... (5,797) (10,683)
--------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment................................... (408) (239)
Change in deferred charges, deposits and other............................... 13 18
Marketable securities - realized and unrealized (gains) losses............... 35 (84)
-------- ----------
Net cash used by investing activities........................................... (360) (305)
--------- ----------
Cash flows from financing activities:
Net short-term borrowings.................................................... 3,800 11,164
Repayment of long-term debt and capital lease obligations.................... (99) (103)
Common stock repurchased..................................................... (133) (1,584)
Issuances of common stock, including options................................. 11 17
-------- ---------
Net cash provided by financing activities....................................... 3,579 9,494
Effect of exchange rate changes on cash and cash equivalents.................... 168 94
-------- ---------
Net decrease in cash and cash equivalents....................................... (2,410) (1,400)
Cash and equivalents at beginning of period..................................... 4,738 3,515
-------- ---------
Cash and equivalents at end of period...........................................$ 2,328 $ 2,115
======== =========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Income taxes, net of refunds...............................................$ 482 $ 2,065
======== =========
Interest...................................................................$ 85 $ 160
======== =========
Non-cash investing and financing activities:
Property purchased under capital leases......................................$ 102 --
======== =========
See notes to condensed consolidated financial statements
SAUCONY, INC. AND SUBSIDIARIES
(the "Company")
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 6, 2001
(Unaudited)
(In thousands, except share amounts)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation have been included. These interim consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and the notes, thereto, included in the Company's Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission, for the year
ended January 5, 2001. Operating results for thirteen weeks ended April 6, 2001,
are not necessarily indicative of the results for the entire year.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In September 2000, the Emerging Issues Task Force ("EITF") reached a final
consensus on EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs." This consensus requires that all amounts billed to a customer in a sales
transaction related to shipping and handling, if any, represent revenue and
should be classified as revenue. Net sales and costs related to shipping and
handling reported by the Company in the prior year, have been reclassified to
conform to the requirements of EITF 00-10.
NOTE 3 - INVENTORIES
Inventories at April 6, 2001 and January 5, 2001 consisted of the following:
April 6, January 5,
2001 2001
---- ----
Finished goods.......................................$ 27,422 $ 31,529
Work in progress..................................... 184 827
Raw materials........................................ 3,685 6,048
----------- -----------
$ 31,291 $ 38,404
=========== ===========
NOTE 4 - EARNINGS PER SHARE
Thirteen Weeks Ended Thirteen Weeks Ended
April 6, 2001 March 31, 2000
--------------------------- --------------------------
Earnings Earnings Earnings Earnings
per per per per
Common Common Common Common
Share - Share - Share - Share -
Basic Diluted Basic Diluted
-------- --------- -------- ---------
Consolidated income
Net income available for common
shares and assumed conversions.................... $ 1,346 $ 1,346 $ 3,208 $ 3,208
========== ========= ========== ==========
Weighted-average common shares and
equivalents outstanding:
Weighted-average shares outstanding............... 6,081 6,081 6,266 6,266
Effect of dilutive securities:
Employee stock options.......................... 0 107 0 177
---------- --------- ---------- ----------
6,081 6,188 6,266 6,443
========== ========= ========== ==========
Earnings per share:
Net income........................................$ 0.22 $ 0.22 $ 0.51 $ 0.50
========== ========= ========= ==========
Options to purchase 396,000 and 245,000 shares of common stock, outstanding at
April 6, 2001 and March 31, 2000, respectively, were not included in the
computations of diluted EPS, for the respective periods, since the options were
anti-dilutive.
NOTE 5 - STATEMENT OF COMPREHENSIVE INCOME
Thirteen Weeks Thirteen Weeks
Ended Ended
April 6, 2001 March 31, 2000
------------- --------------
Net income......................................................................$ 1,346 $ 3,208
Other comprehensive income:
Foreign currency translation adjustment, net of tax
benefit of $157 and $53.................................................... (229) (85)
Cash flow hedges
Cumulative effect of change in accounting principle,
net of tax provision of $5............................................... 10 0
Reclassification adjustments, net of tax benefit of $4..................... (7) 0
Net losses during period, net of tax benefit of $12........................ (34) 0
--------- --------
Total other comprehensive income, net of tax.................................... (260) (85)
--------- ---------
Comprehensive income............................................................$ 1,086 $ 3,123
======== ========
NOTE 6 - OPERATING SEGMENT DATA
The Company's operating segments are organized based on the nature of products
and consist of the Saucony segment and Other Products segment. The determination
of the reportable segments for the thirteen weeks ended April 6, 2001 and March
31, 2000, as well as the basis of measurement of segment profit or loss, is
consistent with the segment reporting disclosed in the Company's Annual Report
on Form 10-K for the fiscal year ended January 5, 2001.
Thirteen Weeks Thirteen Weeks
Ended Ended
April 6, 2001 March 31, 2000
------------- --------------
Revenues:
Saucony...................................................$ 39,054 $ 42,452
Other Products............................................ 4,742 4,420
----------- -----------
Total revenue........................................$ 43,796 $ 46,872
=========== ===========
Income (loss) before income taxes and minority interest:
Saucony...................................................$ 2,550 $ 6,296
Other Products............................................ (150) (768)
------------ ------------
Total................................................$ 2,400 $ 5,528
=========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q. This Item contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 that involve risks and uncertainties. All
statements other than statements of historical fact included in this report are
forward-looking statements. When used in this report, the words "will",
"believes", "anticipates", "intends", "estimates", "expects", "projects" and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words.
Actual results may differ materially from those included in such forward-looking
statements. Important factors which could cause actual results to differ
materially include those set forth in our Annual Report on Form 10-K under "Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Other Factors That May Affect Future Results" ("Certain
Factors") filed by us with the Securities and Exchange Commission on April 4,
2001, which Certain Factors discussion is filed as Exhibit 99.1 to this report
and incorporated herein by this reference. The forward-looking statements
provided by us in this report represent our estimates as of the date this report
is filed with the Securities and Exchange Commission. We anticipate that
subsequent events and developments will cause these estimates to change.
However, while we may elect to update our forward-looking statements in the
future, we specifically disclaim any obligation to do so. The forward-looking
statements contained in this report should not be relied upon as representing
our estimates as of any date subsequent to the date this report is filed with
the Securities and Exchange Commission.
Dollar amounts throughout this Item 2 are in thousands, except per share
amounts.
Highlights
Increase (Decrease)
Thirteen Weeks Ended
April 6, 2001 vs. March 31, 2000
--------------------------------
Net sales....................................... ($3,155) (6.7%)
Gross profit.................................... (3,746) (21.5%)
Selling, general and administrative expenses.... (454) (3.8%)
Increase (Decrease)
Thirteen Weeks Ended
April 6, 2001 vs. March 31, 2000
--------------------------------
Operating income.................................... ($3,213)
Income before income taxes.......................... (3,128)
Net income.......................................... (1,862)
Percent of Net Sales
Thirteen Weeks Ended
April 6, March 31,
2001 2000
---- ----
Gross profit....................................... 31.4% 37.2%
Selling, general and administrative expenses....... 26.1 25.3
Operating income................................... 5.5 12.0
Income before income taxes......................... 5.5 11.8
Net income......................................... 3.1 6.8
The following table sets forth the approximate contribution to net sales (in
dollars and as a percentage of consolidated net sales) attributable to our
Saucony segment and our Other Products segment for the thirteen weeks ended
April 6, 2001 and March 31, 2000:
Thirteen Weeks Ended
April 6, 2001 March 31, 2000
-------------------------- --------------------------
Saucony........................$ 38,952 89.1% $ 42,362 90.4%
Other Products................. 4,741 10.9% 4,486 9.6%
----------- ------ ----------- ------
Total..........................$ 43,693 100.0% $ 46,848 100.0%
=========== ====== =========== ======
Thirteen Weeks Ended April 6, 2001 Compared to Thirteen Weeks Ended March 31,
2000
Consolidated Net Sales
- ----------------------
Net sales decreased $3,155, or 7%, to $43,693 in the thirteen weeks ended April
6, 2001 from $46,848 in the thirteen weeks ended March 31, 2000. At constant
exchange rates, the net sales decrease in the thirteen weeks ended April 6, 2001
would have been 6% lower than the thirteen weeks ended March 31, 2000. Excluding
sales of our former cycling division in the thirteen weeks ended March 31, 2000,
net sales in the thirteen weeks ended April 6, 2001 would have been 4% lower
than the thirteen weeks ended March 31, 2000.
On a geographic basis, domestic sales decreased $4,737, or 12%, to $36,138 in
the thirteen weeks ended April 6, 2001 from $40,875 in the thirteen weeks ended
March 31, 2000. International sales increased $1,582, or 27%, to $7,555 in the
thirteen weeks ended April 6, 2001 from $5,973 in the thirteen weeks ended March
31, 2000. At constant exchange rates, the international sales increase in the
thirteen weeks ended April 6, 2001 would have been 33% over the thirteen weeks
ended March 31, 2000.
Saucony Segment
- ---------------
Worldwide net sales of Saucony branded footwear and apparel decreased $3,410, or
8%, to $38,952 in the thirteen weeks ended April 6, 2001 from $42,362 in the
thirteen weeks ended March 31, 2000, due primarily to a 10% decrease in domestic
footwear unit volume and lower domestic and international wholesale per pair
average selling prices. The average domestic wholesale per pair selling prices
decreased 3% in the thirteen weeks ended April 6, 2001 versus the thirteen weeks
ended March 31, 2000 due primarily to an increase in closeout footwear and
special makeup footwear unit volumes, both of which are sold at lower wholesale
per pair average selling prices.
Domestic net sales decreased $4,949, or 13%, to $31,917 in the thirteen weeks
ended April 6, 2001 from $36,866 in the thirteen weeks ended April 6, 2001, due
primarily to a 10% decrease in footwear unit volumes and lower average wholesale
per pair selling prices. The footwear unit volume decrease in the thirteen weeks
ended April 6, 2001 was primarily due to a 21% decrease in Original footwear
unit volumes, partially offset by a 5% increase in technical footwear unit
volumes. The increase in technical footwear unit volumes is due primarily to a
158% increase in closeout footwear unit volumes and a 10% increase in special
makeup footwear unit volumes. The average wholesale per pair selling prices for
domestic footwear decreased due to a change in the product mix to increased
closeout and special makeup footwear unit volumes and a change in the Originals
footwear product mix to lower priced products, offset by higher average
wholesale per pair selling prices for technical footwear, due to a change in the
product mix to higher priced products. Sales of closeout footwear accounted for
approximately 14% of domestic Saucony net sales in the thirteen weeks ended
April 6, 2001 compared to 5% in the thirteen weeks ended March 31, 2000. The
Originals footwear accounted for 51% of domestic footwear unit volume in the
thirteen weeks ended April 6, 2001 versus 58% in the thirteen weeks ended March
31, 2000. The unit volume decrease in Originals footwear was primarily due to
the lack of new product introductions targeted to our core Originals customer
base.
International net sales increased $1,539, or 28%, to $7,035 in the thirteen
weeks ended April 6, 2001 from $5,496 in the thirteen weeks ended March 31,
2000, due primarily to a 52% increase in footwear unit volumes, partially offset
by lower average wholesale per pair selling prices and the negative impact of
the stronger U.S. dollar against European currencies. The footwear average
wholesale per pair selling price decreased primarily due to the significant
increase in our international distributor Original footwear unit volume sold to
our Japanese distributor. Footwear unit volumes at our international distributor
business, and our European and Canadian subsidiaries, increased 94% and 34%,
respectively, in the thirteen weeks ended April 6, 2001 versus the thirteen
weeks ended March 31, 2000. International distributor sales into the Japanese
footwear market accounted for 13% of international sales in the thirteen weeks
ended April 6, 2001, compared to 2% in the thirteen weeks ended March 31, 2000.
Other Products Segment
- ----------------------
Worldwide sales of Other Products increased $255, or 6%, to $4,741 in the
thirteen weeks ended April 6, 2001 from $4,486 in the thirteen weeks ended March
31, 2000 due primarily to a 43% increase in sales of our Hind brand apparel and
a 43% increase in sales at our factory outlet stores, partially offset by the
elimination of sales resulting from the cycling division divestiture in June
2000.
Domestic net sales of Other Products increased $212, or 5%, to $4,221 in the
thirteen weeks ended April 6, 2001 from $4,009 in the thirteen weeks ended March
31, 2000 due primarily to a 37% increase in Hind apparel unit volume and a 5%
increase in the average wholesale unit selling prices for our Hind apparel brand
and increased sales at our factory outlet division stores due to the net
addition of three factory outlet stores, partially offset by the elimination of
sales resulting from the cycling division divestiture.
International net sales of Other Products increased $43, or 9%, to $520 in the
thirteen weeks ended April 6, 2001 from $477 in the thirteen weeks ended March
31, 2000, due primarily to increased Hind apparel sales in Canada and in Europe.
Net sales from the cycling division, which are included in our Other Product
segment, represented approximately 3% of consolidated net sales for the thirteen
weeks ended March 31, 2000.
Costs and Expenses
- ------------------
Our gross margin in the thirteen weeks ended April 6, 2001 decreased 5.8% to
31.4% from 37.2% in the thirteen weeks ended March 31, 2000, due primarily to
our decision to reduce domestic Saucony footwear inventories, which resulted in
increased sales of closeout footwear. Other factors contributing to the
decreased margin in the thirteen weeks ended April 6, 2001 were, a change in
domestic Saucony product mix to lower levels of first quality, full margin
footwear, increased inventory reserves, domestic pricing pressures, increased
sales of special make-up footwear, and to a lesser extent, the negative impact
of the stronger U.S. dollar on our European margins and changes in the
geographic mix of sales.
The SG&A ratio increased .8% to 26.1% of net sales in the thirteen weeks ended
April 6, 2001 from 25.3% in 1999. In absolute dollars, selling, general and
administrative expenses decreased $454, or 4%, to $11,395 in the thirteen weeks
ended April 6, 2001 from $11,849 in the thirteen weeks ended March 31, 2000.
Decreased spending in the thirteen weeks ended April 6, 2001 was due primarily
to reduced operating expenses resulting from the cycling division divestiture
and, to a lesser extent, decreased television media, account-specific
advertising and promotion, variable selling expenses and, due to diminished
financial performance, lower incentive compensation. These decreases were
partially offset by increased operating expenses associated with the factory
outlet expansion, increased professional fees and higher provisions for doubtful
accounts.
Net interest expense decreased $72, to $60 in the thirteen weeks ended April 6,
2001 from $132 in the thirteen weeks ended March 31, 2000 due primarily to lower
borrowings on our domestic credit facility and, to a lesser extent, lower
interest rates and increased interest income.
Income Before Tax and Minority Interest
- ---------------------------------------
Thirteen Weeks Ended
--------------------
April 6, March 31,
2001 2000
---- ----
Segment
Saucony...............................$ 2,550 $ 6,296
Other Products........................ (150) (768)
---------- ---------
Total.................................$ 2,400 $ 5,528
========= ========
Income before tax decreased by $3,128 in the thirteen weeks ended April 6, 2001
to $2,400 compared to $5,528 in the thirteen weeks ended March 31, 2000, due
primarily to lower pre-tax income realized by the domestic Saucony segment due
to lower sales and lower gross margins, partially offset by improved
profitability in our Saucony international business. The improvement in our
Other Products segment income before tax in the thirteen weeks ended April 6,
2001 was primarily due to the divestiture of the cycling division.
Income Taxes
- ------------
The provision for income taxes decreased to $1,015 in the thirteen weeks ended
April 6, 2001 from $2,297 in the thirteen weeks ended March 31, 2000, due
primarily to lower pre-tax income realized by the domestic Saucony segment. The
effective tax rate increased .7% to 42.3% in the thirteen weeks ended April 6,
2001 from 41.6% in the thirteen weeks ended March 31, 2000 due primarily to a
shift in the composition of domestic and foreign pre-tax earnings.
Net Income
- ----------
Net income for the thirteen weeks ended April 6, 2001 decreased to $1,346, or
$0.22 per diluted share, compared to $3,208, or $0.50 per diluted share, in the
thirteen weeks ended March 31, 2000. Weighted average common shares and
equivalent shares used to calculate diluted earnings per share were 6,188 and
6,443, respectively, in the thirteen weeks ended April 6, 2001 and March 31,
2000.
Liquidity and Capital Resources
- -------------------------------
As of April 6, 2001, our cash and cash equivalents totaled, $2,328, a decrease
of $2,410 from January 5, 2001. The decrease was due primarily to a use of cash
from operations of $5,797, cash outlays of $408 for capital assets, the
repurchase of shares of our common stock of $133 and the repayment of long-term
debt of $99. The decrease in cash was partially offset by increased borrowings
under our domestic and foreign credit facilities of $3,800.
Our accounts receivable increased $10,100, net of the provision for bad debts
and discounts, due to increased sales of our Saucony footwear products in the
thirteen weeks ended April 6, 2001. Our days sales outstanding for accounts
receivable increased to 76 days in the thirteen weeks ended April 6, 2001 from
75 days in the thirteen weeks ended March 31, 2000. Inventories decreased $6,655
in the thirteen weeks ended April 6, 2001 due primarily to our decision to
reduce domestic Saucony footwear inventories, which had increased in the fourth
quarter of fiscal 2000. Our inventory turns ratio remained constant at 3.4 turns
for both the thirteen weeks ended April 6, 2001 and the thirteen weeks ended
March 31, 2000. The number of day's sales in inventory decreased to 95 days in
the thirteen weeks ended April 6, 2001 from 105 days in the thirteen weeks ended
March 31, 2000 due to lower inventories at April 6, 2001.
Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory) affecting our operating cash flows in the
thirteen weeks ended April 6, 2001 included a decrease of $2,042 in accounts
payable (due to lower inventory levels), a decrease of $1,883 in accrued
expenses (due primarily to the payment of fiscal 2000 incentive compensation and
lower operating expense accruals) and a decrease in prepaid expenses of $333
(due to the timing of income tax payments).
During the thirteen weeks ended April 6, 2001, we repurchased approximately
19,000 shares of our common stock for a total expenditure of $133. Since the
approval of the stock buyback program by the Board of Directors in May 1998, we
have repurchased a total of 467,000 shares of our common stock for a total
expenditure of $4,364. In April 2001, our primary lender extended the term for
repurchases of additional shares of our common stock, granted under a prior
amendment to the credit facility, through July 31, 2001.
Overall Liquidity
- -----------------
Our liquidity is contingent upon a number of factors, principally our future
operating results. Management believes that our current cash and cash
equivalents, credit facilities and internally generated funds are adequate to
meet our working capital requirements and to fund our capital investment needs
and debt service payments.
INFLATION AND CURRENCY RISK
- ---------------------------
The effect of inflation on our results of operations over the past three years
has been minimal. The impact of currency fluctuation on our purchase of
inventory from foreign suppliers has been minimal as the transactions were
denominated in U.S. dollars. We are, however, subject to currency fluctuation
risk with respect to the operating results of our foreign subsidiaries and
certain foreign currency denominated payables. We have entered into forward
foreign exchange contracts to minimize certain transaction currency risks. We
believe that our forward foreign currency contracts function as economic hedges
of our cash flows and that our foreign exchange management program effectively
minimizes certain transaction currency risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have performed an analysis to assess the potential effect of reasonably
possible near-term changes in inflation and foreign currency exchange rates. The
effect of inflation on our results of operations over the past three years has
been minimal. The impact of currency fluctuation on the purchase of inventory by
us from foreign suppliers has been non-existent as all the transactions were
denominated in U.S. dollars. However, we are subject to currency fluctuation
risk with respect to the operating results of our foreign subsidiaries and
certain foreign currency denominated payables. We have entered into certain
forward foreign exchange contracts to minimize the transaction currency risk.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 12, 2001, we issued to five of our footwear and footwear component
factories common stock purchase warrants to purchase, in the aggregate, 50,250
shares of our Class B common stock at a per share purchase price of $7.00. The
warrants were issued for no cash consideration, but rather as an incentive to
the recipients of the warrants to satisfy specific performance criteria which
support our financial and operational goals. The warrants expire on March 12,
2006 and vest in five equal annual installments commencing on March 12, 2002.
The right to exercise the warrants is subject to the satisfaction of specific
performance criteria by the recipients. No underwriters were involved in the
sales of the warrants. Such sales were made in reliance upon Regulation S under
the Securities Act of 1933 applicable to sales that occur outside the United
States.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
99.1 - Certain Other Factors That May Affect Future Results,
incorporated herein by reference to pages 21-23 of the Company's
Annual Report on Form 10-K for the period ended January 5, 2001.
Such Form 10-K shall not be deemed to be filed herewith except to
the extent that portions thereof are expressly incorporated by
reference herein.
b. Reports on Form 8-K
On April 17, 2001, the Registrant filed a Current Report on Form
8-K reporting under Item 4 a change in the Registrant's principal
accountants.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Saucony, Inc.
Date: May 21, 2001 By: /s/ Michael Umana
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Michael Umana
Vice President, Finance
Chief Financial Officer
(Duly authorized officer and
principal financial officer)