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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 For
the quarterly period ended March 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES ACT OF 1934
Commission File Number 0-24884
CANNONDALE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-0871823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 BROOKSIDE PLACE, GEORGETOWN, CT 06829-0122
(Address of principal executive offices, including zip code)
(203) 544-9800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), Yes X No ___ and (2) has been subject to such
filing requirements for the past 90 days Yes X No ___ .
The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of April 30, 1996 was 8,584,008.
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CANNONDALE CORPORATION
INDEX
Page
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Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 30, 1996,
July 1, 1995 and April 1, 1995 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended March 30, 1996 and April 1, 4
1995
Condensed Consolidated Statement of Stockholders' Equity for
the nine months ended March 30, 1996 5
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 30, 1996 and April 1, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II Other Information 11
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
March 30, July 1, April 1,
1996 1995 1995
---- ---- ----
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash ................................................................ $ 2,105 $ 2,255 $ 1,136
Trade accounts receivable, less
allowances of $5,396, $3,693 and $3,871 .......................... 62,847 37,927 45,020
Inventory ........................................................... 32,354 21,259 25,279
Deferred income taxes ............................................... 2,413 1,513 2,214
Prepaid expenses and other current assets ........................... 1,791 1,110 946
-------- -------- --------
Total current assets .................................................... 101,510 64,064 74,595
Property, plant and equipment, net ...................................... 18,528 18,213 18,089
Other assets ............................................................ 1,341 1,731 1,437
-------- -------- --------
Total assets ............................................................ $121,379 $ 84,008 $ 94,121
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit advances ........................................... $ 9,116 $ 4,806 $ 8,518
Accounts payable .................................................... 12,272 9,802 10,178
Income taxes payable ................................................ 2,768 214 1,870
Warranty and other accrued expenses ................................. 7,824 7,062 7,349
Current installments of long-term debt .............................. 1,567 1,876 2,026
-------- -------- --------
Total current liabilities ............................................... 33,547 23,760 29,941
Long-term debt, less current installments ............................... 22,101 23,593 31,263
Deferred income taxes ................................................... 386 152 175
Other noncurrent liabilities ............................................ 469 415 315
-------- -------- --------
Total liabilities ....................................................... 56,503 47,920 61,694
-------- -------- --------
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 18,000,000
Issued and outstanding shares - 8,573,554, 7,127,181
and 7,109,332................................................... 86 71 71
Additional paid-in capital .......................................... 55,673 33,294 33,256
Retained earnings (deficit) ......................................... 9,043 2,401 (1,198)
Cumulative translation adjustment ................................... 74 322 298
-------- -------- --------
Total stockholders' equity .............................................. 64,876 36,088 32,427
-------- -------- --------
Total liabilities and stockholders' equity .............................. $121,379 $ 84,008 $ 94,121
======== ======== ========
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 30, APRIL 1, MARCH 30, APRIL 1,
1996 1995 1996 1995
----------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales....................................... $ 45,050 $ 39,520 $ 106,968 $ 86,031
Cost of sales................................... 27,511 25,173 68,159 56,980
--------- --------- --------- --------
Gross profit.................................... 17,539 14,347 38,809 29,051
--------- --------- --------- --------
Expenses:
Selling, general and administrative........... 9,233 7,753 23,884 19,763
Research and development...................... 667 511 2,151 1,179
--------- --------- --------- -------
9,900 8,264 26,035 20,942
--------- --------- --------- -------
Operating income................................ 7,639 6,083 12,774 8,109
--------- --------- --------- -------
Other income (expense):
Interest expense.............................. (644) (994) (1,775) (3,068)
Loss from foreign exchange and other.......... (7) (23) (12) (118)
---------- --------- --------- --------
(651) (1,017) (1,787) (3,186)
---------- ---------- --------- --------
Income before income taxes and extraordinary
item.......................................... 6,988 5,066 10,987 4,923
Income tax expense.............................. (2,764) (143) (4,345) (289)
---------- --------- --------- -------
Income before extraordinary item................ 4,224 4,923 6,642 4,634
Extraordinary income (loss)..................... -- 456 -- (685)
---------- --------- --------- -------
Net income...................................... 4,224 5,379 6,642 3,949
Accumulated preferred stock dividends........... -- -- -- (400)
---------- --------- --------- --------
Income applicable to common shares and
equivalents.................................. $ 4,224 $ 5,379 $ 6,642 $ 3,549
--------- --------- -------- -------
Income (loss) per share:
Income before extraordinary item............. $ .48 $ .66 $ .79 $ .67
Extraordinary income (loss).................. .00 .06 .00 (.11)
--------- --------- -------- -------
Net income..................................... $ .48 $ .72 $ .79 $ .56
========= ========= ======== =======
Weighted average common and common
equivalent shares outstanding................ 8,892 7,464 8,446 6,318
========= ========= ======== ======
See Accompanying Notes.
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ADDITIONAL CUMULATIVE
COMMON STOCK PAID-IN RETAINED TRANSLATION
SHARES PAR VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL
------ --------- ------- -------- ---------- -----
Balance at July 1, 1995 ................ 7,127,181 $ 71 $ 33,294 $ 2,401 $ 322 $ 36,088
Net income ......................... - - - 6,642 - 6,642
Issuance of common stock (net
of $1,490 of offering costs)... 1,366,666 14 22,071 - - 22,085
Exercise of options ................ 79,707 1 308 - - 309
Foreign currency adjustment ........ - - - - (248) (248)
--------- --------- --------- --------- --------- ---------
Balance at March 30, 1996 .............. 8,573,554 $ 86 $ 55,673 $ 9,043 $ 74 $ 64,876
========= ========= ========= ========= ========= =========
See accompanying notes.
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Nine Months
Ended Ended
March 30, 1996 April 1, 1995
-------------- -------------
(Unaudited) (Unaudited)
NET CASH USED IN OPERATING ACTIVITIES ............ $(22,792) $(14,525)
-------- --------
INVESTING ACTIVITIES
Capital expenditures ............................. (2,183) (1,813)
-------- --------
FINANCING ACTIVITIES
Net proceeds from the issuance of common stock ... 22,394 26,826
Redemption of subordinated debt .................. - (10,000)
Redemption of preferred stock .................... - (6,718)
Dividend payment to preferred stockholders ....... - (1,408)
Purchase and retirement of common shares ......... - (3)
Net proceeds from borrowings under short-term
revolving credit agreements .................. 4,603 1,701
Net proceeds from (repayments of) borrowings under
long-term debt and capital lease agreements .. (2,014) 5,697
-------- --------
Net cash provided by financing activities ........ 24,983 16,095
-------- --------
Effect of exchange rate changes on cash .......... (158) 22
-------- --------
Net decrease in cash ............................. (150) (221)
Cash at beginning of period ...................... 2,255 1,357
-------- --------
Cash at end of period ............................ $ 2,105 $ 1,136
======== ========
See accompanying notes.
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CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Cannondale Corporation (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three- and nine-month periods ended March 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending June 29, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended July 1, 1995
included in the Company's Annual Report on Form 10-K.
Certain prior-period amounts have been reclassified to conform to the
current year's presentation.
2. INVENTORY
The components of inventory are as follows (in thousands):
March 30, July 1, April 1,
1996 1995 1995
---- ---- ----
(Unaudited) (Unaudited)
Raw materials ....................... $ 15,564 $ 11,247 $ 14,872
Work-in-process ..................... 2,026 1,088 1,436
Finished goods ...................... 16,137 10,180 10,357
Less reserve for obsolete inventory.. (1,373) (1,256) (1,386)
-------- -------- --------
$ 32,354 $ 21,259 $ 25,279
======== ======== ========
3. EARNINGS PER SHARE AMOUNTS
Earnings (loss) per share of common stock are computed using the
weighted average number of shares of common stock and common stock equivalents
outstanding for each period. The weighted average number of shares of common
stock used in the computation of earnings (loss) per share was 8,891,986 and
7,464,027 for the three-month periods ended March 30, 1996 and April 1, 1995,
respectively, and 8,446,056 and 6,317,973 for the nine-month periods ended March
30, 1996 and April 1, 1995, respectively. Common stock equivalents include
warrants to purchase common stock and stock options. In computing the income per
common share for fiscal 1995, dividends applicable to Series A preferred stock
reduce the income applicable to common shares and common stock equivalents.
4. SALE OF COMMON STOCK
On September 27, 1995, the Company completed a public offering of
1,300,000 shares of common stock. The net proceeds to the Company, at the public
offering price of $17.25 per share, were approximately $21.0 million after
deducting the underwriting discount and offering expenses. In addition, on
October 25, 1995, the Company issued an additional 66,666 shares of common
stock, upon the partial exercise of the over-allotment option granted to the
underwriters in connection with the September 1995 public offering. The net
proceeds to the Company from the additional shares issued, at the public
offering price of $17.25 per share, were approximately $1.1 million after
deducting the underwriting discount and expenses. The net proceeds of the
offering were used to reduce outstanding borrowings under the Company's
revolving credit facility.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased from $39.5 million in the third quarter of fiscal
1995 to $45.1 million in the third quarter of fiscal 1996, an increase of $5.6
million, or 14.0%. For the first nine months, net sales increased 24.3% from
$86.0 million in fiscal 1995 to $107.0 million in fiscal 1996, an increase of
$21.0 million. The increased sales for both periods was a result of the
continued worldwide growth of the Company's specialty bicycle market and
increased selling prices.
Gross Profit. Gross profit as a percentage of net sales increased to 38.9% for
the third quarter of fiscal 1996 compared to 36.3% for the third quarter of
fiscal 1995. The gross profit for the 1996 quarter was $17.5 million, an
increase of $3.2 million, or 22.2%, over the gross profit of $14.3 million for
the third quarter of fiscal 1995. For the first nine months of fiscal 1996,
gross profit as a percentage of net sales increased to 36.3% ($38.8 million)
compared to 33.8% ($29.1 million) in fiscal 1995. The improvement in gross
profit was primarily the result of the Company's growth in international
markets, the further implementation of cost-reduction programs, and more
favorable product mix, with higher-end, higher-margin full suspension bicycles
representing a larger portion of overall sales .
Operating Expenses. Operating expenses were $9.9 million for the third quarter
of fiscal 1996, an increase of approximately $1.6 million, or 19.8%, over the
third quarter of fiscal 1995 operating expenses of $8.3 million. For the first
nine months of fiscal 1996, operating expenses were $26.0 million, an increase
of approximately $5.1 million, or 24.3%, over the $20.9 million of operating
expenses for the first nine months of fiscal 1995. For both periods, increases
in selling, general and administrative expenses accounted for a significant
portion of the increase and were directly associated with increased sales, and
additional personnel, advertising, and marketing costs required to support the
Company's growth. As a percentage of sales, year-to-date selling, general and
administrative expenses improved from 23.0% in fiscal 1995 to 22.3% in fiscal
1996. The increase in research and development expenses reflects the Company's
commitment to further investments in innovation.
Interest Expense. Interest expense for the third quarter of fiscal 1996 was
$644,000, a decrease of approximately $350,000 from the third quarter of fiscal
1995. For the first nine months, interest expense was $1.8 million, a decrease
of approximately $1.3 million from the first nine months of fiscal 1995. For
both periods, the decrease resulted from lower interest rates and lower
borrowings. See "Liquidity and Capital Resources," below, regarding the
retirement of debt in connection with the Company's initial public offering in
November 1994, and a second offering of common shares in September 1995.
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Income Before Income Taxes and Extraordinary Item. Income before taxes and
extraordinary item for the third quarter of fiscal 1996 was $7.0 million
compared to $5.1 million for the third quarter of fiscal 1995. For the first
nine months of fiscal 1996, income before income taxes and extraordinary item
was $11.0 million compared to $4.9 million in the comparable period in fiscal
1995. For both periods, the improvement in fiscal 1996 was a result of increased
volume, a higher gross-profit percentage, and lower interest charges, partially
offset by increased selling, general and administrative expenses to support the
Company's growth.
Income Taxes. Income tax expense for the third quarter of fiscal 1996 was $2.8
million, a $2.6 million increase from $143,000 in the third quarter of fiscal
1995. For the first nine months of fiscal 1996, income tax expense was $4.3
million, a $4.1 million increase from $289,000 in the first nine months of
fiscal 1995. For both periods, the increase in income tax expense is the result
of higher pre-tax income in fiscal 1996 and the recognition of $2.0 million of
net deferred tax assets in the third quarter of fiscal 1995 in accordance with
the provisions of FASB Statement 109, "Accounting for Income Taxes."
Extraordinary Income (Loss). In the third quarter of fiscal 1995, an
extraordinary credit of $456,000 was recorded for the recognition of the tax
benefit associated with the second quarter extraordinary charge ($1.1 million),
in accordance with the provisions of FASB Statement 109, "Accounting for Income
Taxes." The second quarter extraordinary charge related to the early retirement
of subordinated debt with a portion of the net proceeds of the Company's initial
public offering.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $22.8 million for the first nine
months of fiscal 1996, an increase of $8.3 million over the $14.5 million used
for the first nine months of fiscal 1995. The net use of cash is typical for the
first nine months of the fiscal year due to seasonal activity. The increase over
the prior year was related to sales growth, and primarily reflects the increases
in accounts receivable and inventory. Capital expenditures were $2.2 million for
the first nine months of fiscal 1996, an increase of $370,000 over the
comparable period of fiscal 1995.
Net cash provided by financing activities for the first nine months of fiscal
1996 was $25.0 million, an increase of $8.9 million over the $16.1 million for
the first nine months of fiscal 1995. In both periods, the net cash provided by
financing activities represented the net proceeds from the Company's public
offerings during the respective periods after the repayment of a portion of the
Company's outstanding indebtedness, and net proceeds of borrowings under the
Company's revolving credit agreements
In March 1996, the Company renegotiated its domestic revolving credit facility
and term loan, to provide for lower interest rates and the improvement of
certain covenants.
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The Company plans certain expansion projects at its Bedford and Philipsburg
facilities, which will be financed in part with approximately $3.0 million in
loans from the Pennsylvania Industrial Development Authority ("PIDA") The
Company expects that the PIDA loan, cash flow generated by its operations and
borrowings under the revolving credit facilities will be sufficient to meet its
planned operating and capital requirements for at least the next twelve months;
the Company does not have any present plans which would require it to seek
financing from other sources.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page
(a) Exhibit Index 13
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANNONDALE CORPORATION
Date: May 10, 1996 /s/ William A. Luca
--------------------
William A. Luca
Vice President of Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and authorized signatory)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
10.1.3 Amended and Restated Loan and Security Agreement,
dated March 29, 1996, Between the Company and
Fleet Capital Corporation (Formerly Shawmut Capital
Corporation)
10.2.2 Revolving Credit Note--$35,000,000, dated March 29, 1996, from
the Company to Fleet Capital Corporation (Formerly Shawmut
Capital Corporation)
10.3.2 Second Open-End Mortgage Modification Agreement, dated March
29, 1996, by and between the Company and Fleet Capital
Corporation (Formerly Shawmut Capital Corporation)
11 Statement re: Computation
of Earnings per Common
Share
27 Financial Data Schedule
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