1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Commission File Number 0-24884
CANNONDALE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-0871823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 BROOKSIDE PLACE, GEORGETOWN, CT 06829-0122
(Address of principal executive offices, including zip code)
(203) 544-9800
(Registrant's telephone number, including area code)
Indicate by check marke 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 November 7, 1996 was 8,613,909.
1
2
CANNONDALE CORPORATION
INDEX
Page
----
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 28, 1996, June 29, 1996 and
September 30, 1995.................................... 3
Condensed Consolidated Statements of Operations for
the three months ended September 28, 1996 and
September 30, 1995.................................... 4
Condensed Consolidated Statement of Stockholders'
Equity for the three months ended September 28,
1996 and the year ended June 29, 1996................. 5
Condensed Consolidated Statements of Cash Flows for
the three months ended September 28, 1996 and
September 30, 1995.................................... 6
Notes to Condensed Consolidated Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
Part II Other Information.............................................. 10
2
3
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 28, 1996 June 29, 1996 September 30, 1995
(UNAUDITED) (Unaudited)
ASSETS
Current assets:
Cash................................................. $ 5,611 $ 4,305 $ 2,847
Trade accounts receivable, less allowances of
$5,834, $5,238, and $4,160 ........................ 44,470 52,027 35,133
Inventory............................................ 36,745 30,526 27,109
Deferred income taxes................................ 2,484 2,041 1,768
Prepaid expenses and other current assets ........... 1,587 1,154 1,850
-------- -------- -------
Total current assets................................... 90,897 90,053 68,707
Property, plant and equipment, net..................... 19,391 18,527 18,046
Other assets........................................... 1,459 1,365 1,544
-------- -------- -------
Total assets........................................... $111,747 $109,945 $88,297
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 14,027 $ 12,431 $13,274
Revolving credit advances............................ 2,391 4,756 3,813
Income taxes payable................................. 2,150 1,845 -
Warranty and other accrued expenses ................. 4,964 5,043 4,919
Payroll and other employee related benefits ......... 1,292 2,266 1,122
Current installments of long-term debt .............. 1,534 1,680 1,740
-------- -------- -------
Total current liabilities.............................. 26,358 28,021 24,868
Long-term debt, less current installments ............. 16,127 13,114 5,501
Deferred income taxes.................................. 203 235 300
Other noncurrent liabilities........................... 281 281 415
-------- -------- -------
Total liabilities...................................... 42,969 41,651 31,084
-------- -------- -------
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 18,000,000
Issued and outstanding shares - 8,612,279,
8,611,715 and 8,461,894 ........................... 86 86 85
Additional paid-in capital........................... 55,972 55,965 54,389
Retained earnings.................................... 13,036 12,547 2,595
Cumulative translation adjustment ................... (316) (304) 144
-------- -------- -------
Total stockholders' equity............................. 68,778 68,294 57,213
-------- -------- -------
Total liabilities and stockholders' equity............. $111,747 $109,945 $88,297
======== ======== =======
See accompanying notes
3
4
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 28, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(UNAUDITED) (UNAUDITED)
Net sales....................................... $30,880 $26,849
Cost of sales................................... 20,652 18,759
------- -------
Gross profit.................................... 10,228 8,090
------- -------
Expenses:
Selling, general and administrative ......... 8,339 6,631
Research and development .................... 757 656
------- -------
9,096 7,287
------- -------
Operating income................................ 1,132 803
------- -------
Other income (expense):
Interest expense............................. (349) (718)
Other income (expense) ...................... (26) 219
------- -------
(375) (499)
------- -------
Income before income taxes....................... 757 304
Income tax expense............................... (268) (110)
------- -------
Net income....................................... $ 489 $ 194
======= =======
Primary income per share:
Net income.................................... $ .05 $ .03
======= =======
Fully-diluted income per share:
Net income.................................... $ .05 $ .03
======= =======
See accompanying notes
4
5
CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMULATIVE
-------------------- PAID-IN RETAINED TRANSLATION
SHARES VALUE CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ----- ------- -------- ---------- -----
Balance at July 1, 1995 ............ 7,127,181 $ 71 $ 33,294 $ 2,401 $ 322 $ 36,088
Net income ...................... -- -- -- 10,146 -- 10,146
Issuance of common stock (Net
of $1,490 offering costs) ..... 1,366,666 14 22,071 -- -- 22,085
Exercise of options ............. 117,868 1 600 -- -- 601
Foreign currency adjustment ..... -- -- -- -- (626) (626)
--------- --------- --------- --------- --------- ---------
Balance at June 29, 1996 ........... 8,611,715 86 55,965 12,547 (304) 68,294
(Unaudited)
Net income ...................... -- -- -- 489 -- 489
Exercise of options ............. 564 0 7 -- -- 7
Foreign currency adjustment ..... -- -- -- -- (12) (12)
-------- --------- --------- --------- --------- ---------
Balance at September 28, 1996 ...... 8,612,279 $ 86 $ 55,972 $ 13,036 $ (316) $ 68,778
========= ========= ========= ========= ========= =========
See accompanying notes
5
6
CANNONDALE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 28, 1996 SEPTEMBER 30, 1995
------------------ ------------------
(UNAUDITED) (UNAUDITED)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ..... $ 2,503 $ (669)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures .................................... (1,647) (554)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock .............. 7 21,109
Proceeds from issuance of long-term debt ................ 3,026 --
Net repayments of borrowings under short-term
revolving credit agreements ......................... (2,414) (969)
Net repayments of borrowings under long-term
debt and capital lease agreements ................... (130) (18,173)
-------- --------
Net cash provided by financing activities ............... 489 1,967
-------- --------
Effect of exchange rate changes on cash ................. (39) (152)
-------- --------
Net increase in cash .................................... 1,306 592
Cash at beginning of period ............................. 4,305 2,255
-------- --------
Cash at end of period ................................... $ 5,611 $ 2,847
======== ========
See accompanying notes
6
7
CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Cannondale Corporation (the Company) have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended September 28, 1996 are not
necessarily indicative of the results that may be expected for the year ending
June 28, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended June 29, 1996 included in
the Company's Annual Report on Form 10-K/A.
Certain prior-period amounts have been reclassified to conform to the
current year's presentation.
2. INVENTORY
The components of inventory are as follows (in thousands):
SEPTEMBER 28, SEPTEMBER 30,
1996 JUNE 29, 1996 1995
---- ------------- ----
(UNAUDITED) (UNAUDITED)
Raw materials $18,826 $14,664 $15,580
Work-in process 2,764 1,772 1,849
Finished goods 16,615 15,505 10,808
Less reserve for obsolete inventory (1,460) (1,415) (1,128)
------- ------- -------
$36,745 $30,526 $27,109
======= ======= =======
3. EARNINGS PER SHARE AMOUNTS
Earnings per share of common stock are computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding for each period. The weighted average number of shares of common
stock and common stock equivalents used in the computation of earnings per share
was 9,052,445 and 7,567,905 for the three-month periods ended September 28, 1996
and September 30, 1995, respectively. Common stock equivalents include options
to purchase common stock.
4. DEBT
In July 1996, Cannondale Europe B.V. amended and restated its existing
credit facility to refinance approximately $3.0 of the credit line on a
long-term basis. The interest rate on the long-term balance is adjusted
quarterly to market rates determined by the bank with a ceiling of 7.6% (the
rate was 5.6% at September 28, 1996).
5. SUBSEQUENT EVENT
On September 29, 1996, the Company sold its domestic headquarters
facility to an entity controlled by the Company's Chairman, President and
Chief Executive Officer and another director of the Company for $1,676,000,
an amount which approximated the net book value of the domestic headquarters
facility at the date of sale. Based on information provided by an independent
third party the Company believes that this amount reflects current market
value. Pending its relocation to a new headquarters facility, the Company
will continue to occupy the current facility on a month-to-month net lease of
$16,000 per month. Based on an area survey of similar properties by an
independent third party, the Company believes this amount reflects current
fair rental value.
7
8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased 15.0% from $26.8 million in the first quarter of
fiscal 1996 to $30.9 million in the first quarter of fiscal 1997, an increase
of $4.1 million. The increase in sales was a result of the continued worldwide
demand for Cannondale products, a sales mix that favored international markets
and growth in the Company's non-bike categories.
Gross Profit. Gross profit as a percentage of net sales increased to 33.1% for
the first quarter of fiscal 1997 compared to 30.1% for the first quarter of
fiscal 1996. The gross profit for the quarter was $10.2 million, an increase of
$2.1 million, or 26.4%, over the gross profit of $8.1 million for the first
quarter of fiscal 1996. The improvement in gross profit reflects a mix that
favored international markets, an increase in non-bike sales, cost-reduction
programs, and the Company's continued integration of proprietary technology
through the use of Cannondale bicycle frames, CODA components and HeadShok
suspension systems.
Operation Expenses. Operating expenses were $9.1 million for the first quarter
of fiscal 1997, an increase of approximately $1.8 million, or 24.8%, over the
first quarter operating expenses for fiscal 1996 of $7.3 million. Increases in
selling, general and administrative expenses accounted for a substantial
portion of the increase and are directly associated with increased sales, and
the additional personnel and marketing costs to support the Company's current
and planned growth. As a percentage of net sales, operating expenses
increased to approximately 29.5% for the first three months of fiscal 1997,
compared to 27.1% for the first three months of fiscal 1996.
Interest Expense. Interest expense for the first quarter of fiscal 1997 was
$349,000, a decrease of approximately $369,000 from the first quarter of
fiscal 1996. The decrease was primarily attributed to lower borrowings as a
result of the use of proceeds from the Company's public offering of common
shares in September 1995. The decrease in interest expense also reflects the
lower interest rates negotiated as a result of the Company's improved
performance and capitalization.
8
9
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $2.5 million for the first
quarter of fiscal 1997, compared to $669,000 used in operating activities for
the first quarter of fiscal 1996. The increase in cash provided, compared to
the prior year, was primarily attributed to the relatively larger decrease in
accounts receivable in the first quarter of fiscal 1997 versus the first
quarter of fiscal 1996. Capital expenditures were $1.6 million for the first
quarter of fiscal 1997, compared to $554,000 in the first quarter of fiscal
1996. The increase in spending primarily reflects the Company's investment in
its facilities' expansion, which is required to support the increases in
production volume and future growth.
Net cash provided by financing activities for the first three months of fiscal
1997 was $489,000, compared to $2.0 million for the first three months of
fiscal 1996. During the first three months of fiscal 1997, Cannondale Europe
B.V. amended and restated its credit facility to refinance approximately
$3.0 million on a long-term basis from a short-term basis to take advantage
of favorable interest rates. The net cash provided by financing activities in
fiscal 1996 reflects the net proceeds from the public offering of common
shares in September 1995, which were used to reduce borrowings under the
Company's revolving line of credit.
The Company expects that cash flow generated by its operations and borrowings
under the revolving credit facilities will be sufficient to meet its planned
operating and capital requirements for the foreseeable future.
9
10
PART II OTHER INFORMATION
Page
----
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index 12
(b) Reports on Form 8-K
None
10
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CANNONDALE CORPORATION
Date: November 12, 1996 /s/ William A. Luca
------------------------------
William A. Luca
Vice President of Finance, Treasurer
and Chief Financial Officer
(Principal Financial Officer
and authorized signatory)
11
12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.63 Contract of Sale dated September
29, 1996, between Cannondale
Corporation and Sandvick
Associates, Inc., together with
Assignment and Assumption
Agreement dated as of September
30, 1996, between Sandvick
Associates, Inc. and Nantucket
Roost Associates, LLC.
10.64 Agreement of Lease dated as of
October 4, 1996, between
Nantucket Roost Associates, LLC
and Cannondale Corporation
11 Statement re: Computation of
Earnings per Common Share
27 Financial Data Schedule
12