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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 29, 1997
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 May 5, 1997 was 8,678,649.
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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 29,
1997, June 29, 1996 and March 30, 1996 3
Condensed Consolidated Statements of Earnings for the
three and nine months ended March 29, 1997 and
March 30, 1996 4
Condensed Consolidated Statement of Stockholders'
Equity for the nine months ended March 29, 1997
and the year ended June 29, 1996 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended March 29, 1997 and March 30,
1996 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
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 29, 1997 JUNE 29,1996 MARCH 30,1996
-------------- ------------ -------------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash ........................................ $ 3,088 $ 4,305 $ 2,105
Trade accounts receivable, less allowances of
$7,805, $5,238, and $5,396 ................ 76,183 52,027 62,847
Inventory ................................... 33,077 30,526 32,354
Deferred income taxes ....................... 2,985 2,041 2,413
Prepaid expenses and other current assets ... 1,637 1,154 1,791
--------- --------- --------
Total current assets ........................... 116,970 90,053 101,510
Property, plant and equipment, net ............. 20,402 18,527 18,528
Other assets ................................... 1,611 1,365 1,341
--------- --------- --------
Total assets ................................... $ 138,983 $ 109,945 $121,379
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................ $ 12,813 $ 12,431 $ 12,272
Revolving credit advances ................... 3,419 4,756 9,116
Income taxes payable ........................ 3,289 1,845 2,768
Warranty and other accrued expenses ......... 6,555 7,309 7,824
Current installments of long-term debt ...... 1,307 1,680 1,567
--------- --------- --------
Total current liabilities ...................... 27,383 28,021 33,547
Long-term debt, less current installments ...... 33,608 13,114 22,101
Deferred income taxes .......................... 165 235 386
Other noncurrent liabilities ................... 294 281 469
--------- --------- --------
Total liabilities .............................. 61,450 41,651 56,503
--------- --------- --------
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 18,000,000
Issued and outstanding shares -
8,673,634, 8,611,715 and 8,573,554 ........ 87 86 86
Additional paid-in capital .................. 56,710 55,965 55,673
Retained earnings ........................... 21,741 12,547 9,043
Cumulative translation adjustment ........... (1,005) (304) 74
--------- --------- --------
Total stockholders' equity ..................... 77,533 68,294 64,876
--------- --------- --------
Total liabilities and stockholders' equity ..... $ 138,983 $ 109,945 $121,379
========= ========= ========
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER-SHARE DATA)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 29, MARCH 30, MARCH 29, MARCH 30,
--------- --------- --------- ---------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net sales ............................ $ 48,229 $ 45,050 $ 120,403 $ 106,968
Cost of sales ........................ 28,698 27,511 74,747 68,159
-------- -------- --------- ---------
Gross profit ......................... 19,531 17,539 45,656 38,809
-------- -------- --------- ---------
Expenses:
Selling, general and administrative 9,436 9,233 27,225 23,884
Research and development .......... 946 667 2,608 2,151
-------- -------- --------- ---------
10,382 9,900 29,833 26,035
-------- -------- --------- ---------
Operating income ..................... 9,149 7,639 15,823 12,774
-------- -------- --------- ---------
Other income (expense):
Interest expense .................. (543) (644) (1,231) (1,775)
Other income (expense) ............ 290 (7) 281 (12)
-------- -------- --------- ---------
(253) (651) (950) (1,787)
-------- -------- --------- ---------
Income before income taxes ........... 8,896 6,988 14,873 10,987
Income tax expense ................... (3,344) (2,764) (5,679) (4,345)
-------- -------- --------- ---------
Net income ........................... $ 5,552 $ 4,224 $ 9,194 $ 6,642
======== ======== ========= =========
Primary income per share:
Net income ........................ $ .62 $ .48 $ 1.03 $ .79
======== ======== ========= =========
Fully-diluted income per share:
Net income ........................ $ .62 $ .47 $ 1.03 $ .78
======== ======== ========= =========
See accompanying notes
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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 .................. -- -- -- 9,194 -- 9,194
Exercise of options ......... 61,919 1 745 -- -- 746
Foreign currency adjustment . -- -- -- -- (701) (701)
--------- --- ------- -------- ------- --------
Balance at March 29, 1997 ..... 8,673,634 $87 $56,710 $ 21,741 $(1,005) $ 77,533
========= === ======= ======== ======= ========
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
NET CASH USED IN OPERATING ACTIVITIES ............ $(18,216) $(22,792)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures ............................. (6,215) (2,183)
Proceeds from sale of headquarters facility ...... 1,676 --
-------- --------
Net cash used in investing activities ............ (4,539) (2,183)
-------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ....... 746 22,394
Net proceeds from (repayments of) borrowings under
short-term revolving credit agreements ....... (987) 4,603
Net proceeds from (repayments of) borrowings under
long-term debt and capital lease agreements .. 20,987 (2,014)
-------- --------
Net cash provided by financing activities ........ 20,746 24,983
-------- --------
Effect of exchange rate changes on cash .......... 792 (158)
-------- --------
Net decrease in cash ............................. (1,217) (150)
Cash at beginning of period ...................... 4,305 2,255
-------- --------
Cash at end of period ............................ $ 3,088 $ 2,105
======== ========
See accompanying notes
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CANNONDALE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 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 29, 1997 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):
MARCH 29, MARCH 30,
1997 JUNE 29,1996 1996
---- ------------ ----
(UNAUDITED) (UNAUDITED)
Raw materials ..................... $ 14,888 $ 14,664 $ 15,564
Work-in-process ................... 1,834 1,772 2,026
Finished goods .................... 17,162 15,505 16,137
Less reserve for obsolete inventory (807) (1,415) (1,373)
-------- -------- --------
$ 33,077 $ 30,526 $ 32,354
======== ======== ========
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 8,957,521
and 8,891,986 for the three-month periods ended March 29, 1997 and March 30,
1996, respectively, and 8,922,396 and 8,446,056 for the nine-month periods ended
March 29, 1997 and March 30, 1996, respectively. Common stock equivalents
include options to purchase common stock.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted by the
Company for the period ended December 27, 1997. At that time, the Company will
be required to change the method currently used to compute earnings per share
and to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact is expected to result in an increase in primary earnings
per share of $.02 and $.01 per share for the three-month periods ended March 29,
1997 and March 30, 1996, respectively, and an increase in primary earnings per
share of $.04 and $.03 per share for the nine-month periods ended March 29, 1997
and March 30, 1996, respectively. The impact of Statement 128 on the calculation
of fully diluted earnings per share for these quarters is not expected to be
material.
4. DEBT
On March 27, 1997, the Company amended it's domestic financing agreement.
The interest rate on the outstanding combined credit facility is the prime rate
with an option to borrow at LIBOR plus a LIBOR margin (ranging from .50% to
1.0%). The LIBOR margin is adjusted quarterly based on the Company's most
current quarterly financial statements. LIBOR for U.S. dollar, Dutch guilder and
Japanese yen borrowings was 5.68%, 3.12% and .68% at March 29, 1997,
respectively.
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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 $45.1 million in the third quarter of fiscal
1996 to $48.2 million in the third quarter of fiscal 1997, an increase of $3.1
million or 7.1%. For the first nine months, net sales increased 12.6% from
$107.0 million in fiscal 1996 to $120.4 million in fiscal 1997, an increase of
$13.4 million. Compared to the same periods last year, net sales on a pro-forma
basis, adjusted for the effect of a stronger U.S. dollar for the three- and
nine-month periods ended March 29, 1997, increased 15% and 18%, respectively.
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 40.5% for
the third quarter of fiscal 1997 compared to 38.9% for the third quarter of
fiscal 1996. The gross profit for the third quarter of 1997 was $19.5 million,
an increase of $2.0 million, or 11.4%, over the gross profit of $17.5 million
for the third quarter of fiscal 1996. For the first nine months of fiscal 1997,
gross profit as a percentage of net sales increased to 37.9% ($45.7 million)
compared to 36.3% ($38.8 million) in fiscal 1996. The improvement in gross
profit reflects increased sales, a mix that favored international markets, an
increase in non-bike sales, cost-reduction programs, the effect of a stronger
U.S. dollar against the Japanese yen and the Company's continued integration of
proprietary technology through the use of its Cannondale bicycle frames, CODA
components and HeadShok suspension systems.
Operating Expenses. Operating expenses were $10.4 million for the third quarter
of fiscal 1997, an increase of approximately $500,000, or 4.9%, over the third
quarter of fiscal 1996 of $9.9 million. For the first nine months of fiscal
1997, operating expenses were $29.8 million, an increase of approximately $3.8
million, or 14.6%, over the first nine months of fiscal 1996 of $26.0 million.
In both periods, increases in selling, general and administrative expenses were
directly associated with increased sales, and additional personnel, advertising,
and marketing costs required to support the Company's growth. The Company also
increased its investment in international advertising and marketing. For the
third quarter, the increased selling, general and administrative expenses were
primarily offset by the effect of a stronger U.S. dollar and decreased warranty
expense attributable to improved manufacturing processes and investments in
product testing. As a percentage of sales, selling, general and administrative
expenses remained at approximately 22% for the first nine months of fiscal 1997
compared to the first nine months of fiscal 1996. The increase in research and
development expenses in both periods reflects the Company's commitment to
further investments in innovation in such areas as frame, suspension and brake
technology, as well as high-performance sport wheelchairs. For the first nine
months of fiscal 1997, as a
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percentage of net sales, total operating expenses remained at approximately 24%
compared to the first nine months of fiscal 1996.
Other income (expense). Interest expense for the third quarter of fiscal 1997
was $543,000, a decrease of approximately $101,000 from the third quarter of
fiscal 1996. For the first nine months of fiscal 1997, interest expense was
$1,231,000, a decrease of approximately $544,000 from the first nine months of
fiscal 1996. In both periods, higher average borrowings were offset by the lower
interest rates available under the Company's multi-currency revolving credit
facility. The increase in other income in both periods represents the receipt of
interest from dealers.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $18.2 million for the first nine
months of fiscal 1997, a decrease of $4.6 million compared to the $22.8 million
used for the first nine months of fiscal 1996. The net use of cash is typical
for the first nine months of the fiscal year due to seasonal activity, which
includes higher inventory levels during the busiest shipping period of the year
and seasonal terms offered to dealers through the Company's Authorized Retailer
Program. The reduction in the use of cash from operating activities compared to
the prior year was primarily attributable to the leveling of inventory growth
during the first nine months of fiscal 1997 compared to fiscal 1996. During the
prior year period, the Company initiated a strategy to maintain higher inventory
levels to capitalize on its flexible manufacturing capabilities.
Capital expenditures were $6.2 million for the first nine months of fiscal 1997,
compared to $2.2 million in the first nine months of fiscal 1996. The increase
in spending primarily reflects the Company's investment in its facilities'
expansion, which is required to support future growth. The proceeds from the
sale of the Company's headquarters facility, $1.7 million, are being
reinvested in this expansion.
Net cash provided by financing activities for the first nine months of fiscal
1997 was $20.7 million, a decrease of $4.3 million compared to the $25.0 million
for the first nine months of fiscal 1996. The net cash provided by financing
activities in fiscal 1997 primarily reflects the net proceeds from borrowings
under the Company's long-term revolving credit facility to meet its operating
and capital requirements during the period. The net cash provided by financing
activities in fiscal 1996 reflects the net proceeds from the public offering of
common stock in September 1995, which were used to reduce borrowings under the
Company's credit facilities.
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.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page
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(a) Index to Exhibits 12
(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 13, 1997 /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
- ------ -----------
10.1.6 Assignment of Agreements and Instruments,
dated March 26, 1997, between Fleet Capital
Corporation ("Assignor") and Fleet National
Bank ("Assignee")
10.1.7 Amendment No. 1, dated March 27, 1997
between the Company and Fleet National Bank
(successor by assignment to Fleet Capital
Corporation)
11 Statement re: Computation of Earnings per
Common Share
27 Financial Data Schedule
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