-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KkhjiU1JKrpRFh1cdrpYWTEbkPjMaLzTpAEcA5c2wIxowNuEQvsBsumhHHDw4K/P 3Vmc8D5qnqpbXpUWMY2LvA== 0000049401-99-000009.txt : 19990412 0000049401-99-000009.hdr.sgml : 19990412 ACCESSION NUMBER: 0000049401-99-000009 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980102 FILED AS OF DATE: 19990409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAUCONY INC CENTRAL INDEX KEY: 0000049401 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 041465840 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-05083 FILM NUMBER: 99591122 BUSINESS ADDRESS: STREET 1: 13 CENTENNIAL DR STREET 2: CENTENNIAL INDUSTRIAL PK CITY: PEABODY STATE: MA ZIP: 01961 BUSINESS PHONE: 5085329000 MAIL ADDRESS: STREET 1: 13 CENTENNIAL DRIVE STREET 2: CENTENNIAL INDUSTRIAL PARK CITY: PEABODY STATE: MA ZIP: 01960 FORMER COMPANY: FORMER CONFORMED NAME: HYDE ATHLETIC INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HYDE A R & SONS CO DATE OF NAME CHANGE: 19701030 10-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended January 2, 1998 Commission file number: 000-05083 Hyde Athletic Industries, Inc. (Exact name of registrant as specified in its charter) Massachusetts 04-1465840 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 13 Centennial Drive, Peabody, MA 01960 (Address of principal executive offices) Registrant's telephone number, including area code: (978) 532-9000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, $.33-1/3 par value (Title of class) Class B Common Stock, $.33-1/3 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. [ ] The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant, as of March 31, 1998 was approximately $20,355,000 (based on the last sale prices of the Class A Common Stock and Class B Common Stock on such date as reported on the Nasdaq National Market). The number of shares of the registrant's Class A Common Stock, $.33-1/3 par value, and Class B Common Stock, $.33-1/3 par value, outstanding on March 31, 1998 was 2,703,227 and 3,548,087, respectively. Portions of the following documents are incorporated by reference in this Report. Documents Incorporated by Reference Document Form 10-K/A Part Proxy Statement for Annual Meeting Part III of Stockholders of the Registrant to be held on May 21, 1998, to be filed with the Securities and Exchange Commission. PART I ITEM 1 - BUSINESS Hyde Athletic Industries, Inc. and its subsidiaries (together, "Hyde" or the "Company") design, develop, manufacture and market (i) a broad line of performance-oriented athletic shoes for adults under the Saucony(R) brand name, (ii) high-quality bicycles and bicycle frames under the Quintana Roo(R) and Merlin(R) names, (iii) athletic apparel under the Hind(R) brand name and (iv) shoes for coaches and officials under the Spot-Bilt(R) name. The Company's Saucony athletic footwear products include running, women's walking, cross training and outdoor trail shoes. The following table sets forth the approximate contribution to net sales (in dollars and as a percentage of net sales) attributable to the Company's Saucony product line and other product lines for the periods and geographic areas indicated. "Other" consists of Spot-Bilt coaches and officials shoes, Quintana Roo bicycles and wetsuits, Hind apparel, sales of the Company's and other products at retail factory outlets operated by the Company and sales of other branded products at the Company's subsidiary in Australia.
Net Sales (1) (dollars in thousands) Fiscal 1997 Fiscal 1996 Fiscal 1995 Sales Sales Co. Sales Sales Co. Sales Sales Co. $ % % $ % % $ % % Saucony Domestic $ 56,050 71% $ 54,445 69% $ 47,040 67% International 22,580 29% 24,366 31% 23,628 33% -------- ----- --------- ------ --------- ------ Total $ 78,630 100% 84% $ 78,811 100% 86% $ 70,668 100% 90% -------- ----- --------- ------ --------- ------ Other Domestic $ 9,552 64% $ 5,791 46% $ 4,021 51% International 5,429 36% 6,739 54% 3,860 49% -------- ----- --------- ------ --------- ------ Total $ 14,981 100% 16% $ 12,530 100% 14% $ 7,881 100% 10% -------- ----- ------ --------- ------ ------ --------- ------ ------ Grand Total $ 93,611 100% $ 91,341 100% $ 78,549 100% ======== ====== ========= ====== ========= ====== (1) Excludes the results of operations of Brookfield Athletic Co., Inc., substantially all of the assets of which were sold by the Company in July 1997.
RECENT DEVELOPMENTS There were a number of developments affecting the Company during 1997 and the first quarter of 1998. During the second quarter of 1997, the Company commenced delivery of its Hind apparel to customers. In July 1997, the Company received proceeds of $6,841,000 in connection with the sale of substantially all of the assets of its Brookfield Athletic subsidiary. In February 1998, the Company purchased substantially all of the assets of Merlin Materials, Inc., a high-quality manufacturer of titanium bicycle frames. Together with the Company's Quintana Roo subsidiary, Merlin is expected to provide growth opportunities as the Company expands its line of high-performance athletic products. During the fourth quarter of fiscal 1997, the financial position of the Company's Australian subsidiary deteriorated significantly. Principal factors affecting the operating results and financial position of this subsidiary included: lower sales of Saucony brand products, excess inventories which were liquidated in the fourth quarter of 1997, a significant devaluation of the Australian currency, a reduction in net sales of non-Saucony products due to the discontinuance of distribution rights in Australia of another brand of athletic footwear and too high a level of administrative overhead in light of the lower levels of net sales. As a consequence of the deterioration in the Australian subsidiary's financial position, the Company recorded a non-recurring charge of $2,766,000 (or $0.45 per diluted share) in the fourth quarter of fiscal 1997, of which $1,340,000 is included in cost of sales. In March 1998, the Company entered into an agreement with its joint venture partners in its Australian subsidiary pursuant to which the Company will acquire all of the proprietary interests of such partners in the subsidiary for nominal consideration and the employment of the managing director of such subsidiary will be terminated. The Company expects the closing to occur pursuant to such agreement by no later than May 1, 1998. The Company is in the process of reassessing its operations in Australia and intends to identify a qualified distributor(s) to assume responsibility for Saucony products and/or liquidate the assets of Saucony S.P. Pty. Ltd. during 1998. Saucony Brand. The Company sells performance running, walking, cross training, and outdoor trail shoes for athletes under the Saucony brand name, which has been marketed in the United States for over 30 years. The Company assembles most of its Saucony footwear sold in the United States at its manufacturing facility in Bangor, Maine, largely with components sourced from independent manufacturers located overseas. The Company believes that assembly at its Bangor facility assists in timely and flexible product delivery in the domestic market. According to ASD/Target Research, Inc., an independent market research organization ("ASD/Target Research"), the Company ranked sixth in sales of running shoes in the United States during 1997. In addition, according to ASD/Target Research, the Company's market share of running shoes sold in the United States was 4.0% in 1997. The Company believes that a high percentage of purchasers of Saucony brand footwear buy such products for athletic uses and that such consumers have greater brand loyalty than athletic shoe purchasers who buy for casual wear purposes. The Company has several product offerings within each of the Saucony brand categories. These offerings have different designs and features, resulting in different cushioning, stability, support characteristics and prices. The Company builds its Saucony shoes with a high level of technological performance characteristics to appeal to athletic users. As a result of the Company's application of biomechanical technology in the design process, the Company believes that its Saucony shoes have a distinctive "fit and feel" that is attractive to athletic users. A key element in the design of Saucony shoes is an anatomically correct toe and heel configuration that provides support and comfort throughout the human gait cycle for the particular activity for which the shoe is designed. Most of the Company's top-of-the-line running and other athletic shoes incorporate the Company's GRID System, an innovative midsole system that employs molded strings engineered to create a feeling similar to that of the "sweet spot" of a tennis racquet. In contrast with conventional athletic shoe midsoles, the GRID System is designed to react to various stress forces differently and thereby simultaneously to maximize shock absorption and minimize rear foot motion. The Company designs and markets separate lines for men and women within most Saucony product categories. The Company currently sells approximately the same percentage of Saucony shoes to men and women. The suggested domestic retail prices for most Saucony footwear products are in the range of $50 to $85 per pair, with the Company's top-of-the-line running shoes having suggested domestic retail prices of up to $110 per pair. The Company designs its Saucony cross training, women's walking and outdoor trail shoes with many of the same performance features and "fit and feel" characteristics as are found in Saucony running shoes. Currently, the Company's most popular non-running athletic shoe is a women's performance walking shoe. The Company believes that a line of athletic apparel bearing the Saucony name is supportive of its athletic footwear products and enhances the visibility of the Saucony brand. Saucony markets apparel under both the Dave Scott and Saucony labels. These products carry the same commitment to quality and performance as the Company's footwear line. The Dave Scott line is an upscale multi-sport and triathlon collection, while the Saucony apparel line is targeted at the mainstream running consumer. OTHER PRODUCTS Hind. In the fourth quarter of 1996, the Company purchased trademarks and related intellectual property from Hind, Inc. ("Hind"), a performance athletic apparel company. The Company began delivery of its Hind apparel products to the retail trade in the second quarter of 1997. Quintana Roo. The Company manufactures and distributes the Quintana Roo line of triathlon bicycles, road bicycles, mountain bicycles and wet suits through high-end bicycle stores and sporting goods stores geared to triathletes. Merlin. In February 1998, the Company acquired the assets of Merlin Materials, Inc., a high performance manufacturer of titanium bicycle frames. The Company is marketing titanium bicycle frames under the Merlin trademark. Spot-Bilt Brand. The Company offers Spot-Bilt shoes for coaches and officials through the distribution channels for its Saucony brand shoes. In addition, the Company has licensed the Spot-Bilt name to a third party that distributes youth team field sport shoes under this name. Factory Outlet Stores. The Company operates five retail factory outlet stores. To avoid competing against its customers' retail outlets, the Company generally limits the products offered at these stores to products with cosmetic defects, products which have been discontinued and certain slow-moving products. The Company sells Saucony, Hind, Spot-Bilt and Quintana Roo products at these outlets, as well as athletic accessory goods of third parties. PRODUCT DEVELOPMENT The Company believes that the technical performance (i.e., comfort, support and stability experienced by the athlete) of its Saucony footwear is important to purchasers of its products. The Company uses consulting services of such professionals as podiatrists, orthopedists, athletes, trainers and coaches as part of its Saucony product development program. The Company maintains a staff of 20 persons located in Peabody, Massachusetts to undertake continuing product development and design. Product development work also is performed for the Company by its suppliers at their overseas facilities. During the years ended January 2, 1998, January 3, 1997 and January 5, 1996, the Company expended $1,513,000, $1,417,000 and $1,438,000, respectively, in connection with its product development programs, most of which related to Saucony products. SALES AND MARKETING Saucony Brand. The Company's Saucony athletic footwear products are sold at more than 5,000 retail outlets in the United States, primarily higher-end, full-margin sporting goods chains, independent sporting goods stores, athletic footwear specialty stores and department stores. Retail outlets include Foot Locker/Lady Foot Locker, Athlete's Foot, The Sports Authority, Road Runner's Sport, Sport Mart and Just For Feet. The Company maintains a corporate sales team that is directly responsible for the sales activity in its largest 50 accounts. The Company also sells its footwear and apparel in the United States through 13 independent manufacturer agents whose organizations employ approximately 44 sales representatives. The Company also maintains a field sales management team to supervise, direct and evaluate the 44 sales representatives. The Company uses certain state-of-the-art multi-media presentations for sales and marketing initiatives. The Company's Website (saucony.com) receives thousands of hits weekly from consumers looking for new product profiles, race and event data, as well as general Saucony information. The Company sells its Saucony products outside the United States in 34 countries through 19 distributors located throughout the world, including joint venture subsidiaries in which the Company holds controlling interests located in Australia and Canada and through the Company's subsidiary located in the Netherlands (which holds the distribution rights to the Company's Saucony products in the Benelux countries) and a branch office in the United Kingdom. In 1994, the Company formed a German subsidiary, Saucony Deutschland Vertriebs GmbH, to provide additional sales and marketing support in Europe and to undertake sales and marketing of Saucony products in Germany. The primary overseas markets for the Company's Saucony products are in Western Europe. To accommodate its customers' requirements and plan for its own product needs, the Company employs a futures orders program for its Saucony products under which the Company takes orders well in advance of the selling season for a particular product and commits to ship the product to the customer in time for the selling season. The Company affords customers price discounts and extended payment terms in respect of such advance orders. The Company generally requires payment at the time that the selling season ends, which increases the Company's working capital requirements. Saucony engages in various advertising and promotional programs. The main media vehicles used are magazines and television. The Company employs many sports marketing initiatives to drive brand awareness and imagery to athletes. Examples include Saucony running and racing seen monthly on ESPN, as well as sponsorship of the L.A. Marathon and Chase Corporate Challenge race series. To build in-store presence, the Company uses account-specific and in-store promotions, such as athlete appearances, special events, gift with purchase programs and employee cost programs. Although most of the Company's advertising and promotional programs for its Saucony brand are directed towards ultimate consumers, the Company promotes these products to the trade through attendance at trade shows and similar events. The Company employs an advertising program under which it reimburses participating retailers for a portion of the costs incurred by such retailers in advertising the Company's Saucony products. The Company's advertising of non-Saucony products includes advertisements in magazines and product promotion through attendance at trade shows and similar events. Backlog; Seasonality; Distribution. The Company's backlog of unfilled orders was approximately $42.0 million at January 2, 1998 and $39.7 million at January 3, 1997. The Company expects that all of its backlog at January 2, 1998 will be shipped in fiscal 1998. While the Company has not generally experienced material cancellations of orders, orders may be cancelled by customers without financial penalty, and backlog does not necessarily represent actual future shipments. The Company is subject to seasonality in its product sales because of the different selling seasons for various products. The Company's first three fiscal quarters are often stronger than the last fiscal quarter due to Saucony product introductions in January and July and spring sales associated with warmer weather in the Company's principal markets. The Company distributes its Saucony and Hind products through its warehouses in Peabody, Massachusetts as well as through independent warehouse facilities located throughout the world. The Company distributes its Quintana Roo products through its leased warehouse in San Marcos, California. For information about the Company's foreign operations and export sales, see Note 15 of Notes to Consolidated Financial Statements. MANUFACTURING The Company assembles most of its domestically sold Saucony footwear at the Company's manufacturing facility in Bangor, Maine, largely with components sourced from independent manufacturers located overseas. Independent overseas manufacturers produce the balance of the Company's Saucony products and all of the Company's Spot-Bilt products. Quintana Roo and Merlin products are manufactured by the Company in San Marcos, California and Cambridge, Massachusetts, respectively. Hind outsources the manufacturing of all its products. The overseas manufacturers that supply products and product components to the Company are located in the Far East, primarily in China, but also in Taiwan and Thailand. The Company seeks to develop additional overseas manufacturing sources from time to time, both to increase its sourcing capacity and to obtain alternative sources of supply. All products and components produced by foreign suppliers are manufactured in accordance with product specifications furnished by the Company. The Company carefully monitors foreign manufacturing operations and imported products and components to assure compliance with the Company's design, production and quality requirements. The number of foreign suppliers and the percentage of the Company's total foreign production requirements produced by each such supplier vary from time to time. During fiscal 1997, the Company purchased products from 20 overseas suppliers. One of such suppliers, located in China, accounted for approximately 41% of the Company's total overseas purchases by dollar volume. The Company is subject to the usual risks of a business involving foreign suppliers, such as government regulation of fund transfers, export and import duties and political and labor instability. The Company has not been materially affected by any of these factors to date. Substantially all purchases from foreign suppliers to date have been denominated in United States dollars in order to reduce the Company's risk from currency fluctuations. Although the Company has no long-term manufacturing agreements with its overseas suppliers and competes with other athletic shoe and recreational product companies (including companies that are much larger than the Company) for access to production facilities, management believes that the Company's relationships with its footwear and other suppliers are strong and that it has the ability to develop, over time, alternative sources in various countries for footwear, footwear components and other products obtained from its current suppliers. However, in the event of a supply interruption, the Company's operations could be materially and adversely affected if a substantial delay occurred in locating and obtaining alternative sources of supply. Raw materials required for the manufacture of the Company's products, including leather, rubber, nylon, titanium, aluminum and other fabrics, are generally available in the country in which the products are manufactured. The Company and its suppliers have not experienced any difficulty in satisfying their raw material needs to date. TRADE POLICY The Company's practice of sourcing products and components overseas, with subsequent importation into the United States, exposes it to possible product supply disruptions and increased costs in the event of actions by United States or foreign government agencies adverse to continued trade or the enactment of legislation that restricts trade. For example, on February 2, 1997, the United States and China reached an agreement on a four-year textile pact that generally extends current quota arrangements in Chinese textile and apparel exports to the United States, but reduces quotas on three occasions -- most recently in September, 1996 when the United States imposed triple charges for illegally transshipped merchandise (excluding footwear). China's compliance with the current textiles agreement is under review by U.S. trade officials. In addition, Company imports a significant amount of its products and product components from China. The United States provides China with most-favored-nation ("MFN") status, allowing China to receive the same tariff treatment that the United States extends to its "most favored" trading partners. Notwithstanding this current policy, Congress could seek to revoke MFN for China or condition its renewal on factors such as China's human rights record. Recently, there has been heightened scrutiny of extending MFN for China in light of certain allegations that Chinese nationals may have sought to improperly or illegally influence members of the Administration or Congress through political contributions. In addition, there has been increasing concern in Congress with regard to the growing U.S. trade deficit with China. The administration of existing U.S. trade laws can also create adverse consequences for trade with the Company's suppliers. In particular, under Section 301 of the Trade Act of 1974, as well as "Special 301" and "Super 301," the Office of the United States Trade Representative ("USTR") can retaliate against certain unfair foreign trading practices. For example, in early 1995 such retaliation almost occurred against China in a Special 301 investigation of China's intellectual property regime. However, on February 26, 1995, the United States and China reached an agreement in this Special 301 investigation, avoiding the scheduled imposition of increased tariffs by the United States on certain products imported from China, including certain footwear products. This bilateral agreement has extensive compliance features, and China's compliance with this agreement is currently under review by U.S. trade officials. On May 15, 1996, based on monitoring carried out under Section 306(a) of the Trade Act of 1974, as amended, the United States considered that China was not satisfactorily implementing the February 26, 1995 agreement, and proposed to impose prohibitive tariffs on certain products from China, including certain textile and apparel, but excluding footwear. Additionally, to prevent import surges, USTR directed Customs to limit exports of certain textile products by their date of entry. On June 17, 1996, USTR announced that, based on measures that China has taken and will take in the future to implement key elements of the 1995 agreement, the proposed sanctions would not be imposed. On April 30, 1997, the USTR reported that significant progress had occurred in China in late 1996 and early 1997. The Company is unable to predict whether USTR may decide in the future to impose sanctions or take other actions against China under this agreement. Also, U.S./ China trade relations, especially with respect to China's efforts to accede to the World Trade Organization, have been contentious in the recent past, and the Company cannot predict whether this tension will interfere with the ability of the Company to import products from China in the future. In addition, USTR has identified certain of the Asian countries in which the Company's suppliers are located as having various foreign trade barriers. As a result of these or other unfair trade practices as identified by USTR, such countries could be subject to possible retaliation by the United States under Super or regular Section 301 authority. The Company is unable to predict whether additional U.S. customs duties, quotas or other restrictions may be imposed in the future upon the importation of its products and/or components as a result of any of the matters discussed above, or because of similar U.S. or foreign government actions. In addition, the Company's imports into the United States, the European Union or elsewhere could be subjected to antidumping duties if an antidumping order that covered the Company's products were issued in such countries or regions. Such action could result in increases in the costs of imported footwear, footwear components or other Company products generally, or limitations on the Company's ability to import footwear, footwear components or such other products into the United States. Such occurrences might adversely affect the sales or profitability of the Company, possibly materially. COMPETITION Competition is intense in the markets in which the Company sells its products. The Company competes with a large number of other companies, both domestic and foreign. Several competitors are large organizations with diversified product lines, well-known brands and financial resources substantially greater than those of the Company. The principal competitors for the Company's Saucony products are Nike, New Balance and ASICS. The principal competitors for the Company's Hind products are Nike, Pearl Izumi and Speedo. The principal competitors for the Company's Quintana Roo and Merlin products are Cannondale and Trek. The Company believes that the key competitive factors as to its products are styling, durability, technical performance, product identification through promotion, brand awareness and price. Customer support services and E.D.I. (Electronic Data Interchange) are also important competitive factors. The Company believes that it is competitive in all of these areas. TRADEMARKS The Company utilizes trademarks on nearly all of its products and believes that having distinctive marks is an important factor in marketing its goods. The Company has federally registered its Saucony(R), Spot-Bilt(R), Hyde(R), G.R.I.D.(R), Quintana Roo(R), Merlin(R) and Hind(R) marks, among others. The Company has also registered some of these marks in a number of foreign countries, including countries in Europe, the Far East, and North, Central and South America. Although the Company has a foreign trademark registration program for selected marks, no assurance can be given that it will be able to register or use such marks in each foreign country in which registration is sought. EMPLOYEES At January 2, 1998, the Company employed approximately 442 people worldwide, of whom approximately 142 worked at the Company's manufacturing plant in Bangor, Maine, approximately 28 worked in the Company's Peabody, Massachusetts warehouse, approximately 29 were sales and marketing personnel, approximately 33 were executive and finance personnel, approximately 20 were product development and design personnel and the remainder were involved in various other aspects of the Company's business. Eighty-five of the Company's employees work at foreign locations. The Company believes that its employee relations are excellent. The Company has never experienced a strike or other work stoppage. Approximately 20 employees in the Company's Peabody warehouse were represented by a union at January 2, 1998. None of the Company's other employees is represented by a union or subject to a collective bargaining agreement. ITEM 2 - PROPERTIES The Company's general and executive offices and its main distribution facility are located in Peabody, Massachusetts, and are owned by the Company. This facility consists of approximately 175,000 square feet, of which 145,000 square feet is warehouse space. The Company owns a factory in Bangor, Maine, containing approximately 82,000 square feet of space, substantially all of which is used for the manufacture of the Company's Saucony running shoes, mostly with imported components. The Company also owns a retail store in Bangor, containing approximately 3,000 square feet of space, and a warehouse in East Brookfield, Massachusetts, containing approximately 100,000 square feet. The Company's Quintana Roo subsidiary leases approximately 15,000 square feet of manufacturing office space in San Marcos, California. The Company's Merlin division leases 13,600 square feet of manufacturing and office space in Cambridge, Massachusetts. ITEM 3 - LEGAL PROCEEDINGS The Company is involved in routine litigation incident to its business. In management's opinion, none of these proceedings will have a material adverse effect on the Company's financial position, operations or cash flows. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS Not applicable. Executive Officers Of The Registrant The executive officers of the Company are as follows: Name Age Position John H. Fisher 50 President, Chief Executive Officer and Director Charles A. Gottesman 47 Executive Vice President, Chief Operating Officer, Treasurer and Director Wolfgang Schweim 45 President, Saucony International Arthur E. Rogers, Jr. 35 President, Saucony North America Roger P. Deschenes 39 Vice President, Controller and Chief Accounting Officer Kenneth W. Graham 44 Senior Vice President, Research & Development/Textiles Daniel J. Horgan 42 Vice President, Operations Andrew M. James 41 Vice President, MIS John H. Fisher has served as Chief Executive Officer of the Company since 1991. He was elected President and Chief Operating Officer in 1985 after having served as Executive Vice President from 1981 to 1985 and as Vice President, Sales from 1979 and 1981. Mr. Fisher is a member of the World Federation of Sporting Goods Industries, is the former Chairman of the Athletic Footwear Council of the Sporting Goods Manufacturers Association, and is a member of various civic associations. Mr. Fisher became a director in 1980. Charles A. Gottesman has served as Executive Vice President and Chief Operating Officer of the Company since 1992, and served as Executive Vice President, Finance from 1989 to 1992, Senior Vice President from 1987 to 1989, Vice President from 1985 to 1987, and Treasurer since 1983. Mr. Gottesman became a director in 1983 and is the brother-in-law of John H. Fisher. Wolfgang Schweim became the President of Saucony International in January 1998 after serving as President of the Company's athletic footwear division from June 1994 to January 1998. From 1993 to 1994, Mr. Schweim served as Managing Director for Saucony Europe. From 1989 to 1993, Mr. Schweim was the German Managing Director and Marketing Sales Manager for Europe at Asics, an athletic shoe manufacturer. Prior to 1989, Mr. Schweim worked in sales and marketing positions with Nike International, Le Coq Sportif and Adidas AG. Arthur E. Rogers, Jr. became the President of Saucony North America in January 1998. Mr. Rogers re-joined the Company as Senior Director of Global Marketing in 1994, having previously served as Brand Manager from 1990 - 1992. Most recently, Mr. Rogers has been the Vice President of North American Sales and Worldwide Marketing. Prior to joining the Company, Mr. Rogers held various sales and marketing positions at Proctor & Gamble as well as Converse Shoe, Inc., an athletic shoe company. Roger P. Deschenes has served as Vice President, Controller since August 1997, after having served as Controller and Chief Accounting Officer from October 1995 to August 1997. Mr. Deschenes joined the Company in 1990 as Corporate Accounting Manager. He was employed at Allen-Bradley, a manufacturing company and subsidiary of Rockwell International, Corp., from 1987 to 1990 as Financial and Cost Reporting Supervisor. Mr. Deschenes is a Certified Management Accountant. Kenneth W. Graham became Senior Vice President of Research and Development/Textiles in January 1998 after serving as Senior Vice President of Research and Development/Manufacturing since 1996. Prior to that Mr. Graham served as Vice President of Research and Development/Manufacturing. Mr. Graham joined the Company in 1984 and has served as Manager and Vice President of Research and Development. Prior to joining the Company, Mr. Graham worked for seven years with New Balance Athletic Shoe, Inc. Daniel J. Horgan became Vice President of Operations in September 1995 after serving as Senior Director of Operations from September 1994 to September 1995. Mr. Horgan joined the Company in 1982 as Manager of Import and Export Operations, served as Product Procurement and Distribution Manager from 1985 to 1988, Manager of Production from 1988 to 1992, and Director of International Trade for the Company from 1992 to 1994. Andrew M. James joined the Company in February 1984. He has served the Company as Accounting Manager (1984 - 1988), Assistant Controller (1989 - 1993), Senior Director of Information Systems (1994 - 1997) and most recently as Vice President, MIS. Mr. James holds advanced degrees from Washington University (MBA) and Bentley College (MS). PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Class A Common Stock and Class B Common Stock trade on the Nasdaq National Market under the symbols "HYDEA" and "HYDEB," respectively. The following table sets forth, for the periods indicated, the actual high and low sales prices per share of the Class A Common Stock and the Class B Common Stock as reported by the Nasdaq National Market.
Class A Class B Common Stock Common Stock High Low High Low Fiscal Year ended January 2, 1998 First Quarter $ 5-1/4 $ 4-3/8 $ 5-3/8 $ 4-3/8 Second Quarter 5-3/8 4-1/2 5-1/4 4-1/2 Third Quarter 5 3-7/8 5-1/8 4 Fourth Quarter 5-1/8 3-5/8 5-1/8 3-3/8 Fiscal Year ended January 3, 1997 First Quarter $ 4-3/8 $ 3-5/8 $ 4-1/4 $ 3-3/16 Second Quarter 6-3/4 3-5/8 5-13/16 3-1/4 Third Quarter 6-1/2 4-1/2 5-15/16 4-3/4 Fourth Quarter 5-1/2 4-3/8 5-1/2 4-1/2
There were 375 and 354 stockholders of record of the Class A Common Stock and Class B Common Stock, respectively, on March 17, 1998. The Company does not anticipate paying any cash dividends in the foreseeable future on the shares of Class A Common Stock or Class B Common Stock. The Company currently intends to retain future earnings to fund the development and growth of its business. The Company's note agreement with an insurance company contains certain covenants restricting the cash dividends which may be paid by the Company. As of January 2, 1998, approximately $11,055,000 was available for payment of cash dividends under the terms of these covenants. Additionally, the Company's credit facility agreement with two banks further restricts the payment or declaration of any dividend or other distributions to stockholders, in money or property, except in shares of its own Common Stock. Each share of Class B Common Stock is entitled to a regular cash dividend equal to 110% of the regular cash dividend, if any, payable on a share of Class A Common Stock. ITEM 6 - SELECTED FINANCIAL DATA Selected Income Statement Data (in thousands; per share amounts in dollars)
Year Year Year Year Year Ended Ended Ended Ended Ended Jan. 2, Jan. 3, Jan. 5, Dec. 30, Dec. 31, 1998 1997 1996 1994 1993 Net sales $ 93,611 $91,341 $78,549 $ 83,055 $ 84,482 Income (loss) from operations (1,935) 2,345 228 3,244 8,831 Minority interest in income (loss) of consolidated subsidiaries (123) 308 (286) 9 (47) Income (loss) from continuing operations (4,032) 1,349 522 2,086 4,727 Income (loss) from discontinued operations (1) Income (loss) from discontinued operations (394) (243) 863 851 (119) Gain on disposal of Brookfield business 96 0 0 0 0 Net income (loss) (4,330) 1,106 1,385 2,937 4,608 Earnings per common share - basic (2) Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08 $ 0.32 $ 0.78 Income (loss) from discontinued operations (0.05) (0.04) 0.14 0.14 (0.02) ---------- --------- ------- ------- ---------- Net income (loss) per common share - basic $ (0.70) $ 0.18 $ 0.22 $ 0.46 $ 0.76 ========== ======== ======= ======= ========= Earnings per common share - diluted (2) Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08 $ 0.32 $ 0.78 Income (loss) from discontinued operations (0.05) (0.04) 0.14 0.14 (0.02) ---------- --------- ------- ------- ---------- Net income (loss) per common share - diluted $ (0.70) $ 0.18 $ 0.22 $ 0.46 $ 0.76 ========== ======== ======= ======= ========= Weighted average common shares and equivalents outstanding (2) 6,240 6,268 6,244 6,446 6,057 Cash dividends per share of common stock -- -- -- -- -- Selected Balance Sheet Data Jan. 2, Jan. 3, Jan. 5, Dec. 30, Dec. 31, 1998 1997 1996 1994 1993 Current assets $ 50,239 $58,132 $58,984 $ 61,621 $ 58,121 Current liabilities 13,315 13,963 14,728 15,657 13,372 Working capital 36,924 44,169 44,256 45,964 44,749 Total assets 61,316 70,752 69,265 77,082 73,693 Long-term debt 771 4,893 4,205 11,922 12,942 Stockholders' equity 45,072 49,484 48,160 46,754 44,709 - --------------------------- (1) See Note 13 of the Notes to Consolidated Financial Statements regarding discontinued operations. (2) See Notes 1 and 11 of the Notes to Consolidated Financial Statements regarding the adoption of Statement of Financial Accounting Standards 128 (SFAS 128). SFAS 128 requires the restatement of all previously reported per share amounts. (3) See Note 21 of the Notes to Consolidated Financial Statements discussing the accounting restatements.
This Annual Report on Form 10-K contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forwarding-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors That May Affect Future Results." FISCAL 1997 COMPARED TO FISCAL 1996 The Company had a net loss of $4,330,000, or $0.70 per diluted share, in fiscal 1997 as compared to net income of $1,106,000, or $0.18 per diluted share, in fiscal 1996. The Company had a loss from continuing operations of $4,032,000, or $0.65 per diluted share, in fiscal 1997 as compared to income from continuing operations of $1,349,000, or $0.22 per diluted share, in fiscal 1996. The Company had a loss from discontinued operations of $298,000, or $0.05 per diluted share, in fiscal 1997 as compared to loss from discontinued operations of $243,000, or $0.04 per diluted share, in fiscal 1996. The loss from continuing operations realized in fiscal 1997 was due primarily to the Company's Australian subsidiary (Saucony S.P. Pty. Ltd.) and management's decision to pursue alternatives to Company-owned marketing and distribution in that country. Net losses from ongoing Australian business totaled $1,419,000, with additional reserves of $2,766,000 recorded in the fourth quarter of fiscal 1997 covering inventory, accounts receivable, prepaid expenses, plant and equipment and deferred charges. Additionally, the Company recorded a deferred tax valuation allowance of $999,000 related to loss carryforwards that are not expected to be realized. The following sets forth fiscal 1997 quarterly statement of earnings for Saucony S.P. Pty. Ltd. (in thousands):
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year ---------- ----------- --------- --------- ----------- Net sales Saucony brand $ 1,488 $ 1,404 $ 1,962 $ 1,716 $ 6,570 Other brands 2,080 1,303 666 451 4,500 --------- --------- --------- --------- --------- Total net sales 3,568 2,707 2,628 2,167 11,070 ========= ========= ========= ========= ========= Cost of sales Cost of sales 2,503 2,262 2,047 2,082 8,894 Inventory writedown -- -- -- 1,340 1,340 --------- --------- --------- --------- --------- Total cost of sales 2,503 2,262 2,047 3,422 10,234 --------- --------- --------- --------- --------- Gross profit 1,065 445 581 (1,255) 836 Selling, general and administrative expenses 901 917 790 876 3,484 Writedown of assets -- -- -- 1,426 1,426 --------- --------- --------- --------- --------- Operating income (loss) 164 (472) (209) (3,557) (4,074) Non-operating income (expense) Interest, net (94) (143) (101) (72) (410) Foreign currency (88) (19) (117) (660) (884) Other 17 15 59 55 146 --------- --------- --------- --------- --------- Loss before tax and minority interest (1) (619) (368) (4,234) (5,222) Income tax benefit -- (223) (157) (504) (884) Tax valuation allowance -- -- -- 999 999 Minority interest -- (198) 42 3 (153) --------- ---------- --------- --------- ---------- Net loss $ (1) $ (198) $ (253) $ (4,732) $ (5,184) ========== ========== ========== ========== ==========
During 1997, operating losses at Saucony S.P. Pty. Ltd. worsened as a result of factors impacting both the overall footwear industry and Saucony S.P. Pty. Ltd. specifically. In Australia and throughout the Pacific Rim, industry conditions were characterized by an over-supply of product with weak consumer demand and intense market competition. At the end of June 1997, Saucony S.P. Pty. Ltd. also lost distribution rights to a major line of athletic apparel which added to a higher level of administrative overhead in light of lower levels of net sales. Full year 1997, net sales of Saucony brand and other brands declined 13.7% and 26.1%, respectively, compared to 1996. Despite efforts during the third and fourth quarter of 1997 and working capital containment, losses continued to mount. Additional efforts to secure distribution rights for other key brands were unsuccessful over this period, and in the fourth quarter of 1997, the 12.1% depreciation of the Australian dollar resulted in $660,000 of exchange losses at Saucony S.P. Pty. Ltd. Faced with mounting losses and an uncertain business environment, management decided in early 1998 to withdraw from Company-owned operations in Australia as soon as practical. The Company intends to identify a qualified distributor(s) to assume responsibility for Saucony products and/or liquidate the assets of Saucony S.P. Pty. Ltd. during 1998. The Company's net sales increased 3% to $93,611,000 in fiscal 1997 from $91,341,000 in fiscal 1996. Net sales of the Company's Saucony products decreased .2% to $78,630,000 in fiscal 1997 from $78,811,000 in fiscal 1996, due primarily to decreased footwear unit volume and unfavorable currency exchange. Saucony domestic net sales increased 3% to $56,050,000 in fiscal 1997 from $54,445,000 in fiscal 1996, primarily due to higher selling prices of the Company's recently introduced products, and, to a lesser extent, increased unit volume. Saucony foreign net sales decreased 7% to $22,580,000 in fiscal 1997 from $24,366,000 in fiscal 1996, due primarily to decreased footwear unit volume and, to a lesser extent, unfavorable currency exchange, offset in part by increased apparel sales. Net sales of other products increased 20% to $14,981,000 in fiscal 1997 from $12,530,000 in fiscal 1996, due to increased sales by the Company's wholly-owned subsidiary, Quintana Roo, Inc. (Quintana Roo), and sales of Hind apparel, which were offset to some extent by decreased sales of non-corporate brand products by the Company's Australian subsidiary. The Company acquired trademarks and related intellectual property from Hind, Inc. in December 1996 and began to ship Hind products in the second quarter of 1997. Other revenue decreased 35% to $351,000 in fiscal 1997 from $538,000 in fiscal 1996 due primarily to decreased royalty income and decreased shipment freight and handling revenue. The Company's gross profit increased 2% to $30,100,000 in fiscal 1997 from $29,649,000 in fiscal 1996. The Company's gross margin decreased to 32.2% in fiscal 1997 from 32.5% in fiscal 1996, due primarily to a significant decline in gross margin realized by the Company's Australian subsidiary during the fourth fiscal quarter of 1997 which was unfavorably impacted by increased sales of non-current models and the inventory writedown, of $1,340,000, to estimated realizable value. The margin decrease in Australia was partially offset by increased margin for Saucony products, exclusive of Australia. The gross margin for Saucony products in fiscal 1996 reflected a significant level of unit volume of slow-moving, non-current models and lower-margin special make-up footwear. These factors, and, to a lesser extent, decreased freight costs and reduced manufacturing costs in fiscal 1997, primarily accounted for gross margin increase for Saucony products, exclusive of Australia, in fiscal 1997. Selling, general and administrative expenses increased to $30,110,000, or 32.2% of net sales, in fiscal 1997 from $27,842,000, or 30.5% of net sales, in fiscal 1996. Advertising and promotion expenses decreased $200,000 in fiscal 1997 due primarily to decreased Saucony domestic television and media advertising and reduced spending by the Company's foreign subsidiaries, offset in part by increased account specific promotions. Selling expenses increased $833,000 in fiscal 1997 due to increased payroll costs and selling and marketing expenses related to the introduction of Hind apparel and to increases in domestic and foreign sales staffs. General and administrative expenses increased $1,635,000 in fiscal 1997 due to increased costs related to the Company's upgraded information system, increased professional fees, higher domestic payroll costs, increased provisions for doubtful debts and increased administrative costs attributable to the introduction of Hind apparel and continued expansion of Quintana Roo's infrastructure. The Company recorded a non-recurring charge of $850,000 ($508,000 after tax or $0.08 per diluted share ) in fiscal 1997 to reduce the carrying value of the Company's inactive distribution facility in East Brookfield, Massachusetts to market. Interest expense increased 12% to $817,000 in fiscal 1997 from $730,000 in fiscal 1996 due to increased borrowings on the Company's demand credit facility and increased asset-based borrowing. Increased working capital requirements caused the Company's borrowing in the first half of fiscal 1997 to substantially exceed its borrowings in the second half of the year. The Company used a portion of the $6,841,000 received in the second half of fiscal 1997 from the July 4, 1997 sale of substantially all of the assets of the Company's Brookfield subsidiary to pay down the borrowings. Foreign currency transaction losses amounted to $1,127,000 in fiscal 1997 as compared to net gains of $171,000 in fiscal 1996, reflecting increased losses on U.S. dollar denominated obligations held by certain of the Company's foreign subsidiaries in fiscal 1997. The provision for income taxes increased to $355,000 in fiscal 1997 from $325,000 in fiscal 1996, due to the deferred tax valuation allowance recorded in fiscal 1997 relating to foreign net operating loss carryforwards that are not expected to be realized. The effective tax rate decreased by 7.1% to 9.3% in fiscal 1997 from 16.4% in fiscal 1996 due primarily to recording the deferred tax valuation allowance in fiscal 1997 and from a shift in the composition of foreign and domestic pre-tax profits and losses. FISCAL 1996 COMPARED TO FISCAL 1995 The Company's net income decreased by 20% to $1,106,000, or $0.18 per diluted share, in fiscal 1996 as compared to $1,385,000, or $0.22 per diluted share, in fiscal 1995. Income from continuing operations increased 58% to $1,349,000, or $0.22 per diluted share, in fiscal 1996 from $522,000, or $0.08 per diluted share, in fiscal 1995. Income from discontinued operations decreased to a loss of $243,000, or $0.04 per diluted share, in fiscal 1996 from $863,000, or $0.14 per diluted share, in fiscal 1995. The Company's net sales increased 16% to $91,341,000 in fiscal 1996 from $78,549,000 in fiscal 1995. Net sales of the Company's Saucony products increased 12% to $78,811,000 in fiscal 1996 from $70,668,000 in fiscal 1995 due primarily to higher selling prices and, to a lesser extent, increased unit shipment volume. The Company believes that the increase resulted from technical and cosmetic improvements to its Saucony products in 1996. Saucony domestic net sales increased 16% to $54,445,000 in fiscal 1996 from $47,040,000 in fiscal 1995, due to higher selling prices of the Company's recently introduced products in comparison with the Company's existing products and increased unit shipment volume. Saucony foreign net sales increased 3% to $24,366,000 in fiscal 1996 from $23,628,000 in fiscal 1995, due primarily to higher selling prices and, to a lesser extent, favorable currency exchange. Net sales of other products increased 59% to $12,530,000 in fiscal 1996 from $7,881,000 in fiscal 1995, due primarily to additional sales from the Company's wholly-owned subsidiary Quintana Roo, acquired in August 1995, and increased sales of non-corporate brands by the Company's Australian subsidiary. Other revenue increased 85% to $538,000 in fiscal 1996 from $291,000 in fiscal 1995, due to increased royalty income and proceeds from a litigation settlement. The Company's gross profit increased 15% to $29,649,000 in fiscal 1996 from $25,854,000 in fiscal 1995. The Company's gross margin decreased to 32.5% in fiscal 1996 from 32.9% in fiscal 1995 reflecting decreased margins for Saucony products. The gross margin decrease for Saucony products resulted from the shipment of a single slow-moving, non-current model, increased sales of lower-margin footwear and, to a lesser extent, increased freight costs. Selling, general and administrative expenses increased to $27,842,000, or 30.5% of net sales, in fiscal 1996 from $25,654,000, or 32.7% of net sales, in fiscal 1995. Advertising and promotion expenses increased $1,233,000 in fiscal 1996 due primarily to increased Saucony domestic television and print media advertising and, to a lesser extent, increased sponsorship of athletes. Selling expenses increased by $321,000 in fiscal 1996 due to increased selling payroll and travel costs, offset to some extent by management's initiative to reduce commissions on sales of Saucony products. General and administrative expenses increased $634,000 in fiscal 1996, due to increased administrative costs related to Quintana Roo and increased foreign costs for payroll due to increased staffing at several of the Company's foreign subsidiaries and increased professional fees. Interest expense decreased 26% to $730,000 in fiscal 1996 from $982,000 in fiscal 1995, reflecting the paydown of the Company's senior notes and debt reduction realized as a result of the sale by the Company of its limited partnership investment. Other non-operating income decreased 69% to $196,000 in fiscal 1996 from $642,000 in fiscal 1995 due to the gain realized on the sale of the Company's investment in a limited partnership which was recognized in fiscal 1995. The effective tax rate increased 19.9%, to 16.4% in fiscal 1996 from (3.5%) in fiscal 1995, due to a shift in the international mix of pre-tax earnings among taxing jurisdictions. During 1996, the Company recovered low income housing tax credits, which had previously been recaptured and reversed a foreign tax valuation allowance. The low-income housing tax credit recovery is a non-recurring event. LIQUIDITY AND CAPITAL RESOURCES As of January 2, 1998, the Company's cash and cash equivalents totaled $4,432,000, an increase of $1,629,000 from January 3, 1997. The increase was the result of the receipt of $6,841,000 from the sale of substantially all of the net assets of the Company's wholly-owned subsidiary, Brookfield Athletic Co., Inc. The increase was offset in part by an increase in accounts receivable of $1,824,000, net of the provision for bad debts and discounts of $4,887,000, and an increase in inventories of $1,301,000. The increase in accounts receivable was due to increased net sales of the Company's Saucony products and Hind products in the fourth quarter of fiscal 1997. The Company's days sales outstanding for its accounts receivable of 73 days in fiscal 1997 remained consistent with fiscal 1996. Inventories increased in fiscal 1997 due to the buildup of Hind apparel inventory. The Company's inventory turn ratio decreased to 2.5 turns in fiscal 1997 from 2.6 turns in fiscal 1996. During fiscal 1997, the Company used $1,422,000 of net cash in operating activities, expended $1,331,000 to acquire capital assets and information technology, decreased short-term borrowings by $1,063,000, expended $2,711,000 to reduce long-term debt, received $511,000 from the sale of capital assets, principally the sale of the Company's facility in Australia, and expended $140,000 to acquire the remaining shares held by the minority shareholder in the Company's Dutch subsidiary. Current maturities of long-term debt increased $1,190,000 in fiscal 1997 due primarily to the reclassification of a note payable due on January 30, 1998 from long-term debt. Principal factors (other than net income, accounts receivable, provision for bad debts and discounts and inventory) affecting the operating cash flows in fiscal 1997 included the non-recurring charge of $2,766,000 to write-down assets of the Company's Australian subsidiary to estimated realizable value, net cash provided by discontinued operations of $2,227,000, an increase in prepaid expenses of $539,000 (due to advance payments for advertising and inventory) , a decrease in accrued expenses of $296,000 (due to a change in sales commissions payment terms) and an increase in accounts payable and accrued letters of credit of $307,000 (due to the timing of inventory purchases). The strengthening of the U.S. dollar in fiscal 1997 increased the value of cash and cash equivalents by $905,000. As of January 3, 1997, the Company's cash and cash equivalents totaled $2,803,000, a decrease of $8,865,000 from January 5, 1996. The decrease was the result of an increase in accounts receivable of $4,669,000, net of the provision for bad debts and discounts of $5,269,000, an increase of $1,158,000 in inventory during fiscal 1996 and the acquisition of trademarks and trade names of an athletic apparel manufacturer for $1,250,000. The increase in accounts receivable was due to increased net sales of the Company's Saucony products in the fourth quarter of fiscal 1996 and extended payment terms given to certain of the Company's customers. The Company's days sales outstanding for its accounts receivable increased to 73 days at the end of fiscal 1996 from 61 days at the end of fiscal 1995. Inventories increased in fiscal 1996 due to an increase in production at the Company's Bangor manufacturing facility and a higher level of finished goods inventory at the Company's overseas subsidiaries. The Company's inventory turn ratio remained consistent with fiscal 1995's inventory turns ratio of 2.6 turns. During fiscal 1996, the Company used $5,224,000 of net cash to finance operating activities, expended $1,857,000 to acquire capital assets and information technology, expended $1,250,000 to acquire the trade names and trademarks of an athletic apparel manufacturer, received $78,000 from the sale of capital assets, increased short-term borrowings by $1,313,000, expended $2,364,000 to reduce long-term debt, received $69,000 from the issuance of the Company's common stock and borrowed $420,000 on a long-term basis, secured by the Company's facility in St. Peters, Australia. The Company sold this facility in November 1997. Principal factors (other than net income, accounts receivable, provision for bad debts and discounts and inventory) affecting the operating cash flows in fiscal 1996 included a decrease in accrued letters of credit and accounts payable of $1,138,000 (due to the timing of inventory shipments), an increase in accrued expenses of $733,000 (due to increased advertising and promotional spending), a decrease in prepaid expenses of $281,000 (due to a decrease in advance payments for insurance and other administrative expenses) and net cash used by discontinued operations of $2,379,000. The declining value of the U.S. dollar decreased the value of cash and cash equivalents by $50,000. The Company has a credit facility with two principal banks pursuant to which a $30,000,000 credit line is available to the Company. This credit facility, which was amended in January 1997, extends through July 31, 1998 and provides for a short-term demand line of credit in the principal amount of up to $15,000,000 and a revolving line of credit in the principal amount of $15,000,000, each subject to formula adjustment. Borrowings under this facility generally will be made at the primary bank's prime rate of interest or a euro dollar-based rate. As of January 2, 1998, there was $2,001,000 outstanding under the revolving credit facility. The Company had open commitments at such date related to letters of credit in the amount of $3,284,000. As of March 13, 1998, $6,736,000 was available for borrowing under the short-term demand line and $12,694,000 was available for borrowing under the revolving term line. The credit facility contains various covenants, including restrictions on additional indebtedness; restrictions on the payment or declaration of dividends; a minimum tangible net worth, as defined; a minimum ratio of current assets to current liabilities, as defined; a minimum annual cash flow coverage ratio; that there be no demand loans outstanding under the demand line of credit for a period of at least 30 consecutive days in each calendar year; and, fiscal quarter and annual net income requirements. Due to the non-recurring charge to reduce the carrying value of the Company's distribution facility in East Brookfield, Massachusetts, to market, the operating results applicable to the discontinued operation, the net loss realized as a result of the sale of substantially all of the assets of Brookfield Athletic Co., Inc. and the significant net loss attributable to the Company's Australian subsidiary in the fiscal quarter and fiscal year ended January 2, 1998, the Company was unable to comply with the minimum tangible net worth, the minimum annual cash flow coverage ratio and the net income requirements for both the fourth quarter of fiscal 1997 and fiscal 1997. In addition, borrowings by certain of the Company's foreign subsidiaries in fiscal 1997 caused the Company to violate the requirement that there be no demand borrowings under the demand credit line for a period of at least 30 consecutive days. The banks have waived the foregoing covenant violations as of January 2, 1998 and have waived prospective violations of such covenants, as well as violation of an additional covenant relating to the ratio of the Company's current assets to current liabilities, as of April 3, 1998. The Company currently plans to renegotiate its credit agreement during the second quarter of fiscal 1998. Certain of the Company's foreign subsidiaries have credit facilities, consisting of demand and/or revolving lines of credit, in the aggregate principal amount of approximately $4,607,000. As of February 28, 1998, an aggregate of approximately $1,842,000 was available for borrowing under the facilities of the foreign subsidiaries. See Note 9 of Notes to Consolidated Financial Statements. On April 29, 1988, Hyde issued to a life insurance company $12,000,000 of 9.70% senior notes due April 29, 1998. The notes provide for semi-annual payments of interest, payable in April and October of each year, continuing to April 1998, and annual payments of principal of $2,000,000 each from April 1993 to and including April 1998. The note purchase agreement relating to the notes contains restrictive covenants commonly found in such agreements. See Note 6 of Notes to Consolidated Financial Statements. During 1996, the Company acquired an information technology hardware system at a cost of $991,000 pursuant to a long-term capital lease. The lease provides for a bargain purchase option at the conclusion of the lease term. At January 2, 1998, the Company had various commitments for capital expenditures, including information technology systems. The Company believes that these commitments are not significant. The liquidity of the Company is contingent upon a number of factors, principally the Company's future operating results. Management believes that the Company's current cash and cash equivalents, credit facilities and internally generated funds are adequate to meet its working capital requirements and to fund its capital investment needs and debt service payments. INFLATION AND CURRENCY RISK The effect of inflation on the Company's results of operations over the past three years has been minimal. The impact of currency fluctuation on the purchase of inventory by the Company from foreign suppliers has been minimal as the transactions were denominated in U.S. dollars. The Company, however, is subject to currency fluctuation risk with respect to the operating results of the Company's foreign subsidiaries and certain foreign currency denominated payables. The Company has entered into certain forward foreign exchange contracts to minimize the transaction currency risk. YEAR 2000 The Company has evaluated and documented the effect of the turn-of-the-century on its computer hardware, operating systems and software applications. A plan is in place to correct year 2000 problems in the Company's long-term, technical assets. This plan is substantially funded by existing maintenance contracts and by normal, recurring upgrades to the computer systems. Correcting year 2000 problems in the Company's long-term technical assets will not have a material impact on the Company's consolidated financial position. The Company has also considered the impact of the year 2000 issue on its customers and suppliers. The footwear and apparel industry is less advanced, in terms of automation, than many other industries. Customers have shared their awareness of the year 2000 issue with the Company, but have not provided management with formal year 2000 compliance reports. The Company's suppliers of raw materials and components are less technically sophisticated than the Company's customers, often relying on personal computers and manual systems for their own business needs. However, the apparel and footwear industry is characterized by numerous companies competing in an open market. No customer makes up 10% of sales volume. Purchase contracts and sources of supply can be negotiated and geographically moved within a six-month period. For these reasons, management does not expect a major disruption in supply of inventory or a major decline in customer purchases as the year 2000 approaches. SFAS 123 The Financial Accounting Standards Board issued Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123) in October 1995. SFAS 123 establishes the financial accounting and reporting standards for all stock-based compensation. SFAS 123 prescribes a fair value method of accounting for stock options and other similar equity instruments and encourages companies to adopt this accounting treatment for all stock-based compensation plans. However, under SFAS 123, companies are permitted to continue to measure compensation expense using the intrinsic value based method of accounting as prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," provided that pro forma disclosures are made of net income and earnings per share had the fair value method been adopted. SFAS 123 is effective for fiscal years commencing after December 15, 1995. As permitted by SFAS 123, the Company has continued to account for employee stock compensation expense under the precepts of APB Opinion No. 25. See Note 11 of Notes to the Consolidated Financial Statements for pro forma disclosures of net income and earnings per share, calculated utilizing the fair value method prescribed under SFAS 123. SFAS 128 During the first quarter of 1997, the Financial Accounting Standards Board issued Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 is intended to improve the Earnings Per Share ("EPS") information contained in the financial statements by simplifying the calculation of earnings per share, revising the disclosure requirements, and achieving comparability with international accounting standards. SFAS 128 is effective for both interim and annual financial statements for periods after December 15, 1997. The impact of adopting SFAS 128 on basic and diluted EPS was not material. SFAS 130 The Financial Accounting Standards Board issued Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) in June 1997. SFAS 130 defines and establishes the financial accounting and reporting standards for comprehensive income. As used in SFAS 130, comprehensive income encompasses net income and other components of comprehensive income that are excluded from net income under Generally Accepted Accounting Principles. These previously excluded components of comprehensive income are limited to the following: foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities classified as available-for-sales securities. SFAS 130 is effective for fiscal years commencing after December 15, 1997, with earlier adoption permitted. The Company will incorporate SFAS 130 into its Form 10-Q filing for the quarter ending April 3, 1998. The Company has not determined the impact of adopting SFAS 130 on the consolidated financial statements. SFAS 131 The Financial Accounting Standards Board issued Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) in June 1997. SFAS 131 establishes the reporting standards for operating segments in annual financial statements and requires selected information on operating segments in interim financial statements. SFAS 131 revises the disclosure requirements for segment reporting by defining the characteristics and quantitative thresholds for which segment information is required to be disclosed. SFAS 131 is effective for fiscal years commencing after December 15, 1997, application of which is not required to interim periods during the initial year of adoption. The Company expects to incorporate the added disclosure requirements of SFAS 131 into its Form 10-K filing for the fiscal year ending January 1, 1999. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Annual Report and presented elsewhere by management from time to time. Competition. Competition is intense in the markets in which the Company sells its products. The Company competes with a large number of other companies, both domestic and foreign, several of which have diversified products lines, well-known brands and financial, distribution and marketing resources substantially greater than those of the Company. The principal competitors for the Company's Saucony products are Nike, New Balance and ASICS. The principal competitors for the Company's Hind products are Nike, Pearl Izumi and Speedo. The principal competitors for the Company's Quintana Roo and Merlin products are Cannondale and Trek. Dependence On Foreign Suppliers. A number of manufacturers located in the Far East, primarily in China, Taiwan and Thailand, supply products and product components to the Company. During fiscal 1997, one of such suppliers, located in China, accounted for approximately 41% of the Company's total purchases by dollar volume. The Company is subject to the usual risks of a business involving foreign suppliers, such as currency fluctuations, government regulation of fund transfers, export and import duties, trade limitations imposed by the United States or foreign governments and political and labor instability. In particular, there are a number of trade-related and other issues creating significant friction between the governments of the United States and China, and the imposition of punitive import duties on certain categories of Chinese products has been threatened in the past and may be implemented in the future. In addition, the Company has no long-term manufacturing agreements with its foreign suppliers and competes with other athletic shoe and recreational product companies, including companies that are much larger than the Company, for access to production facilities. Foreign Currency Exchange. From time to time, the Company's financial results have been adversely affected by the fluctuations in currency exchange rates. There can be no assurance that the Company's efforts to reduce currency exchange losses will be successful or that currency exchange rates will not have an adverse impact on the Company's future operating results and financial condition. Potential Fluctuations In Quarterly Results. The Company's quarterly operating results may vary significantly depending on a number of factors, including the timing and shipment of individual orders, market acceptance of new athletic footwear and other products offered by the Company, changes in the Company's operating expenses, personnel changes, mix of products sold, changes in product pricing and general economic conditions. In addition, a substantial portion of the Company's revenue is realized during the last few weeks of each quarter; therefore, any delays in orders or shipments are more likely to result in revenue not being recognized until the following quarter, which could adversely impact the results of operations for that quarter. The Company's current expense levels are based in part on its expectations of future revenue and, as a result, net income for a given period could be disproportionately affected by any reduction in revenue. It is possible that in some future quarter the Company's revenue or operating results will be below the expectations of stock market securities analysts and investors; if that were to occur, the market price of the Common Stock could be materially adversely affected. Management Of Growth. One element of the Company's business strategy is to seek acquisitions of businesses and products that are complementary to those of the Company. There can be no assurance that the Company will be able to effect any acquisitions, operate any such acquired businesses profitably or otherwise implement its growth strategy successfully. In addition, identifying and effecting acquisitions and integrating the acquired businesses with the operations of the Company may place significant demands upon the current management team and operational systems of the Company. In order to effect acquisitions of a certain size, the Company may require additional capital, which the Company may obtain through additional borrowings under its credit facility or otherwise. Dependence On Consumer Preferences. The Company is susceptible to fluctuations in its business based upon fashion trends and frequently changing consumer style preferences and product demands, including levels of enthusiasm for athletic activities. The Company believes that its success depends in substantial part on its ability to anticipate, gauge and respond to changing consumer demands and fashion trends in a timely manner. Moreover, the Company could be materially adversely affected by conditions in the retail industry in general, including consolidation and the resulting decline in the number of retailers and other cyclical economic factors. Discretionary Consumer Spending. Purchases of bicycles, particularly high-performance models such as those offered by the Company, and the Company's other products are discretionary for consumers. The success of the Company is influenced by a number of economic factors affecting disposable consumer income, such as employment levels, business conditions, interest rates and taxation rates. Adverse changes in these economic factors may restrict consumer spending, thereby negatively affecting the Company's growth and profitability. Advertising And Marketing Programs. The Company's success in the markets in which it competes depends in part upon the effectiveness of advertising and marketing programs of the Company. In particular, the Company must periodically design and successfully execute new and effective advertising and marketing programs. Dependence On Major Customers. Although the Company had no customer that accounted for ten percent or more of the Company's consolidated revenue during 1997, the Company's business is susceptible to the loss of certain key customers of the Company's product lines, such as Foot Locker for the Company's Saucony products. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to the Company's Consolidated Financial Statements in Item 14 and the accompanying consolidated financial statements, notes and schedules which are filed as part of this Form 10-K following the signature page and are incorporated herein by this reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is contained in part under the caption "Executive Officers of the Registrant" in PART I hereof, and the remainder is contained in the Company's Proxy Statement for the Company's Annual Meeting of Stockholders to be held on May 14, 1998 (the "1998 Proxy Statement") under the captions "ELECTION OF DIRECTORS" and "SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" and is incorporated herein by this reference. The Company expects to file the 1998 Proxy Statement within 120 days after the close of the fiscal year ended January 2, 1998. Officers are elected on an annual basis and serve at the discretion of the Board of Directors. ITEM 11 - EXECUTIVE COMPENSATION The information required by this item is contained under the captions "Compensation of Directors," "Compensation of Executive Officers," "Employment and Consulting Agreements and Other Arrangements" and "Compensation Committee Interlocks and Insider Participation" in the 1998 Proxy Statement and is incorporated herein by this reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained in the 1998 Proxy Statement under the caption "Stock Ownership of Certain Beneficial Owners and Management" and is incorporated herein by this reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained under the caption "Employment and Consulting Agreements and Other Arrangements" appearing in the 1998 Proxy Statement and is incorporated herein by this reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Index to Consolidated Financial Statements The following consolidated financial statements of Hyde Athletic Industries, Inc. and its subsidiaries are included in this report: Reports of Independent Accountants Consolidated balance sheets at January 2, 1998 and January 3, 1997. Consolidated statements of income for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 Consolidated statements of stockholders' equity for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 Consolidated statements of cash flows for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 Notes to the consolidated financial statements 2. Index to Consolidated Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. Separate financial statements of the Company have been omitted since it is primarily an operating Company and its subsidiaries included in the consolidated financial statements do not have a minority equity interest or indebtedness to any person other than the Company in an amount which exceeds 5% of the total assets as shown by the consolidated financial statements as filed herein. 3. Index to Exhibits The exhibits filed as part of this Form 10-K/A are listed on the Exhibit Index immediately preceding such exhibits, which Exhibit Index is incorporated herein by reference. (b) 1. Reports on Form 8-K No Current Reports on Form 8-K were filed in the fourth quarter of fiscal 1997. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HYDE ATHLETIC INDUSTRIES, INC. (registrant) By: /s/ John H. Fisher John H. Fisher President and Chief Executive Officer Date: April 9, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME CAPACITY DATE /s/ John H. Fisher President April 9, 1999 John H. Fisher Chief Executive Officer Director / s/ Charles A. Gottesman Executive Vice President April 9, 1999 Charles A. Gottesman Chief Operating Officer Director /s/ Terence P. Chin Senior Vice President April 9, 1999 Terence P. Chin Chief Financial Officer /s/ Roger P. Deschenes Vice President, Controller April 9, 1999 Roger P. Deschenes Chief Accounting Officer /s/ John J. Neuhauser Director April 9, 1999 John J. Neuhauser /s/ John M. Connors, Jr. Director April 9, 1999 John M. Connors, Jr. /s/ Robert J. LeFort, Jr. Director April 9, 1999 Robert J. LeFort, Jr. /s/ Phyllis H. Fisher Director April 9, 1999 Phyllis H. Fisher
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Hyde Athletic Industries, Inc. We have audited the consolidated balance sheets of Hyde Athletic Industries, Inc. and Subsidiaries as of January 2, 1998 and January 3, 1997 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended January 2, 1998. We have also audited the financial statement schedule listed in Item 14(a) of this Form 10-K. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We did not audit the financial statements of Saucony SP Pty. Ltd., a fifty percent owned consolidated joint venture, as of January 2, 1998 and January 3, 1997 and for the two years in the period ended January 2, 1998, which statements reflect total assets of six percent and thirteen percent of consolidated assets at January 2, 1998 and January 3, 1997, respectively, and total revenues of eleven percent and twelve percent of consolidated revenues for the years ended January 2, 1998 and January 3, 1997, respectively. Those statements were audited by other auditors whose report has been furnished to us, and in our opinion expressed herein, insofar as it relates to the amounts included for Saucony SP Pty. Ltd. (before adjustments to U.S. GAAP) is based solely on the report of the auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hyde Athletic Industries, Inc. and Subsidiaries at January 2, 1998 and January 3, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1998, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. We also audited the translation of the financial statements of Saucony SP Pty. Ltd., in Australian dollars to U.S. dollars as well as other adjustments required to ensure that the financial statements are in accordance with U.S. GAAP as of January 2, 1998 and January 3, 1997 and for the two years in the period ended January 2, 1998. As discussed in Note 21, the financial statements for 1995, 1996 and 1997 have been restated. Boston, Massachusetts April 2, 1998 INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SAUCONY SP PTY., LIMITED Scope We have audited the financial statements of Saucony SP Pty., Ltd., comprising the Australian statutory accounts (which are not separately presented herein), for the year ended 2 January 1998. The Company's directors are responsible for the financial statements. We have conducted an independent audit of these financial statements in order to express an opinion on them to the members of the Company. Our audit has been conducted in accordance with Australian auditing standards, which are substantially the same as auditing standards generally accepted in the United States, to provide reasonable assurance as to whether the financial statements are free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial statements are presented fairly in conformity with generally accepted accounting principles and so as to present a view which is consistent with our understanding of the Company's financial position, the results of its operations and its cash flows. The audit opinion expressed in this report has been formed on the above basis. Audit Opinion In our opinion, the financial statements of Saucony SP Pty Limited are properly drawn up so as to present fairly, in all material respects, the Company's financial position as at 2 January 1998 and 3 January 1997, and the results of their operations and their cash flows for each of the three years in the period ended 2 January 1998 in accordance with accounting principles generally accepted in Australia which differ in certain aspects from those followed in the United States. Going Concern Basis of Accounting Without qualification to the opinion expressed above, attention is drawn to Note 1 of the financial statements. Notwithstanding the deficiency of working capital and net assets, the financial statements have been prepared to on a going concern basis as the directors have received an undertaking of continued financial support from the directors of Hyde Athletic Industries, Inc. and the directors believe that such financial support will be continued to be made available. GRANT THORNTON Chartered Accountants /s/ Grant Thornton /s/ B.R. Gordon Partner Sydney, NSW Australia April 2, 1998 HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS ASSETS (in thousands) January 2, January 3, 1998 1997 Current assets: Cash and cash equivalents $ 4,432 $ 2,803 Marketable securities (Note 2) 148 236 Accounts receivable, net of allowance for doubtful accounts and discounts (1997, $2,032; 1996, $1,234) (Note 3) 18,636 18,403 Inventories (Note 4) 23,471 24,537 Deferred income taxes (Note 12) 2,034 1,687 Prepaid expenses and other current assets 1,518 1,527 Net assets of discontinued operations (Note 13) -- 8,939 ---------- --------- Total current assets 50,239 58,132 ---------- --------- Property, plant and equipment, net of accumulated depreciation and amortization (Note 5) 8,135 9,027 ---------- --------- Other assets: Deferred charges, net of accumulated amortization (1997, $1,843; 1996, $1,558) 491 1,380 Long-term accounts and notes receivable (Note 3) 114 138 Goodwill, net of accumulated amortization (1997, $42; 1996, $0) (Note 17) 1,238 1,250 Investment in limited partnership (Note 6) 653 753 Deferred income taxes (Note 12) 353 -- Other 93 72 ---------- --------- Total other assets 2,942 3,593 ---------- --------- Total assets $ 61,316 $ 70,752 ========== ========= See notes to consolidated financial statements
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) January 2, January 3, 1998 1997 Current liabilities: Accrued letters of credit (Note 9) $ 1,201 $ 1,849 Notes payable (Note 9) 2,885 4,237 Current portion of long-term debt and capital lease obligations (Notes 6 & 7) 3,639 2,449 Accounts payable 2,680 2,091 Accrued expenses (Note 9) 2,910 3,337 ---------- ---------- Total current liabilities: 13,315 13,963 ---------- ---------- Long-term obligations: Long-term debt, net of current portion (Note 6) 25 3,885 Capital lease obligations, net of current portion (Note 7) 746 1,008 Deferred income taxes (Note 12) 1,819 1,924 Other obligations 144 -- ---------- ---------- Total long-term obligations 2,734 6,817 ---------- ---------- Commitments and contingencies (Note 9) Minority interest in consolidated subsidiaries 195 488 ---------- ---------- Stockholders' Equity (Notes 10 & 11) Preferred stock, $1.00 par; authorized 500,000 shares; none issued and outstanding -- -- Common stock: Class A, $.333 par; authorized 20,000,000 shares (issued 1997, 2,706,227; 1996, 2,706,227) 902 902 Class B, $.333 par; authorized 20,000,000 shares (issued 1997, 3,743,487; 1996, 3,729,059) 1,248 1,243 Additional paid-in capital 15,652 15,581 Retained earnings 28,781 33,111 Accumulated translation (417) (234) ----------- ----------- 46,166 50,603 ---------- ---------- Less: Common stock held in treasury, at cost (1997, 198,400; 1996, 198,400) (1,054) (1,054) Unearned compensation (40) (65) ----------- ----------- 45,072 49,484 ---------- ---------- Total liabilities and stockholders' equity $ 61,316 $ 70,752 ========== ========== See notes to consolidated financial statements
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
(in thousands; per-share amounts in dollars) 1997 1996 1995 ---- ---- ---- Net sales $ 93,611 $ 91,341 $ 78,549 Other revenue (Note 15) 351 538 291 ---------- ---------- ---------- Total revenue 93,962 91,879 78,840 ---------- ---------- ---------- Costs and expenses: Cost of sales 63,511 61,692 52,695 Selling expenses 16,698 16,065 14,511 General and administrative expenses (Note 9) 13,412 11,777 11,143 Writedown of impaired real estate (Note 14) 850 -- -- Writedown of Australian assets (Note 14) 1,426 -- -- ---------- ---------- ---------- Total costs and expenses 95,897 89,534 78,349 ---------- ---------- ---------- Operating income (loss) (1,935) 2,345 491 Non-operating income (expense) Interest expense, net (817) (730) (982) Foreign currency (1,127) 171 77 Other 79 196 642 ---------- ---------- ---------- Income (loss) before income taxes and minority interest (3,800) 1,982 228 Provision (benefit) for income taxes (Note 12) 355 325 (8) Minority interest in income (loss) of consolidated subsidiaries (123) 308 (286) ----------- ---------- ----------- Income (loss) from continuing operations (4,032) 1,349 522 Discontinued operations (Notes 13 and 21): Income (loss) from discontinued operations (net of tax expense (benefit) expense ($262), ($159) and $584, respectively) (394) (243) 863 Gain on disposal of Brookfield business, net of operating loss of $243 during the phase-out period (net of tax expense of $78) 96 -- -- ---------- ---------- ---------- Net income (loss) (Note 11) $ (4,330) $ 1,106 $ 1,385 =========== ========== ========== Earnings per common share - basic (Note 11): Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08 Income (loss) from discontinued operations (0.05) (0.04) 0.14 ----------- ----------- ---------- Net income (loss) per common share - basic $ (0.70) $ 0.18 $ 0.22 =========== ========== ========== Earnings per common share - diluted (Note 11) Income (loss) from continuing operations $ (0.65) $ 0.22 $ 0.08 Income (loss) from discontinued operations (0.05) (0.04) 0.14 ----------- ----------- ---------- Net income (loss) per common share - diluted $ (0.70) $ 0.18 $ 0.22 =========== ========== ========== See notes to consolidated financial statements
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
Common Stock Paid-In Retained Class A Class B Capital Earnings Balance, December 30, 1994 $ 901 $ 1,237 $ 15,593 $30,620 Issuance of 1,400 shares of common stock, stock option exercise (Note 10) 1 -- 3 -- Cancellation of below market options (Note 11) -- -- (75) -- Amortization of unearned compensation (Note 11) -- -- -- -- Acquisition of 17,700 shares of common stock, at cost (Note 10) -- -- -- -- Net income -- -- -- 1,385 Foreign currency translation adjustments -- -- -- -- ------ ------- -------- ------- Balance, January 5, 1996 $ 902 $ 1,237 $ 15,521 $32,005 Issuance of 19,744 shares of common stock, stock option exercise (Note 10) -- 6 63 -- Cancellation of below market options (Note 11) -- -- (3) -- Amortization of unearned compensation (Note 11) -- -- -- -- Net income -- -- -- 1,106 Foreign currency translation adjustments -- -- -- -- ------ ------- -------- ------- Balance, January 3, 1997 $ 902 $ 1,243 $ 15,581 $33,111 Issuance of 14,428 shares of common stock, stock option exercise (Note 10) -- 5 34 -- Cancellation of below market options (Note 11) -- -- (15) -- Issuance of below market options and restricted stock -- -- 52 -- Amortization of unearned compensation (Note 11) -- -- -- -- Net loss -- -- -- (4,330) Foreign currency translation adjustments -- -- -- -- ------ ------- -------- ------- Balance, January 2, 1998 $ 902 1,248 15,652 28,781 ====== ======= ======== =======
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
Treasury Stock Unearned Accumulated Stockholders' Shares Amount Compensation Translation Equity Balance, December 30, 1994 180,700 $ (977) $(447) $ (171) $ 46,756 Issuance of 1,400 shares of common stock, stock option exercise (Note 10) -- -- -- -- 4 Cancellation of below market options (Note 11) -- -- 75 -- -- Amortization of unearned compensation (Note 11) -- -- 178 -- 178 Acquisition of 17,700 shares of common stock, at cost (Note 10) 17,700 (77) -- -- (77) Net income -- -- -- -- 1,385 Foreign currency translation adjustments -- -- -- (86) (86) -------- -------- ----- ------- ---------- Balance, January 5, 1996 198,400 $ (1,054) $(194) $ (257) $ 48,160 Issuance of 19,744 shares of common stock, stock option exercise (Note 10) -- -- -- -- 69 Cancellation of below market options (Note 11) -- -- 3 -- -- Amortization of unearned compensation (Note 11) -- -- 126 -- 126 Net income -- -- -- -- 1,106 Foreign currency translation adjustments -- -- -- 23 23 -------- -------- ----- ------ --------- Balance, January 3, 1997 198,400 $ (1,054) $ (65) $ (234) $ 49,484 Issuance of 14,428 shares of common stock, stock option exercise (Note 10) -- -- -- -- 39 Cancellation of below market options (Note 11) -- -- 15 -- -- Issuance of below market options and restricted stock -- -- (52) -- -- Amortization of unearned compensation (Note 11) -- -- 62 -- 62 Net loss -- -- -- -- (4,330) Foreign currency translation adjustments -- -- -- (183) (183) -------- -------- ----- ------- ---------- Balance, January 2, 1998 198,400 $ (1,054) $ (40) $ (417) $ 45,072 ======== ========= ====== ======= ========= See notes to consolidated financial statements
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 2, 1998,JANUARY 3, 1997 AND JANUARY 5, 1996 (in thousands) 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income (loss) $ (4,330) $ 1,106 $ 1,385 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Writedown of Australian assets 2,766 -- -- Discontinued operations 298 243 (863) Depreciation and amortization 1,594 1,452 1,113 Provision for bad debt and discounts 4,887 5,269 4,807 (Gain) loss on sale of equipment (91) 22 2 Deferred income tax benefit (1,269) (217) (369) Minority interest in (income) loss of consolidated subsidiaries (123) 308 (286) Compensation from stock grants and stock options 62 126 178 Gain on sale of investment in limited partnership -- -- (426) Writedown of impaired real estate 850 -- -- Changes in operating assets and liabilities, net of effects of acquisitions, dispositions and foreign currency adjustments: Decrease (increase) in assets: Marketable securities 88 71 (308) Accounts and notes receivable (6,711) (9,938) (157) Inventories (1,301) (1,158) 4,104 Prepaid expenses and other current assets (539) 281 (45) Increase (decrease) in liabilities: Accrued letters of credit (612) (613) 1,189 Accounts payable 919 (525) (655) Accrued expenses (296) 733 (1,415) Accrued income taxes 159 (5) (749) --------- ---------- --------- Total adjustments 681 (3,951) 6,120 --------- ---------- -------- Net cash provided (used) by continuing operations (3,649) (2,845) 7,505 ---------- ---------- -------- Net cash provided (used) by discontinued operations 2,227 (2,379) 3,621 --------- ---------- -------- Net cash provided (used) by operating activities (1,422) (5,224) 11,126 ---------- ---------- -------- Cash flows from investing activities: Proceeds from the sale of Brookfield business 6,841 -- -- Purchases of property, plant and equipment (1,305) (791) (569) Proceeds from the sale of equipment 511 78 32 Increase in deferred charges and other (26) (1,066) (469) Investment distribution from limited partnership -- -- 29 Payments for trademarks and trade names -- (1,250) -- Payments for business acquisitions (140) -- (112) Proceeds from sale of investment in limited partnership -- -- 1,335 --------- --------- -------- Net cash provided (used) by investing activities 5,881 (3,029) 246 --------- ---------- --------
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
(in thousands) 1997 1996 1995 ---- ---- ---- Cash flows from financing activities: Net short-term borrowings (1,063) 1,313 (30) Repayment of long-term debt and capital lease obligations (2,711) (2,364) (2,887) Proceeds from long-term borrowings -- 420 -- Common stock repurchased -- -- (77) Payment of termination benefit payable -- -- (27) Issuances of common stock, including options 39 69 4 --------- --------- --------- Net cash used by financing activities (3,735) (562) (3,017) ---------- ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 905 (50) (37) --------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,629 (8,865) 8,318 Cash and cash equivalents at beginning of period 2,803 11,668 3,350 --------- --------- --------- Cash and cash equivalents at end of period $ 4,432 $ 2,803 $ 11,668 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes, net of refunds $ 663 $ 736 $ 1,936 ========= ========= ========= Interest $ 887 $ 959 $ 1,534 ========= ========= ========= Non-cash Investing and Financing Activities: Property purchased under capital leases $ 86 $ 1,234 $ 138 Reconciliation of assets acquired and liabilities assumed, business acquisitions Assets acquired -- -- $ 232 Liabilities assumed -- -- 120 --------- --------- --------- Cash paid for business acquisitions $ -- $ -- $ 112 ========= ========= ========= Sale of investment in limited partnership Cash received, net of broker fees -- -- $ 1,335 Reduction in short-term debt, long-term debt and accrued liabilities -- -- 4,056 --------- --------- --------- Net proceeds -- -- 5,391 Investment in limited partnership, net of distributions -- -- 4,965 --------- --------- --------- Gain realized on sale -- -- $ 426 ========= ========= ========= See notes to consolidated financial statements
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended January 2, 1998, January 3, 1997 and January 5, 1996 1. Summary of Significant Accounting Policies: Business Activity The Company is an importer and manufacturer of a broad line of high-performance athletic footwear, athletic apparel and high-quality bicycles and bicycle frames. The Company markets its products principally to domestic and international retailers and distributors. Reporting Period The Company adopted a 52-53 week fiscal year reporting period in 1991. The consolidated financial statements and notes for 1997, 1996 and 1995 represent the fiscal years ended January 2, 1998, January 3, 1997 and January 5, 1996, respectively. In management's opinion, the consolidated financial statements for 1997, 1996 and 1995 are comparable. Principles of Consolidation The consolidated financial statements include the accounts of Hyde Athletic Industries, Inc. and its wholly-owned subsidiaries, Spot-Bilt, Inc., Hyde Transition Corp. (formerly Brookfield Athletic Co., Inc.), Saucony, Inc., Saucony Deutschland Vertriebs GmbH (Germany), Quintana Roo, Inc. and Hyde International Services Limited (Hong Kong), and its majority-owned foreign subsidiary, Saucony Canada, Inc., all herein referred to as the "Company". Hyde International Services Limited owns a controlling interest in a subsidiary called Saucony SP Pty Limited (Australia). (See Note 14 of Notes to Consolidated Financial Statements.) Saucony, Inc. owns a wholly-owned subsidiary called Saucony Sports BV (Netherlands). The Company also operates a branch in the United Kingdom called Saucony UK and maintains a marketing representative office in Germany called Saucony Europe. Saucony GmbH and Quintana Roo, Inc. are included in the consolidated financial statements beginning in December 1994 and August 1995, respectively. Saucony Shoe Manufacturing Co., Inc., an inactive wholly-owned domestic subsidiary, was dissolved in 1992. Hyde Security Corp., a wholly-owned domestic subsidiary, was dissolved in 1996. During 1997, the Company sold substantially all of the assets of Brookfield Athletic Co., Inc. The effects of transactions among related companies are eliminated in the consolidated financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Sales, net of discounts, and related costs of sales are recognized upon shipment of products. Inventories Inventories are stated at lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment Land, buildings and equipment, including significant improvements to existing facilities, are stated at cost. The assets are depreciated over their estimated useful lives or capital lease terms, if shorter, using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives of the assets are: 33 years for buildings and improvements and 3 to 15 years for office equipment and machinery and equipment. Major renewals and betterments are capitalized. Maintenance, repairs and minor property renewals are expensed as incurred. The cost and related accumulated depreciation of all property, plant and equipment retired or otherwise disposed of, are removed from the accounts. Any gain or loss, resulting from the retirement or disposition of property, plant and equipment, is included in consolidated net income. Investments The Company's investment in a real estate limited partnership is valued at its net realizable value. It is management's intention to retain this investment for its long-term tax benefit. Investments in Marketable Securities Investment in debt securities and marketable securities are categorized as trading, held-to-maturity or available-for-sale. Trading securities are reported at fair value, with changes in fair value recorded in consolidated net income. Investment securities include both available-for-sale and held-to-maturity securities. Available-for-sale securities are reported at fair value, with net unrealized gains and losses included as a separate component of stockholders' equity. Held-to-maturity debt securities are reported at amortized cost. For all investments, unrealized losses, other than temporary losses, are recognized in consolidated net income. Deferred Charges and Goodwill Deferred charges consist primarily of bond issuance, trademarks, financing and organization costs. The deferred charges are amortized on the straight-line basis over the term of the debt; organization costs and trademarks are amortized over five years; goodwill, representing the excess of the purchase price over the estimated fair value of the net assets of the acquired business, is being amortized over the period of expected benefit of fifteen years. Income Taxes The provision for income taxes is calculated according to the precepts of Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes". Under SFAS No. 109, income taxes are provided for the amount of taxes payable or refundable in the current year and for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. As a result of recognition and measurement differences between tax laws and financial accounting standards, temporary differences arise between the amount of taxable income and pretax financial income for a year and the tax bases of assets or liabilities and their reported amount in the financial statements. The deferred tax assets and liabilities reported as of January 2, 1998 and January 3, 1997 reflect the estimated future tax effects attributable to temporary differences and carryforwards based on the provisions of enacted tax law. Earnings per Share Earnings per common share is calculated in accordance with the precepts of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128), which was issued in 1997 by the Financial Accounting Standards Board. SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes the dilutive effect of options, warrants and convertible securities. Diluted earnings per share is very similar to fully diluted earnings per share. As required under SFAS 128, all previously reported per share amounts have been restated. Statements of Cash Flows For purposes of these statements, cash equivalents include all short-term deposits with an original maturity of three months or less purchased in connection with the Company's cash management program. Foreign Currency Translation The financial statements of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders' equity. Foreign currency transaction gains and losses are included in consolidated net income. Forward Foreign Currency Exchange Contracts From time to time, the Company enters into forward foreign currency exchange contracts to hedge certain foreign currency denominated payables. Gains and losses on forward exchange contracts are deferred and offset against foreign currency exchange gains or losses on the underlying hedged item. Reclassifications Certain items in prior years' consolidated financial statements have been reclassified to conform to the 1997 presentation. The results of operations for Brookfield Athletic Co., Inc. for the fiscal years ended January 2, 1998, January 3, 1997 and January 5, 1996 have been segregated from continuing operations and are reported separately as discontinued operations. Advertising and Promotion Advertising and promotion cost, including print media production cost, are expensed as incurred, with the exception of co-operative advertising, which is accrued and the advertising costs expensed in the period of revenue recognition. Advertising and promotion expense amounted to $8,543,000, $8,743,000 and $7,508,000 for 1997, 1996 and 1995, respectively. Research and Development Expenses Expenditures for research and development of products are expensed as incurred. Research and development expenses amounted to approximately $1,513,000, $1,417,000 and $1,438,000 for 1997, 1996 and 1995, respectively. Related Party Transactions Saucony Sports BV, a wholly-owned foreign subsidiary, leased office space and office equipment from an entity controlled by the former minority stockholder of Saucony Sports BV. Rent expense amounted to $12,442 and $70,980 for 1996 and 1995, respectively. The Company issued a note payable to the minority stockholder of Saucony Canada, Inc., a majority-owned foreign subsidiary, as part of the consideration paid to acquire an 85% interest in the former Canadian distributor. Interest expense incurred amounted to $7,038 for 1995. See Note 6 of the Notes to Consolidated Financial Statements for further discussion of the note agreement. During 1995, the Company prepaid the note and realized a discount of $13,759 which is included in 1995 consolidated net income. The Company entered into a consulting agreement with a principal stockholder of the Company's Class A Common Stock, beginning January 4, 1993. The agreement, as amended, was effective for a term of five years, provided for an annual fee of $40,000 during each of the first two years of the agreement and $90,000 for each of the final three years of the agreement. Included in general and administrative expenses for 1997, 1996 and 1995 are consulting fees of $90,000, $90,000 and $90,000, respectively. As of January 2, 1998, the agreement had not been renewed. The Company presently holds a note receivable of $100,000 from a former officer of the Company. The promissory note, originated from a transaction in 1993, is collateralized by a mortgage from the former officer on two parcels of real estate. See Note 3 of the Notes to Consolidated Financial Statements for further discussion of the terms and conditions of the promissory note. New Accounting Pronouncements During the first quarter of 1997, the Financial Accounting Standards Board issued Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128). SFAS 128 is intended to improve the Earnings Per Share ("EPS") information contained in the financial statements by simplifying the calculation of earnings per share, revising the disclosure requirements, and achieving comparability with international accounting standards. SFAS 128 is effective in financial statements for periods ending after December 15, 1997, and has been adopted by the Company in fiscal 1997. The Financial Accounting Standards Board issued Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) in June 1997. SFAS 130 defines and establishes the financial accounting and reporting standards for comprehensive income. As used in SFAS 130, comprehensive income encompasses net income and other components of comprehensive income that are excluded from net income under generally accepted accounting principles. These previously excluded components of comprehensive income are limited to the following: foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities classified as available-for-sales securities. SFAS 130 is effective for fiscal years commencing after December 15, 1997, with earlier adoption permitted. The Company will incorporate SFAS 130 into the Form 10-Q filing for the quarter ending April 3, 1998. The Company has not determined the impact of adopting SFAS 130 on the consolidated financial statements. The Financial Accounting Standards Board issued Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) in June, 1997. SFAS 131 establishes the reporting standards for operating segments in annual financial statements and requires selected information on operating segments in interim financial statements. SFAS 131 revises the disclosure requirements for segment reporting by defining the characteristics and quantitative thresholds for which segment information is required to be disclosed. SFAS 131 is effective for fiscal years commencing after December 15, 1997, application of which is not required to interim periods during the initial year of adoption. The Company expects to incorporate the added disclosure requirements of SFAS 131 into its Form 10-K filing for the fiscal year ending January 1, 1999. 2. Marketable Securities: As of January 2, 1998, the Company's holdings in marketable securities consisted primarily of equity securities which were classified as trading securities. The cost of the securities held at January 2, 1998 and January 3, 1997 was $138,000 and $171,000, respectively. As of January 2, 1998 and January 3, 1997, the market value of such securities was $148,000 and $236,000, respectively. Gross unrealized gains of $2,000 and $65,000, based on quoted market prices, are included in consolidated net income for the years ended January 2, 1998 and January 3, 1997. Included in the determination of net income for the years ended January 2, 1998 and January 3, 1997 and January 5, 1996 were: 1997, net realized gains of $22,000 and net unrealized gains of $2,000; 1996, net realized gains of $10,000 and net unrealized gains of $65,000; and 1995, net unrealized gains of $20,000. 3. Accounts and Notes Receivable: During 1995, the Company exchanged inventory having a fair value of $1,055,000 for $100,000 in cash, receipt of which occurred in March 1996, and media and trade receivable barter credits amounting to $955,000, realizing gross profit of $345,000. The media and trade receivable barter credits expire on November 14, 1998. As of January 3, 1997, $300,000 of barter credits were outstanding and are included in net assets of discontinued operations. The carrying value of the credits at January 3, 1997 reflects restatements of prior reported carrying values and includes the reversal of $345,000 ($206,000 after tax, or $0.04 per diluted share) of gross profit reported in fiscal 1995 as well as an impairment charge of $650,000 ($388,000 after tax, or $0.06 per diluted share) recorded in fiscal 1996, to adjust the barter credits to estimated realizable values. Both adjustments are reflected in the results from discontinued operations. The media and trade receivable barter credits were included in the assets sold to Brookfield International, Inc. during 1997. See Note 21 of the Notes to Consolidated Financial Statements for further discussion relative to the restatement of the carrying value of the barter credits. During 1993, the Company loaned $100,000 to a former officer of the Company. The promissory note issued to the Company by the former officer is collateralized by a mortgage from the officer on two parcels of real estate (land and building). The note calls for semi-annual payments of interest through maturity on the unpaid principal amount, commencing on July 1, 1994 and five annual principal payments of $15,000 commencing July 1, 1998 and one principal payment of $25,000 due on July 1, 2003. The note bears interest at a rate equal to the prevailing prime rate of interest. At January 2, 1998, $100,000 was outstanding of which $15,000 was included in current accounts receivable and $85,000 was including in long-term accounts receivable. 4. Inventories: Inventories at January 2, 1998 and January 3, 1997 consisted of the following (in thousands):
1997 1996 ---- ---- Finished goods $ 17,534 $ 18,215 Work-in-process 514 110 Raw materials and supplies 5,423 6,212 --------- ---------- Total $ 23,471 $ 24,537 ========= ==========
5. Property, Plant and Equipment: Major classes of property, plant and equipment, at cost, at January 2, 1998 and January 3, 1997 were as follows (in thousands):
1997 1996 Land $ 484 $ 761 Buildings and improvements 5,997 7,043 Machinery and equipment 8,328 6,744 Capitalized leases 1,708 1,751 Leasehold improvements 236 206 --------- ---------- 16,753 16,505 Less accumulated depreciation and amortization 8,618 7,478 --------- ---------- Total $ 8,135 $ 9,027 ========= ==========
Accumulated amortization of the leased property was $678 and $344 at January 2, 1998 and January 3, 1997, respectively. During 1997, the Company recorded a non-recurring charge of $850,000 ($508,000 after tax or $0.08 per diluted share) to reduce the carrying value of the Company's distribution facility in East Brookfield, Massachusetts to market. 6. Long-Term Debt:
(in thousands) 1997 1996 Senior notes payable due in semiannual installments of interest on the unpaid principal amount through maturity and six annual principal payments of $2,000,000 commencing April 29, 1993. The notes bear interest at 9.70% and are subject to certain restrictive covenants pertaining to consolidation or merger with another entity, levels of working capital, net worth, the payment of cash dividends and various other restrictions. $ 2,000 $ 4,000 Note payable to a bank under a revolving line of credit agreement, due on January 30, 1998, with interest of 8.15%. 1,302 1,581 Note payable due in ten semi-annual principal payments of $43,477 commencing July 1, 1996 and interest on the unpaid principal amount through maturity. The note bears interest at 9.25% and is secured by a mortgage. -- 391 Note payable to bank due in sixty monthly installments of $744 commencing May 1997 with interest of 10.0%. 31 -- --------- --------- 3,333 5,972 Less current portion 3,308 2,087 --------- --------- $ 25 $ 3,885 ========= =========
Long-term debt maturities payable for the five years and thereafter subsequent to January 2, 1998 are as follows (in thousands): 1998 $ 3,308 1999 7 2000 7 2001 8 2002 3 --------- Total $ 3,333 ========= On June 1, 1995, the Company sold its entire limited partnership interest in the Columbia Housing Partners Corporate Tax Credit II Limited Partnership for $5,501,000. Net proceeds totaled $1,335,000, resulting in a pre-tax gain of $426,000, after transaction expenses, or $.02 per share after tax. The after-tax gain is based upon projected tax credits and passive losses provided by the general partner. As a result of the sale, the Company realized reductions in current and long-term debt and accrued interest of $4,056,000. During 1995, the Company prepaid its note payable to the minority stockholder of the Company's majority-owned Canadian subsidiary, resulting in a gain of $13,759, which is included in consolidated net income. Under the terms of the senior notes payable, the Company may not declare any cash dividends or make any cash distributions unless, immediately thereafter, the aggregate amount of cash dividends and cash distributions since December 31, 1987 would not exceed the sum of (i) $2,000,000, (ii) 75% of cumulative consolidated net income as defined (or minus 100% of consolidated net income in the case of a loss) for such period and (iii) the proceeds of sales of Common Stock of the Company. As of January 2, 1998, approximately $11,055,000 was available for payment of cash dividends under the terms of these covenants. 7. Capital Lease Obligations: The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of January 2, 1998 (in thousands): 1998................................... $ 392 1999................................... 336 2000................................... 295 2001................................... 157 2002................................... 8 --------- Total minimum lease payments $ 1,188 Less amounts representing interest 111 --------- Present value of minimum lease payments 1,077 Less current portion 331 --------- Long-term portion $ 746 ========= 8. Employee Benefit Plans: The Company maintains a qualified retirement plan for the benefit of all United States employees who have attained the age of 21 and have completed six months of consecutive service. As amended in 1996, the plan permits employees to defer on a pre-tax basis up to 15% of gross wages subject to the federal maximum limit. The Company will match a portion of the employee contributions, subject to profitability goals, at the discretion of the Board of Directors. The Company matched 25% of employee elective deferrals subject to a limitation of 1.25% of total employee compensation. Both employee and employer contributions are funded, on a monthly basis, to a group defined contribution plan administered by an independent investment company. The defined contribution for 1997, 1996 and 1995 were $83,000, $71,000 and $51,000, respectively. Expenses related to the administration of the plan are paid by the Company. During 1995, the Company established a supplementary retirement program to provide retirement benefits to certain management and highly compensated employees, as determined by the Company's Board of Directors. Employees are eligible to defer up to 15% of gross wages on a pre-tax basis. The Company will match a portion of employee contributions, subject to profitability goals, at the discretion of the Board of Directors. The Company match of employee elective deferrals is limited to 1.25% of total employee compensation. Both employee and employer contributions and deemed investment income accrued, net of the amount allowable under the qualified plan are funded, on a monthly basis to a group defined contribution plan administered by an independent investment company. The defined contribution for 1997 and 1996 amounted to $10,000 and $5,000, respectively. Expenses related to the administration of the plan are paid by the Company. 9. Commitments and Contingencies: Lease Commitments The Company is obligated under various leases for equipment and retail space through 2002. Total rental expenses for 1997, 1996 and 1995 were $910,000, $831,000 and $674,000, respectively. Future minimum rental payments are as follows: 1998, $534,000; 1999, $436,000; 2000, $166,000; 2000, $197,000; 2001, $94,000; and 2002 and thereafter, $1,000. Other Commitments The Company is obligated under various agreements, including event sponsorships and athlete sponsorship through 2012. Future sponsorship payments are as follows: 1998, $185,000; 1999, $192,000; 2001, $180,000; and 2002 and thereafter, $610,000. Commitments On August 31, 1993, the Company entered into a credit facility with two banks pursuant to which up to a $30,000,000 credit line was available to the Company as of January 2, 1998. This arrangement provides for a short-term demand line of credit, in the principal amount of up to $15,000,000, subject to formula, for domestic borrowings, international borrowings, and letters of credit; and a revolving line of credit in the principal amount of up to $15,000,000. Borrowings under the demand line of credit are made at the bank's prime rate of interest while borrowing's under the revolving line of credit are made at the bank's prime rate of interest, or at the Company's option, the Eurodollar rate (Fixed Rate Option). At January 2, 1998, there was $2,001,000 outstanding under this facility. This credit facility, which was amended in January 1997, terminates July 31, 1998. This credit facility is subject to the bank's periodic reviews of the Company's operations. The credit facility contains various covenants, including: restrictions on additional indebtedness; restrictions on the payment or declaration of dividends; a minimum tangible net worth, as defined; a minimum ratio of current assets to current liabilities, as defined; a minimum annual cash flow coverage ratio; that there be no demand loans outstanding under the demand line of credit for a period of at least 30 consecutive days in each calendar year; and, fiscal quarter and annual net income requirements. Due to the non-recurring charge to reduce the carrying value of the Company's distribution facility in East Brookfield, Massachusetts, the operating results applicable to the discontinued operation, the net loss realized as a result of the sale of substantially all of the assets of Brookfield Athletic Co., Inc. and the significant net loss attributable to the Company's Australian subsidiary in the fiscal quarter and fiscal year ended January 2, 1998, the Company was unable to comply with the minimum tangible net worth, the minimum annual cash flow coverage ratio and the net income requirements for both the fourth quarter of fiscal 1997 and fiscal 1997. In addition, borrowings by certain of the Company's foreign subsidiaries in fiscal 1997 caused the Company to violate the requirement that there be no demand borrowings under the demand credit line for a period of at least 30 consecutive days. As of January 2, 1998, the banks granted waivers as of that date only for these covenant violations. Additionally, the facility limits the Company's ability to pay or declare a dividend or make other distributions to stockholders. Saucony Canada Inc. maintains a credit facility with a Canadian lender. The agreement provides Saucony Canada with a line of credit for $1,000,000 Canadian dollars, subject to formula (approximately $702,000 in U.S. dollars at January 2, 1998). The agreement provides for a demand line in the principal amount of $300,000 (Canadian dollars), for letters of credit, and a revolving line of credit, in the principal amount of $700,000 (Canadian dollars). Borrowings under this facility are made at the lender's prime lending rate plus .25%. At January 2, 1998, there were no borrowings outstanding under this credit facility. The facility contains requirements for maintaining defined levels of net worth, working capital and various financial ratios. Saucony SP Pty Limited maintains a credit facility with an Australian lender. The credit facility provides Saucony SP with a $6,000,000 Australian dollar (approximately $3,905,000 in U.S. dollars at January 2, 1998) line of credit. The agreement provides for a short-term demand line of credit, in the principal amount of up to $4,000,000 (Australian dollars), for letters of credit and foreign exchange facilities; and a revolving line of credit, in the principal amount of $2,000,000 (Australian dollars). Borrowings under this facility are made at market rates of interest as defined in the agreement or at the lender's quoted rate. At January 2, 1998, there was $2,186,000 in U.S. dollars outstanding under this credit facility. The facility is subject to the lender's periodic reviews of the Company's operations. The Company has guaranteed the obligations of Saucony SP Pty Limited enabling such obligations to be satisfied. See Notes 14 and 20 of Notes to Consolidated Financial Statements. At January 2, 1998, the Company was committed under open letters of credit to several lenders in the aggregate amount of $3,307,000 under foreign exchange contracts to purchase U.S. dollars in the amount of $1,072,000 and foreign exchange contracts to sell U.S. dollars in the amount of $146,000. The Company is guarantor on credit facility agreements for two foreign subsidiaries. At January 2, 1998, the guarantees totaled $4,607,000. The Company has entered into an employment contract with one key employee that provides for minimum annual compensation of $216,000 in 1998. The contract provides for annual salary, cost-of-living adjustments, additional compensation in the form of bonuses based on performance, life insurance coverage and options to purchase shares of the Company's common stock. Bonus expense to key executives amounted to $0, $148,000 and $276,000 for 1997, 1996 and 1995, respectively. Included in accrued expenses at January 2, 1998 and January 3, 1997 were sales commissions payable of $209,000 and $759,000, respectively. Litigation The Company is involved in various routine litigation incident to its business. Many of these proceedings are covered in whole or in part by insurance. In management's opinion, none of these proceedings will have a material adverse effect on the Company's financial position, operations or cash flows (irrespective of any potential insurance recovery). 10. Stockholders' Equity: As of January 2, 1998 and January 3, 1997, the number of shares of Class A Common Stock and Class B Common Stock outstanding were as follows: January 2, 1998 January 3, 1997 --------------- --------------- Class A Common Stock 2,703,227 2,703,227 Class B Common Stock 3,548,087 3,533,659 Issuances by the Company of shares of Class A Common Stock and Class B Common Stock, for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 were: 1997, 14,428 shares of Class B Common Stock; 1996, 1,500 shares of Class A Common Stock and 18,244 shares of Class B Common Stock; and 1995, 700 shares each of Class A Common Stock and Class B Common Stock. During 1995, the Company repurchased 17,700 shares of Class B Common Stock at a cost of $76,687. At January 2, 1998, Saucony SP Pty LTD, a foreign subsidiary controlled by the Company, held 2,000 shares of each of the Company's Class A Common Stock and Class B Common Stock. 11. Stock Options and Earnings Per Share: At the 1993 Annual Meeting of the Stockholders held on May 23, 1993, the stockholders approved the Company's 1993 Equity Incentive Plan (the "Equity Incentive Plan") and the 1993 Director Stock Option Plan (the "Director Option Plan"), adopted by the Company's Board of Directors on April 7, 1993. The 1993 Equity Incentive Plan provides for the grant to officers and key employees of the Company, incentive stock options, non-statutory stock options and awards of restricted stock. Outside consultants and advisors to the Company are eligible to receive only non-statutory options and restricted stock awards under the Equity Incentive Plan. The Equity Incentive Plan is administered by the Compensation Committee of the Board of Directors which, at its sole discretion, grants options to purchase shares of Common Stock and make awards of restricted stock. The plan provides that the purchase price per share of Common Stock shall be determined by the Board of Directors, provided, however, in the case of Incentive Stock Options, the purchase price shall not be less than 100% of the fair market value of such stock at the time of grant of the option. The terms of option agreements are established by the Board of Directors, except, in the case of Incentive Stock Options, wherein the term cannot exceed ten years. Generally, an option cannot be exercised within one year of date of grant. The vesting schedule is subject to the discretion of the Board of Directors. Restricted stock awards which may be granted under the Equity Incentive Plan entitle recipients to purchase shares of the Company's Common Stock subject to restrictions concerning the sale, transfer and other disposition of the shares issued until such shares are vested. The Board of Directors shall determine the purchase price, which can be less than the fair market value of the Common Stock, and the vesting schedule for such award. The Equity Incentive Plan provides for grants of restricted stock awards without the payment of any cash purchase price. At the 1997 Annual Meeting of Stockholders held on May 15, 1997, the stockholders approved an amendment to the Equity Incentive Plan. The amendment increased the number of shares issuable under the Equity Incentive Plan from 800,000 to 1,150,000 shares and limited to 150,000 the number of shares for which options or awards may be granted in any calendar year to any one person. As amended, a total of 1,150,000 shares, in the aggregate, of Class A Common Stock and Class B Common Stock have been reserved by the Company and may be issued under the plan. The following table summarizes the awards available for grant under the Company's 1993 Equity Incentive Plan and 1993 Director Option Plan for the three-year reporting period ended January 2, 1998: Shares Shares available at December 30, 1994 502,738 Awards granted (112,000) Options expired 30,502 ----------- Shares available at January 5, 1996 421,240 Awards granted (8,000) Options expired 44,486 ----------- Shares available at January 3, 1997 457,726 Additional shares reserved 350,000 Awards granted (149,150) Options expired 25,278 ----------- Shares available at January 2, 1998 683,854 =========== The Director Stock Option Plan provides for the automatic grant to non-employee directors of non-statutory stock options upon specified occasions. A total of 100,000 shares of Class B Common Stock have been reserved for issuance under the plan. The option purchase price per share shall equal the fair market value of Class B Common Stock on the date of the grant. The options are exerciseable at any time, in whole or in part, prior to the fifth anniversary of the date of the grant. The following table sets forth the computation of basic earnings per common share and diluted earnings per common share (dollars in thousands, except per share amounts): 1997 1996 1995
--------------------- ---------------------- ---------------------- Earnings Earnings Earnings Earnings Earnings Earnings per per per per per per Common Common Common Common Common Common Share - Share - Share - Share - Share - Share - Basic Diluted Basic Diluted Basic Diluted Net income (loss) Income (loss) from continuing operations $ (4,032) $ (4,032) $ 1,349 $ 1,349 $ 522 $ 522 Income (loss) from discontinued operations (298) (298) (243) (243) 863 863 --------- --------- -------- -------- -------- -------- Net income (loss) available for common shares and assumed conversions $ (4,330) $ (4,330) $ 1,106 $ 1,106 $ 1,385 $ 1,385 ========= ========= ======= ======= ======== ======== Weighted-average common shares and equivalents outstanding: Weighted-average shares outstanding 6,240 6,240 6,224 6,224 6,225 6,225 Effect of dilutive securities: Stock options -- -- -- 44 -- 19 -------- -------- ------- ------- -------- -------- 6,240 6,240 6,224 6,268 6,225 6,244 ======== ======== ======= ======= ======== ======== Earnings per share: Income (loss) from continuing operations ($0.65) ($0.65) $0.22 $0.22 $0.08 $0.08 Income (loss) from discontinued operations (0.05) (0.05) (0.04) (0.04) 0.14 0.14 --------- --------- -------- -------- ------- -------- Net income (loss) ($0.70) ($0.70) $0.18 $0.18 $0.22 $0.22 ========= ========= ======= ======= ======= ========
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has elected to continue to measure stock-based compensation expense using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options and restricted stock awards is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the exercise price an employee must pay to acquire the stock. Stock-based compensation arising from the issuance of restricted stock and below market options, is being amortized to expense over the vesting period of the stock grant or option term and amounted to $62,000, $126,000 and $178,000 for 1997, 1996 and 1995, respectively. The following table summarizes the Company's stock option activity as of January 5, 1996, January 3, 1997 and January 2, 1998:
Weighted Average Exercise Option Shares Price Price Range Outstanding at December 30, 1994 316,206 $ 4.28 $ 2.00 - $ 12.25 Granted 112,000 $ 4.61 $ 4.00 - $ 4.88 Exercised (1,400) $ 2.61 $ 2.25 - $ 2.75 Expired (36,502) $ 4.42 $ 2.50 - $ 10.75 -------- Outstanding at January 5, 1996 390,304 $ 4.37 $ 2.00 - $ 12.25 ------- Granted 8,000 $ 4.00 $ 4.00 - $ 4.00 Exercised (19,744) $ 3.52 $ 2.25 - $ 3.69 Forfeited (10,386) $ 5.00 $ 2.25 - $ 10.75 Expired (35,000) $ 4.68 $ 4.68 - $ 4.68 -------- Outstanding at January 3, 1997 333,174 $ 4.36 $ 2.00 - $ 12.25 Granted 147,350 $ 4.50 $ 4.44 - $ 5.00 Exercised (12,628) $ 3.11 $ 2.50 - $ 3.69 Forfeited (38,278) $ 5.87 $ 2.50 - $ 8.50 Expired (3,000) $ 3.35 $ 2.88 - $ 3.63 ---------- Outstanding at January 2, 1998 426,618 $ 4.32 $ 2.00 - $ 12.25 ======= ======= ======= ========
Options exercisable for shares of the Company's Class A and Class B Common Stock as of January 5, 1996 and January 3, 1997, and January 2, 1998, are as follows:
Options Exercisable Weighted Average Exercise Price Class A Class B Class A Class B Common Common Common Common Stock Stock Total Stock Stock January 5, 1996 11,400 155,470 166,870 $ 4.81 $ 4.92 January 3, 1997 11,400 181,953 193,353 $ 5.60 $ 4.81 January 2, 1998 4,900 228,586 233,486 $ 2.27 $ 4.71
The following table summarizes information about stock options outstanding at January 2, 1998:
Options Outstanding Options Exercisable Weighted Average Weighted Weighted Remaining Average Average Range of Options Contractual Exercise Options Exercise Exercise Prices Outstanding Life Price Exercisable Price $ 2.00 - $ 3.69 147,768 1.16 $ 3.15 92,586 $ 3.54 $ 4.00 - $ 6.00 265,600 3.82 $ 4.58 127,900 $ 4.71 $ 10.75 - $ 12.50 13,250 .56 $ 12.11 13,000 $ 12.13 ---------- --------- 426,618 233,486 ========== =========
The weighted average fair value at date of grant for options granted in 1997, 1996 and 1995 was $2.47, $1.93 and $2.81 per option, respectively. The weighted-average fair value of these options at the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of 6.3%, 6.3% and 6.5%; dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the Company's common stock of 41.0%, 47.0% and 48.0%; and a weighted-average expected life of the options of five years. Had the Company determined the stock-based compensation expense for the Company's stock options based upon the fair value at the grant date for stock option awards in 1997, 1996 and 1995, consistent with the provisions of SFAS No. 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below (dollars in thousands, except per share amounts):
1997 1996 1995 ---------------------- --------------------- ---------------------- Earnings Earnings Earnings Earnings Earnings Earnings per per per per per per Common Common Common Common Common Common Share - Share - Share - Share - Share - Share - Basic Diluted Basic Diluted Basic Diluted Net income (loss): As reported $ (4,330) $ (4,330) $ 1,106 $ 1,106 $ 1,385 $ 1,385 Compensation expense for stock, net of tax (63) (63) (87) (87) (65) (65) --------- --------- -------- -------- --------- --------- Pro forma net income (loss) (4,393) (4,393) 1,019 1,019 1,320 1,320 ========= ========= ======= ======= ======== ======== Pro forma earnings per share As reported $ (0.70) $ (0.70) $ 0.18 $ 0.18 $ 0.22 $ 0.22 Compensation expense for stock, net of tax (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) --------- --------- -------- -------- -------- -------- Pro forma net income (loss) per share $ (0.71) $ (0.71) $ 0.17 $ 0.17 $ 0.21 $ 0.21 ========= ========= ======= ======= ======= =======
The pro forma net income for 1997, 1996 and 1995 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. 12. Income Taxes: The provision for income taxes was calculated according to the precepts of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The objective of SFAS No. 109 is to recognize the amount of taxes payable or refundable in the current year and to recognize the expected future tax consequences of events that have been included in the financial statements or tax returns. SFAS No. 109 requires the identification of all cumulative temporary differences arising between the tax bases of assets and liabilities and their reported amounts in the financial statements. The tax effects of these temporary differences are measured using enacted tax rates and are reported on the consolidated balance sheet as deferred tax assets and liabilities. Deferred tax assets are then reduced if it is more likely than not that some portion of the expected future tax benefits will not be realized. The following is a summary of the components of the provision for income taxes, current and long- term deferred tax assets and liabilities and a reconciliation of the U.S. statutory federal income tax rate to the effective income tax rate reflected in the consolidated income statement. The provision for income taxes was based on pretax income (loss) from continuing operations before minority interest which was subject to taxation by the following jurisdictions. Domestic pretax income includes the pretax income of U.S. based entities as well as the international branches of these entities (in thousands):
1997 1996 1995 ---- ---- ---- Pre-Tax income (loss): Domestic $ 369 $ 1,149 $ 1,013 Foreign (4,169) 833 (785) ---------- ---------- ---------- Total $ (3,800) $ 1,982 $ 228 ========== ========== =========
The provision (credit) for income taxes consists of the following (in thousands):
1997 1996 1995 ---- ---- ---- Current: Federal $ 1,058 $ 265 $ 71 State 309 142 51 Foreign 223 135 239 --------- ---------- --------- 1,590 542 361 --------- ---------- --------- Deferred: Federal (971) (102) 10 State (298) (34) 38 Foreign (1,365) 137 (482) ---------- ---------- ---------- (2,634) 1 (434) ---------- ---------- ---------- Change in valuation allowance 1,399 (218) 65 --------- ----------- --------- Total $ 355 $ 325 $ (8) ========= ========== ==========
The net deferred tax asset or liability reported on the consolidated balance sheet consist of the following items as of January 2, 1998 and January 3, 1997 (in thousands):
1997 1996 ---- ---- Net current deferred tax assets: Allowance for doubtful accounts and discounts $ 1,111 $ 662 Inventory allowances and tax costing adjustments 236 246 Deferred compensation 279 229 Accrued expenses, not currently deductible 283 125 Untaxed installment receivables -- (174) Loss carryforwards 125 599 Valuation allowance -- -- ---------- --------- Total $ 2,034 $ 1,687 ---------- --------- Net long-term deferred tax assets: Loss carryforwards $ 1,752 -- Valuation allowance (1,399) -- ----------- --------- Total $ 353 -- ---------- --------- Net long-term deferred tax liabilities: Property, plant and equipment $ 621 $ 769 Investments in limited partnerships 1,198 1,155 ---------- --------- Total $ 1,819 $ 1,924 ---------- --------- Net deferred tax asset (liability) $ 568 $ (237) ========== ==========
The loss carryforward amounts shown above relate to foreign operating losses of approximately $6,289,000 which may be carried forward indefinitely. At January 2, 1998, the Company has determined that it is more likely than not that $1,399,000 of the deferred tax assets resulting from foreign operating losses will not be realized. The differences between the U.S. statutory federal income tax rate and the effective income tax rate on pretax income from continuing operations before minority interest are summarized as follows:
1997 1996 1995 ---- ---- ---- U.S. federal income tax rate (34.0%) 34.0% 34.0% State income tax, net of federal benefit 0.2% 3.6% 25.8% Detriment (benefit) of valuation allowance relating to foreign losses 36.8% (11.0%) 28.5% Non-deductible expenses and tax-exempt income 0.7% 1.5% 13.4% International tax rate differences 7.0% (0.6%) 10.3% Low-income housing tax credits (1.4%) (9.0%) (71.6%) Adjustment of prior years' estimated tax liabilities 0.0% (2.1%) (43.9%) ----- ------ ------- Effective income tax rate 9.3% 16.4% (3.5%) ===== ===== =======
The Company has not recorded deferred income taxes applicable to the undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. These earnings amounted to approximately $3,046,000 at January 2, 1998. 13. Discontinued Operations: On July 4, 1997, Brookfield Athletic Co., Inc. ("Brookfield"), a wholly-owned subsidiary of the Company, sold substantially all of the assets used in the Brookfield business to Brookfield International, Inc. for $6,841,000. The summarized balance sheet for the discontinued operations as of January 3, 1997 is as follows (in thousands): Assets Current assets Accounts receivable $ 4,339 Inventories 4,095 Prepaid expenses 491 --------- Total current assets 8,925 Property, plant and equipment, net 190 Other assets 69 --------- Total assets $ 9,184 --------- Liabilities Current liabilities Current portion of long-term debt and capital lease obligations $ 36 Accounts payable 30 Accrued expenses 179 --------- Total liabilities $ 245 --------- Net assets of discontinued operations $ 8,939 ========= As of January 3, 1997, the net assets of the discontinued operation have been reclassified and are reflected in current assets in the consolidated balance sheet as of that date. As a result of the Brookfield sale, the Company recorded a pre-tax gain of $174,000, ($96,000 after tax or $0.02 per diluted share). The pre-tax gain is net of $278,000 of costs incurred in connection with the disposal of Brookfield, agreed reduction to the selling price of $300,000, as well as operating losses of $243,000, incurred by Brookfield subsequent to the transaction measurement date. The results of operations for Brookfield for the fiscal years ended January 2, 1998, January 3, 1997 and January 5, 1996 have been segregated from continuing operations and are reported separately as discontinued operations. Prior year consolidated statements of earnings have been restated to present Brookfield as a discontinued operation. See Note 21 of the Notes to Consolidated Financial Statements for further discussion relative to the restatement of the carrying value of certain of the assets of the discontinued operations. The following table summarizes Brookfield's results of operations for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 (in thousands):
1997 1996 1995 ---- ---- ---- Net revenues $ 2,381 $ 19,567 $ 24,094 Costs and expenses 3,037 19,969 22,647 ---------- ---------- ---------- Income (loss) before tax (656) (402) 1,447 Income tax expense (benefit) (262) (159) 584 ----------- ----------- ---------- Income (loss) from discontinued operations (394) (243) 863 Gain on disposal of Brookfield business including operating losses of $243 during the phase-out period (net of tax expense of $78) 96 -- -- ---------- ---------- ---------- Income (loss) from discontinued operations $ (298) $ (243) $ 863 =========== =========== ==========
14. Asset Writedowns: During 1997, the Company's Australian subsidiary recorded a $1,426,000 non-recurring charge to writedown accounts receivable (by $858,000) and other assets (by $568,000) to their net realizable values. In addition, a writedown of inventory of $1,340,000 was taken as is included in cost of sales in 1997. The Company recorded a deferred tax valuation allowance of $999,000 relating to net operating loss carryforwards of the Australian subsidiary which are not expected to be realized. During the second quarter of fiscal 1997, the Company recorded a non-recurring charge of $850,000 ($508,000 after tax, $0.08 per diluted share) to reduce the carrying value of the Company's inactive distribution facility in East Brookfield, Massachusetts to estimated fair value. The fair value of the facility was based on a present value calculation of assumed market rental income using a discount rate of 12.0%. This facility consisted of approximately 109,000 square feet of warehouse and distribution space, as well as a retail factory outlet situated on approximately 5.4 acres of land. The facility encompassed nine separate buildings adjoined together. The dates of construction for the buildings range from 1925 to 1972. The facility had functioned as an overflow for the Company. On July 4, 1997, the Company's wholly-owned subsidiary, Brookfield Athletic Co., Inc. ("Brookfield"), sold substantially all of the assets used in Brookfield's business. At that time, approximately 15% of the facilities aggregate square footage was either utilized by the Company or let out. The Company had no current or anticipated future need for the under-utilized space, nor were there any definitive or prospective plans to lease additional space. Attempts to lease the facility were unsuccessful due to the inefficient configuration of the facility. Accordingly, the Company determined that the East Brookfield distribution facility was impaired. The non-recurring charge affected the United States business segment. 15. Foreign Operations, Geographic Areas, and Other Income: During 1997, 1996 and 1995, foreign operations of the Company included the international activities of Hyde International Services, Ltd., Saucony Sports BV, and Saucony Deutschland Vertriebs GmbH, wholly-owned foreign subsidiaries; Saucony Canada, Ltd., a majority-owned foreign joint venture Saucony SP Pty Ltd., a 50%-owned foreign joint venture; and Saucony UK, a branch operation of Saucony, Inc. The condensed balance sheet of the Company's foreign operations as of January 2, 1998 and January 3, 1997, are as follows (in thousands):
1997 1996 ---- ---- Assets: Cash $ 1,390 $ 1,830 Accounts receivable 4,116 4,768 Inventories 5,888 8,909 Other current assets 1,178 1,127 Noncurrent assets 325 1,092 --------- ---------- $ 12,897 $ 17,726 ========= ========== Liabilities and Stockholders' Equity: Notes payable $ 2,885 $ 1,935 Current portion of long-term debt 1,308 94 Accounts payable and accrued expenses 1,465 1,614 Due to related parties 8,344 7,161 Long-term debt -- 1,885 Capitalized lease obligations 19 31 Minority interest 195 488 Stockholders' equity (1,319) 4,518 ---------- ---------- $ 12,897 $ 17,726 ========= ==========
The results of foreign operations included in the consolidated statements of income are as follows (in thousands):
1997 1996 1995 ---- ---- ---- Net sales to unaffiliated parties $ 22,412 $ 23,723 $ 21,214 Net sales to affiliated parties (eliminated in consolidation) 604 741 738 ----------- ----------- ----------- Net sales $ 23,016 $ 24,464 $ 21,952 =========== =========== =========== Income (loss) before income taxes and minority interest $ (6,109) $ 677 $ 632 Income tax provision (benefit) 225 54 (179) Minority interest in income (loss) (123) 308 (286) ------------ ----------- ------------ Net income (loss) $ (6,211) $ 315 $ 1,097 ============ =========== ===========
The foreign operations changes in stockholders' equity from 1997 to 1996, 1996 to 1995 and 1995 to 1994 were due to the recognition of common stock and paid-in capital amounts offset by income or losses and accumulated translation adjustments. The following table summarizes the Company's continuing operations by geographic area for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 and identifiable assets as of January 2, 1998, January 3, 1997 and January 5, 1996 (in thousands):
1997 1996 1995 ---- ---- ---- Net sales to unaffiliated parties: United States $ 65,602 $ 60,236 $ 51,061 International 28,009 31,105 27,488 ----------- ----------- ----------- $ 93,611 $ 91,341 $ 78,549 =========== =========== =========== International net sales to unaffiliated parties: International divisions of United States parent company $ 5,597 $ 7,382 $ 6,274 Foreign subsidiaries 22,412 23,723 21,214 ----------- ----------- ----------- $ 28,009 $ 31,105 $ 27,488 =========== =========== =========== Net sales between geographic areas: United States $ 180 $ 44 $ 138 International 7,430 8,148 8,241 ----------- ----------- ----------- $ 7,610 $ 8,192 $ 8,379 =========== =========== =========== Total net sales: United States $ 65,782 $ 60,280 $ 51,199 International 35,439 39,253 35,729 Less: Inter-area eliminations (7,610) (8,192) (8,379) ------------ ------------ ------------ $ 93,611 $ 91,341 $ 78,549 =========== =========== =========== Operating profit (loss): United States $ 2,934 $ 1,595 $ 1,478 International (4,572) 978 (937) Less: Inter-area eliminations (297) (228) (50) ------------ ------------ ------------ $ (1,935) $ 2,345 $ 491 ============ =========== =========== Identifiable assets: United States $ 59,521 $ 65,854 $ 64,189 International 13,142 17,741 14,754 Less: Inter-area eliminations (11,347) (12,843) (9,678) ------------ ------------ ------------ $ 61,316 $ 70,752 $ 69,265 =========== =========== ===========
Net sales to unaffiliated customers is based on the location of the customers. International inter-area sales represent shipment of inventory to international subsidiaries and purchases of inventory from international subsidiaries. These inter-area sales are generally priced to recover cost plus an appropriate mark-up for profit and are eliminated in the determination of consolidated net sales. Operating profit consists of revenue less related cost of sales, selling expenses and general and administrative expenses, and does not include interest expense, income taxes or minority shareholders' interest. Other revenue consists primarily of royalty income and freight and handling revenue on product shipments. 16. Major Customer: For 1997, 1996 and 1995, the Company did not have a major customer account for more than 10% of gross sales. 17. Acquisitions: Saucony Sports B.V. On December 11, 1991, the Company entered into a joint venture with a Dutch company to market and distribute Saucony footwear. On December 31, 1991, the Company purchased 51% of the issued and outstanding stock of Saucony Sports BV for $414,000. On June 9, 1993, the Company increased its majority ownership from 51% to 76% by acquiring an additional 25% of the issued and outstanding common stock from the minority shareholder, for $210,000, which equaled the book value of the stock. On December 22, 1997, the Company acquired the remaining issued and outstanding stock owned by the minority stockholder for $140,000 of which $30,000 has been recorded as goodwill. At January 2, 1998, January 3, 1997 and January 5, 1996, Saucony Sports BV had assets of $1,889,000, $1,571,000 and $1,595,000; liabilities of $930,000, $1,236,000 and $1,455,000; and revenues of $3,170,000, $3,084,000 and $3,216,000, respectively. Saucony Canada, Inc. On March 1, 1993, the Company acquired 85% of the issued and outstanding stock of a Canadian distributor, Saucony Canada, Inc. The purchase price of $351,000 was financed with available cash of $161,000 and the issuance of a note payable of $189,843. At January 2, 1998, January 3, 1997 and January 5, 1996, Saucony Canada, Inc. had assets of $2,841,000, $2,102,000 and $1,867,000; liabilities of $359,000, $851,000 and $741,000; and revenues of $4,199,000, $4,002,000 and $3,777,000, respectively. Saucony SP Pty. Ltd. Effective July 1, 1993, the Company acquired 50% of the issued and outstanding common stock of an Australian distributor, Saucony SP Pty. Ltd., for $214,000 in cash. The agreement was completed on November 13, 1993. During 1995, the Company increased its investment in Saucony SP Pty. Ltd. by acquiring 28 shares of Cumulative Redeemable Preferred Stock ($1 par) for $2,082,000 in exchange for an equivalent reduction in debt owed to the Company by Saucony SP. The shares, which are redeemable on or after January 1, 1998, provide for cumulative preferential dividends and confer priority to the preferred shareholders, with respect to dividends and return of share capital and share premium. As the fair value of assets acquired equaled the carrying value of the debt reduction, there was no impact on consolidated net income. See Note 14 of Notes to Consolidated Financial Statement regarding the non-recurring charge recorded in the fourth quarter of 1997. At January 2, 1998, January 3, 1997 and January 5, 1996, Saucony SP Pty. Ltd. had assets of $3,515,000, $9,420,000 and $7,401,000; liabilities of $2,692,000, $6,895,000 and $5,528,000; and revenues of $10,333,000, $14,024,000 and $11,661,000, respectively. Quintana Roo, Inc. On August 31, 1995, Quintana Roo, Inc., a newly formed subsidiary of the Company, acquired the assets of a bicycle and wetsuit manufacturer for $112,000 in cash. Hind Apparel On December 20, 1996, the Company acquired the trade name, trademarks, patents and service marks of an athletic apparel manufacturer for $1,250,000 in cash. The entire purchase amount has been recorded as goodwill. These acquisitions are accounted for as purchases. 18. Concentration of Credit Risk: Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and trade receivables. The Company maintains cash and cash equivalents with various major financial institutions. Cash equivalents include investments in commercial paper of companies with high credit ratings, investments in money market securities and securities backed by the U.S. Government. At times such amounts may exceed the F.D.I.C. limits. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash investments. Trade receivables subject the Company to the potential for credit risk with customers in the retail and distributor sectors. To reduce credit risk, the Company performs ongoing evaluations of its customers financial condition but does not generally require collateral. Approximately 31% of the Company's gross trade receivables balance was represented by 8 customers at January 2, 1998, which exposes the Company to a concentration of credit risk. 19. Fair Value of Financial Instruments: The carrying value of cash, cash equivalents, receivables, long-term debt and other notes payable approximates fair value. The Company believes similar terms for current long-term debt and other notes payable would be attainable. The fair value of marketable securities is estimated based upon quoted market prices for these securities. The Company enters into forward currency exchange contracts to hedge intercompany liabilities denominated in other than the functional currency. The fair value of the Company's foreign currency exchange contracts is estimated based on current foreign exchange rates. At January 2, 1998, the value of the Company's foreign currency exchange contracts to purchase U.S. dollars was $1,072,000 and to sell U.S. dollars was $146,000. Gains and losses on forward exchange contracts are deferred and offset against foreign currency exchange gains and losses on the underlying hedged item upon consummation of the transaction. At January 2, 1998, estimated fair value of the Company's financial instruments approximated the carrying value. 20. Quarterly Information:
(in thousands, per share amounts in dollars) 1997 (1) Quarter 1 Quarter 2 Quarter 3 Quarter 4 ---- --------- --------- --------- --------- Net sales $ 25,217 $ 24,398 $ 24,635 $ 19,361 Gross profit 8,585 8,550 8,422 4,543 Income (loss) from continuing operations 570 (120) 375 (4,857) Income (loss) from discontinued operations (287) 246 (172) (85) Net income (loss) 283 126 203 (4,942) Earnings per share: Basic 0.05 0.02 0.03 (0.79) Diluted 0.05 0.02 0.03 (0.79) 1996 (2) Quarter 1 Quarter 2 Quarter 3 Quarter 4 ---- --------- --------- --------- --------- Net sales $ 28,638 $ 24,396 $ 20,609 $ 17,698 Gross profit 8,788 7,542 7,207 6,112 Income (loss) from continuing operations 883 227 220 19 Income (loss) from discontinued operations (143) (114) 383 (369) Net income (loss) 740 113 603 (350) Earnings per share: Basic 0.12 0.02 0.10 (0.06) Diluted 0.12 0.02 0.10 (0.06) ----------------- (1) Net income for Quarter 2 and Quarter 3 of fiscal 1997 have been restated. See Note 21 of the Notes to Consolidated Financial Statements. (2) Net income for Quarter 4 of fiscal 1996 has been restated. See Note 21 of the Notes to Consolidated Financial Statements.
During the second quarter of 1997, the Company recorded a non-recurring impairment charge of $850,000 ($508,000 after tax, $0.08 per share diluted) to reduce the carrying value of the Company's inactive distribution facility in East Brookfield, Massachusetts to market. During the fourth quarter of 1997, the Company's gross margin was adversely impacted by the decline in gross margin realized by the Company's Australian subsidiary, which was due to increased sales of non-current footwear Also during the fourth quarter of 1997, the Company's Australian subsidiary recorded a non-recurring charge of $1,426,000 ($0.23 per diluted share) to write-down accounts receivable by $858,000 and prepaid expenses and other assets by $568,000 to their net realizable values. In addition, an inventory writedown of $1,340,000 ($0.22 per diluted share) was recorded and is included in cost of sales. The Company recorded deferred tax valuation allowances of $999,000 and $400,000 relating to loss carryforwards of the Company's Australian and German subsidiaries, respectively, which are not expected to be realized. During the fourth quarter of 1996, the Company recorded an impairment charge of $650,000 ($388,000 after-tax, or $0.06 per diluted share) to reduce the carrying value of the barter credits to estimated realizable values. Earnings per share amounts for each quarter are required to be computed independently and, as a result, their sum may not equal the total earnings per share amounts for fiscal 1997 and fiscal 1996. 21. Accounting Restatements: On March 1, 1999, the Company announced that it was engaged in discussions with the Securities and Exchange Commission ("SEC") regarding the accounting for two specific transactions recorded in 1995 and 1997. As a result of those discussions, the Company has restated its previously reported financial results for 1995, 1996 and 1997. November 1995 - Barter Transaction. In November 1995, the Company' Brookfield subsidiary ("Brookfield") entered into a barter of inventory with an approximate book value of $1,055,000 in exchange for cash of $100,000 and media and trade receivables barter credits of $950,000 and $350,000, respectively. As of January 3, 1997, $1,298,000 of barter credits were outstanding. In addition, in 1995, the Company recorded $345,000 of pre-tax gross margin which was reflected in "discontinued operations" in the 1997 Form 10-K for the fiscal year 1995. In connection with the restatement discussed with the SEC, the fiscal 1995 gross margin was reduced by $345,000 ($206,000 after-tax of $0.04 per diluted share), leaving a net carrying value of all barter credits of $955,000 at year end fiscal 1995. In addition, a pre-tax impairment charge of $650,000 ($388,000 after-tax, or $0.06 per diluted share) was recorded for fiscal 1996 to reflect the uncertain value of the remaining barter credits at that time. Substantially all the assets of Brookfield, including the remaining barter credits, were sold to a third party in 1997. As such, the adjustments in 1995 and 1996 were reversed in 1997 and are reflected in the "Gain on disposal of the Brookfield business" in 1997 and no impact on cumulative retained earnings at January 2, 1998. Reflecting this restatement for fiscal 1997, the previously reported after-tax loss of $498,000 on the disposal of Brookfield becomes an after-tax gain on disposal of $96,000. August 1997 - License Agreement. In August 1997, the Company granted a three-year license to an independent third party for the use of the "Spot-Bilt" and the "single spot" logo trademarks. The agreement called for minimum guaranteed total royalties of $447,000 over the three-year life of the license. In the third quarter of 1997, the Company, based on the fact that it believed that it had no further contractual requirements under the agreement, recorded a receivable based on the minimum guaranteed present value of future cash flows, utilizing a discount rate of 8.5%, which equates to $378,000. This amount was recorded as revenue in fiscal 1997 resulting in $225,000 of net income, or $0.04 per diluted share. The SEC disagreed with the Company's original accounting. As a result of the restatement, the licensing revenue and associated profit will be recognized ratably over the three-year life of the agreement, rather than up front as originally reported. Accordingly, for the third quarter of fiscal 1997, revenue has been reduced by $346,000 ($206,000 after-tax, or $0.03 per diluted share). The following table summarizes the net income and diluted earnings per share impact of the two financial restatements (in thousands):
1997 1996 1995 ---------------------------------------- Net income effect Barter transaction $ 594 $ (388) $ (206) License agreement (206) -- -- ---------- -------- --------- $ 388 $ (388) $ (206) ========= ========= ========== Earnings per diluted share As previously reported Continuing operations $ (0.62) $ 0.22 $ 0.08 Discontinued operations (0.14) 0.02 0.18 --------- -------- --------- $ (0.76) $ 0.24 $ 0.26 ========= ======== ========= Restatement impact Continuing operations $ (0.03) $ 0.00 $ 0.00 Discontinued operations 0.09 (0.06) (0.04) -------- --------- ---------- $ 0.06 $ (0.06) $ (0.04) ======== ========= ========== Adjusted earnings per diluted share Continuing operations $ (0.65) $ 0.22 $ 0.08 Discontinued operations (0.05) (0.04) 0.14 --------- --------- --------- $ (0.70) $ 0.18 $ 0.22 ========= ======== =========
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended January 2, 1998, January 3, 1997 and January 5, 1996
(dollars in thousands) Additions Balance charged to Deductions Balance beginning costs and from end of year expenses reserve of year Year ended January 2, 1998: Allowance for doubtful accounts and discounts $ 1,234 $ 5,475 $ 4,677 $ 2,032 Year ended January 3, 1997: Allowance for doubtful accounts and discounts $ 940 $ 5,269 $ 4,975 $ 1,234 Year ended January 5, 1996: Allowance for doubtful accounts and discounts $ 1,147 $ 4,807 $ 5,014 $ 940
Exhibit Index Exhibit Number Description 2.0 Asset Purchase Agreement, dated June 27, 1997, between Brookfield International, Inc. and Brookfield Athletic Co., Inc. is incorporated herein by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated July 4, 1997. * 3.1 Restated Articles of Organization, as amended, of the Registrant are incorporated herein by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (File No. 33-66482) * 3.2 By-Laws, as amended, of the Registrant are incorporated herein by reference to Exhibit 3.3 to the Registrant's Registration Statement on Form S-2, as amended (File No. 33-61040) (the "Form S-2") * 10.1 Note Purchase Agreement between the Registrant and the Principal Mutual Life Insurance Company is incorporated herein by reference to Exhibit (4b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (the "1988 10-K Report") * 10.2 Credit Agreement among the Registrant, State Street Bank and Trust Company and CoreStates Bank, N.A., dated August 31, 1993 is incorporated herein by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "1993 10-K Report") * 10.3 Guarantee of the Registrant to the Bank of Nova Scotia is incorporated herein by reference to Exhibit 10.3 to the 1993 10-K Report * 10.4 Letter of Guarantee of the Registrant to State Street Finance Limited is incorporated herein by reference to Exhibit 10.4 to the 1993 10-K Report * 10.5** 1982 Employee Stock Option Plan, as amended, is incorporated herein by reference to Exhibit 10.7 to the Form S-2 * 10.6** Amendment to the Credit Agreement among the Registrant, State Street Bank and Trust Company and CoreStates Bank, N.A., dated August 31, 1993, is incorporated herein by reference to Exhibit 10.06 to the Registrant's Quarterly Report on Form 10-Q for the 39 weeks ended September 30, 1994 * 10.*** Trademark License Agreement, dated as of February 1, 1994, between the Registrant and Leif J. Ostberg, Inc. is incorporated herein by reference to Exhibit 10.21 of the 1993 10-K Report * 10.8** 1993 Equity Incentive Plan, as amended. 10.9** 1993 Director Option Plan is incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended April 2, 1993, as amended (the "1993 Form 10-Q") * 10.10** VP Bonus Plan is incorporated herein by reference to Exhibit 10.19 to the Form S-2 * 10.11** Compensation Agreement between the Registrant and James H. Noyes, Jr. is incorporated herein by reference to Exhibit 10.3 to the 1993 Form 10-Q * 10.12** Letter Agreement dated March 30, 1995, between the Registrant and Principal Mutual Life Insurance Company is incorporated herein by reference to Exhibit 10.01 of the Registrant's Quarterly Report on Form 10-Q for the thirteen weeks ended March 31, 1995 * 10.13*** Second and Third Amendments to the Credit Agreement among the Registrant, State Street Bank and Trust Company and CoreStates Bank, N.A. is incorporated herein by reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1997. * 21 Subsidiaries of the Registrant 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Grant Thornton 27.1 Financial Data Schedule restated for the fiscal year ended January 5, 1996. 27.2 Financial Data Schedule restated for the fiscal year ended January 3, 1997, the three months ended April 5, 1996, the six months ended July 5, 1996 and the nine months ended October 4, 1996. 27.3 Financial Data Schedule restated for the fiscal year ended January 2, 1998 and Financial Data Schedule restated for the three months ended April 4, 1997, the six months ended July 4, 1997 and the nine months ended October 3, 1997. * Incorporated herein by reference. ** Management contract or compensatory plan or arrangement filed herewith in response to Item 14(a)(3) of the instructions to Form 10-K. *** Confidential treatment previously granted as to certain portions of such document. EX-10 2 1993 EQUITY INCENTIVE PLAN EXHIBIT 10.8 Hyde Athletic Industries, Inc. 1993 EQUITY INCENTIVE PLAN, AS AMENDED (Restated as of December 20, 1997) Purpose. The purpose of this plan (the "Plan") is to secure for Hyde Athletic Industries, Inc. (the "Company") and its shareholders the benefits arising from capital stock ownership by employees, officers and directors of, and consultants or advisors to, the Company and its parent and subsidiary corporations who are expected to contribute to the Company's future growth and success. Except where the context otherwise requires, the term "Company" shall include the parent and all present and future subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the "Code"). Type of Options and Awards; Administration. Types of Options and Awards. Options granted pursuant to the Plan shall be authorized by action of the Board of Directors of the Company (or a Committee designated by the Board of Directors) and may be either incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Code or non-statutory options which are not intended to meet the requirements of Section 422 of the Code. Awards granted pursuant to the Plan shall be authorized by action of the Board of Directors of the Company (or a Committee designated by the Board of Directors) and shall meet the requirements of Section 13 of the Plan. Administration. The Plan will be administered by the Board of Directors of the Company, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The Board of Directors may in its sole discretion (i) grant options to purchase shares of the Company's Common Stock (as defined in Section 4 of the Plan), and issue shares upon exercise of such options as provided in the Plan and (ii) make awards for the purchase of shares of Common Stock pursuant to Section 13 of the Plan. The Board shall have authority, subject to the express provisions of the Plan, to construe the respective option agreements, awards and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements and awards, which need not be identical, and to make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement or award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director or person acting pursuant to authority delegated by the Board of Directors shall be liable for any action or determination made in good faith. The Board of Directors may, to the full extent permitted by or consistent with applicable laws or regulations (including, without limitation, applicable state law and Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")), delegate any or all of its powers under the Plan to a committee (the "Committee") appointed by the Board of Directors, and if the Committee is so appointed all references to the Board of Directors in the Plan shall mean and relate to such Committee to the extent authority is so delegated to such Committee. Applicability of Rule 16b-3. Those provisions of the Plan which make express reference to Rule 16b-3 shall apply only to such persons as are required to file reports under Section 16(a) of the Exchange Act (a "Reporting Person"). Eligibility. General. Options and awards may be granted or made to persons who are, at the time of grant, employees, officers or directors (so long as such officers and directors are also employees) of, or consultants or advisors to, the Company; provided, that the class of employees to whom Incentive Stock Options may be granted shall be limited to all employees of the Company; and provided further that non-employee directors of the Company are not eligible to receive options or awards of restricted stock under the Plan. A person who has been granted an option or award may, if he or she is otherwise eligible, be granted additional options or awards if the Board of Directors shall so determine. Subject to adjustment as provided in Section 16 below, the maximum number of shares with respect to which options or restricted stock awards may be granted to any person under the Plan shall not exceed 150,000 shares of Common Stock (as defined in Section 4 below) during any calendar year during the term of the Plan. For the purpose of calculating such maximum number, (a) an option or award shall continue to be treated as outstanding notwithstanding its repricing, cancellation or expiration and (b) the repricing of an outstanding option or award or the issuance of a new option or award in substitution for a cancelled option or award shall be deemed to constitute the grant of a new additional option or award, as the case may be, separate from the original grant that is repriced or cancelled. Grant of Options to Directors and Officers. The selection of a director or an officer (as the terms "director" and "officer" are defined for purposes of Rule 16b-3) as a participant, the timing of the option grant or award, the exercise price of the option or the sale price of the award and the number of shares for which an option or award may be granted to such director or officer shall be determined either (i) by the Board of Directors, of which all members shall be "disinterested persons" (as hereinafter defined), or (ii) by a committee of two or more directors having full authority to act in the matter, of which all members shall be "disinterested persons." For the purposes of the Plan, a director shall be deemed to be "disinterested" only if such person qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such term is interpreted from time to time. Stock Subject to Plan. Subject to adjustment as provided in Section 16 below, the total number of shares of Class A Common Stock, $.33-1/3 par value per share ("Class A Common Stock"), and Class B Common Stock, $.33-1/3 par value per share ("Class B Common Stock"), which may be issued and sold under the Plan is 1,150,000 shares in the aggregate. The term "Common Stock" as used herein shall refer to Class A Common Stock or Class B Common Stock as the case may be. If an option granted under the Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available for subsequent option grants or awards under the Plan. Forms of Option Agreements. As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement in such form not inconsistent with the Plan as may be approved by the Board of Directors. Such option agreements may differ among recipients. Purchase Price Upon Exercise of Options. General. The purchase price per share of Common Stock deliverable upon the exercise of an option shall be determined by the Board of Directors, provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the fair market value of such stock, as determined by the Board of Directors, at the time of grant of such option, or less than 110% of such fair market value in the case of options described in Section 11(b). Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price by delivery of cash or a check to the order of the Company in an amount equal to the exercise price of such options, or, to the extent provided in the applicable option agreement, (i) by delivery to the Company of shares of Common Stock of the Company already owned by the optionee having a fair market value equal in amount to the exercise price of the options being exercised, (ii) by any other means (including without limitation by delivery of a promissory note of the optionee payable on such terms as are specified by the Board of Directors) which the Board of Directors determines are consistent with the purpose of the Plan and with applicable laws and regulations (including, without limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the Federal Reserve Board) or (iii) by any combination of such methods of payment. The fair market value of any shares of the Company's Common Stock or other non-cash consideration which may be delivered upon exercise of an option shall be determined in such manner as may be prescribed by the Board of Directors. Option Period. Each option and all rights thereunder shall expire on such date as shall be set forth in the applicable option agreement, except that such date, in the case of an Incentive Stock Option, shall in no case be later than ten years after the date on which the option is granted. Exercise of Options. Each option granted under the Plan shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the agreement evidencing such option, subject to the provisions of the Plan. Nontransferability of Options. Incentive Stock Options, and all options granted to Reporting Persons, shall not be assignable or transferable by the person to whom it is granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the optionee, shall be exercisable only by the optionee; provided, however, that non-statutory options granted to Reporting Persons may be transferred pursuant to a qualified domestic relations order (as defined in Rule 16b-3). Effect of Termination of Employment or Other Relationship. The Board of Directors shall determine the period of time during which an optionee may exercise an option following (i) the termination of the optionee's employment or other relationship with the Company or (ii) the death or disability of the optionee. Such periods shall be set forth in the agreement evidencing such option. Incentive Stock Options. Options granted under the Plan which are intended to be Incentive Stock Options shall be subject to the following additional terms and conditions: Express Designation. All Incentive Stock Options granted under the Plan shall, at the time of grant, be specifically designated as such in the option agreement covering such Incentive Stock Options. 10% Shareholder. If any employee to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such option, the owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual: The purchase price per share of the Common Stock subject to such Incentive Stock Option shall not be less than 110% of the fair market value of one share of Common Stock at the time of grant; and The option exercise period shall not exceed five years from the date of grant. Dollar Limitation. For so long as the Code shall so provide, options granted to any employee under the Plan (and any other incentive stock option plans of the Company) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate fair market value (determined as of the respective date or dates of grant) of more than $100,000. Termination of Employment, Death or Disability. No Incentive Stock Option may be exercised unless, at the time of such exercise, the optionee is, and has been continuously since the date of grant of his or her option, employed by the Company, except that: an Incentive Stock Option may be exercised within the period of three months after the date the optionee ceases to be an employee of the Company (or within such lesser period as may be specified in the applicable option agreement), provided, that the agreement with respect to such option may designate a longer exercise period and that the exercise after such three- month period shall be treated as the exercise of a non-statutory option under the Plan; if the optionee dies while in the employ of the Company, or within three months after the optionee ceases to be such an employee, the Incentive Stock Option may be exercised, by the person to whom it is transferred by will or the laws of descent and distribution, within the period of one year after the date of death (or within such lesser period as may be specified in the applicable option agreement); and if the optionee becomes disabled (within the meaning of Section 22(e)(3) of the Code or any successor provision thereto) while in the employ of the Company, the Incentive Stock Option may be exercised within the period of one year after the date the optionee ceases to be such an employee because of such disability (or within such lesser period as may be specified in the applicable option agreement). For all purposes of the Plan and any option or award granted hereunder, "employment" shall be defined in accordance with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulations). Notwithstanding the foregoing provisions, no stock option may be exercised after its expiration date. Additional Provisions. Additional Option Provisions. The Board of Directors may, in its sole discretion, include additional provisions in any option granted under the Plan, including without limitation restrictions on transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to optionees upon exercise of options, or such other provisions as shall be determined by the Board of Directors; provided that such additional provisions shall not be inconsistent with any other term or condition of the Plan. Acceleration, Extension, Etc. The Board of Directors may, in its sole discretion, (i) accelerate the date or dates on which all or any particular option or options granted under the Plan may be exercised or (ii) extend the dates during which all or any particular option or options granted under the Plan may be exercised; provided, however, that no such extension shall be permitted if it would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3. Awards. A restricted stock award ("award") shall consist of the sale and issuance by the Company of shares of Common Stock, and purchase by the recipient of such shares, subject to the terms, conditions and restrictions described in the document evidencing the award and in this Section 13 and elsewhere in the Plan. Execution of Restricted Stock Award Agreement. As a condition to an award under the Plan, each recipient of an award shall execute an agreement in such form, which may differ among recipients, as shall be specified by the Board of Directors at the time of such award. Price. The Board of Directors shall determine the price at which shares of Common Stock shall be sold to recipients of awards under the Plan. The Board of Directors may, in its discretion, issue shares pursuant to awards without the payment of any cash purchase price by the recipients or issue shares pursuant to awards at a purchase price below the then fair market value of the Common Stock. If a purchase price is required to be paid, it shall be paid in cash or by check payable to the order of the Company at the time that the award is accepted by the recipient, or by such other means as may be approved by the Board of Directors. Number of Shares. The award shall specify the number of shares of Common Stock granted thereunder. Restrictions on Transfer. In addition to such other terms, conditions and restrictions upon awards as shall be imposed by the Board of Directors, all shares issued pursuant to an award shall be subject to the following restrictions: All shares of Common Stock subject to an award (including any shares issued pursuant to paragraph (e) of this Section) shall be subject to certain restrictions on disposition and obligations of resale to the Company as provided in subparagraph (2) below for the period specified in the document evidencing the award, and shall not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of until such restrictions lapse. The period during which such restrictions are applicable is referred to as the "Restricted Period." In the event that a recipient's employment with the Company (or consultancy or advisory relationship, as the case may be) is terminated within the Restricted Period, whether such termination is voluntary or involuntary, with or without cause, or because of the death or disability of the recipient, the Company shall have the right and option for a period of three months following such termination to buy for cash that number of the shares of Common Stock purchased under the award as to which the restrictions on transfer and the forfeiture provisions contained in the award have not then lapsed, at a price equal to the price per share originally paid by the recipient. If such termination occurs within the last three months of the applicable restrictions, the restrictions and repurchase rights of the Company shall continue to apply until the expiration of the Company's three month option period. Notwithstanding subparagraphs (1) and (2) above, the Board of Directors may, in its discretion, either at the time that an award is made or at any time thereafter, waive its right to repurchase shares of Common Stock upon the occurrence of any of the events described in this paragraph (d) or remove or modify any part or all of the restrictions. In addition, the Board of Directors may, in its discretion, impose upon the recipient of an award at the time of such award such other restrictions on any shares of Common Stock issued pursuant to such award as the Board of Directors may deem advisable. Additional Shares. Any shares received by a recipient of an award as a stock dividend on, or as a result of stock splits, combinations, exchanges of shares, reorganizations, mergers, consolidations or otherwise with respect to, shares of Common Stock received pursuant to such award shall have the same status and shall bear the same restrictions, all on a proportionate basis, as the shares initially purchased pursuant to such award. Transfers in Breach of Award. If any transfer of shares purchased pursuant to an award is made or attempted contrary to the terms of the Plan and of such award, the Board of Directors shall have the right to purchase for the account of the Company those shares from the owner thereof or his or her transferee at any time before or after the transfer at the price paid for such shares by the person to whom they were awarded under the Plan. In addition to any other legal or equitable remedies which it may have, the Company may enforce its rights by specific performance to the extent permitted by law. The Company may refuse for any purpose to recognize as a shareholder of the Company any transferee who receives any shares contrary to the provisions of the Plan and the applicable award or any recipient of an award who breaches his or her obligation to resell shares as required by the provisions of the Plan and the applicable award, and the Company may retain and/or recover all dividends on such shares which were paid or payable subsequent to the date on which the prohibited transfer or breach was made or attempted. Additional Award Provisions. The Board of Directors may, in its sole discretion, include additional provisions in any award granted under the Plan, including without limitation commitments to pay cash bonuses, make, arrange for or guarantee loans or transfer other property to recipients upon the grant of awards, or such other provisions as shall be determined by the Board of Directors. General Restrictions. Investment Representations. The Company may require any person to whom an option or award is granted, as a condition of exercising such option or purchasing the shares subject to the award, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the option or award for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws. Compliance With Securities Laws. Each option and award shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option or award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such option or award may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. Rights as a Shareholder. The holder of an option or recipient of an award shall have no rights as a shareholder with respect to any shares covered by the option or award (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) until the date of issue of a stock certificate to him or her for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Adjustment Provisions for Recapitalizations and Related Transactions. General. If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding shares of Common Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment shall be made in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares or other securities subject to then outstanding options under the Plan, and (z) the price for each share subject to any then outstanding options under the Plan or repurchase rights of the Company, without changing the aggregate purchase price as to which such options remain exercisable, provided that no adjustment shall be made pursuant to this Section 16 if such adjustment would cause the Plan to fail to comply with Section 422 of the Code or with Rule 16b-3. Board Authority to Make Adjustments. Any adjustments under this Section 16 will be made by the Board of Directors, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. Merger, Consolidation, Asset Sale, Liquidation, etc. General. In the event of a consolidation or merger in which outstanding shares of Common Stock are exchanged for securities, cash or other property of any other corporation or business entity or in the event of a liquidation of the Company or sale of all or substantially all of the assets of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company, may, in its discretion, take any one or more of the following actions, as to outstanding options and awards: (i) provide that such options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), provided that any such options substituted for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, (ii) upon written notice to the optionees, provide that all unexercised options will terminate immediately prior to the consummation of such transaction unless exercised by the optionee within a specified period following the date of such notice, (iii) in the event of a merger under the terms of which holders of the Common Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the merger (the "Merger Price"), make or provide for a cash payment to the optionees equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such outstanding options (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such outstanding options in exchange for the termination of such options, and (iv) provide that all or any outstanding options shall become exercisable in full, any restrictions on exercising outstanding options issued pursuant to the Plan prior to any given date shall terminate and any restrictions on and rights of the Company to repurchase shares covered by outstanding awards issued pursuant to the Plan shall terminate. Substitute Options. The Company may grant options under the Plan in substitution for options held by employees of another corporation who become employees of the Company, or a subsidiary of the Company, as the result of a merger or consolidation of the employing corporation with the Company or a subsidiary of the Company, or as a result of the acquisition by the Company, or one of its subsidiaries, of property or stock of the employing corporation. The Company may direct that substitute options be granted on such terms and conditions as the Board of Directors considers appropriate in the circumstances. No Special Employment Rights. Nothing contained in the Plan or in any option or award shall confer upon any recipient of an award or optionee any right with respect to the continuation of his or her employment by the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the optionee. Other Employee Benefits. Except as to plans which by their terms include such amounts as compensation, neither the amount of any compensation deemed to be received by an employee as a result of the exercise of an option or the sale of shares received upon such exercise nor the value of an award granted to an employee will constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors. Amendment of the Plan. The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the shareholders of the Company is required as to such modification or amendment under Section 422 of the Code or any successor provision with respect to Incentive Stock Options or under Rule 16b-3 with respect to options held by or awards made to Reporting Persons, the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an optionee or recipient of an award, affect his or her rights under an option or award previously granted to him or her. With the consent of the optionee or recipient of the award affected, the Board of Directors may amend outstanding option agreements or awards in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify (i) the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan to the extent necessary to qualify any or all such options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code and (ii) the terms and provisions of the Plan and of any outstanding option or award to the extent necessary to ensure the qualification of the Plan under Rule 16b-3 or any successor rule. Withholding. The Company shall have the right to deduct from payments of any kind otherwise due to the optionee or recipient of an award any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan or the purchase of shares subject to the award. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the optionee or recipient of an award may elect to satisfy such obligations, in whole or in part, (i) by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option or the purchase of shares subject to an award or (ii) by delivering to the Company shares of Common Stock already owned by the optionee or award recipient. The shares so delivered or withheld shall have a fair market value equal to such withholding obligation. The fair market value of the shares used to satisfy such withholding obligation shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. An optionee or award recipient who has made an election pursuant to this Section 21(a) may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements. Notwithstanding the foregoing, in the case of a Reporting Person, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements of Rule 16b-3. If the recipient of an award under the Plan elects, in accordance with Section 83(b) of the Code, to recognize ordinary income in the year of acquisition of any shares awarded under the Plan, the Company will require at the time of such election an additional payment for withholding tax purposes based on the difference, if any, between the purchase price of such shares and the fair market value of such shares as of the date immediately preceding the date of the award. Cancellation and New Grant of Options, Etc. The Board of Directors shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, (i) the cancellation of any or all outstanding options under the Plan and the grant in substitution therefor of new options under the Plan covering the same or different numbers of shares of Common Stock and having an option exercise price per share which may be lower or higher than the exercise price per share of the cancelled options or (ii) the amendment of the terms of any and all outstanding options under the Plan to provide an option exercise price per share which is higher or lower than the then-current exercise price per share of such outstanding options. Effective Date and Duration of the Plan. Effective Date. The Plan shall become effective when adopted by the Board of Directors, but no Incentive Stock Option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company's shareholders. If such shareholder approval is not obtained within twelve months after the date of the Board's adoption of the Plan, no options previously granted under the Plan shall be deemed to be Incentive Stock Options and no Incentive Stock Options shall be granted thereafter. Amendments to the Plan not requiring shareholder approval shall become effective when adopted by the Board of Directors; amendments requiring shareholder approval (as provided in Section 20) shall become effective when adopted by the Board of Directors, but no Incentive Stock Option issued after the date of such amendment shall become exercisable (to the extent that such amendment to the Plan was required to enable the Company to grant such Incentive Stock Option to a particular optionee) unless and until such amendment shall have been approved by the Company's shareholders. If such shareholder approval is not obtained within twelve months of the Board's adoption of such amendment, any Incentive Stock Options granted on or after the date of such amendment shall terminate to the extent that such amendment to the Plan was required to enable the Company to grant such option to a particular optionee. Subject to this limitation, options and awards may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan. Termination. Unless sooner terminated in accordance with Section 17, the Plan shall terminate, with respect to Incentive Stock Options, upon the earlier of (i) the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors, or (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise or cancellation of options or the final vesting of awards granted under the Plan. Unless sooner terminated in accordance with Section 17, the Plan shall terminate with respect to options which are not Incentive Stock Options and awards on the date specified in (ii) above. If the date of termination is determined under (i) above, then options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options. Provision for Foreign Participants. The Board of Directors may, without amending the Plan, modify awards or options granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. Plan/Amendment Adopted by the Adopted by the Board of Directors Stockholders Plan April 7, 1993 May 25, 1993 Amendment No. 1 January 3, 1994 May 26, 1994 Amendment No. 2 March 19, 1997 May 15, 1997 EX-21 3 SUBSIDIARIES OF THE REGISTRANT XHIBIT 21
SUBSIDIARIES OF HYDE ATHLETIC INDUSTRIES, INC. Jurisdiction of Percentage Name Incorporation Ownership Hyde International Services, Ltd. Hong Kong 100% Hyde Transition Corp.* Massachusetts 100% Spot-Bilt, Inc.** Maine 100% Saucony Canada, Inc.*** Ontario 85% Saucony, Inc.*** Massachusetts 100% Saucony Sports, B.V.*** Netherlands 76% Saucony SP Pty. Ltd.*** Australia 50% Saucony Deutschland Vertriebs GmbH *** Germany 100% Quintana Roo, Inc.**** Delaware 100% - ---------------------- * Formerly known as Brookfield Athletic Co., Inc. ** Does business as "Spot-Bilt." *** Does business as "Saucony." **** Does business as "Quintana Roo."
EX-23 4 CONSENT OF COOPERS AND LYBRAND XHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of Hyde Athletic Industries, Inc. on Forms S-8 (file numbers 33-50922, 33-61532, 33-66482, 33-80726, 333-33485) of our report dated March 26, 1998, on our audits of the consolidated financial statements and financial statement schedule of Hyde Athletic Industries, Inc. and Subsidiaries as of January 2, 1998 and January 3, 1997 and for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Boston, Massachusetts April 1, 1998 EX-23 5 CONSENT OF GRANT THORNTON EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by Registration Statement of Hyde Athletic Industries, Inc. on Forms S-8 (file numbers 33-50922, 33-61532, 33-66482, 33-80726, 333-33485) of our report dated April 2, 1998 on our audits of the financial statements and financial statement schedule of Saucony SP Pty, Ltd. as of January 2, 1998 and January 3, 1997 and for the years ended January 2, 1998, January 3, 1997 and January 5, 1996 which report is included in this Annual Report on Form 10-K. /s/ Grant Thornton Grant Thornton Chartered Accountants /s/ B R Gordon B R Gordon Partner Sydney, Australia April 2, 1998 EX-27 6 FDS --
5 This schedule contains summary financial information extracted from Hyde Athletic Industries, Inc. Form 10-K for the period ended January 5, 1996 and is qualified in its entirety by reference to such 10-K. 0000049401 Hyde Athletic 1000 Year Jan-05-1996 Dec-31-1994 Jan-05-1996 11668 308 17361 484 26832 58984 14716 6593 69265 14728 4206 0 0 2139 46021 69265 78549 78840 52695 52695 25654 429 982 228 (8) 522 863 0 0 1385 0.22 0.22
EX-27 7 FDS --
5 This schedule contains summary financial information extracted from Hyde Athletic Industries, Inc. Form 10-K for the period ended January 3, 1997 and is qualified in its entirety by reference to such 10-K. 0000049401 Hyde Athletic 1000 Year 3-MOS 6-MOS 9-MOS Jan-03-1997 Jan-03-1997 Jan-03-1997 Jan-03-1997 Jan-06-1996 Jan-06-1996 Jan-06-1996 Jan-06-1996 Jan-03-1997 Apr-05-1996 Jul-06-1996 Oct-04-1996 2803 5550 3819 5226 236 150 304 197 18403 24761 23736 19182 470 527 532 424 24537 19862 19347 19356 58132 60693 59471 58391 16505 14710 15893 16282 7478 6810 7046 7287 70752 70584 70020 69346 13963 14708 14915 13633 4893 4530 3469 3350 0 0 0 0 0 0 0 0 2145 2139 2139 2145 47339 46842 47033 47705 70752 70584 70020 69346 91341 28638 53034 73643 91879 28877 53628 74321 61692 19850 36704 50106 61692 19850 36704 50106 27842 7130 14349 20959 470 187 412 355 730 258 480 660 1982 1639 2095 2596 325 621 757 891 1349 883 1110 1330 (243) (143) (257) 126 0 0 0 0 0 0 0 0 1106 740 853 1456 0.18 0.12 0.14 0.23 0.18 0.12 0.14 0.23
EX-27 8 FDS --
5 This schedule contains summary financial information extracted from Hyde Athletic Industries, Inc. Form 10-K for the period ended January 2, 1998 and is qualified in its entirety by reference to such 10-K. 0000049401 Hyde Athletic 1000 Year 3-MOS 6-MOS 9-MOS Jan-02-1998 Jan-02-1998 Jan-02-1998 Jan-02-1998 Jan-04-1997 Jan-04-1997 Jan-04-1997 Jan-04-1997 Jan-02-1998 Apr-04-1997 Jul-04-1997 Oct-03-1997 4432 2242 2845 5444 148 236 178 139 18636 25509 22319 21709 1388 493 492 544 23471 23170 25644 23439 50239 61492 55254 54574 16753 16711 16094 16219 8618 7707 7976 8271 61316 74403 67118 66173 13315 19086 14106 13001 771 3168 1129 1011 0 0 0 0 0 0 0 0 2150 2145 2145 2145 42922 47610 47747 47961 61316 74403 67118 66173 63611 25217 49615 74251 93962 25066 49565 74168 63511 16632 32480 48694 63511 16632 32480 48694 32386 7198 16071 23596 1056 121 141 279 817 249 500 665 (3800) (987) 513 1213 355 382 211 489 (4032) 570 450 825 (298) (287) (41) (213) 0 0 0 0 0 0 0 0 (4330) 283 409 612 (0.70) 0.05 0.03 0.10 (0.70) 0.05 0.03 0.10
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