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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 2004
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 000-05083
SAUCONY, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1465840
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
13 Centennial Drive, Peabody, MA 01960
(Address of principal executive offices)
978-532-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class as of May 4, 2004
----- ------------------
Class A Common Stock-$.33 1/3 Par Value Per Share 2,520,647
Class B Common Stock-$.33 1/3 Par Value Per Share 3,983,690
---------
6,504,337
=========
SAUCONY, INC. AND SUBSIDIARIES
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited.....................................3
Condensed Consolidated Balance Sheets as of April 2, 2004
and January 2, 2004..................................................3
Condensed Consolidated Statements of Income for the
thirteen weeks ended April 2, 2004 and April 4, 2003.................4
Condensed Consolidated Statements of Cash Flows for the
thirteen weeks ended April 2, 2004 and April 4, 2003.................5
Notes to Condensed Consolidated Financial Statements --
April 2, 2004.....................................................6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................11-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........18
Item 4. Controls and Procedures.............................................18
Part II. OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities...........................................19
Item 6. Exhibits and Reports on Form 8-K....................................20
Signature....................................................................21
Exhibit Index................................................................22
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(In thousands, except share and per share amounts)
ASSETS
April 2, January 2,
2004 2004
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents.....................................$ 12,689 $ 41,781
Short-term investments........................................ -- 5,788
Accounts receivable........................................... 32,153 19,167
Inventories................................................... 22,239 22,421
Deferred income taxes......................................... 1,712 2,340
Prepaid expenses and other current assets..................... 1,364 1,329
--------- ---------
Total current assets........................................ 70,157 92,826
--------- ---------
Property, plant and equipment, net............................... 6,571 6,201
--------- ---------
Other assets:
Goodwill, net................................................. 912 912
Deferred charges, net......................................... 166 124
Other......................................................... 124 130
--------- ---------
Total other assets.......................................... 1,202 1,166
--------- ---------
Total assets.....................................................$ 77,930 $ 100,193
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized lease obligations..............$ 70 $ --
Accounts payable.............................................. 7,244 9,259
Accrued expenses and other current liabilities................ 7,614 9,544
--------- ---------
Total current liabilities................................... 14,928 18,803
--------- ---------
Long-term obligations:
Capitalized lease obligations, net of current portion......... 210 --
Deferred income taxes......................................... 2,048 2,016
--------- ---------
Total long-term obligations................................. 2,258 2,016
--------- ---------
Minority interest in consolidated subsidiary..................... 351 320
--------- ---------
Stockholders' equity:
Preferred stock, $1.00 par value per share; authorized
500,000 shares; none issued................................. -- --
Common stock:
Class A, $.333 par value per share,
authorized 20,000,000 shares
(issued April 2, 2004, 2,711,127
and January 2, 2004, 2,711,127)............................ 904 904
Class B, $.333 par value per share,
authorized 20,000,000 shares
(issued April 2, 2004, 4,566,455
and January 2, 2004, 4,210,560).......................... 1,522 1,403
Additional paid in capital.................................... 22,652 19,010
Retained earnings............................................. 41,551 63,655
Accumulated other comprehensive income........................ 329 505
Common stock held in treasury, at cost
(April 2, 2004, Class A, 190,480, Class B, 589,544
January 2, 2004, Class A, 190,480, Class B, 582,326)...... (6,565) (6,423)
--------- ---------
Total stockholders' equity.................................. 60,393 79,054
--------- ---------
Total liabilities and stockholders' equity.......................$ 77,930 $ 100,193
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the Thirteen Weeks Ended April 2, 2004 and April 4, 2003
(Unaudited)
(In thousands, except per share amounts)
Thirteen Weeks Thirteen Weeks
Ended Ended
April 2, April 4,
2004 2003
---- ----
Net sales..............................................................$ 46,969 $ 39,068
Other revenue ......................................................... 179 95
---------- ----------
Total revenue ......................................................... 47,148 39,163
---------- ----------
Costs and expenses
Cost of sales....................................................... 27,912 23,872
Selling expenses.................................................... 6,058 4,932
General and administrative expenses................................. 6,078 5,988
---------- ----------
Total costs and expenses.......................................... 40,048 34,792
---------- ----------
Operating income....................................................... 7,100 4,371
Non-operating income (expense)
Interest income..................................................... 69 74
Interest expense.................................................... -- (2)
Foreign currency losses ............................................... (144) (15)
Other............................................................... 3 (11)
---------- ----------
Income before income taxes and minority interest....................... 7,028 4,417
Provision for income taxes............................................. 2,759 1,750
Minority interest in income of consolidated subsidiaries............... 38 64
---------- ----------
Net income.............................................................$ 4,231 $ 2,603
========== ==========
Per share amounts:
Earnings per share:
Basic:
Class A common stock............................................$ 0.63 $ 0.41
========== ==========
Class B common stock............................................$ 0.69 $ 0.45
========== ==========
Diluted:
Class A common stock............................................$ 0.58 $ 0.39
========== ==========
Class B common stock............................................$ 0.64 $ 0.43
========== ==========
Weighted average common shares and equivalents outstanding:
Basic:
Class A common stock............................................ 2,521 2,524
Class B common stock............................................ 3,801 3,543
---------- ----------
Total......................................................... 6,322 6,067
========== ==========
Diluted:
Class A common stock............................................ 2,521 2,524
Class B common stock............................................ 4,323 3,717
---------- ----------
Total......................................................... 6,844 6,241
========== ==========
Cash dividends per share of common stock:
Class A common stock............................................$ 4.050 $ --
Class B common stock...................................................$ 4.055 $ --
The accompanying notes are an integral part of these consolidated financial statements.
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Thirteen Weeks Ended April 2, 2004 and April 4, 2003
(Unaudited)
(In thousands)
Thirteen Weeks Thirteen Weeks
Ended Ended
April 2, April 4,
2004 2003
---- ----
Cash flows from operating activities:
Net income.................................................................$ 4,231 $ 2,603
-------- --------
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization.............................................. 361 330
Provision for bad debts and discounts...................................... 2,032 1,621
Deferred income tax expense ............................................... 659 56
Tax benefit on stock option exercises...................................... 1,036 4
Other...................................................................... 8 95
Changes in operating assets and liabilities, net of effect
foreign currency adjustments:
(Increase) decrease in assets:
Accounts receivable.................................................... (15,645) (12,160)
Inventories............................................................ 113 5,296
Prepaid expenses and other current assets.............................. (38) 97
Decrease in liabilities:
Accounts payable....................................................... (2,012) (3,868)
Accrued expenses....................................................... (1,349) (1,475)
--------- ---------
Total adjustments............................................................ (14,835) (10,004)
--------- ---------
Net cash used by operating activities........................................... (10,604) (7,401)
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment................................... (437) (573)
Sales of short-term investments.............................................. 5,769 --
Realized gains on short-term investments..................................... 5 --
Change in deposits and other................................................. (68) (1)
--------- ---------
Net cash provided (used) by investing activities............................. 5,269 (574)
--------- ---------
Cash flows from financing activities:
Net short-term borrowings.................................................... -- 633
Dividends paid on common stock............................................... (26,251) --
Common stock repurchased..................................................... -- (103)
Issuances of common stock, stock option exercises............................ 2,231 120
Issuances of common stock, stock purchase warrant exercises.................. 352 --
--------- ---------
Net cash (used) provided by financing activities................................ (23,668) 650
Effect of exchange rate changes on cash and cash equivalents.................... (89) (81)
--------- ----------
Net decrease in cash and cash equivalents....................................... (29,092) (7,406)
Cash and equivalents at beginning of period..................................... 41,781 34,483
-------- ---------
Cash and equivalents at end of period...........................................$ 12,689 $ 27,077
======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes, net of refunds...............................................$ 975 $ 1,222
======== =========
Interest...................................................................$ -- $ --
======== =========
Non-cash investing and financing activities:
Property purchased under capital leases......................................$ 279 $ --
======== =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
SAUCONY, INC. AND SUBSIDIARIES
(the "Company")
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 2, 2004
(Unaudited)
(In thousands, except per share amounts)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for a
fair presentation have been included. The balance sheet amounts at January 2,
2004 in the accompanying financial statements are derived from the Company's
audited financial statements for the fiscal year then ended, included in the
Company's Annual Report on Form 10-K for such fiscal year. These interim
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements, and the notes thereto, included in the
Company's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission, for the year ended January 2, 2004. Operating results for the
thirteen weeks ended April 2, 2004 are not necessarily indicative of the results
for the entire year.
NOTE 2 - INVENTORIES
Inventories at April 2, 2004 and January 2, 2004 consisted of the following:
April 2, January 2,
2004 2004
---- ----
Finished goods..............................$ 22,219 $ 22,322
Raw material and supplies................... 1 34
Work in progress............................ 19 65
---------- ----------
Total.......................................$ 22,239 $ 22,421
========== ==========
NOTE 3 - EARNINGS PER COMMON SHARE
The Company presents basic and diluted earnings per share using the two-class
method. The two-class method is an earnings allocation formula that determines
earnings per share for each class of common stock according to dividends
declared and participation rights in undistributed earnings.
Basic earnings per share for the Company's Class A and Class B common stock is
calculated by dividing net income by the weighted average number of shares of
Class A and Class B common stock outstanding. Diluted earnings per share for the
Company's Class A and Class B common stock is calculated similarly, except that
the calculation includes the dilutive effect of the assumed exercise of options
issuable under the Company's stock incentive plans and the assumed exercise of
stock warrants.
Net income available to the Company's common stockholders is allocated among our
two classes of common stock, Class A common stock and Class B common stock. The
allocation among each class was based upon the two-class method. Under the
two-class method, earnings per share for each class of common stock is
presented:
Thirteen Weeks
Ended
-------------------------------------
April 2, April 4,
2004 2003
---- ----
Net income available to Class A
and Class B common stockholders................................$ 4,231 $ 2,603
--------- ---------
Allocation of net income:
Basic:
Class A common stock...........................................$ 1,591 $ 1,023
Class B common stock........................................... 2,640 1,580
--------- ---------
Total..........................................................$ 4,231 $ 2,603
========= =========
Diluted:
Class A common stock...........................................$ 1,466 $ 994
Class B common stock........................................... 2,765 1,609
--------- ---------
Total..........................................................$ 4,231 $ 2,603
========= =========
Weighted average common shares
and equivalents outstanding:
Basic:
Class A common stock........................................... 2,521 2,524
Class B common stock........................................... 3,801 3,543
--------- ---------
Total.......................................................... 6,322 6,067
========= =========
Diluted:
Class A common stock........................................... 2,521 2,524
Class B common stock........................................... 4,323 3,717
--------- ---------
Total......................................................... 6,844 6,241
========= =========
Earnings per share:
Basic:
Class A common stock...........................................$ 0.63 $ 0.41
========= ========
Class B common stock...........................................$ 0.69 $ 0.45
========= ========
Diluted:
Class A common stock...........................................$ 0.58 $ 0.39
========= ========
Class B common stock...........................................$ 0.64 $ 0.43
========= ========
On February 17, 2004, the Company's Board of Directors declared a special cash
dividend of $4.00 per share on each of the Company's Class A and Class B common
stock. On March 17, 2004 the Company paid the special dividend to stockholders
of record at the close of business on March 3, 2004. The increase in the
weighted average common shares and equivalents in the thirteen weeks ended April
2, 2004, compared to the thirteen weeks ended April 4, 2003 was due to increased
Class B common shares outstanding and the impact of our special dividend which
increased the dilutive effect of outstanding options. The increase in Class B
common shares outstanding is due to the issuance of approximately 356,000 Class
B common shares due to the exercise of stock options and stock purchase
warrants. Options outstanding at March 1, 2004, the ex-dividend date, were
increased due to the customary dilutive adjustments in the number of outstanding
options to purchase Class B common stock, and the exercise price of such
options, in proportion to changes in the market price of our Class B common
stock on that date for the special cash dividend on our common stock announced
on February 17, 2004. As a consequence of the special dividend, the number of
options to purchase our Class B common stock was increased by approximately
288,000 options, which increase was in proportion to changes in the market price
of our Class B common stock as of March 1, 2004, the ex-dividend date. The
aggregate dividend payout for the special dividend amounted to $25,990.
Options to purchase 455,000 shares of common stock outstanding at April 4, 2003
were not included in the computations of diluted earnings per share, for the
thirteen week period then-ended, since the options were anti-dilutive. All of
the options to purchase shares of common stock outstanding at April 2, 2004 were
included in the computations of diluted earnings per share.
NOTE 4 - STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 148 ("SFAS 148") Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of Statement
of Financial Accounting Standards No. 123 ("SFAS 123") encourages, but does not
require, companies to record compensation expense for stock-based employee
compensation plans at fair value. The Company accounts for employee stock
options and share awards under the intrinsic-value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") as interpreted, with pro-forma disclosures of net earnings
and earnings per share, as if the fair value method of accounting defined in
SFAS 123, applied. SFAS 123 establishes a fair value based method of accounting
for stock-based employee compensation plans. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
All stock options granted during the thirteen weeks ended April 2, 2004 and the
thirteen weeks ended April 4, 2003 were at exercise prices equal to or greater
than the fair market value of the Company's common stock at the date of the
grant. Accordingly, no compensation cost has been recognized for such options
granted.
In connection with the exercise of options, the Company has realized income tax
benefits of $1,036 and $4 for the thirteen weeks ended April 2, 2004 and April
4, 2003, respectively, that have been credited to additional paid-in capital.
Had the Company determined the stock-based compensation expense for the
Company's stock options based upon the fair value at the grant date for stock
option awards for the thirteen weeks ended April 2, 2004 and April 4, 2003,
consistent with the fair value method provisions of SFAS 123, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:
Thirteen Weeks Ended Thirteen Weeks Ended
April 2, 2004 April, 4 2003
Basic Diluted Basic Diluted
----- ------- ----- -------
Net income:
As reported........................................$ 4,231 $ 4,231 $ 2,603 $ 2,603
Add:Stock-based compensation expense
included in reported net income, net
of related tax benefit............................. -- -- 5 5
Less:Total stock-based compensation
expense determined under the fair value
based method for all awards, net of
related tax benefit................................ (338) (338) (147) (147)
-------- --------- --------- ---------
Pro forma net income ................................$ 3,893 $ 3,893 $ 2,461 $ 2,461
======== ========= ========= =========
Pro forma net income allocated:
Class A common stock.............................$ 1,464 $ 1,349 $ 967 $ 939
Class B common stock............................. 2,429 2,544 1,494 1,522
-------- --------- --------- ---------
Total.....................................$ 3,893 $ 3,893 $ 2,461 $ 2,461
======== ========= ========= =========
Thirteen Weeks Ended Thirteen Weeks Ended
April 2, 2004 April 4, 2003
Basic Diluted Basic Diluted
----- ------- ----- -------
Pro forma earnings per share:
Class A common stock
As reported........................................$ 0.63 $ 0.58 $ 0.41 $ 0.39
Add:Stock-based compensation expense
included in reported net income, net
of related tax benefit............................. -- -- -- --
Less: Total stock-based compensation
expense determined under the fair
value based method for all awards,
net of related tax benefit......................... (0.05) (0.04) (0.03) (0.02)
-------- -------- --------- ---------
Pro forma net income per share.......................$ 0.58 $ 0.54 $ 0.38 $ 0.37
======== ======== ========= =========
Thirteen Weeks Ended Thirteen Weeks Ended
April 2, 2004 April 4, 2003
Basic Diluted Basic Diluted
----- ------- ----- -------
Pro forma earnings per share:
Class B common stock
As reported........................................$ 0.69 $ 0.64 $ 0.45 $ 0.43
Add:Stock-based compensation expense
included in reported net income (loss),
net of related tax.............................. -- -- -- --
Less: Total stock-based compensation
expense determined under the fair
value based method for all awards,
net of related tax benefit......................... (0.05) (0.05) (0.03) (0.02)
-------- -------- --------- ---------
Pro forma net income per share.......................$ 0.64 $ 0.59 $ 0.42 $ 0.41
======== ======== ========= =========
The fair value of options at date of grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
Thirteen Weeks Thirteen Weeks
Ended Ended
April 2, 2004 April 4, 2003
------------- -------------
Expected life (years)................ 5.0 5.0
Risk-free interest rate.............. 3.0% 3.1%
Expected volatility.................. 57.5% 66.6%
Expected dividend yield.............. 1.2% 0.0%
NOTE 5 - STATEMENT OF COMPREHENSIVE INCOME
Thirteen Weeks Thirteen Weeks
Ended Ended
April 2, 2004 April 4, 2003
------------- -------------
Net income...........................................$ 4,231 $ 2,603
Other comprehensive income:
Foreign currency translation adjustments,
net of tax....................................... (176) 254
--------- --------
Comprehensive income.................................$ 4,055 $ 2,857
========= ========
NOTE 6 - GOODWILL AND DEFERRED CHARGES
Goodwill and intangible assets as of April 2, 2004 and January 2, 2004 are as
follows:
April 2, 2004 January 2, 2004
Accumulated Accumulated
------------------------------------- -----------------------------------
Cost Amortization Net Cost Amortization Net
---- ------------ --- ---- ------------ ---
Goodwill...................$ 1,463 $ (551) $ 912 $ 1,463 $ (551) $ 912
======== ========= ======= ======== ========= =======
Deferred charges:
Software licenses........ 1,135 (1,010) 125 1,060 (992) 68
Capitalized debt
financing costs........ 87 (83) 4 87 (76) 11
Other.................... 444 (407) 37 444 (399) 45
-------- --------- ------- -------- --------- -------
Total......................$ 1,666 $ (1,500) $ 166 $ 1,591 $ (1,467) $ 124
======== ========= ======= ======== ========= =======
Amortization of intangible assets was $32 and $47, respectively, in the thirteen
weeks ended April 2, 2004 and April 4, 2003.
NOTE 7 - OPERATING SEGMENT DATA
The Company's operating segments are organized based on the nature of products
and consist of the Saucony segment and Other Products segment. The determination
of the reportable segments for the thirteen weeks ended April 2, 2004 and April
4, 2003, as well as the basis of measurement of segment profit or loss, is
consistent with the segment reporting disclosed in the Company's Annual Report
on Form 10-K for the fiscal year ended January 2, 2004.
Thirteen Weeks Thirteen Weeks
Ended Ended
April 2, 2004 April 4, 2003
------------- -------------
Revenues:
Saucony....................................................$ 41,240 $ 32,551
Other Products............................................. 5,908 6,612
--------- ---------
Total revenue.........................................$ 47,148 $ 39,163
========= =========
Income before income taxes and minority interest:
Saucony....................................................$ 6,372 $ 3,982
Other Products............................................. 656 435
--------- ---------
Total.................................................$ 7,028 $ 4,417
========= =========
NOTE 8 - SUPPLEMENTAL CASH FLOW DISCLOSURE
In February 2004, two officers who are also directors and principal shareholders
of the Company's Class A common stock, each delivered 3,609 share of Class B
common stock in payment of their respective option exercises to purchase 9,999
shares each of the Company's Class B common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Note Regarding Forward-Looking Statements
You should read the following discussion together with the condensed
consolidated financial statements and related notes appearing elsewhere in this
Quarterly Report on Form 10-Q. This Item contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 that involve risks and uncertainties. All
statements other than statements of historical fact included in this report are
forward-looking statements. When used in this report, the words "will",
"believes", "anticipates", "intends", "estimates", "expects", "projects" and
similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words.
Actual results may differ materially from those included in such forward-looking
statements. Important factors which could cause actual results to differ
materially include those set forth in our Annual Report on Form 10-K for the
fiscal year ended January 2, 2004 under "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Other
Factors That May Affect Future Results" filed by us with the Securities and
Exchange Commission on April 1, 2004, which discussion is filed as Exhibit 99.1
to this Quarterly Report on Form 10-Q and incorporated herein by this reference.
The forward-looking statements provided by us in this Quarterly Report on Form
10-Q represent our estimates as of the date this report is filed with the
Securities and Exchange Commission. We anticipate that subsequent events and
developments will cause these estimates to change. However, while we may elect
to update our forward-looking statements in the future, we specifically disclaim
any obligation to do so. The forward-looking statements contained in this report
should not be relied upon as representing our estimates as of any date
subsequent to the date this report is filed with the Securities and Exchange
Commission.
Critical Accounting Policies and Estimates
- ------------------------------------------
Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results may differ materially from these
estimates. Critical accounting policies are those policies that are reflective
of significant judgments and uncertainties and could potentially result in
materially different results under different assumptions and conditions. Our
most critical accounting policies involve: revenue recognition, accounts
receivable - allowances for doubtful accounts, inventories, property, plant and
equipment, impairment of long-lived assets, income taxes, stock-based
compensation and hedge accounting for derivatives. For a more detailed
explanation of our critical accounting policies, refer to our Annual Report on
Form 10-K for the year ended January 2, 2004, as filed with the Securities and
Exchange Commission on April 1, 2004.
Dollar amounts throughout this Item 2 are in thousands, except per share
amounts.
Highlights
Increase
Thirteen Weeks Ended
April 2, 2004 vs. April 4, 2003
-------------------------------
Net sales........................................$7,901 20.2%
Gross profit..................................... 3,861 25.4%
Selling, general and administrative
expenses....................................... 1,216 11.1%
Dollar Change
Thirteen Weeks Ended
April 2, 2004 vs. April 4, 2003
-------------------------------
Operating income................................. $2,729
Income before income taxes....................... 2,611
Net income....................................... 1,628
Percent of Net Sales
Thirteen Weeks Ended
April 2, 2004 April 4, 2003
------------- -------------
Gross profit.................................... 40.6% 38.9%
Selling, general and administrative expenses.... 25.8 28.0
Operating income................................ 15.1 11.2
Income before income taxes...................... 15.0 11.3
Net income...................................... 9.0 6.7
The following table sets forth the approximate contribution to net sales (in
dollars and as a percentage of consolidated net sales) attributable to our
Saucony segment and our Other Products segment for the thirteen weeks ended
April 2, 2004 and April 4, 2003:
Thirteen Weeks Ended
April 2, 2004 April 4, 2003
------------- -------------
Saucony.................$ 41,099 87.5% $ 32,485 83.1%
Other Products.......... 5,870 12.5% 6,583 16.9%
-------- ------ -------- ------
Total...................$ 46,969 100.0% $ 39,068 100.0%
======== ===== ======== =====
Thirteen Weeks Ended April 2, 2004 Compared to Thirteen Weeks Ended April 4,
2003
Consolidated Net Sales
- ----------------------
Net sales increased $7,901, or 20%, to $46,969 in the thirteen weeks ended April
2, 2004 from $39,068 in the thirteen weeks ended April 4, 2003.
On a geographic basis, domestic net sales increased $6,392, or 22%, to $35,968
in the thirteen weeks ended April 2, 2004 from $29,576 in the thirteen weeks
ended April 4, 2003. International net sales increased $1,509, or 16%, to
$11,001 in the thirteen weeks ended April 2, 2004 from $9,492 in the thirteen
weeks ended April 4, 2003. Favorable changes in foreign exchange rates accounted
for $1,231 of the international sales increase in the thirteen weeks ended April
2, 2004, compared to the thirteen weeks ended April 4, 2003.
Saucony Brand Segment
- ---------------------
Worldwide net sales of Saucony branded footwear and Saucony branded apparel
increased $8,614, or 27%, to $41,099 in the thirteen weeks ended April 2, 2004
from $32,485 in the thirteen weeks ended April 4, 2003, due primarily to an
increase in domestic footwear unit volume and, to a lesser extent, favorable
currency exchange resulting from a weaker U.S. dollar against European and
Canadian currencies and increased technical footwear unit volume at our
international subsidiaries, partially offset by lower domestic wholesale per
pair average selling prices. The volume of footwear sold in the thirteen weeks
ended April 2, 2004 increased 27% to 1,347 pair from 1,062 pair in the thirteen
weeks ended April 4, 2003.
Domestic net sales increased $6,887, or 29%, to $30,543 in the thirteen weeks
ended April 2, 2004 from $23,656 in the thirteen weeks ended April 4, 2003, due
primarily to a 37% increase in footwear unit volumes, partially offset by lower
wholesale per pair average selling prices.
The volume of domestic footwear sold in the thirteen weeks ended April 2, 2004,
increased to 1,098 pair from 800 pair in the thirteen weeks ended April 4, 2003.
The footwear unit volume increase in the thirteen weeks ended April 2, 2004 was
due primarily to a 99% footwear unit volume increase in our mid-priced
cross-over footwear, due primarily to increased cross-over unit volume sold into
the athletic mall, sporting goods and value distribution channels, an 18%
increase in technical footwear unit volumes and a 45% increase in Originals
footwear unit volumes. Our cross-over footwear category consists primarily of
mid-priced running shoes incorporating our proprietary Grid technology,
previously included in our technical footwear category. These increases were
partially offset by an 11% decrease in special make up footwear unit volumes.
Our Originals footwear accounted for 27% of domestic footwear unit volume in the
thirteen weeks ended April 2, 2004, compared to 24% in the thirteen weeks ended
April 4, 2003. The unit volume increase in Originals footwear was primarily due
to increased unit volume of our Jazz and Shadow Originals sold into the athletic
mall channel and, to a lesser extent, the introduction of new products in the
thirteen weeks ended April 2, 2004.
The average wholesale per pair selling prices for domestic footwear decreased in
the thirteen weeks ended April 2, 2004, compared to the thirteen weeks ended
April 4, 2003, due to a change in the product mix to increased cross-over and
Original footwear unit volumes, both of which sell at wholesale per pair selling
prices below our first quality technical footwear, a change in the special make
up footwear product mix to lower priced product, increased rebates provided to
certain domestic customers and a higher level of discounts.
International net sales increased $1,727, or 20%, to $10,556 in the thirteen
weeks ended April 2, 2004 from $8,829 in the thirteen weeks ended April 4, 2003,
due primarily to favorable currency exchange resulting from a weaker U.S. dollar
against European and Canadian currencies and, to a lesser extent, higher average
wholesale per pair selling prices and increased sales of Saucony brand apparel.
These factors were offset in part by a 5% decrease in footwear unit volumes.
The footwear average wholesale per pair selling price increased primarily due to
increased international distributor average wholesale per pair selling prices,
due to a change in the product mix to higher priced technical footwear,
increased cross-over footwear unit volumes and lower Originals footwear unit
volumes in the thirteen weeks ended April 2, 2004, compared to the thirteen
weeks ended April 4, 2003.
The volume of international footwear sold in the thirteen weeks ended April 2,
2004 decreased to 249 pair from 262 pair in the thirteen weeks ended April 4,
2003. Footwear unit volumes at our Canadian subsidiary increased 12% in the
thirteen weeks ended April 2, 2004, compared to the thirteen weeks ended April
4, 2003, due primarily to increased technical footwear unit volumes. Footwear
unit volumes at our European subsidiaries were flat.
International distributor footwear unit volumes decreased 33%, due primarily to
a 56% decrease in Originals footwear unit volumes sold in the Japanese footwear
market and, to a lesser extent, a 14% decrease in footwear unit volumes sold,
due primarily to decreased technical footwear unit volume sold to our
distributors in the Pacific Rim. Distributor sales into the Japanese footwear
market accounted for 3% of international sales in the thirteen weeks ended April
2, 2004, compared to 6% in the thirteen weeks ended April 4, 2003.
Other Products Segment
- ----------------------
Worldwide sales of Other Products decreased $713, or 11%, to $5,870 in the
thirteen weeks ended April 2, 2004 from $6,583 in the thirteen weeks ended April
4, 2003, due primarily to a 26% decrease in domestic sales of our Hind brand
apparel, partially offset by a 44% increase in sales at our factory outlet
stores.
Domestic net sales of Other Products decreased $495, or 8%, to $5,425 in the
thirteen weeks ended April 2, 2004 from $5,920 in the thirteen weeks ended April
4, 2003, due primarily to decreased sales of our Hind brand apparel. Hind
apparel sales decreased 26% due primarily to a 29% decrease in Hind apparel unit
volume, partially offset by a 5% increase in the average wholesale per item
selling price of our Hind apparel. Both the decrease in Hind apparel unit volume
and the increase in average wholesale per item selling price of our Hind apparel
were due to lower closeout unit volumes sold in the thirteen weeks ended April
2, 2004, compared to the thirteen weeks ended April 4, 2003. Sales of closeout
apparel accounted for approximately 7% of domestic Hind apparel net sales in the
thirteen week ended April 2, 2004, compared to 23% of domestic Hind apparel net
sales in the thirteen weeks ended April 4, 2003. During the thirteen weeks ended
April 2, 2004, our closeout sales volume decreased, compared to the thirteen
weeks ended April 4, 2003, due to the production and sale during the 2003 period
of surplus special makeup closeout apparel from remaining raw materials in
connection with the change in our product sourcing. Sales at our factory outlet
division increased in the thirteen weeks ended April 2, 2004, compared to the
thirteen weeks ended April 4, 2003, due primarily to sales derived from
additional factory outlet stores opened after April 4, 2003, increased sales at
our factory outlet stores open for more than one year and, to a lesser extent,
the addition of two factory outlet stores which were opened in March 2004.
International net sales of Other Products decreased $218, or 33%, to $445 in the
thirteen weeks ended April 2, 2004 from $663 in the thirteen weeks ended April
4, 2003, due primarily to discontinuing Hind apparel distribution at our Dutch
subsidiary and decreased Hind apparel sales in Canada and the United Kingdom.
Partially offsetting these decreases were sales at our recently opened factory
outlet stores in Canada.
Costs and Expenses
- ------------------
The Company's gross margin in the thirteen weeks ended April 2, 2004 increased
to 40.6% compared to 38.9% in the thirteen weeks ended April 4, 2003, due
primarily to favorable currency exchange due to the impact of a weaker U.S.
dollar against European and Canadian currencies, improved margins on Hind brand
apparel and improved margins at our factory outlet division. The improved
margins on our Hind brand apparel during the thirteen weeks ended April 2, 2004,
compared to the thirteen weeks ended April 4, 2003, were due primarily to our
decision to increase our gross margin targets and wholesale price increases,
both of which increased our first quality gross margins, lower inventory
provisions and lower closeout sales. Offsetting these margin increases in the
thirteen weeks ended April 2, 2004, compared to the thirteen weeks ended April
4, 2003, were increased footwear unit volume of our mid-priced cross-over
footwear sold into the athletic mall, sporting goods and value channels at lower
gross margins that included increased rebates provided to certain Saucony
domestic customers.
Selling, general and administrative expenses as a percentage of net sales
decreased to 25.8% in the thirteen weeks ended April 2, 2004, compared to 28.0%
in the thirteen weeks ended April 4, 2003. In absolute dollars, selling, general
and administrative expenses increased 11%, due primarily to increased
administrative and selling payroll, operating expenses associated with the
factory outlet division expansion, account specific advertising and promotion,
print media advertising, variable selling expenses and professional fees.
Foreign exchange rate changes increased selling and administrative expenses by
$214 in the thirteen weeks ended April 2, 2004, compared to the thirteen weeks
ended April 4, 2003.
Non-Operating Income (Expense)
- ------------------------------
Non-operating income (expense) decreased in the thirteen weeks ended April 2,
2004 to an expense of $72, compared to income of $46 in the thirteen week ended
April 4, 2003. The decrease was due primarily to an increase in foreign currency
losses to $144 in the thirteen weeks ended April 2, 2004, compared to foreign
currency losses of $15 in the thirteen weeks ended April 4, 2003, reflecting
losses on forward foreign currency contracts. Interest income decreased to $69
in the thirteen weeks ended April 2, 2004 from $74 in the thirteen weeks ended
April 4, 2003. due to lower levels of invested cash balances and lower interest
rates in the thirteen weeks ended April 4, 2003.
Income Before Tax and Minority Interest
- ---------------------------------------
Thirteen Weeks Ended
April 2, April 4,
2004 2003
--------- --------
Segment
Saucony..........................$ 6,372 $ 3,982
Other Products................... 656 435
--------- --------
Total............................$ 7,028 $ 4,417
========= ========
Income before tax and minority interest increased $2,611 in the thirteen weeks
ended April 2, 2004 to $7,028, compared to $4,417 in the thirteen weeks ended
April 4, 2003, due primarily to increased pre-tax income realized by both our
domestic and international Saucony businesses, due to higher sales and improved
gross margins. The improvement in our Other Products segment income before tax
and minority interest in the thirteen weeks ended April 2, 2004, compared to the
thirteen weeks ended April 4, 2003, was due primarily to improved profitability
at our Hind apparel brand due to improved gross margins and lower operating
expenses.
Income Taxes
- ------------
The provision for income taxes increased to $2,759 in the thirteen weeks ended
April 2, 2004 from $1,750 in the thirteen weeks ended April 4, 2003, due
primarily to higher pre-tax income realized by our domestic and international
Saucony businesses and higher pre-tax income realized by our Hind apparel brand.
The effective tax rate decreased 0.3% to 39.3% in the thirteen weeks ended April
2, 2004 from 39.6% in the thirteen weeks ended April 4, 2003, due to a shift in
the composition of domestic and foreign pre-tax earnings. We credited to
additional paid-in capital income tax benefits of options exercised of $1,036
during the thirteen weeks ended April 2, 2004 and of $4 during the thirteen
weeks ended April 4, 2003. The income tax benefits of options exercised did not
impact our provision for income taxes or the effective tax rate in either
period.
Minority Interest in Net Income of Consolidated Subsidiary
- ----------------------------------------------------------
Minority interest expense represents a minority shareholder's allocable share of
our Canadian subsidiary's earnings after deducting for income tax. Minority
interest expense decreased to $38 in the thirteen weeks ended April 2, 2004,
compared to $64 in the thirteen weeks ended April 4, 2003, due to the increase
in our ownership percentage in Saucony Canada, Inc. to 95% from 85% in July
2003.
Net Income
- ----------
Net income for the thirteen weeks ended April 2, 2004 increased to $4,231, or
$0.58 per Class A share and $0.64 per Class B share on a diluted basis, compared
to $2,631, or $0.39 per Class A share and $0.43 per Class B share on a diluted
basis, in the thirteen weeks ended April 4, 2003. Weighted average common shares
and common stock equivalents used to calculate diluted earnings per share in the
thirteen weeks ended April 2, 2004 consisted of 2,521,000 Class A and 4,323,000
Class B shares, compared to 2,524,000 Class A and 3,717,000 Class B shares in
the thirteen weeks ended April 4, 2003.
The increase in the weighted average common shares and equivalents in the
thirteen weeks ended April 2, 2004, compared to the thirteen weeks ended April
4, 2003 was due to increased Class B common shares outstanding and the impact of
our special dividend which increased the dilutive effect of outstanding options.
The increase in Class B common shares outstanding is due to the issuance of
approximately 356,000 Class B common shares due to the exercise of stock options
and stock purchase warrants. Options outstanding at March 1, 2004, the
ex-dividend date, were increased due to the customary dilutive adjustments in
the number of outstanding options to purchase Class B common stock, and the
exercise price of such options, in proportion to changes in the market price of
our Class B common stock on that date for the special cash dividend on our
common stock announced on February 17, 2004.
Liquidity and Capital Resources
- -------------------------------
As of April 4, 2003, our cash and cash equivalents totaled $12,689, a decrease
of $29,092 from January 2, 2004. The decrease is due primarily to the payment of
a special cash dividend of $25,990 in March 2004 and regular quarterly cash
dividends of $261, the use of cash from operations of $10,604 and cash outlays
for capital assets of $437. This decrease in cash was offset in part by sales of
short-term investments of $5,769 and the receipt of $2,583 from the issuance of
shares of our common stock as a result of option and common stock purchase
warrant exercises.
Our accounts receivable, net of the provision for bad debts and discounts, at
April 4, 2004 increased $13,613 compared to at January 2, 2004 due to increased
sales of our Saucony footwear products we experienced in the thirteen weeks
ended April 2, 2004. Our days' sales outstanding for accounts receivable
increased to 62 days in the thirteen weeks ended April 2, 2004 from 61 days in
the thirteen weeks ended April 4, 2003, due to the timing of our shipments in
the thirteen weeks ended April 2, 2004, much of which shipped in March 2004.
Days' sales outstanding is defined as the number of average daily net sales in
our accounts receivable as of the period end date and is calculated by dividing
the end of period accounts receivable by the average daily net sales. The
provision for bad debts and discounts increased to $2,032 in the thirteen weeks
ended April 2, 2004 from $1,621 in the thirteen weeks ended April 4, 2003 due to
an increase in sales discounts on higher sales volumes in the thirteen weeks
ended April 2, 2004. Inventories decreased $113 in the thirteen weeks ended
April 2, 2004, compared to at January 2, 2004. Our inventory turns increased to
5.0 turns in the thirteen weeks ended April 2, 2004 from 3.9 turns in the
thirteen weeks ended April 4, 2003. The number of days' sales in inventory
decreased to 73 days in the thirteen weeks ended April 2, 2004 from 84 days in
the thirteen weeks ended April 4, 2003. The inventory turns ratio represents our
cost of sales for a period divided by the average of our beginning and ending
inventory during the period. Days' sales in inventory is defined as the number
of average daily cost of sales in our inventory as of the period end date and is
calculated by dividing the end of period inventories by the average daily cost
of sales for the period. The improvements in our inventory turns and days' sales
in inventory are due to improvements in our management of our supply chain.
Principal factors, other than net income, accounts receivable, provision for bad
debts and discounts and inventory, affecting our operating cash flows in the
thirteen weeks ended April 2, 2004 included a $2,012 decrease in accounts
payable, due to payments made for inventory received in the fourth quarter of
fiscal 2003, and a $1,349 decrease in accrued expenses, due primarily to lower
employee compensation accruals which decreased due primarily to the payment of
fiscal 2003 incentive compensation and the timing of payrolls and were partially
offset by increased income tax accruals.
Our liquidity is contingent upon a number of factors, principally our future
operating results. Management believes that our current cash and cash
equivalents, credit facilities and internally generated funds are adequate to
meet our working capital requirements and to fund our capital investment needs
and any debt service payments. During the thirteen weeks ended April 2, 2004, we
used $10,604 in cash to fund operations, due primarily to an increase in
accounts receivable. In the thirteen weeks ended April 4, 2003, we used $7,401
in cash to fund operations also due primarily to an increase in accounts
receivable. At April 2, 2004, we had no borrowings outstanding under our credit
facilities, compared to $635 in borrowings outstanding under our credit
facilities at April 4, 2003.
INFLATION AND CURRENCY RISK
The effect of inflation on our results of operations over the past three years
has been minimal. The impact of currency fluctuation on our purchase of
inventory from foreign suppliers has been minimal as the transactions were
denominated in U.S. dollars. We are, however, subject to currency fluctuation
risk with respect to the operating results of our foreign subsidiaries and
certain foreign currency denominated payables. We have entered into forward
foreign exchange contracts to minimize certain transaction currency risks. We
believe that our forward foreign currency contracts function as economic hedges
of our cash flows and that our foreign exchange management program effectively
minimizes certain transaction currency risks. During the thirteen weeks ended
April 2, 2004, we experienced $144 in foreign currency losses on forward foreign
exchange contracts, compared to foreign currency losses of $15 on forward
foreign currency exchange contracts in the thirteen weeks ended April 4, 2003.
Unfavorable movements in exchange rates between the U.S. dollar and the Canadian
dollar, the British Pound Sterling or the Euro against our hedged positions,
since these forward foreign currency contracts were executed, would expose us to
hedge losses for the balance of fiscal 2004. However, these losses will be
partially offset by gains on the exposures being hedged and the offsetting
positive translation impact.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have performed an analysis to assess the potential effect of reasonably
possible near-term changes in inflation and foreign currency exchange rates. The
effect of inflation on our results of operations over the past three years has
been minimal. The impact of currency fluctuation on the purchase of inventory by
us from foreign suppliers has been non-existent as all the transactions were
denominated in U.S. dollars. However, we are subject to currency fluctuation
risk with respect to the operating results of our foreign subsidiaries and
certain foreign currency denominated payables. We have entered into certain
forward foreign exchange contracts to minimize the transaction currency risk.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our chief executive officer
and chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934) as of April 2,
2004. Based on this evaluation, our chief executive officer and chief
financial officer have concluded that as of April 2, 2004, our
disclosure controls and procedures were (1) designed to ensure that
material information relating to Saucony, including its consolidated
subsidiaries, is make known to our chief executive officer and chief
financial officer by others within those entities, particularly during
the period in which this report was being prepared and (2) effective,
in that they provide reasonable assurance that information required to
be disclosed by Saucony in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms.
(b) Changes in internal controls.
No change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred
during the fiscal quarter ended April 2, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
EQUITY SECURITIES
The following table provides information with respect to purchases made by
Saucony of its equity securities registered pursuant to Section 12 of the
Exchange Act during the thirteen weeks ended April 2, 2004:
Issuer Purchases of Equity Securities
------------------------------------------------------------
Total Number Average Price
of Shares Purchased Paid Per Share
--------------------- --------------------
Class A Class B Class A Class B
Common Common Common Common
Period Stock Stock Stock Stock
------ ----- ----- ----- -----
January 3, 2004 through
February 2, 2004................................ -- -- $ -- $ --
February 3, 2004 through
March 2, 2004................................... -- 7,218 -- 19.67
March 3, 2004 through
April 2, 2004................................... -- -- -- --
Total.............................................. -- 7,218 $ -- $ 19.67
Issuer Purchases of Equity Securities
----------------------------------------------------------------
Total Number of Shares Maximum Number of
Purchased as Part of Shares that May Yet Be
Publicly Announced Plans Purchased Under the Plans
or Programs(1) or Programs
--------------------------------- -------------------------
Class A Class B
Common Common Class A and Class B
Period Stock Stock Total Common Stock, Combined
------ ----- ----- ----- ----------------------
January 3, 2004 through
February 2, 2004......................... -- -- -- 175,594
February 3, 2004 through
March 2, 2004............................ -- 7,218 7,218 168,376
March 3, 2004 through
April 2, 2004............................ -- -- -- 168,376
Total....................................... -- 7,218 7,218
(1) In May 1998, our Board of Directors approved a stock repurchase plan authorizing the repurchase of up to an
aggregate of 750,000 shares of our outstanding common stock, either Class A or Class B or a combination thereof.
Unless terminated earlier by a resolution of our Board of Directors, the plan will expire when we have
repurchased all shares authorized for repurchase thereunder. We announced this plan publicly on June 4, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The Exhibits filed as part of this Quarterly Report on Form 10-Q are
listed on the Exhibit Index immediately preceding such Exhibits, which
Exhibit Index is incorporated herein by reference.
b. Reports on Form 8-K
On January 14, 2004, we filed a Current Report on Form 8-K dated the
same date. The report furnished under Item 12 (Results of Operations
and Financial Condition), a copy of our press release announcing our
presentation at the 6th Annual ICR XChange, Leisure and Lifestyle
Conference on January 15, 2004 and provided updated net sales and
earnings per share guidance for the fourth quarter of fiscal 2003 and
updated earnings per share guidance for the 2003 fiscal year.
On February 17, 2004, we filed a Current Report on Form 8-K dated the
same date. The report disclosed under Item 5 (Other Events) our
declaration of a special cash dividend and our declaration of our
regular quarterly cash dividend, reflecting an increase in the amount
of our regular quarterly cash dividend. The report, also furnished
under Item 12 (Results of Operations and Financial Condition), a copy
of our press release announcing our financial results for the fiscal
quarter and fiscal year ended January 2, 2004.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Saucony, Inc.
Date: May 14, 2004 By: /s/ Michael Umana
-------------------------------------
Michael Umana
Executive Vice President, Finance
Chief Operating and Financial Officer
(Duly authorized officer and
principal financial officer)
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
10.1 Form of Incentive Stock Option Agreement Granted Under 2003 Stock
Option Plan, dated December 22, 2003, by and between Registrant and
Michael Umana, Michael Jeppesen, Samuel Ward and Brian Enge.
31.1 Certification of President and Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule
13a-14(a).
32.1 Certification of President and Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbannes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbannes-Oxley Act of
2002.
99.1 "Certain Factors That May Affect Future Results", as set forth within
"Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operation" of the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 2, 2004 filed with the Securities and
Exchange Commission on April 1, 2004.