This is the second time I have placed these articles, I am surprised that very few are picking up what I am. Thi is the second time the SEC is restating barter transactions for other companies, do you see a trend?
Bruce
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March 01, 1999 09:42
Saucony, Inc. Announces Fourth Quarter And Year End Results
PEABODY, Mass.--(BUSINESS WIRE)--March 1, 1999--
-- Fourth quarter earnings per diluted share of $0.17; fiscal 1998 earnings per diluted share of $0.55
-- Projected first quarter 1999 revenue up 30%-35% over 1998 first quarter; projected fiscal 1999 revenue up 20%-25% over fiscal
1998
-- Projected first quarter 1999 earnings per diluted share of $0.40-$0.45; projected fiscal 1999 earnings per diluted share of
$0.80-$0.90
-- Backlog up 45% (excluding closed Australian operations) as of January 1, 1999
Saucony, Inc. (NASDAQ:SCNYA and SCNYB) announced today fiscal results for its fourth quarter and fiscal year ended January 1,
1999.
Net sales from continuing operations for the fourth quarter of fiscal 1998 increased 17.9%, to $22,832,000, over the comparable
period in 1997. The Company reported earnings from continuing operations for the fourth quarter of fiscal 1998 of $1,064,000, or
$0.17 per diluted share, compared with a loss from continuing operations of $4,857,000, or $0.78 per diluted share, in the fourth
quarter of fiscal 1997. For the year, net sales from continuing operations increased 12.2%, to $105,074,000, with earnings from
continuing operations of $3,511,000, or $0.55 per diluted share.
John H. Fisher, Chairman and Chief Executive Officer, commented, "In an industry burdened by an over-supply of product and
intense market competition, our results in 1998 were in sharp contrast to those of 1997. The Company's achievement reflects in
large part, a total team effort by all our employees in surpassing the challenges presented to them one year ago. Fueled by
significant increases in our domestic footwear business, including the introduction and continuation of our "retro" footwear, Jazz
Originals, The Company achieved significant revenue growth in 1998 and exceeded our fourth quarter and year-end projections.
Underlying these results is the positive comparison in both gross margin and SG&A. While recording an increase in revenues for
the year of approximately 12%, we raised gross margins from 33.6% in 1997 to 35.6% in 1998 and lowered SG&A to 30.9% of
sales."
"We believe that these positive trends will continue in 1999 as revenues are projected to increase over 1998 by 20%-25% with
additional improvement in gross margins. The projected increase is based upon continued growth of core technical products and
expansion of our "retro-product"."
"Jazz Originals were first introduced to the market in 1981 and re-introduced in March of 1998. This simply designed and target-
advertised line of product has grown from its six initial offerings to over 100 in 1998. The high quality and popular retail price
points of this product have created a level of demand that both increases revenues and significantly improves our distribution and
brand awareness."
"With the expansion of the Originals, we are projecting an increase in first quarter 1999 revenues between 30%-35% and resulting
earnings of $0.40-$0.45 per diluted share. Further, owing to our healthy backlog in domestic footwear and expected growth in our
domestic divisions, we are projecting 1999 earnings of $0.80-$0.90 per diluted share."
"The results of our International Division for 1998 continued to present challenges for the Company. Economic uncertainty and
volatility, along with a worldwide glut of product, especially in footwear, resulted in losses for 1998. We have instituted major cost
controls and intend to further consolidate operations in an effort to return to profitability in 1999."
"Our textile division, Hind, and bicycle division, QR/Merlin, each achieved record sales levels for the year but did not meet their
target levels of income. It is our intention to continue to invest in the expansion of the revenue base of these businesses while
improving the bottom line in 1999. Both textiles and cycling remain core complementary products to our technically-based and
functionally built Saucony footwear product."
Net sales of the Company's Saucony products increased 15.2% to $17,881,000 in the fourth quarter of fiscal 1998 from
$15,516,000 in the fourth quarter of fiscal 1997. Saucony domestic net sales increased 41.7% to $15,100,000 in the fourth quarter
of fiscal 1998 due to increased unit volumes. Saucony foreign net sales decreased 42.8% to $2,781,000 in the same period
primarily due to a reduction in unit and dollar volume caused by the termination of operations of the Company's Australian
subsidiary. For the fiscal year ended January 1, 1999, net sales of the Company's Saucony products increased 9.8% to
$86,332,000. Saucony domestic net sales increased 20.9% to $67,774,000 in 1998 while international sales decreased 17.8% to
$18,558,000.
Domestic sales of other products increased 51.0% to $4,565,000 in the fourth quarter of fiscal 1998. This increase was due to
significantly higher net sales of the Company's Hind apparel brand and the Company's bicycle division. International net sales of
other products decreased 53.0% to $386,000 due to the elimination of non-Saucony, Inc. product revenues in Australia. For fiscal
1998, domestic net sales of other products rose 63.2% to $15,589,000. For fiscal 1998, international net sales of other products
decreased 41.9% to $3,153,000.
Other income totaled $283,000 for the fourth quarter of fiscal 1998 due principally to the recognition of royalty and miscellaneous
income which was partially offset by foreign currency losses. For the comparable period in 1997, net expense of $544,000 was
recognized due to non-recurring foreign currency losses in Australia.
The Company's gross profit increased 38.5% for the fourth quarter of fiscal 1998 to $8,146,000 due primarily to increased unit
volumes in the U.S. market. For the year, gross profit increased by 19.1% to $37,451,000. The Company's gross margin increased
to 35.7% for the fourth quarter of 1998 versus 30.4% in the fourth quarter of 1997 which was negatively impacted by the now
discontinued Australian business. For the full year, gross margin increased to 35.6% in fiscal 1998 from 33.6% in fiscal 1997. Gross
margin improvement for both the fourth quarter and full year 1998 was favorably impacted by strong inventory management
resulting in reduced levels of close-out goods and product markdowns.
Selling, general and administrative expenses as a percentage of net sales improved to 32.9%, or $7,514,000, in the fourth quarter
of 1998 versus 38.0%, or $7,364,000, in the comparable 1997 period. Compared to net sales growth of 17.9% over this time
frame, the absolute dollar growth of SG&A was held to 2.0% as the result of cost controls on variable expense elements. For the
1998 fiscal year, the SG&A ratio improved 1.3% to 30.9% of net sales versus $30,110,000, or 32.2% of net sales in 1997. Higher
absolute levels of selling and administrative expenses were partially offset by reduced spending on advertising and promotion
resulting in a net year on year increase in SG&A of $2,336,000 to $32,446,000.
The Company recorded a credit of $307,000 as its fourth quarter income tax provision. This resulted from the actual or anticipated
favorable outcome of state and federal income tax audits conducted in late 1998 together with U.S. tax benefits resulting from the
recognition of additional uncollectible inter- company receivables.
Under the Company's share repurchase program, 12,500 shares of Saucony common stock were repurchased in the fourth quarter
of fiscal 1998. The Company is authorized to repurchase up to 750,000 shares of its common stock and has repurchased 107,000
shares of its common stock since the program began.
The Company also announced that as a result of recent and ongoing discussions with the Securities and Exchange Commission,
the Company may be required to restate historical earnings for specific transactions in 1995 and 1997. The principal focus of the
discussions relate to the financial accounting for a barter transaction in November 1995 and the revenue recognition for a
three-year licensing of a Saucony-owned trademark in July 1997. Both transactions had been fully described and the accounting
methodology explained in Saucony's Form 10-K filings for the respective years.
In connection with the barter transaction (which is a component of discontinued operations) the SEC may require that $0.2-$0.8
million of after-tax income reported in 1995 be deferred until 1997 when the barter credits were sold for cash. Separately,
Saucony, Inc. reported $0.2 million of after-tax royalty income in 1997 related to the license of Saucony, Inc.'s Spot-Bilt trademark
to a third party. The SEC may require that this income be recognized ratably over the life of the contract, resulting in
approximately $0.2 million lower income in 1997 and an additional $0.1 million of income per year over the 1998-2000 contract
period.
In commenting on the SEC information request, Mr. Fisher noted that "the Company believes that it appropriately reported the two
transactions in 1995 and 1997. Saucony's independent accountants, PricewaterhouseCoopers, stands by its certification of the
Company's financial statements throughout the periods in question."
Saucony, Inc. designs, develops, manufactures and markets (i) a broad line of performance-oriented athletic shoes for adults under
the Sauconyr brand name, (ii) high-quality bicycles, frames and components under the Quintana Roo(R), Real(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.
This press release contains forward-looking statements that involve a number of risks and uncertainties. For this purpose, any
statements 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," "intends" and similar expressions are intended to identify
forward-looking statements. Similarly, references to the Company's goals are forward-looking statements. Important factors that
could cause actual results to differ materially from those indicated by such forward-looking statements are set forth in the
Company's Annual Report on Form 10-K under "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors that May Affect Future Results" ("Certain Factors") filed by Saucony, Inc., with the Securities
and Exchange Commission on April 2, 1998, which Certain Factors discussion is incorporated herein by this reference. Without
limiting the foregoing, there can be no assurance as to the level of revenues or net income that will be achieved by the Company
because such revenues and net income are materially dependent upon the condition of the domestic and world economies,
competition from third parties and consumer preferences.
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