Saucony, Inc. Reports Fourth Quarter and Fiscal 2004 Results.PEABODY Peabody (pē`bədē, –bädē), city (1990 pop. 47,039), Essex co., NE Mass., a suburb of Boston, on the Danvers River; settled c.1633, inc. as South Danvers 1855, name changed 1868. , Mass. -- Saucony, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : SCNYA and SCNYB) --Net sales increased 22% to a Company fiscal record of $166.2 million in fiscal 2004 --Net income increased 23% to a Company fiscal record of $10.4 million in fiscal 2004 --Net sales increased 8% to $32.9 million in the fourth quarter of fiscal 2004 --Environmental charge of $2.3 million and a net loss of $316,000 in the fourth quarter of fiscal 2004 Saucony, Inc. (NASDAQ: SCNYA and SCNYB) today announced financial results for the fourth quarter and fiscal year ended December December: see month. 31, 2004. Saucony experienced a net loss of $316,000 in the fourth quarter of 2004, compared to net income of $1.5 million in the fourth quarter of 2003. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss per share was ($0.05) per Class A share and ($0.05) per Class B share in the fourth quarter of 2004, compared to diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.21 per Class A share and $0.24 per Class B share for the comparable period in 2003. Net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the fourth quarter increased 8%, to $32.9 million, compared to $30.5 million in the fourth quarter of 2003. For the fiscal year ended December 31, 2004, net income increased 23% to $10.4 million, compared to $8.5 million in fiscal 2003, representing a record for net income by the Company in a fiscal year. Diluted earnings per share increased to $1.38 per Class A share and $1.52 per Class B share for the year ended December 31, 2004, compared to diluted earnings per share of $1.26 per Class A share and $1.38 per Class B share for fiscal 2003. Net sales increased 22% to $166.2 million in the fiscal year ended December 31, 2004, compared to $136.1 million in fiscal 2003, representing a record for net sales by the Company in a fiscal year. Net loss for the fourth quarter and net income for the fiscal year ended December 31, 2004 included a charge of $2.3 million to address previously unknown environmental conditions at our East Brookfield, Massachusetts East Brookfield is a town in Worcester County, Massachusetts, United States. The population was 2,097 at the 2000 census. For geographic and demographic information on the census-designated place East Brookfield, please see the article East Brookfield (CDP), Massachusetts. distribution facility. Net loss for the fourth quarter of fiscal 2004 and net income for the fiscal year ended December 31, 2004 included approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $344,000 and $1,119,000 of professional fees, respectively, associated with our assessment of internal controls as required under Section 404 of the Sarbanes-Oxley Act See SOX. and $292,000 and $592,000, respectively, of legal and other professional fees related to our review of strategic alternatives and related matters. The fourth quarter fiscal 2004 results included an environmental charge of $2.3 million. The Company's adjusted fourth quarter diluted earnings per share, excluding this charge and the related tax effect, was $0.14 per diluted Class A share and $0.15 per diluted Class B share. The Company's adjusted fiscal year 2004 diluted earnings per share, excluding this charge and the related tax effect, was $1.56 per diluted Class A share and $1.72 per diluted Class B share. Please see the discussion below under the heading "Use of Non-GAAP Financial Measures" for further information regarding these adjusted diluted earnings per share measures and other non-GAAP financial measures. Exhibit 1 at the end of this release reconciles net (loss) income and diluted (loss) earnings per share for the fourth quarter and fiscal year 2004 to non-GAAP adjusted net income and adjusted diluted earnings per share for the fourth quarter and fiscal year 2004. Net income for the fourth quarter and for the fiscal year ended January January: see month. 2, 2004 included a pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge of $416,000 recorded in cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold due to the acceleration acceleration, change in the velocity of a body with respect to time. Since velocity is a vector quantity, involving both magnitude and direction, acceleration is also a vector. In order to produce an acceleration, a force must be applied to the body. of the vesting Vesting The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account. Notes: of stock warrants which were issued to five of our footwear Footwear consists of garments worn on the feet. It is worn for a variety of reasons, including protection against the environment, hygiene and adornment. Usually, socks and other hosiery are worn between the feet and the footwear, except for sandals and flip flops (thongs). suppliers in March 2001. In addition, during these periods we recorded a pre-tax benefit of $329,000 in operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , resulting from the sale of our former manufacturing facility located in Bangor, Maine For other places with the same name, see Bangor. Bangor is a city in and the county seat of Penobscot County, MaineGR6, United States. It is the major commercial center for eastern and northern Maine. For U.S. , and a tax benefit of $325,000 on the reversal reversal n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its of valuation reserves on certain foreign deferred tax assets. Net income for the year ended January 2, 2004, also includes a pre-tax benefit of $566,000 recorded in general and administrative expenses as a result of a litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. settlement agreement between the Company and the trustee A user or group of users that has been given access rights to files on a network server. See also TRUSTe. appointed ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. to oversee the liquidation The collection of assets belonging to a debtor to be applied to the discharge of his or her outstanding debts. A type of proceeding pursuant to federal Bankruptcy of assets of a former customer. John H. Fisher fisher, name of a large North American marten, Martes pennanti. This carnivorous, largely arboreal mammal is found in hardwood forests of Canada, the extreme N United States, and mountain ranges of the W United States. , President and Chief Executive Officer, commented, "Our record net sales and net income in fiscal 2004 were just two of our many notable accomplishments. While we are pleased with our net sales levels and gross margins for the fourth quarter, our financial performance was significantly affected by the $2.3 million fourth quarter environmental charge. As part of our strategic alternative process, we engaged environmental consultants to assess conditions at our operations and associated facilities and real properties. Environmental sampling at our East Brookfield, Massachusetts facility revealed elevated concentrations of hazardous substances on and near the real property and asbestos-containing materials within the facility. We are complying with the legal obligations that result from these discoveries. The preliminary results of our investigation suggest the hazardous substances and asbestos asbestos, mineral asbestos, common name for any of a variety of silicate minerals within the amphibole and serpentine groups that are fibrous in structure and more or less resistant to acid and fire. giving rise to those obligations have been present on the real property and associated structures since long before we acquired the facility. We are committed to workplace safety and our environmental responsibilities and assure our employees, shareholders and consumers we will continue to be a proactive partner in addressing all identified conditions." Order Backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. Our backlog of open orders at December 31, 2004 scheduled for delivery within the next five months (January 1, 2005 - May 27, 2005) increased 1% to $54.1 million, compared to $53.6 million at January 2, 2004. At December 31, 2004, the open order backlog for delivery in the next 12 months increased 2% to $61.3 million, from $59.9 million at January 2, 2004. Mr. Fisher continued, "Our increase in open orders scheduled for delivery over the next five months is due primarily to the growth in our technical running footwear category in both our international and domestic markets, increased demand for our Hind hind 1. emanating from or pertaining to hindlimb. 2. adult female deer, especially red and other large species. blue hind a hind which has not borne young. apparel and to the impact of a weaker U.S. dollar. Partially offsetting these increases in our open orders scheduled for delivery over the next five months were decreases in the mid-priced cross-over and originals categories at December 31, 2004, compared to at January 2, 2004. Our business outlook for the first quarter of fiscal 2005 reflects a projected net sales decrease from the first quarter of 2004, due primarily to our outlook assuming both increased order cancellations levels and reduced at-once levels in our domestic footwear business, from the first quarter of fiscal 2004. However, we expect that our focus in technical footwear and the expansion of our brand reach in cross-over and originals footwear are and will continue to be keys to our effort to meet our long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. growth objectives." Cash, Inventory and Working Capital Our cash and cash equivalents and short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments decreased during fiscal 2004 from our fiscal 2003 year end balances, due in large measure to the payment of regular and special cash dividends, cash expended ex·pend tr.v. ex·pend·ed, ex·pend·ing, ex·pends 1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend. 2. for the initial phase of the expansion and renovation of our corporate headquarters and the use of cash to finance our seasonal working capital needs. Our days' sales in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , defined as the number of average daily net sales in our accounts receivable as of the period end date and calculated by dividing the end of period accounts receivable by the average daily net sales for the period, decreased to 49 days at December 31, 2004, compared to 51 days at January 2, 2004. The number of days' sales in inventory, defined as the number of average daily cost of sales in our inventory as of the period end date and calculated by dividing the end of period inventory by the average daily cost of sales for the period, decreased to 95 days at December 31, 2004, compared to 98 days at January 2, 2004. Mr. Fisher remarked, "We remain committed to proactively managing our working capital to achieve greater efficiencies." Net Sales Net sales for the fourth quarter of 2004 increased 8% to $32.9 million, compared to $30.5 million in the fourth quarter of 2003. Domestic net sales increased 3% to $25.1 million in the fourth quarter of 2004, compared to $24.3 million in the fourth quarter of 2003. Our domestic sales increase in the fourth quarter of 2004 was due primarily to increased Hind apparel unit volume and increased sales at our factory outlet stores An outlet store or factory outlet is a retail store in which manufacturers sell their stock directly to the public through their own branded stores. The stores can be can be brick and mortar or online. and, to a lesser extent, increased footwear unit volume. International net sales increased 26%, to $7.8 million in the fourth quarter of 2004, compared to $6.2 million in the fourth quarter of 2003. Our international sales increase in the fourth quarter of 2004 was due primarily to increased footwear unit volume and, to a lesser extent, higher average wholesale per pair selling prices and favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. changes in foreign exchange rates as compared to the fourth quarter of 2003. Saucony brand footwear and apparel accounted for approximately 82% of total fourth quarter 2004 net sales, while a combination of Hind apparel and factory outlet stores net sales accounted for the balance. Net sales for the fiscal year ended December 31, 2004 increased 22% to $166.2 million, compared to $136.1 million in fiscal 2003. Domestic net sales increased 23% to $127.8 million, compared to $103.7 million in fiscal 2003. Our domestic sales increase in the fiscal year ended December 31, 2004 was due primarily to increased footwear unit volume and, to a lesser extent, increased sales at our factory outlet stores. International net sales in the year ended December 31, 2004 increased 18% to $38.4 million, compared to $32.4 million in fiscal 2003. Our international sales increase in the year ended December 31, 2004 was due primarily to favorable changes in foreign exchange rates as compared to fiscal 2003 and, to a lesser extent, increased footwear unit volume and higher average wholesale per pair selling prices. Saucony brand footwear and apparel accounted for approximately 85% of net sales during the year ended December 31, 2004, while a combination of Hind apparel and factory outlet stores net sales account for the balance. Gross Margin The Company's gross margin in the fourth quarter of fiscal 2004 increased 500 basis points to 40.5%, compared to 35.5% in the fourth quarter of fiscal 2003, due primarily to the recognition of cumulative volume rebates provided by two of our footwear suppliers, favorable currency exchange, due to the impact of a weaker U.S. dollar against European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. and Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. currencies, lower discounts on domestic footwear sales, improved Hind apparel margins, due to a change in our product sourcing, and increased sales at our factory outlet stores, which sales carry higher gross margins. Partially offsetting these factors in the fourth quarter of fiscal 2004 were increased closeout closeout, closure the finalization of a feeding program in a feedlot. The cattle are sold and a balance sheet is struck which includes the costs of feeding and housing or confining them. footwear unit volume sold at lower gross margins. The gross margin in the fourth quarter fiscal 2003 included a charge of $416,000 recorded in cost of goods sold due to accelerating the vesting on stock warrants. For the fiscal year ended December 31, 2004, gross margin increased 240 basis points to 40.9%, compared to 38.5% in fiscal 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, due to increased sales of first quality product at higher margin and lower sales of closeout apparel, higher levels of domestic at once shipments, which carry lower discounts, the recognition of cumulative volume rebates provided by two of our footwear suppliers and improved margins at our factory outlet stores. Partially offsetting these factors in fiscal 2004 were increased footwear unit volume of our mid-priced cross-over footwear sold into the athletic athletic (athlet´ik), adj pertaining to a bodily constitution characterized by a strong, muscular, robust appearance. athletic injuries, n. mall mall: see shopping center. (World-Wide Web) mall - A collection of World-Wide Web documents featuring commercial products and services, usually served by one particualr Internet access provider. , sporting goods Noun 1. sporting goods - sports equipment sold as a commodity commodity, trade good, good - articles of commerce sports equipment - equipment needed to participate in a particular sport and value channel at lower gross margins that include rebates provided to certain Saucony domestic customers and increased closeout footwear unit volume sold in the fourth quarter of fiscal 2004 at lower gross margins. In addition, the Company's gross margin in fiscal 2003 included a charge of $416,000 recorded in cost of goods sold due to accelerating the vesting on stock warrants. Selling, General and Administrative Expenses Selling, general and administrative expenses as a percentage of net sales increased to 34.3% in the fourth quarter of fiscal 2004, compared to 32.1% in the fourth quarter of fiscal 2003. In absolute dollars, selling, general and administrative expenses increased 15%, due primarily to increased legal and other professional fees, marketing promotion costs, operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. associated with the expansion of our factory outlet stores, depreciation expense and bad debt expense. These increases were partially offset by decreased account specific advertising and promotion, print media advertising and variable selling expenses. Included in general and administrative expenses in the fourth quarter of fiscal 2004 were $344,000 of professional fees associated with our assessment of internal controls as required under Section 404 of the Sarbanes-Oxley Act and $292,000 of legal and other professional fees related to our review of strategic alternatives and related matters. Selling expenses as a percentage of net sales in the fourth quarter of fiscal 2004 were 12.4%, compared to 14.1% in the fourth quarter of fiscal 2003, while general and administrative expenses were 21.9% of net sales in the fourth quarter of fiscal 2004, compared to 18.0% in the fourth quarter of fiscal 2003. For the fiscal year ended December 31, 2004, selling, general and administrative expenses as a percentage of net sales decreased to 28.9%, compared to 29.5% in fiscal 2003. In absolute dollars, selling, general and administrative expenses increased 19%, due primarily to increased legal and professional fees, selling and administrative payroll payroll a list of employees, their salary rates, tax deductions, amounts paid, payroll tax, long service leave entitlements. , operating expenses associated with our factory outlet stores expansion, bad debt expense, print media advertising, variable selling expenses and marketing promotion and communication costs. Included in general and administrative expenses in the fiscal year ended December 31, 2004 were $1,119,000 of professional fees associated with our assessment of internal controls as required under Section 404 of the Sarbanes-Oxley Act and $592,000 of legal and other professional fees related to our review of strategic alternatives and related matters. General and administrative expenses in the fiscal year ended January 2, 2004 included a favorable litigation settlement which reduced bad debt expense by $566,000. Selling expenses as a percentage of net sales in the fiscal year ended December 31, 2004 were 13.1%, compared to 13.6% in the comparable 2003 period, while general and administrative expenses were 15.8% of net sales in the fiscal year ended December 31, 2004, compared to 15.9% in fiscal 2003. Environmental Charge Net loss for the fourth quarter and net income for the fiscal year ended December 31, 2004, included an environmental charge of $2.3 million to address environmental conditions at our East Brookfield, Massachusetts distribution facility. The environmental charge includes the estimated costs to investigate and address conditions on the East Brookfield, Massachusetts property and associated engineering, legal and consulting costs. These conditions were identified only recently and investigations are ongoing. Our assessment of liability and associated costs is an estimate, based upon currently-available information. Our actual costs may change based on further investigations and due to the inherent uncertainties involved in estimating conditions in the environment and the costs of addressing such conditions. Non-Operating (Expense) Income Non-operating (expense) income decreased in the fourth quarter of fiscal 2004 to an expense of $286,000, compared to income of $334,000 in the fourth quarter of fiscal 2003. The decrease was due to foreign currency losses of $399,000 in the fourth quarter of fiscal 2004, compared to foreign currency gains of $271,000 in the fourth quarter of fiscal 2003. Interest income increased in the fourth quarter of fiscal 2004 to $122,000, compared to interest income of $69,000 in the fourth quarter of fiscal 2003, due to higher interest rates earned on our invested cash balances. For the fiscal year ended December 31, 2004, non-operating (expense) income decreased to an expense of $418,000, compared to income of $577,000 in fiscal 2003. The decrease was due to foreign currency losses of $734,000 in the fiscal year ended December 31, 2004, compared to foreign currency gains of $288,000 in fiscal 2003. Interest income increased in the fiscal year ended December 31, 2004 to $314,000, compared to interest income of $245,000 in fiscal 2003, due to higher interest rates earned on our invested cash balances. Net (Loss) Income Net loss for the fourth quarter of fiscal 2004 was a loss of $316,000, or ($0.05) per Class A share and ($0.05) per Class B share on a diluted basis, compared to net income of $1.5 million, or $0.21 per Class A share and $0.24 per Class B share on a diluted basis, in the fourth quarter of fiscal 2003. Weighted average common shares used to calculate diluted earnings per share for the fourth quarter of fiscal 2004 consisted of 2,521,000 Class A and 4,082,000 Class B shares. Weighted average common shares and common share equivalents used to calculate diluted earnings per share for the fourth quarter of fiscal 2003 consisted of 2,521,000 Class A and 3,958,000 Class B shares. Common stock equivalents were not included in the calculation of diluted earnings per share for the fourth quarter of fiscal 2004 since they were anti-dilutive. For the fiscal year ended December 31, 2004, net income was $10.4 million, or $1.38 per Class A share and $1.52 per Class B share on a diluted basis, compared to $8.5 million, or $1.26 per Class A share and $1.38 per Class B share on a diluted basis, in fiscal 2003. Weighted average common shares and common stock equivalents used to calculate diluted earnings per share for fiscal 2004 and 2003 consisted of, 2,521,000 Class A and 4,559,000 Class B shares and 2,521,000 Class A and 3,850,000 Class B shares, respectively. 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 The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as among each class is based upon the two-class method. Under the two-class method, earnings per share for each class of common stock are presented. The two-class presentation method is required as a result of the Company having two classes of common stock with different participation rights in undistributed Adj. 1. undistributed - (of investments) not distributed among a variety of securities undiversified - not diversified earnings. The increase in the weighted average common shares and equivalents in the year ended December 31, 2004, as compared to fiscal 2003, was due to the issuance of approximately 356,000 Class B common shares pursuant to the exercise of stock options and stock purchase warrants and customary dilutive adjustments in the number of outstanding options to purchase our Class B common stock and the exercise price of such options in connection with the special cash dividend on our common stock announced on February February: see month. 17, 2004. Mr. Fisher concluded, "Fiscal 2004 was a very successful year for our Company, one in which we grew our top and bottom line by 22% and significantly enhanced our brand equity both here and abroad. I would like to personally thank all of our employees around the globe for their continued hard work, dedication and unyielding passion for Saucony and the lifestyle it represents. As we look ahead to fiscal 2005, we will continue to increase our investment in advertising and marketing in order to further build on what we have created in the marketplace and better position the company for the future." Business Outlook The Company is providing certain forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. information in this press release. These statements are based on the Company's current information and expectations, and actual results may differ materially. The Company undertakes no obligation to update this information. Please see the further disclaimer (networking) disclaimer - Statement ritually appended to many Usenet postings (sometimes automatically, by the posting software) reiterating the fact (which should be obvious, but is easily forgotten) that the article reflects its author's opinions and not necessarily those of the in this release under the heading "Forward Looking Statements". The following information replaces our previous guidance. First Quarter and Fiscal Year 2005 The Company expects fully diluted earnings per share to range from $0.34 to $0.36 for Class A shares and $0.38 to $0.40 for Class B shares for the first quarter of fiscal 2005 and to range from $1.25 to $1.31 for Class A shares and $1.38 to $1.44 for Class B shares for the 2005 fiscal year. The Company expects first quarter fiscal 2005 net sales to range from $43 million to $44 million. The Company expects net sales for the 2005 fiscal year to range from $168 million to $171 million. The Company expects gross margins of approximately 40% for both the first quarter of fiscal 2005 and for the 2005 fiscal year. The Company expects selling, general and administration expenses, as a percentage of net sales, of approximately 30% for both the first quarter of fiscal 2005 and for the 2005 fiscal year. The Company expects weighted average fully diluted common shares and equivalents to be approximately 2.5 million Class A and 4.8 million Class B shares and 2.5 million Class A and 4.8 million Class B shares, respectively, for the first quarter of fiscal 2005 and for the 2005 fiscal year. These estimates do not include the effect of any adjustment which may occur as a result of adopting FAS 123-R as it relates to the accounting of stock-based compensation. Use of Non-GAAP Financial Measures The Company has provided non-GAAP adjusted net income and adjusted diluted earnings per share information for the three months and full fiscal year ended December 31, 2004 in this release, in addition to providing financial results in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). . This information reflects, on a non-GAAP adjusted basis, the Company's net income and diluted earnings per share after excluding the effects of an environmental charge and related tax effect. We exclude the environmental charge and related tax effect in calculating these non-GAAP measures because they are outside of our normal operations Generally and collectively, the broad functions that a combatant commander undertakes when assigned responsibility for a given geographic or functional area. Except as otherwise qualified in certain unified command plan paragraphs that relate to particular commands, "normal operations" of . We believe that the inclusion of these non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our core operating results and future prospects, consistent with how management measures and forecasts the Company's performance, especially when comparing such results to previous periods or forecasts. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, as the basis for financial and operational decision making, as well as in making compensation determinations. The non-GAAP financial measures should be considered in addition to, not as a substitute for or as being superior to, net income, diluted earnings per share or other measures of financial performance prepared in accordance with GAAP. In addition, the non-GAAP financial measures in this press release may be different from, and therefore may not be comparable to, similar measures used by other companies. A reconciliation of these non-GAAP financial measures to the Company's most directly comparable GAAP financial measures is included in this press release as Exhibit 1. Investor Conference Call The Company will provide a web simulcast Simulcast is a portmanteau of "simultaneous broadcast", and refers to programs or events broadcast across more than one medium, or more than one service on the same medium, at the same time. and rebroadcast of its fourth quarter and 2004 fiscal year earnings release conference call. The live broadcast of the Company's quarterly conference call is scheduled for March 4, 2005, beginning at 8:30 a.m. Eastern Time, and will be accessible online at www.fulldisclosure.com and under the "Investor Relations Investor relations The process by which the corporation communicates with its investors. " section at www.sauconyinc.com. The online replay will be available shortly after the conference call and will continue to be available through March 4, 2006. Saucony, Inc. designs, develops, and markets (i) a broad line of performance-oriented athletic shoes An athletic shoe is a generic name for a shoe designed for sporting and physical activities, and is different in style and build than a dress shoe. Originally known as sporting apparel, today they are known as casual footwear. for adults under the Saucony(R) brand name, (ii) athletic apparel under the Hind(R) brand name and (iii) athletic and workplace shoes shoe n. 1. A durable covering for the human foot, made of leather or similar material with a rigid sole and heel, usually extending no higher than the ankle. 2. A horseshoe. 3. under the Spot-bilt(R) name. Forward Looking Statements This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 "will", "believes," "anticipates," "plans," "expects," "intends," "estimates," and similar expressions are intended to identify forward-looking statements, and all of our statements under "Business Outlook" above 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. under "Item 7 - Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Financial Condition and Results of Operations - Certain Other Factors that May Affect Future Results" ("Certain Factors") filed by Saucony, Inc. with the Securities and Exchange Commission on April 1, 2004, which Certain Factors discussion is incorporated herein by this reference. In particular, there can be no assurance as to the level of earnings per share, net sales, gross margins, selling, general and administrative expenses, weighted average fully diluted common shares and other operating results, including without limitation, environmental changes, that will be achieved or experienced by the Company in any period because such items are materially dependent upon the condition of the domestic and world economies, the impact of foreign regulation and the performance of foreign suppliers, competition from other parties, consumer preferences, the inherent uncertainties in estimating conditions in the environment and the costs of addressing such conditions and the Company's assessment and implementation of its strategic alternatives. All forward-looking statements are made only as of the date of this press release. The Company makes no undertaking to update any of these statements.
SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
(Unaudited)
(in thousands, except per share amounts)
ASSETS
December 31, January 2,
2004 2004
------------- -------------
Current assets:
Cash and cash equivalents $ 12,042 $ 41,781
Short-term investments 20,694 5,788
Accounts receivable 22,484 19,167
Inventories 25,645 22,421
Deferred taxes 2,770 2,340
Prepaid expenses and other current assets 1,317 1,329
----------- -------------
Total current assets 84,952 92,826
----------- -------------
Property, plant and equipment, net 9,570 6,201
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Other assets:
Goodwill 912 912
Deferred charges, net 91 124
Other 113 130
----------- -------------
Total other assets 1,116 1,166
----------- -------------
Total assets $ 95,638 $ 100,193
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capitalized lease
obligations $ 63 $ --
Accounts payable 10,484 9,259
Accrued expenses and other
current liabilities 11,249 9,544
Environmental accrual 2,275 --
----------- -------------
Total current liabilities 24,071 18,803
----------- -------------
Long-term obligations:
Capitalized lease obligations, net of
current portion 138 --
Other 40 --
Deferred income taxes 2,279 2,016
----------- -------------
Total long-term obligations 2,457 2,016
----------- -------------
Minority interest in consolidated subsidiaries 461 320
----------- -------------
Stockholders' equity:
Common stock, $.33 1/3 par value 2,205 2,307
Additional paid in capital 18,007 19,010
Retained earnings 46,693 63,655
Accumulated other comprehensive income 1,744 505
Common stock held in treasury, at cost -- (6,423)
----------- -------------
Total 68,649 79,054
----------- -------------
Total liabilities and stockholders' equity $ 95,638 $ 100,193
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SAUCONY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the Quarters and Years ended December 31, 2004 and
January 2, 2004
(Unaudited)
(in thousands, except per share amounts)
Quarter Quarter Year Year
Ended Ended Ended Ended
December January December January
31, 2, 31, 2,
2004 2004 2004 2004
---------- -------- -------- ---------
Net sales $ 32,938 $30,548 $166,152 $136,066
Other revenue 147 122 524 379
---------- -------- --------- ---------
Total revenue 33,085 30,670 166,676 136,445
---------- -------- --------- ---------
Costs and expenses
Cost of sales 19,592 19,714 98,209 83,613
Selling expenses 4,103 4,307 21,695 18,574
General and administrative
expenses 7,203 5,498 26,320 21,625
Environmental charge 2,275 -- 2,275 --
Plant closing and other credits -- (35) -- (35)
Gain on sale of former
manufacturing facility -- (329) - - (329)
---------- -------- --------- ---------
Total costs and expenses 33,173 29,155 148,499 123,448
---------- -------- --------- ---------
Operating (loss) income (88) 1,515 18,177 12,997
Non-operating income (expense)
Interest income 122 69 314 245
Interest expense (3) -- (8) (5)
Foreign currency (399) 271 (734) 288
Other (6) (6) 10 49
---------- -------- --------- ---------
(Loss) income before income
taxes and minority interest (374) 1,849 17,759 13,574
(Benefit) provision for
income taxes (52) 364 7,237 4,940
Minority interest in (loss) income
of consolidated subsidiaries (6) 11 104 146
---------- -------- --------- ---------
Net (loss) income $ (316) $ 1,474 $10,418 $ 8,488
========== ======== ========= =========
Per share amounts:
Earnings per share:
Basic:
Class A common stock $ (0.05) $ 0.23 $ 1.51 $ 1.31
========== ======== ========= =========
Class B common stock $ (0.05) $ 0.25 $ 1.66 $ 1.44
========== ======== ========= =========
Diluted:
Class A common stock $ (0.05) $ 0.21 $ 1.38 $ 1.26
========== ======== ========= =========
Class B common stock $ (0.05) $ 0.24 $ 1.52 $ 1.38
========== ======== ========= =========
Weighted average common shares and
equivalents outstanding:
Basic:
Class A common stock 2,521 2,521 2,521 2,521
Class B common stock 4,082 3,622 3,972 3,583
---------- -------- --------- ---------
6,603 6,143 6,493 6,104
========== ======== ========= =========
Diluted:
Class A common stock 2,521 2,521 2,521 2,521
Class B common stock 4,082 3,958 4,559 3,850
---------- -------- --------- ---------
6,603 6,479 7,080 6,371
========== ======== ========= =========
Cash dividends per share of
common stock:
Class A common stock $ 0.050 $ 0.040 $ 4.200 $ 0.120
Class B common stock $ 0.055 $ 0.044 $ 4.220 $ 0.132
Exhibit 1
SAUCONY, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures of Adjusted Net
Income and Adjusted Diluted Earnings Per Share to Most
Directly Comparable GAAP Measures
(amounts in thousands, except per share amounts)
Quarter Ended December 31, 2004
-------------------------------------------------------
Diluted Diluted
Weighted Weighted
Diluted Diluted Average Average
Earnings Earnings Common Common
per per Shares Shares
Share Share and and
Net Class A Class B Equivalents: Equivalents:
Income/ Common Common Class A Class B
(Loss) Stock Stock Common Common
Stock Stock
-------- ------------ --------- ------------ ------------
GAAP reported $(316) $ (0.05) $ (0.05) 2,521 4,082
Adjustments:
Environmental
charge 2,275(A) -- -- -- 594(C)
Tax effect of
environmental
charge (910)(B) -- -- -- --
----------- -------- -------- --------- ----------
Combined
effect of
environmental
charge and
related tax
effect 1,365 0.19 0.20 -- 594
----------- -------- -------- --------- ----------
As
adjusted(D) $1,049 $ 0.14 $ 0.15 2,521 4,676
=========== ======== ========= ========== ==========
(A) Represents GAAP pre-tax environmental charge of $2,275.
(B) Represents tax effect related to a $2,275 pre-tax environmental
charge.
(C) Represents common stock equivalents not included in the GAAP
calculation of diluted earnings per share as they were
anti-dilutive.
(D) A non-GAAP financial measure.
Year Ended December 31, 2004
---------------------------------------------------------
Diluted Diluted
Weighted Weighted
Diluted Diluted Average Average
Earnings Earnings Common Common
per per Shares Shares
Share Share and and
Class A Class B Equivalents: Equivalents:
Net Common Common Class A Class B
Income Stock Stock Common Common
Stock Stock
-------- ------------ --------- ------------ ------------
GAAP
reported $10,418 $ 1.38 $ 1.52 2,521 4,559
Adjustments:
Environmental
charge 2,275(A) -- -- -- --
Tax effect of
environmental
charge (910)(B) -- -- -- --
-------- --------- --------- --------- ------------
Combined effect
of environmental
charge and
related tax
effect 1,365 0.18 0.20 -- --
-------- --------- --------- --------- ------------
As
adjusted(D) $11,783 $ 1.56 $ 1.72 2,521 4,559
======== =-======= ========= ========= ============
(A) Represents GAAP pre-tax environmental charge of $2,275.
(B) Represents tax effect related to a $2,275 pre-tax environmental
charge.
(C) Represents common stock equivalents not included in the GAAP
calculation of diluted earnings per share as they were
anti-dilutive.
(D) A non-GAAP financial measure.
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