SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

   For the fiscal year ended January 5, 2001   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 No.)
  incorporation or organization)

                     13 Centennial Drive, Peabody, MA 01960
                     ---------------------------------------
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (978) 532-9000

        Securities registered pursuant to Section 12(b) of the Act: None

                 Securities registered pursuant to Section 12(g)
                                  of the Act:

                    Class A Common Stock, $.33-1/3 par value
                    ----------------------------------------
                                (Title of class)

                    Class B Common Stock, $.33-1/3 par value
                    ----------------------------------------
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of voting and non-voting  common equity stock held by
non-affiliates  of the  registrant,  as of  March  9,  2001,  was  approximately
$31,745,000 (based on the closing prices of the Class A Common Stock and Class B
Common Stock on such date as reported on the Nasdaq National Market).

The number of shares of the  registrant's  Class A Common  Stock,  $.33-1/3  par
value,  and Class B Common Stock,  $.33-1/3 par value,  outstanding  on March 9,
2001 was 2,570,127 and 3,516,189, respectively.

Portions of the  following  documents  are  incorporated  by  reference  in this
Report.

                       Documents Incorporated by Reference

  Document                                                       Form 10-K Part

Proxy Statement for Annual Meeting of Stockholders                  Part III
of the Registrant to be held on May 24, 2001, to be
filed  with  the  Securities  and  Exchange Commission.




PART I

ITEM 1 - BUSINESS

OVERVIEW

We  design,  manufacture  and  market  performance-oriented  athletic  footwear,
athletic apparel and casual leather footwear. Our principal products are:

o technical running,  walking,  cross training and outdoor trail shoes, which we
sell under the Saucony brand name;

o technical running shoe models from the early 1980's,  which we reintroduced in
1998, as Saucony "Originals", our "classic" footwear line;

o athletic apparel, which we sell under the Hind brand name;

o premium leather casual  footwear  inspired by our vintage  athletic  heritage,
which we sell under the Hyde brand name; and

o shoes for coaches  and  officials  and casual  leather  walking and  workplace
footwear, which we sell under the Spot-bilt brand name.


Our products are sold in the United  States at more than 5,500 retail  locations
and our 10 factory  outlet  stores and outside the United States in 32 countries
through 20 distributors  located throughout the world. For the fiscal year ended
January 5, 2001, we generated total sales of $166.0 million.

On June 29, 2000,  we sold  substantially  all of the assets and business of our
cycling  division,  consisting of  inventory,  prepaid  expenses,  equipment and
tradenames,  to QR  Merlin  Acquisition  LLC for $1.35  million  in cash and the
assumption of approximately $39,000 in liabilities.

Saucony(R),  Spot-bilt(R),  GRID(R),  Hyde(R),  and Hind(R)  are our  registered
trademarks.  This annual report on Form 10-K also includes  other service marks,
trademarks and trade names of ours and of companies other than us.


SEGMENTS

Our business is  organized  into two  operating  segments.  The Saucony  segment
consists of Saucony(R) technical and Originals footwear,  and the Other Products
segment consists of Hind(R) athletic apparel,  Hyde(R)  Authentics  footwear and
Spot-bilt(R)  shoes for coaches and  officials  and casual  leather  walking and
workplace footwear, together with sales of our products at our 10 factory outlet
stores and sales of our former cycling division.

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 periods and geographic
areas indicated.
<TABLE>

                                                     Net Sales
                                              (dollars in thousands)
<CAPTION>

                                   Fiscal 2000                   Fiscal 1999                 Fiscal 1998
                            ----------------------         ---------------------        --------------------
                                 $           %                  $           %                $           %
                                 -           -                  -           -                -           -
<S>                         <C>               <C>          <C>               <C>        <C>              <C>
   Saucony

      Domestic..............$  125,318        75%          $  115,118        75%        $  67,774        64%
      International.........    19,631        12%              16,780        11%           18,558        18%
                            ----------    -------          ----------    -------        ---------    -------
      Total.................$  144,949        87%          $  131,898        86%        $  86,332        82%
                            ----------    -------          ----------    -------        ---------    -------

   Other Products
      Domestic..............$   18,786        12%          $   19,910        13%        $  15,590        15%
      International.........     2,294         1%               2,250         1%            3,152         3%
                            ----------    -------          ----------    -------        ---------    -------
      Total.................$   21,080        13%          $   22,160        14%        $  18,742        18%
                            ----------    -------          ----------    -------        ---------    -------

   Total....................$  166,029       100%          $  154,058       100%        $ 105,074       100%
                            ==========    =======          ==========       ====        =========    =======
</TABLE>

For  further  financial  information   concerning  our  operating  segments  and
geographic  areas,  please  see  Notes 15 and 16 to our  Consolidated  Financial
Statements in this Annual Report on Form 10-K.


PRODUCTS

FOOTWEAR

TECHNICAL FOOTWEAR.  We sell performance  running,  walking,  cross training and
outdoor trail shoes for athletes  under the Saucony  brand name,  which has been
marketed in the United States for over 30 years. A substantial majority of sales
are in the running shoe category. We have several different products within each
Saucony brand  category.  These  products have  different  designs and features,
resulting  in  different  cushioning,  stability,  support  characteristics  and
prices.

We design and market  separate  lines for men and women  within  most  technical
footwear categories.  We currently sell approximately 39% of our technical shoes
to men and 61% to women. In keeping with our emphasis on performance,  we market
and sell our technical  footwear to athletes who have a high  participation rate
in their  sport of choice.  We address  this  market  through  our "Loyal to the
Sport"  advertising  campaign.  We believe that these  consumers  are more brand
loyal  than  those who buy  athletic  footwear  for casual  use.  The  suggested
domestic  retail prices for most of our technical  footwear  products are in the
range of $50 to $85 per pair,  with our  top-of-the-line  running  shoes  having
suggested  domestic retail prices of up to $125 per pair.  During fiscal 2000 we
introduced several new shoes targeted at the mid-priced footwear segment,  which
is the largest  segment of the running shoe market,  with retail prices  ranging
from $60 to $80 per pair.

The Saucony brand is recognized for its technical innovation and performance. As
a result of our application of  biomechanical  technology in the design process,
we believe that our Saucony  footwear has a  distinctive  "fit and feel" that is
attractive  to  athletic  users.  A key element in the design of our shoes is an
anatomically  correct  toe and heel  configuration  that  provides  support  and
comfort for the particular activity for which the shoe is designed.

We build a variety of technical  features into our shoes.  Most of our technical
running and other athletic shoes incorporate our Ground Reaction Inertia Device,
or GRID  system,  an  innovative  midsole  system that  employs  molded  strings
engineered  to create a feeling  similar to that of the "sweet spot" of a tennis
racquet. In contrast with conventional  athletic shoe midsoles,  the GRID system
is designed to react to various stress forces  differently,  thereby  maximizing
shock absorption and minimizing rear foot motion.  We have continually  improved
the GRID system since it was first introduced in 1991.

We design our Saucony  technical  cross  training,  women's  walking and outdoor
technical  trail shoes with many of the same  performance  features and "fit and
feel"   characteristics  as  are  found  in  Saucony  technical  running  shoes.
Currently,  our most popular  non-running  technical  athletic shoe is a woman's
performance walking shoe.

Technical  footwear  accounted for approximately  51%, 48% and 72% of our fiscal
2000, fiscal 1999 and fiscal 1998 consolidated net sales, respectively.

ORIGINALS  FOOTWEAR.  In 1998, we reintroduced a number of our technical running
shoe models from the early 1980's under the name "Originals." These shoes appeal
to younger  consumers who do not generally wear them for athletic  purposes.  We
believe  our  Originals  shoes  have  benefited  from the trend  toward  "retro"
products in footwear  and  apparel.  We offer these shoes in a variety of styles
with over 100 combinations of colors and materials.  The suggested retail prices
for our Originals are in the range of $40 to $60 per pair.

Our initial Originals offering consisted of two models, the "Jazz Originals" and
the "Shadow  Originals." In light of the success of these products,  we expanded
the  Originals  product  line to include  color and material  variations  on our
initial  Originals.  During  fiscal 2000,  we  introduced  additional  Originals
products,   including   "retro"  footwear   products,   or   contemporary-styled
reintroductions  of our technical  running shoe models from the early 1980's, or
athletic footwear designed for the 12 to 25 year old footwear consumer.

Originals accounted for approximately 35%, 37% and 9% of our fiscal 2000, fiscal
1999 and fiscal 1998 consolidated net sales, respectively.

SPOT-BILT

We sell shoes for coaches and officials and casual leather walking and workplace
footwear under the Spot-bilt brand name through the same  distribution  channels
as our Saucony brand shoes.

HYDE AUTHENTICS

We offer premium leather casual  footwear under the Hyde Authentics  brand name.
We introduced the initial  collection of Hyde  Authentics in November 2000. This
line  consists  of 14 models in oxford and boot  styles  that are based upon our
offerings of baseball,  football and coaches  shoes from the 1940's,  1950's and
1960's.  We  designed  these shoes for the 25 to 40 year old male  consumer  who
chooses lifestyle footwear as an important part of his wardrobe.

ATHLETIC APPAREL

HIND

We sell a full line of technical  apparel under the Hind brand name for use in a
variety of sports,  including  bicycling,  swimming and running. We believe that
our Hind products have a reputation  among athletes for  delivering  comfort and
performance.  Most of our Hind  products  incorporate  our  moisture  management
technology,  which  transfers  moisture  away from the wearer's skin to maximize
comfort.  In  addition,  we  frequently  add  innovations  to our  Hind  product
offerings in an effort to incorporate the latest fabric technology.

OTHER BRANDS

We also market  athletic  apparel under the Saucony label. We target our Saucony
apparel line at the  mainstream  running  consumer.  We believe that our Saucony
athletic apparel supports our Saucony  athletic  footwear  products by enhancing
the visibility of the Saucony brand.

PRODUCT DESIGN AND DEVELOPMENT

We believe  that the  technical  performance  of our Saucony  footwear and other
product  lines is  important  to the  ultimate  consumers  of our  products.  We
continually  strive to produce  products that improve  athletic  performance and
maximize comfort.  We use the consulting  services of professional  designers as
well as podiatrists, orthopedists, athletes, trainers and coaches as part of our
product  development  program.  We maintain a staff of 16 design and development
specialists  in  Peabody,  Massachusetts  and  Boulder,  Colorado  to  undertake
continuing product development.

In fiscal 2000 we spent  approximately  $1.08 million on our product development
programs,  compared to  approximately  $1.68  million in each of fiscal 1999 and
fiscal 1998. Most of our research and development expenditures relate to Saucony
brand products.


SALES AND MARKETING

SAUCONY

We sell our Saucony  footwear  products at more than 5,500 retail outlets in the
United  States,   primarily  higher-end,   full-margin  sporting  goods  chains,
independent  sporting  goods  stores,  athletic  footwear  specialty  stores and
department  stores.  Retail outlets include Foot Locker,  Lady Foot Locker,  The
Athlete's Foot, The Shoe Show, Road Runner Sports, FootStar and The Finish Line.

We maintain a corporate  sales team that is directly  responsible  for the sales
activity in our largest 42  accounts.  We also sell our  footwear and apparel to
retail outlets in the United States through 12 independent  manufacturer agents,
whose organizations employ approximately 44 sales representatives. We coordinate
the efforts of these  representatives  through our field sales  management team.
Our web sites  (saucony.com  and  sock-a-knee.com)  receive  thousands of "hits"
weekly from consumers looking for new product information,  race and event data,
as well as general Saucony information.

We sell our Saucony products  outside the United States in 32 countries  through
20 distributors  located throughout the world,  through our Canadian subsidiary,
in which  we hold an 85%  ownership  interest,  and  through  our  wholly  owned
subsidiaries located in the Netherlands and the United Kingdom.

We strive to enhance our  reputation and image in the  marketplace  and increase
recognition of the Saucony brand name by advertising our products  through print
media and  television  advertising.  For our  technical  footwear,  we advertise
primarily in magazines such as "Runner's  World,"  "Maxim,"  "ESPN" and "Cooking
Light." We also sponsor  sporting  events and telecasts to drive brand awareness
and image of our  technical  footwear to  athletes.  Examples  include  "Saucony
Running and Racing"  seen  monthly on ESPN,  as well as  sponsorship  of the Los
Angeles  Marathon and Chase Corporate  Challenge race series.  To build in-store
presence,  we use  account-specific  and  in-store  promotions,  such as athlete
appearances,  special events and discounts for store  employee  purchases of our
products.  For  our  Originals  line,  we  generally  advertise  in  "lifestyle"
magazines that target 12 to 25 year olds, such as "Teen People,"  "Vibe," "Jump"
and "Spin."

Most of our  advertising  and  promotional  programs  for our Saucony  brand are
directed toward the ultimate consumer.  We also promote the Saucony brand to the
retail trade through  attendance at trade shows and similar  events and employ a
cooperative  advertising  program,  which is intended  to  maximize  advertising
resources by having our  retailers  share in the cost of  promoting  our Saucony
brand in print  advertising,  while  affording our retailers the  opportunity to
promote their stores.

OTHER PRODUCTS

We sell  our Hind  products  domestically  and  internationally  at  independent
sporting  goods  stores  and  specialty  sporting  equipment  stores  through 13
independent  manufacturers'  agents, whose organizations employ approximately 32
sales  representatives.  We market our Spot-bilt  line through our Saucony brand
distribution   channels  and  directly  to  customers  through  our  website  at
Spotbilt.com.  We introduced our Hyde  Authentics  products in November 2000 and
are currently  selling these products  domestically to a limited number of men's
fashion and men's footwear retail outlets through six independent manufacturers'
agents, whose organizations employ  approximately 16 sales  representatives.  We
advertise these other brands in magazines and at trade shows and similar events.

FACTORY STORES

We  currently  operate 10 factory  outlet  stores at which we sell our  Saucony,
Hind,  Spot-bilt and Hyde products.  To avoid competing  against the full-margin
retail outlets, we generally limit the items offered at these stores to products
with  cosmetic  defects,   discontinued   merchandise  and  certain  slow-moving
products. As part of our growth strategy, we intend to expand our factory stores
to target  regions  where we believe  the  Saucony  brand is  underdeveloped  by
establishing  clusters  of  factory  stores,  which we believe  will  strengthen
Saucony brand name recognition. During fiscal 2000 we opened four factory outlet
stores and closed two under-performing  stores. We intend to open two additional
factory outlet stores in fiscal 2001.

MANUFACTURING

We assemble a majority of our domestically  sold Saucony  technical  footwear at
our manufacturing  facility in Bangor,  Maine,  largely with components  sourced
from independent manufacturers located overseas. We believe that assembly at our
Bangor facility  enables us to produce and deliver finished  technical  footwear
more quickly than most of our competitors.  Independent  overseas  manufacturers
produce the balance of our Saucony products,  including our Originals  products,
and all of our Spot-bilt and Hyde Authentics products.

The overseas  footwear  manufacturers  that supply products and components to us
are located in Asia,  principally in China. We select footwear  manufacturers in
large part on the basis of our prior  experience with the  manufacturer  and the
availability of production capacity.  We have developed long-term  relationships
with key footwear  manufacturers  that we believe  have  yielded many  benefits,
including quality control,  favorable costs,  flexible working  arrangements and
predictable  production  capacity.  Although  to date we  have  not  experienced
difficulty in obtaining  manufacturing  services,  we seek to develop additional
overseas  manufacturing sources from time to time, both to increase our sourcing
capacity and to obtain alternative sources of supply.

We perform  an array of  quality  control  procedures  at various  stages of the
production process, from testing of product prototypes prior to manufacture,  to
inspection of finished goods prior to shipment.  Our quality  control program is
designed   to  ensure  that   finished   goods  meet  our   established   design
specifications  and high quality standards.  We employ  approximately 15 Saucony
footwear  quality  control  personnel  in  Taiwan  as  well as  quality  control
specialists at our manufacturing  facilities in the United States. Our personnel
in Taiwan regularly visit our footwear manufacturers throughout Asia to monitor,
oversee and improve the quality control and production processes.

We contract with third parties for the manufacture of our Hind apparel,  most of
which is manufactured in the United States of domestically sourced fabrics.

SUPPLIERS

Raw materials  required for the manufacture of our products,  including leather,
rubber, nylon and other fabrics, are generally available in the country in which
our products are  manufactured.  We and our suppliers have not  experienced  any
difficulty in satisfying raw material needs to date.

The number of our foreign suppliers and the percentage of products sourced by us
from particular  foreign suppliers varies from time to time. During fiscal 2000,
we purchased  footwear products from  approximately 10 overseas  suppliers.  One
such supplier,  located in China,  accounted for  approximately 51% of our total
overseas footwear purchases by dollar volume.

Although  we  have no  long-term  manufacturing  agreements  with  our  overseas
suppliers and compete with other athletic shoe and apparel companies,  including
companies that are much larger than us, for access to production facilities,  we
believe that our relationships with our footwear and other suppliers are strong.
We also  believe  that we have the  ability to develop,  over time,  alternative
sources  in  various  countries  for  footwear,  footwear  components  and other
products that we source from our current suppliers.  However,  in the event of a
supply  interruption,  our operations could be materially and adversely affected
if a substantial delay occurred in locating and securing  alternative sources of
supply.

DISTRIBUTION AND INVENTORY

We distribute our products from our owned warehouses in Massachusetts and leased
warehouses  in  Canada  and The  Netherlands,  as well  as  through  third-party
operated warehouse facilities located in California and the United Kingdom.

To accommodate our domestic customers' requirements and plan for our own product
needs,  we employ a  "futures"  order  program  for our  Saucony  technical  and
Originals and Hind apparel products under which we take orders in advance of the
selling  season for a  particular  product and commit to ship the product to the
customer in time for the selling season.  We offer our customers price discounts
and extended payment terms as an incentive for using this ordering program.  Our
futures order program is similar to programs offered by other athletic  footwear
companies.  We also maintain an  open-stock  inventory of our technical and Hind
apparel products so that we can satisfy retailers' orders on an "at-once" basis.
We sell our  Originals  line of  footwear  only on a  "futures"  basis,  with no
planned inventory position, because we believe that demand for products from our
Originals  line is more closely tied to style and fashion trends than demand for
our other products.  By maintaining no planned  inventory of our Originals line,
we seek to  minimize  the risk of  inventory  obsolescence  that can result from
unanticipated  changes in  consumer  preferences.  We are,  however,  subject to
inventory risk for our Originals products should we experience significant order
cancellations.

BACKLOG

The athletic and casual footwear and athletic apparel industries that we compete
in are subject to seasonal  sales  fluctuations.  Sales of our Saucony and other
footwear  brands are generally  highest in the first and third  quarters,  while
sales of our Hind athletic apparel are highest in the third and fourth quarters.
Because products sold on an "at once" basis are generally  shipped as orders are
received, our backlog relates primarily to products sold on a "futures" basis.

Our backlog of unfilled  orders was  approximately  $66.4  million at January 5,
2001 and $65.4  million at December 31, 1999.  We expect that all of our backlog
at January 5, 2001 will be shipped in fiscal 2001,  provided  that our customers
do not cancel their orders.  Our backlog does not necessarily  represent  actual
future  shipments,  because  orders may be  cancelled by our  customers  without
financial  penalty.  Also,  the rate of customer  order  cancellations  can vary
quarter-to-quarter  and year-to-year.  During the fourth quarter of fiscal 2000,
the  order  cancellation  rate for our  Saucony  footwear  was  higher  than our
historical average.

During 2000, we derived approximately 14% of our consolidated revenue from sales
to one customer,  Venator,  which operates Foot Locker,  Lady Foot Locker,  Kids
Foot Locker, Champs and Eastbay Running stores.

TRADE POLICY

Our  practice of sourcing  products and  components  overseas,  with  subsequent
importation  into the United  States,  exposes  us to  possible  product  supply
disruptions  and  increased  costs in the event of actions  by United  States or
foreign  government  agencies  adverse to  continued  trade or the  enactment of
legislation that restricts trade.

For  example,  we  import  significant  amounts  of  our  footwear  product  and
components from China. On October 10, 2000, President Clinton signed legislation
that will establish Permanent Normal Trade Relations ("PNTR") between the United
States and China.  However,  normal  trade  relations  will go into  effect on a
permanent basis only after China finalizes its accession protocol with the World
Trade  Organization  ("WTO"),  a prerequisite for China's membership in the WTO.
There can be no  assurance  that this will  occur or when it will  occur.  PNTR,
formerly known as "most favored nation" status, allows China to receive the same
favorable  tariff treatment that the United States extends to its other "normal"
trading partners.

In the past,  the United  States  has  accorded  China  normal  trade  relations
treatment,  but only on a temporary basis,  subject to annual review by the U.S.
Congress. Until China accedes to the WTO, and the United States begins to extend
normal  trade  relations  status to China on a permanent  basis,  Congress  will
continue  to review the  provisional  application  of this status to China on an
annual basis.  As a result of this review,  Congress could seek to revoke normal
trade  relations  with  Taiwan.  The  cancellation  of,  or  the  imposition  of
conditions upon,  China's normal trade relations status could  significantly add
to our cost of goods and could  restrict our supply of products  and  components
from that country.

We are unable to predict whether additional United States customs duties, quotas
or other  restrictions  may be imposed in the future upon the importation of our
products or components. Any such occurrences might adversely affect our sales or
profitability, possibly materially.

COMPETITION

Competition is intense in the markets in which we sell our products.  We compete
with a large number of other  companies,  both  domestic  and  foreign.  Several
competitors are large organizations with diversified  product lines,  well-known
brands and financial, distribution and marketing resources substantially greater
than ours.  The principal  competitors  for our Saucony  products are Nike,  New
Balance and Asics.  The  principal  competitors  for our Hind products are Nike,
Pearl Izumi and TYR. We believe that the key competitive  factors for all of our
products are technical performance,  styling, durability, product identification
through promotion, brand awareness and price. We believe that we are competitive
in all of these areas.

TRADEMARKS

We use  trademarks  on  nearly  all of our  products  and  believe  that  having
distinctive  marks is an important  factor in marketing  our  products.  We have
registered our  Saucony(R),  Spot-bilt(R),  GRID(R),  Hyde(R) and Hind(R) marks,
among others,  in the United States. We have also registered some of these marks
in a  number  of  foreign  countries.  Although  we  have  a  foreign  trademark
registration  program for selected  marks,  we cannot  guarantee that we will be
able to  register  or use such  marks in each  foreign  country in which we seek
registration.

EMPLOYEES

As of January 5, 2001, we employed approximately 408 people worldwide.  Of these
employees, approximately 332 were in the United States and approximately 76 were
in foreign locations.  We believe that our employee relations are excellent.  We
have  never  experienced  a strike  or other  work  stoppage.  Approximately  34
employees in our Peabody, Massachusetts warehouse were represented by a union as
of January 5, 2001.  None of our other  employees are  represented by a union or
are subject to a collective bargaining agreement.


EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers are as follows:

            Name                Age                     Position
------------------------        ---      ---------------------------------------

John H. Fisher                   53         President, Chief Executive Officer
                                            and Director

Charles A. Gottesman             50         Executive Vice President,
                                            Chief Operating Officer, Treasurer
                                            and Director

Michael Umana                    38         Senior Vice President, Finance and
                                            Chief Financial Officer

Arthur E. Rogers, Jr.            38         President, Saucony North America

Wolfgang Schweim                 48         President, Saucony International

Roger P. Deschenes               42         Vice President, Controller and
                                            Chief Accounting Officer

Daniel J. Horgan                 45         Vice President, Operations

Andrew M. James                  44         Vice President, MIS

Samuel S. Ward                   38         Vice President, Enterprise Solutions


John H. Fisher has served as our Chief  Executive  Officer  since  1991.  He was
elected  President  and Chief  Operating  Officer in 1985 after having served as
Executive  Vice President  from 1981 to 1985 and as Vice  President,  Sales from
1979 and 1981. Mr. Fisher is a member of the World  Federation of Sporting Goods
Industries,  is the former  Chairman  of the  Athletic  Footwear  Council of the
Sporting  Goods  Manufacturers  Association,  and is a member of  various  civic
associations. Mr. Fisher became a director in 1980.

Charles  A.  Gottesman  has served as our  Executive  Vice  President  and Chief
Operating  Officer since 1992, and served as Executive Vice  President,  Finance
from 1989 to 1992,  Senior Vice President from 1987 to 1989, Vice President from
1985 to 1987, and Treasurer since 1983. Mr.  Gottesman became a director in 1983
and is the brother-in-law of John H. Fisher.

Michael Umana has served as Senior Vice  President,  Finance and Chief Financial
Officer since May 2000.  Mr. Umana joined us in October 1999 as Vice  President,
Finance and Chief Financial Officer. From 1997 to 1999, Mr. Umana served as Vice
President and Chief  Financial  Officer of the  Analytical  Instrument  Business
Unit, at PerkinElmer,  Inc., a high technology manufacturer.  Prior to 1997, Mr.
Umana held various  auditing  and  consulting  positions,  the most recent being
Senior  Manager,  Business  Consulting,  at Arthur  Andersen LLP, a professional
services company from 1985 to 1997. Mr. Umana is a Certified Public Accountant.

Arthur E. Rogers,  Jr.  became the President of Saucony North America in January
1998. Mr. Rogers  re-joined us as Senior  Director of Global  Marketing in 1994,
having  previously served as Brand Manager from 1990 to 1992. From 1992 to 1994,
Mr. Rogers held various sales and marketing positions at Converse Shoe, Inc., an
athletic shoe company. From 1994 to 1997, Mr. Rogers served as Vice President of
North  American Sales and Worldwide  Marketing.  Prior to joining us, Mr. Rogers
held  various  sales and  marketing  positions  at  Proctor &  Gamble,  Inc.,  a
diversified consumer products company.

Wolfgang  Schweim became the President of Saucony  International in January 1998
after serving as President of our athletic  footwear  division from June 1994 to
January 1998.  From 1993 to 1994, Mr.  Schweim  served as Managing  Director for
Saucony Europe.  From 1989 to 1993, Mr. Schweim was the German Managing Director
and Marketing Sales Manager for Europe at Asics, an athletic shoe  manufacturer.
Prior to 1989, Mr. Schweim worked in sales and marketing  positions with various
shoe manufacturers, including Nike International, Le Coq Sportif and Adidas AG.

Roger P. Deschenes has served as Vice President, Controller and Chief Accounting
Officer  since  August  1997,  after  having  served  as  Controller  and  Chief
Accounting  Officer from October 1995 to August 1997. Mr. Deschenes joined us in
1990 as Corporate Accounting Manager. He was employed at Allen-Bradley  Company,
a subsidiary of Rockwell  International,  Corp.,  from 1987 to 1990 as Financial
and  Cost  Reporting  Supervisor.   Mr.  Deschenes  is  a  Certified  Management
Accountant.

Daniel J. Horgan became Vice  President of  Operations  in September  1995 after
serving as Senior  Director of Operations from September 1994 to September 1995.
Mr. Horgan joined us in 1982 as Manager of Import and Export Operations,  served
as Product  Procurement and Distribution  Manager from 1985 to 1988,  Manager of
Production from 1988 to 1992, and Director of  International  Trade from 1992 to
1994.

Andrew M. James joined us in February 1984. He served as Accounting Manager from
1984 to 1988;  Assistant  Controller  from  1989 to  1993;  Senior  Director  of
Information Systems from 1994 to 1997; and became Vice President, MIS in 1997.

Samuel S. Ward joined  Saucony in February  2001 as Vice  President,  Enterprise
Solutions.  From 1994 to 2001,  Mr.  Ward  held  various  consulting  positions,
including Senior  Consultant and Manager,  the most recent being Senior Manager,
which he held  from 2000 to 2001,  in the  Business  Consulting  Group at Arthur
Andersen LLP, a  professional  services  company.  Mr. Ward  graduated from Duke
University's  Fuqua School of Business in 1994. From 1987 to 1992, Mr. Ward held
various  finance  and  operations  positions  at General  Electric  Company  and
completed General Electric's Financial Management Program.

ITEM 2 - PROPERTIES

Our general and executive offices and our main distribution facility are located
in  Peabody,  Massachusetts  and are  owned by us.  This  facility  consists  of
approximately  175,000  square feet, of which  145,000  square feet is warehouse
space.

We also own a facility in Bangor,  Maine containing  approximately 73,000 square
feet of  space,  substantially  all of  which is used  for the  assembly  of our
Saucony  running  shoes.  We also own a warehouse and  distribution  facility in
Brookfield,  Massachusetts  containing  approximately 109,000 square feet, which
was reactivated in 2000.

We lease approximately  4,000 square feet of office space in Boulder,  Colorado.
We lease factory outlet stores with an aggregate of approximately  24,000 square
feet of retail space at nine locations in Massachusetts,  Maine and Florida.  We
also own a factory outlet store  containing  approximately  3,000 square feet of
retail space in Bangor, Maine.


ITEM 3 - LEGAL PROCEEDINGS

We are  involved  in routine  litigation  incident  to our  business.  We do not
believe that any of these proceedings will have a material adverse effect on our
financial position, operations or cash flows.


ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

Not applicable.



PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Class A Common Stock and Class B Common  Stock trade on the Nasdaq  National
Market under the symbols "SCNYA" and "SCNYB," respectively.  The following table
sets forth, for the periods indicated,  the actual high and low sales prices per
share of the Class A Common  Stock and the Class B Common  Stock as  reported by
the Nasdaq National Market.
<TABLE>
<CAPTION>

                                                                     Class A                        Class B
                                                                  Common Stock                Common Stock

                                                              High          Low             High             Low
                                                              ----          ---             ----             ---
<S>                                                        <C>           <C>            <C>             <C>
     FISCAL YEAR ENDED JANUARY 5, 2001


     First quarter.........................................$ 15-1/2              9      $   14-7/8       $   8-5/8
     Second quarter........................................      14          8-7/8              14               8
     Third quarter.........................................  11-1/2          9-1/4          11-1/2           8-5/8
     Fourth quarter........................................  11-1/4              8          11-1/8         7-23/64


     FISCAL YEAR ENDED DECEMBER 31, 1999

     First quarter.........................................$  9-3/4      $       5      $        9       $   4-5/8
     Second quarter........................................  24-1/8          6-1/2          24-1/2           6-1/4
     Third quarter.........................................      26             12          28-1/2          12-5/8
     Fourth quarter........................................  19-3/4         10-3/4          19-3/4          10-3/4


</TABLE>

There were 272 and 282  stockholders  of record of the Class A Common  Stock and
Class B Common Stock,  respectively,  on March 30, 2001. Only the Class A Common
Stock has voting rights.

We have not paid any cash dividends  during the last two fiscal years and do not
anticipate paying any cash dividends in the foreseeable  future on the shares of
Class A Common  Stock or Class B Common  Stock.  We  currently  intend to retain
future earnings to fund the  development and growth of our business.  Our credit
facility  agreement  restricts the payment or declaration of any dividend.  Each
share of Class B Common  Stock is entitled to a regular cash  dividend  equal to
110% of the regular cash dividend,  if any, payable on a share of Class A Common
Stock.

ITEM 6 - SELECTED FINANCIAL DATA
SELECTED INCOME STATEMENT DATA

<TABLE>

<CAPTION>
                                                                    (in thousands; except per share amounts)

                                                           Year        Year         Year        Year        Year
                                                           Ended       Ended        Ended       Ended       Ended
                                                          Jan. 5,    Dec. 31,      Jan. 1,     Jan. 2,     Jan. 3,
                                                         2001 (1)      1999         1999        1998        1997
                                                         --------      ----         ----        ----        ----

<S>                                                    <C>           <C>         <C>         <C>         <C>
Revenues...............................................$ 166,362     $154,691    $105,810    $ 93,962    $  91,879

Operating income (loss) (2)............................   16,123       18,196       5,741      (1,935)       2,345

Income (loss) from continuing operations...............    8,963       10,319       3,579      (4,032)       1,349

Discontinued operations:
   Loss from discontinued operations...................       --           --          --        (394)        (243)
   Gain on disposal of Brookfield business.............       --           --          --          96           --

Net income (loss)......................................    8,963       10,319       3,579      (4,330)       1,106

Earnings per common share - basic
   Income (loss) from continuing operations............$    1.45     $    1.64   $   0.57    $  (0.65)   $   0.22
   Loss from discontinued operations...................      --            --         --        (0.05)      (0.04)
                                                       --------      --------    -------     ---------   ---------
Net income (loss) per common share - basic.............$    1.45     $    1.64   $   0.57    $  (0.70)   $   0.18
                                                       =========     =========   ========    =========   ========

Earnings per common share - diluted
   Income (loss) from continuing operations............$    1.41     $    1.57   $   0.56    $  (0.65)   $   0.22
   Loss from discontinued operations...................      --            --         --        (0.05)      (0.04)
                                                       --------      --------    -------     ---------   ---------
Net income (loss) per common share - diluted ..........$    1.41     $    1.57   $   0.56    $  (0.70)   $   0.18
                                                       =========     =========   ========    =========   ========

Weighted average common shares and
   equivalents outstanding for diluted EPS ............    6,341        6,568       6,373       6,240        6,268

Cash dividends per share of common stock...............       --           --          --          --           --
</TABLE>
<TABLE>
<CAPTION>


SELECTED BALANCE SHEET DATA
                                                          Jan. 5,     Dec. 31,     Jan. 1,     Jan. 2,     Jan. 3,
                                                           2001         1999        1999        1998        1997
                                                           ----         ----        ----        ----        ----

<S>                                                    <C>           <C>         <C>         <C>         <C>
Current assets.........................................$  73,531     $ 66,480    $ 58,963    $ 50,091    $  57,896

Current liabilities....................................   15,919       15,403      18,840      13,315       13,963

Working capital........................................   57,612       51,077      40,123      36,776       43,933

Total assets...........................................   83,285       77,181      69,879      61,316       70,752

Long-term debt and capitalized lease
   obligations, net of current portion.................       34          292         559         771        4,893

Stockholders' equity...................................   64,620       58,962      48,250      45,072       49,484

---------------------------



(1)      See Note 1 to our Consolidated Financial Statements regarding reporting period.
(2)      See Note 14 to our Consolidated Financial Statements regarding the sale of our cycling division in
          fiscal 2000.
</TABLE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Dollar  amounts  throughout  this  Item 7 are in  thousands,  except  per  share
amounts.

<TABLE>

HIGHLIGHTS
<CAPTION>

                                                                           Increase (Decrease)
                                                                           -------------------
                                                                    2000 vs. 1999        1999 vs. 1998
                                                                    -------------        -------------

<S>                                                            <C>           <C>     <C>           <C>
         Net sales.............................................$   11,971    7.8%    $   48,984    46.6%
         Gross profit..........................................     3,329    5.7         21,373    57.1
         Selling, general and administrative expenses..........     2,441    5.9          8,815    27.2
</TABLE>
<TABLE>
<CAPTION>

                                                                                 $ Change
                                                                                 --------
                                                                    2000 vs. 1999         1999 vs. 1998
                                                                    -------------         -------------

<S>                                                               <C>                       <C>
         Operating income.........................................$   (2,073)               $  12,455
         Income before income taxes...............................    (2,076)                  12,351
         Net income...............................................    (1,356)                   6,740
</TABLE>
<TABLE>
<CAPTION>

                                                                        Percent of Net Sales
                                                                        --------------------
                                                                   2000         1999         1998
                                                                   ----         ----         ----

<S>                                                               <C>           <C>          <C>
         Gross profit..............................................37.4%        38.2%        35.6%
         Selling, general and administrative expenses..............26.3         26.8         30.9
         Operating income ..........................................9.7         11.8          5.5
         Income before income taxes.................................9.3         11.4          5.0
         Net income.................................................5.4          6.7          3.4

</TABLE>

CONSOLIDATED NET SALES

Fiscal  2000,  fiscal  1999 and fiscal  1998  consisted  of 53, 52 and 52 weeks,
respectively.  Our net sales and results of operations  for each of fiscal 2000,
fiscal 1999 and fiscal 1998 are comparable.  Net sales increased $11,971, or 8%,
to $166,029 in fiscal 2000 from  $154,058 in fiscal 1999.  At constant  exchange
rates,  fiscal 2000 net sales would have been $13,356, or 9%, higher than fiscal
1999.  Excluding sales from our former cycling division,  the net sales increase
in fiscal 2000 would have been 11% higher than fiscal 1999. Net sales  increased
$48,984,  or 47%, to $154,058 in fiscal 1999 from  $105,074 in fiscal 1998.  The
impact of  foreign  exchange  rate  changes  on net sales  was  negligible  when
comparing fiscal 1999 with fiscal 1998.

On a geographic  basis,  domestic sales increased  $9,076, or 7%, to $144,104 in
fiscal 2000 from $135,028 in fiscal 1999.  International sales increased $2,895,
or 15%,  to $21,925 in fiscal  2000 from  $19,030 in fiscal  1999.  At  constant
exchange rates, the international  sales increase in fiscal 2000 would have been
22%. Domestic sales increased  $51,664,  or 62%, to $135,028 in fiscal 1999 from
$83,364 in fiscal 1998. International sales decreased $2,680, or 12%, to $19,030
in fiscal 1999 from  $21,710 in fiscal 1998.  At constant  exchange  rates,  the
international sales decrease in fiscal 1999 would have been 14%.

SAUCONY SEGMENT

                           2000                     1999                 1998
                           ----                     ----                 ----

  Net Sales           $144,949 (+10%)         $131,898 (+53%)           $86,332

2000 COMPARED TO 1999

Worldwide net sales of Saucony branded footwear and apparel  increased  $13,051,
or 10%, to $144,949 in fiscal 2000 from  $131,898 in fiscal 1999,  due primarily
to an 6% increase in footwear unit volumes and higher domestic and international
wholesale per pair average sell prices.  The average domestic  wholesale selling
prices per pair of domestic  footwear  increased 5% in fiscal 2000 versus fiscal
1999, due to an 11% increase in technical  footwear unit volumes and a change in
the product mix for technical and Originals  footwear to higher priced  products
that resulted in higher average sell prices for both categories.

Domestic  net sales  increased  $10,200,  or 9%, to $125,318 in fiscal 2000 from
$115,118 in fiscal 1999, due primarily to the 11% increase in technical footwear
unit volumes,  a 103% increase in closeout  footwear unit volumes and the higher
average  wholesale  selling  prices per pair for both  technical  and  Originals
footwear,  partially offset by a 4% decrease in Originals  footwear unit volumes
and lower special make-up footwear volume.  Sales of closeout footwear accounted
for approximately 5% of domestic Saucony net sales in fiscal 2000 compared to 3%
in fiscal 1999. The Originals footwear accounted for 53% of fiscal 2000 domestic
footwear  unit volume  versus 58% in fiscal  1999.  The unit volume  decrease in
Originals   footwear  is  primarily  due  to  a  lack  of  sell-through  on  the
"new-school" products, which resulted in order cancellations.  During the fourth
quarter of fiscal 2000, the order cancellation rate for our Saucony footwear was
higher than our historical average.

International net sales increased $2,851, or 17%, to $19,631 in fiscal 2000 from
$16,780 in fiscal 1999,  due  primarily to a 23% increase in technical  footwear
unit volumes and higher average wholesale per pair sell prices, partially offset
by the negative impact of the stronger U.S. dollar against European  currencies.
Footwear  unit  volumes  at our  international  distributor  business,  and  our
European and Canadian  subsidiaries,  increased  45% and 11%,  respectively,  in
fiscal  2000 versus  fiscal  1999.  The  footwear  unit  volume  increase in our
international  distributor  business  is due  primarily  to our  entry  into the
Japanese  footwear market in 2000, which accounted for  approximately 64% of the
international distributor unit volume increase.

1999 COMPARED TO 1998

Worldwide net sales of Saucony branded footwear and apparel  increased  $45,566,
or 53%, to $131,898 in fiscal 1999 from $86,332 in 1998, primarily due to an 82%
unit volume  growth in the footwear  category.  The average  domestic  wholesale
selling price per pair of domestic footwear  decreased 14% in fiscal 1999 versus
fiscal 1998 due to a higher proportion of more  moderately-priced  Originals and
special  make-up  footwear in our  domestic  product mix and lower  average sell
prices for technical footwear.

Domestic net sales  increased  $47,344,  or 70%, to $115,118 in fiscal 1999 from
$67,774 in fiscal 1998.  The increase in domestic sales was due primarily to the
continued strong demand for the Originals  footwear,  which accounted for 58% of
domestic  footwear unit volume for the year, and, to a lesser extent,  increased
special make-up and technical footwear volume.

International net sales decreased $1,778, or 10%, to $16,780 in fiscal 1999 from
$18,558 in fiscal 1998,  due  primarily to the  discontinuance  of operations in
Australia and decreased  distributor unit volume,  partially offset by increased
direct sales in Canada and Western Europe due to increased unit volume.

OTHER PRODUCTS SEGMENT

                          2000                     1999                 1998
                          ----                     ----                 ----

  Net Sales           $21,080 (-5%)           $22,160 (+18%)           $18,742

The Other Products  segment consists of our Hind athletic  apparel,  ten factory
outlet  stores,  Spot-bilt  coaches' and official  shoes and casual  walking and
workplace  footwear,  Hyde Authentics  casual footwear and sales from our former
cycling  division.  Each of these businesses  represented less than 10% of total
revenues  and, in the  aggregate,  represented  13% of total net sales in fiscal
2000.

2000 COMPARED TO 1999

Worldwide sales of Other Products  decreased $1,080, or 5%, to $21,080 in fiscal
2000 from  $22,160 in fiscal  1999 due  primarily  to the  elimination  of sales
resulting from the cycling division  divestiture,  partially offset by increased
sales of our Hind  brand  apparel  and  increased  sales at our  factory  outlet
stores.

Domestic  net sales of Other  Products  decreased  $1,124,  or 6%, to $18,786 in
fiscal 2000 from  $19,910 in fiscal 1999 due  primarily  to the  elimination  of
sales from our former  cycling  division,  which was  divested  in fiscal  2000,
partially  offset  by  increased  unit  volume  of our Hind  apparel  brand  and
increased sales at our factory outlet division stores due to the net addition of
two factory outlet stores.  International net sales of Other Products  increased
$44,  or 2%,  to  $2,294 in fiscal  2000  from  $2,250  in fiscal  1999,  due to
increased Hind apparel sales in Europe.

1999 COMPARED TO 1998

Worldwide sales of Other Products increased $3,418, or 18%, to $22,160 in fiscal
1999 from  $18,742 in fiscal 1998 due to  increased  domestic  net sales.  Other
Products segment domestic sales increased  $4,320,  or 28%, to $19,910 in fiscal
1999 from $15,590 in fiscal 1998 due  primarily to increased  unit volume of our
Hind apparel brand and, to a lesser extent,  increased unit volume at our former
cycling division. The sales increase also reflects increased retail sales at our
outlet division due to the addition of two factory outlet stores.  International
net sales of Other  Products  decreased  $902,  or 29%, to $2,250 in fiscal 1999
from $3,152 in fiscal 1998 due to the discontinuance of operations in Australia.

COSTS AND EXPENSES

Our gross  margin in fiscal  2000  decreased  0.8% to 37.4% from 38.2% in fiscal
1999, due primarily to a change in domestic Saucony product mix to higher levels
of closeout sales at comparatively  lower margins,  domestic pricing  pressures,
increased inventory reserves and, to a lesser extent, the negative impact of the
stronger  U.S.  dollar  on our  European  margins  and a change  in the  Saucony
international  sales mix to  increased  distributor  sales.  For the 1999 fiscal
year,  the gross margin  improved  2.6% to 38.2% from 35.6% in fiscal 1998.  The
improvement  in the  fiscal  1999  margin  was due to a change in  product  mix,
purchasing  economies,  lower levels of product  returns and markdowns and lower
levels of closeout product sales.

The SG&A ratio  improved 0.5% to 26.3% of net sales in fiscal 2000 from 26.8% in
1999. The  improvement  in the ratio  resulted from the continued  management of
advertising, selling and administrative expenses below the rate of sales growth.
In absolute dollars,  selling,  general and administrative expenses increased to
$43,702 in 2000,  or 6%,  from  $41,261 in fiscal  1999.  Increased  spending in
fiscal  2000  was   attributable   to  increased   television  and  print  media
advertising,  increased  account-specific  advertising and promotion,  increased
event sponsorship,  increased variable selling expenses, administrative staffing
increases,  increased  operating  expenses  associated  with the factory  outlet
division expansion and increased  professional fees, partially offset by reduced
operating  expenses  resulting from the cycling  division  divestiture and lower
provisions for doubtful accounts.  The higher provision for doubtful accounts in
fiscal 1999 was due primarily to the bankruptcy filing by Just for Feet, Inc.

For the 1999 fiscal  year,  our SG&A ratio  improved  4.1% to 26.8% of net sales
compared  to 30.9% in 1998.  The  improvement  in the  ratio  resulted  from the
continued management of advertising,  selling and administrative  expenses below
the  rate  of  sales  growth.   In  absolute  dollars,   selling,   general  and
administrative  expenses  increased  to $41,261  in fiscal  1999,  or 27%,  from
$32,446 in fiscal 1998.  Increased  spending in fiscal 1999 was  attributable to
increased  performance-based  incentive  compensation,  increased  staffing,  an
increase in the provision for doubtful  accounts due primarily to the bankruptcy
filing by Just for Feet,  Inc.,  volume driven  advertising and selling expenses
and increased athlete and event sponsorship.

SALE OF CYCLING DIVISION

On June 29, 2000,  we sold  substantially  all of the assets and business of our
cycling  division,  consisting of  inventory,  prepaid  expenses,  equipment and
tradenames,  to QR Merlin  Acquisition LLC for $1,350 in cash and the assumption
of $39 in  liabilities.  In connection with the sale, we recorded a pre-tax loss
of $2,661,  inclusive of $1,012 of expenses  associated with the transaction and
expenses resulting from our exit of the cycling business, or $1,553 after-tax or
$0.24 per  diluted  share.  As a result of the  transaction,  a majority  of the
cycling  division  employees  were  severed and assets used  exclusively  in the
cycling  business  were deemed  impaired  and have been  written  off.  Expenses
associated with the sale and exit of the cycling division are as follows:


  Transaction costs................................................$    358
  Costs to exit facility and equipment leases and
    other non-cancelable contractual commitments...................     142
  Employee severance and termination benefits......................     210
  Writeoff leasehold improvements..................................      84
  Writeoff goodwill and other deferred charges.....................     218
                                                                   --------

  Total............................................................$  1,012
                                                                   ========

Included  in accrued  expenses  at January 5, 2001 are $144 of costs  associated
with the sale and the exit of the cycling business, which we expect will be paid
by the end of the second quarter of fiscal 2001.

Net sales from the cycling  division,  which are included in our Other  Products
segment, represented approximately 1.9%, 4.7% and 6.1% of consolidated net sales
for fiscal years 2000, 1999 and 1998, respectively.  The loss on the sale of the
cycling  division is included  in the income  before tax for the Other  Products
segment.

INTEREST EXPENSE

Net interest  expense totaled $626, $683 and $707 in fiscal years 2000, 1999 and
1998,  respectively.  Interest expense  decreased 8% in fiscal 2000 due to lower
average debt levels and increased  interest  income,  partially offset by higher
interest  rates on our domestic  borrowings.  In fiscal 1999,  interest  expense
decreased  3% due to lower  average debt levels and, to a lesser  extent,  lower
interest rates compared to fiscal 1998.

INCOME BEFORE TAXES

        Segment                   2000            1999             1998
        -------                   ----            ----             ----

    Saucony....................$ 18,507        $ 18,965         $  5,497
    Other Products.............  (2,994)         (1,376)            (259)
                               ---------       ---------        ---------
    Consolidated...............$ 15,513        $ 17,589         $  5,238
                               =========       =========        =========

We evaluate  business  performance  and the performance of key managers based on
profit or loss before  income  taxes.  Income  before tax decreased by $2,076 in
fiscal 2000 to $15,513  compared to $17,589 in fiscal 1999, due primarily to the
loss on the sale of the cycling  division,  which  impacted  the Other  Products
segment,  and lower  domestic  pre-tax income  realized by the domestic  Saucony
segment due to lower gross margins and higher selling expenses, partially offset
by  improved  profitability  in  our  Saucony  international  and  Hind  apparel
businesses.

Income  before tax  improved  by $12,351 in fiscal  1999 to $17,589  compared to
$5,238 in fiscal  1998,  due  primarily to the  significant  increase in pre-tax
income  realized  by  the  domestic  Saucony  segment  and  profitable   Saucony
international operations.  The Other Products segment recorded a pre-tax loss of
$1,376  in  fiscal  1999  compared  to a  loss  of  $259  in  fiscal  1998.  The
deterioration  in the Other Products  segment  pre-tax income in fiscal 1999 was
due  principally  to the diminished  financial  position of Quintana Roo, due in
large part to excess inventories and a high level of administrative overhead.

INCOME TAXES

The provision for income taxes decreased to $6,461 in fiscal 1999 from $7,194 in
fiscal 1999, due primarily to the loss on the sale of the cycling division which
reduced domestic pre-tax income.  The effective tax rate increased 0.7% to 41.6%
in fiscal  2000 from 40.9% in fiscal 1999 due to a shift in the  composition  of
domestic  and foreign  pre-tax  earnings  and an increase in deferred  valuation
allowances on foreign loss carryforwards that are not expected to be realized.

The provision for income taxes increased to $7,194 in fiscal 1999 from $1,629 in
fiscal  1998,  due  primarily  to an increase in domestic  pre-tax  income and a
higher  marginal  domestic  tax rate in  fiscal  1999.  The  effective  tax rate
increased  by 9.8% to 40.9% in fiscal  1999 from  31.1% in fiscal  1998 due to a
shift in the composition of domestic and foreign pre-tax earnings and the higher
marginal domestic tax rate.

NET INCOME

Net income for fiscal 2000  decreased  to $8,963,  or $1.41 per  diluted  share,
compared to $10,319, or $1.57 per diluted share, in fiscal 1999. The loss on the
sale of our cycling  division  reduced net income and diluted earnings per share
by $1,553 and $0.24,  respectively,  in fiscal 2000. Excluding the effect of the
loss on the sale of our  cycling  division,  our net income in fiscal 2000 would
have been $10,516,  or $1.65 per diluted share.  Weighted  average common shares
and equivalent  shares used to calculate  diluted  earnings per share were 6,341
and 6,568,  respectively,  in fiscal  2000 and 1999.  Fiscal 1999 net income was
$10,319 compared to $3,579 in fiscal 1998.  Diluted earnings per share was $1.57
in fiscal  1999  compared to $0.56 per diluted  share in fiscal  1998.  Weighted
average common shares and equivalent  shares used to calculate  diluted earnings
per share were 6,568 and 6,373, respectively, in fiscal 1999 and 1998.

LIQUIDITY AND CAPITAL RESOURCES

FISCAL 2000

As of January 5, 2001, our cash and cash equivalents totaled $4,738, an increase
of $1,223  from  December  31,  1999.  The  increase  was due  primarily  to the
generation  of $4,100 of cash from  operations,  the  receipt of $1,350 from the
sale of our  former  cycling  division  and an  increase  of $335 in  short-term
borrowings, principally under our credit facilities. This increase was partially
offset by cash outlays for capital assets of $1,669, the repurchase of shares of
our common stock of $2,688 and the repayment of long-term debt of $360.

The increase in accounts receivable of $3,074, net of the provision for bad debt
and discounts, was due primarily to increased net sales of our Saucony and other
products in the fourth  quarter of fiscal 2000 and an increase in our days sales
outstanding  for our accounts  receivable.  Our days sales  outstanding  for our
accounts  receivable  increased to 59 days in fiscal 2000 from 57 days in fiscal
1999, due primarily to the reserve of $1,525  provided for on the receivable due
from Just for Feet,  Inc.  in fiscal  1999,  which  reduced the fiscal 1999 days
sales outstanding by 3 days, and, to a lesser extent, the timing of shipments in
the fourth quarter of fiscal 2000.  Inventories  increased $6,018 in fiscal 2000
due to increased  domestic  Saucony footwear  inventory,  increased Hind apparel
inventory and increased  inventory at the our factory outlet stores,  due to the
net addition of two stores in 2000.  The increase in domestic  Saucony  footwear
inventory  resulted from increased order  cancellations in the fourth quarter of
2000 for both technical and Originals  footwear.  We expect that the majority of
the inventory increase that resulted from the fourth quarter order cancellations
will be sold in the first six  months of fiscal  2001,  though we expect  that a
portion of this  inventory  will be sold at lower than  customary  margins.  Our
inventory  turns ratio  decreased  to 2.8 turns in fiscal 2000 from 2.9 turns in
fiscal  1999.  The number of day's sales in inventory  remained  constant at 135
days for both fiscal 2000 and fiscal 1999.

Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory)  affecting our operating cash flows in fiscal
2000  included  an  increase  of $1,210 in  accrued  letters  of credit  (due to
increased  direct-ship  inventory  purchases),  a decrease  of $1,185 in accrued
expenses  (due to  decreased  performance-based  compensation  accruals  and the
payment of expenses resulting from the cycling division divestiture), a decrease
of $412 in accounts  payables (due to the timing of inventory  purchases)  and a
decrease of $889 in income taxes  payable (due to domestic tax payments  made in
the fourth quarter of 2000).

During fiscal 2000, we  repurchased  approximately  300,000 shares of our common
stock  for a total  expenditure  of  $3,106,  $418 of which  was  financed  with
borrowed funds. At January 5, 2001, this borrowing and accrued  interest thereon
of $15 are included in notes  payable.  Since the approval of the stock  buyback
program by the Board of Directors in May 1998,  we have  repurchased  a total of
448,000 shares of our common stock for a total of  expenditure of $4,231.  As of
January 5, 2001, we are  authorized to repurchase an additional  302,000  shares
under the stock buyback program. Our ability to repurchase  additional shares of
common  stock,  however,  is  restricted to a maximum of $4,000 from November 1,
1999 to December 31, 2000, under our credit facility with our primary lender. As
of January 1, 2001,  however,  no  repurchases  are  permitted  under the credit
facility.

FISCAL 1999

As of  December  31,  1999,  our cash and cash  equivalents  totaled  $3,515,  a
decrease of $1,980 from January 1, 1999.  The  decrease  was due  primarily to a
decrease of $5,429 in borrowings against our credit facilities, the repayment of
$375 of long-term debt, the repurchase of shares of our common stock of $514 and
$1,661 of cash expended to acquire capital assets.  Offsetting this cash outflow
was the  generation  of $5,505 of cash from  operations  and the receipt of $503
from the issuance of shares of our common stock.

The increase in accounts receivable of $4,357, net of the provision for bad debt
and discounts  (including a reserve of $1,525 provided for on the receivable due
from Just for Feet,  Inc.),  was due  primarily  to  increased  net sales of our
Saucony  products  in  the  fourth  quarter  of  fiscal  1999.  Our  days  sales
outstanding for our accounts receivable decreased to 57 days in fiscal 1999 from
68 days in fiscal 1998 due to a reduction in domestic  terms offered on sales of
Originals  footwear and the reserve provided for on the receivable due from Just
for Feet,  Inc.  Inventories  increased  $4,700 in fiscal 1999 due to  increased
domestic and international Saucony footwear inventory and increased inventory at
our factory  outlet  stores,  reflecting the addition of two stores in 1999. Our
inventory  turns ratio  increased  to 2.9 turns in fiscal 1999 from 2.5 turns in
fiscal 1998. The number of days sales in inventory  decreased 19% to 135 days in
fiscal 1999 from 167 days in fiscal 1998.

Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory)  affecting our operating cash flows in fiscal
1999 included an increase of $994 in accrued letters of credit (due to increased
in-transit  inventory),  an  increase  of $3,337  in  accrued  expenses  (due to
increased  performance-based   compensation  accruals,  increased  accruals  for
advertising  and  promotional  expenses and increased  levels of  administrative
spending),  a  decrease  of $1,242 in  accounts  payables  (due to the timing of
inventory  purchases)  and a decrease of $801 in income  taxes  payable  (due to
domestic tax payments made in the fourth quarter of 1999.)

CREDIT FACILITY

We maintain a revolving  credit line of $20,000 for cash  borrowings and letters
of credit.  We and certain of our  subsidiaries  have guaranteed our obligations
under  the  credit  facility.  Borrowings  under  the  credit  facility  are not
collateralized.  The credit facility contains certain restrictions and financial
covenants  with which we are  required  to comply,  whether or not there are any
borrowings outstanding. Under the most restrictive covenant, we were required to
maintain a minimum  tangible  net worth of  $51,431  as of January 5, 2001.  The
credit facility is also subject to the bank's periodic review of our operations.
Our ability to declare or pay dividends and repurchase shares of common stock is
restricted  under the credit  facility.  From  November 1, 1999 to December  31,
2000, we were authorized under the credit facility to repurchase up to $4,000 in
shares of common  stock.  As of January 5, 2001 and March 9, 2001,  $15,996  and
$11,270, respectively, were available for borrowing under the credit facility.

Several of our foreign subsidiaries  maintain credit facilities in the aggregate
principal  amount of  approximately  $3,308.  At March 2, 2001 an  aggregate  of
approximately  $1,651 was available for  borrowing  under the  facilities of our
foreign subsidiaries. See Note 9 to the Consolidated Financial Statements.

CAPITAL EXPENDITURES COMMITMENTS

At January 5, 2001, our commitments for capital expenditures were not material.

OVERALL LIQUIDITY

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 debt service payments.


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.  During fiscal 2000 the gross
margins of our European  subsidiaries  were negatively  impacted due to currency
fluctuation. 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.


ACCOUNTING PRONOUNCEMENTS

SFAS 133 AND SFAS 137

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and  Hedging  Activities"  (SFAS 133) (as  amended  by  Statement  of  Financial
Accounting Standards No. 137, a deferral of the effective date of SFAS 133 (SFAS
137)),  which is effective for fiscal quarters of fiscal years  commencing after
June 15, 2000,  with early adoption  permitted.  SFAS 133 defines the accounting
for derivative instruments, including certain derivative instruments embedded in
other  contracts  and  hedging  activities.  Upon  adoption  of  SFAS  133,  all
derivatives must be recognized on the balance sheet at their then fair value and
any  deferred  gains or losses  remaining  on the balance  sheet under  previous
hedge-accounting  rules must be removed from the balance sheet. In the period of
adoption,  the  transition  adjustments  may affect  current  earnings and other
comprehensive  income.  SFAS 133 requires companies to recognize  adjustments to
the fair value of  derivatives  that are not hedges  currently in earnings  when
they occur. For derivatives that qualify as hedges, changes in the fair value of
the  derivatives  can  be  recognized  currently  in  earnings,  along  with  an
offsetting adjustment against the basis of the underlying hedged item, or can be
deferred in other  comprehensive  income,  depending on the currency exposure of
the underlying  transaction.  Our forward currency contracts qualified for hedge
accounting  under generally  accepted  accounting  principles prior to SFAS 133;
however,  upon adoption of SFAS 133 we have not  designated  these  contracts as
qualifying  for hedge  accounting  as defined by SFAS 133. We believe that these
contracts economically function as effective hedges of the underlying exposures,
but,  due to the short  term  nature of the  contracts,  we have not  elected to
designate these contracts as hedges for accounting purposes.

We  adopted  SFAS  133  on  January  6,  2001.  As  a  result,  we  recorded  an
approximately  $15 increase in the fair value of our derivatives as a cumulative
effect of an accounting change on accumulated other comprehensive  income. These
amounts will be  recognized  in earnings when the  underlying  transactions  are
recorded.

STAFF ACCOUNTING BULLETIN NO. 101

On December 8, 1999 the  Securities and Exchange  Commission  (the "SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements,"  which provides  guidance on properly applying  Generally  Accepted
Accounting Principles to revenue recognition in financial  statements.  In March
and June 2000 the SEC issued Staff  Accounting  Bulletins No. 101A and No. 101B,
respectively,  to delay the  implementation  date of SAB 101  until  the  fourth
quarter of fiscal years beginning after December 15, 1999. We adopted SAB 101 in
the fourth  quarter of fiscal 2000.  The initial  application of SAB 101 did not
have a material  effect on earnings or on our  financial  position in any of the
periods presented in the Consolidated Financial Statements.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and the documents  incorporated  by reference in
this annual report on Form 10-K contain forward-looking  statements that involve
substantial  risks  and  uncertainties.  In some  cases you can  identify  these
statements by forward-looking  words such as "anticipate,"  "believe,"  "could,"
"estimate," "expect," "intend," "may," "should," "will," and "would," or similar
words.  You should read statements  that contain these words  carefully  because
they discuss  future  expectations,  contain  projections  of future  results of
operations   or  of   financial   position  or  state  other   "forward-looking"
information.  The  important  factors  listed below,  as well as any  cautionary
language  in this  annual  report  on Form  10-K,  provide  examples  of  risks,
uncertainties  and events that may cause our actual results to differ materially
from the expectations described in these forward-looking  statements. You should
be aware that the  occurrence of the events  described in the risk factors below
and elsewhere in this annual report on Form 10-K could have an adverse effect on
our business, results of operations and financial position.

Any  forward-looking  statements  in this  annual  report  on Form  10-K and the
documents  incorporated  by reference in this annual report on Form 10-K are not
guarantees of future performance, and actual results,  developments and business
decisions may differ from those  envisaged by such  forward-looking  statements,
possibly  materially.  We  disclaim  any  duty  to  update  any  forward-looking
statements,  all of which  are  expressly  qualified  by the  statement  in this
section.


CERTAIN OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS

WE FACE INTENSE COMPETITION

Competition is intense in the markets in which we sell our products.  We compete
with a large number of other  companies,  both domestic and foreign,  several of
which  have  diversified   product  lines,   well-known  brands  and  financial,
distribution  and  marketing  resources  substantially  greater  than ours.  The
principal  competitors for our Saucony products are Nike, New Balance and Asics.
The principal competitors of our Hind products are Nike, Pearl Izumi and TYR. We
compete based on a variety of factors, including price, quality, product design,
brand image, marketing and promotion and ability to meet delivery commitments to
retailers.  A technological  breakthrough or marketing or promotional success by
one of our competitors  could adversely  affect our  competitive  position.  The
intensity of the competition  that we face constitutes a significant risk to our
business.

WE DEPEND ON FOREIGN SUPPLIERS

A number of manufacturers  located in Asia,  primarily in China, supply products
and product components to us. During fiscal 2000, one of our suppliers,  located
in China,  accounted for  approximately  51% of our total footwear  purchases by
dollar volume. We are subject to the usual risks of a business involving foreign
suppliers,  such  as  currency  fluctuations,   government  regulation  of  fund
transfers,   export  and  import  duties,   administrative  trade  cases,  trade
limitations  imposed by the United States or foreign  governments  and political
and labor  instability.  There are a number of  trade-related  and other  issues
creating  significant  friction between the governments of the United States and
China,  and the  imposition of punitive  import duties on certain  categories of
Chinese  products has been  threatened in the past and may be implemented in the
future.  In addition,  we have no long-term  manufacturing  agreements  with our
foreign  suppliers and compete with other  athletic shoe and apparel  companies,
including  companies  that are much  larger  than us, for  access to  production
facilities.

WE NEED TO ANTICIPATE AND RESPOND TO CONSUMER PREFERENCES AND MERCHANDISE TRENDS

The footwear  and apparel  industries  are subject to rapid  changes in consumer
preferences.  Demand for our products,  particularly  our Originals line, may be
adversely affected by changing fashion trends and consumer style preferences. We
believe  that  our  success  depends  in  substantial  part  on our  ability  to
anticipate, gauge and respond to changing consumer demands and fashion trends in
a timely manner. In addition, our decisions concerning new product designs often
need to be made several months before we can determine consumer acceptance. As a
result, our failure to anticipate, identify or react appropriately to changes in
styles or features could lead to problems such as excess  inventories and higher
markdowns,  lower gross margins due to the  necessity of providing  discounts to
retailers and the inability to sell such products through our own factory outlet
stores.

OUR QUARTERLY RESULTS MAY FLUCTUATE

Our revenues and quarterly operating results may vary significantly depending on
a number of factors, including:

o        the timing and shipment of individual orders;
o        market acceptance of footwear and other products offered by us;
o        changes in our operating expenses;
o        personnel changes;
o        mix of products sold;
o        changes in product pricing;
o        general economic conditions; and,
o        weather.

In addition,  a substantial  portion of our revenue is realized  during the last
few weeks of each  quarter.  As a result,  any delays in orders or shipments are
more  likely to result in  revenue  not  being  recognized  until the  following
quarter, which could adversely impact our results of operations for a particular
quarter.

Our  current  expense  levels  are based in part on our  expectations  of future
revenue. As a result, net income for a given period could be  disproportionately
affected by any reduction in revenue. It is possible that in some future quarter
our revenue or operating  results will be below the expectations of stock market
securities  analysts and investors.  If that were to occur,  the market price of
our common stock could be materially adversely affected.

OUR REVENUES ARE SUBJECT TO FOREIGN CURRENCY EXCHANGE FLUCTUATIONS

We conduct operations in various international  countries,  and a portion of our
sales is transacted in local currencies.  As a result,  our revenues are subject
to foreign exchange rate fluctuations.  From time to time, our financial results
have been adversely affected by fluctuations in foreign currency exchange rates.
We enter into forward currency exchange  contracts to protect us from the effect
of changes in foreign  exchange rates.  However,  our efforts to reduce currency
exchange losses may not be successful,  and currency  exchange rates may have an
adverse impact on our future operating results and financial condition.

OUR BUSINESS IS AFFECTED BY SEASONAL CONSUMER BUYING PATTERNS

The footwear and apparel  industries are generally  characterized by significant
seasonality  of sales and  results of  operations.  Sales of our  Saucony  brand
products have  historically  been seasonal in nature,  with the strongest  sales
generally occurring in the first and third quarters.  In addition,  sales of our
Hind brand products are generally strongest in the third and fourth quarters due
to the popularity of the Hind winter apparel  collection.  We believe that sales
of our products  will  continue to follow this seasonal  cycle.  Therefore,  our
results of operations  for any one quarter may not  necessarily be indicative of
the results that we may achieve for a full fiscal year or any future quarter.

OUR OPERATING RESULTS MAY BE AFFECTED BY ORDER CANCELLATIONS

Customers  may  cancel  orders of our  products  at any time  without  financial
penalty.  As a result, our backlog does not necessarily  represent actual future
shipments.  The rate of customer  cancellations can vary  quarter-to-quarter and
year-to-year.  During the fourth quarter of fiscal 2000, the order  cancellation
rate for our  Saucony  footwear  was higher  than our  historical  average,  due
primarily  to  the  weak  retail   environment   and  higher  than   anticipated
cancellations  and the  postponement  of shipments of orders by one of our major
retail  accounts.  If the retail market continues to be weak or weakens again in
the future,  our customers  could cancel further  orders of our products,  which
could have a material adverse effect on our operating results.

WE ARE SUSCEPTIBLE TO FINANCIAL DIFFICULTIES OF RETAILERS

We sell our products primarily to major retailers, some of whom have experienced
financial difficulties,  including bankruptcy. We cannot predict what effect the
future  financial  condition of such  retailers  will have on our  business.  In
particular,  we cannot guarantee that our bad debt expenses will not be material
in future periods.

WE NEED EFFECTIVE MARKETING AND ADVERTISING PROGRAMS

Because  consumer demand for our products is heavily  influenced by brand image,
our business  requires  substantial  investments  in marketing and  advertising.
Failure of such  investments to achieve the desired effect in terms of increased
retailer  acceptance or consumer purchase of our products could adversely affect
our financial results. In addition,  we believe that our success depends in part
upon our ability to periodically launch new marketing and advertising  programs.
If  we  are  unable  to  successfully   design  or  execute  new  marketing  and
advertising, or if such programs are ineffective, our business will suffer.

WE DEPEND ON CERTAIN KEY CUSTOMERS

During 2000, we derived approximately 14% of our consolidated revenue from sales
to a single major  customer,  Venator,  which  operates  Foot Locker,  Lady Foot
Locker, Kids Foot Locker,  Champs and Eastbay Running stores. We anticipate that
our results of  operations  in any given  period  will  depend to a  significant
extent upon sales to major customers. The loss of or a reduction in the level of
sales to one or more major customers could have a material adverse effect on our
business, financial condition and results of operations. Furthermore, if a major
customer were unable or unwilling to proceed with a large order or to pay us for
a large order on a timely basis, our business,  financial  condition and results
of operations could be materially adversely affected.

CHANGES IN GENERAL ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR BUSINESS

Our business is sensitive to  consumers'  spending  patterns,  which in turn are
subject  to  prevailing  regional  and  national  economic  conditions,  such as
interest and taxation rates, employment levels and consumer confidence.  Adverse
changes in these  economic  factors  may  restrict  consumer  spending,  thereby
negatively affecting our growth and profitability.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are  exposed  to market  risk from  changes  in  interest  rates and  foreign
exchange  rates.  Our  objective in managing our exposure to interest  rates and
foreign  currency  rate changes is to limit the impact of these  changes on cash
flows and earnings and to lower our overall borrowing costs. In order to achieve
these  objectives  we identify the risks and manage them by adjusting  fixed and
variable rate debt positions and  selectively  hedging  foreign  currency risks.
Almost all of our borrowings are based on floating  rates,  which would increase
interest expense in an environment of rising interest rates. We have a policy of
selectively  hedging foreign  currency  risks,  but there are no assurances that
this program will fully insulate us against short-term fluctuations in financial
results.

The fair  value of our  forward  exchange  contracts  as of  January 5, 2001 was
$1,115.  We have  calculated the effect of a 10% change in interest rates over a
one-month  period from January 5, 2001 and also a 10% change in certain  foreign
currency rates over the same period and determined the effects to be immaterial.
We do not expect to make any  significant  changes in our  management of foreign
currency or interest  rate  exposures or in the  strategies  we employ to manage
such exposures in the foreseeable future. However, our accounting for derivative
transactions will be affected by our adoption of SFAS 133 on January 6, 2001.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See  the  Index  to our  Consolidated  Financial  Statements  in Item 14 and the
Consolidated Financial Statements, notes and schedules that are filed as part of
this Form 10-K  following the  signature  page and  incorporated  herein by this
reference.


ITEM 9 -  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required by this item is  contained  in part under the caption
"Executive  Officers of the  Registrant"  in Part I herein and the  remainder is
contained in the Proxy  Statement for our Annual Meeting of  Stockholders  to be
held on May 24, 2001 (the "2001 Proxy Statement")  under the captions  "Election
of Directors" and "Section 16(A) Beneficial Ownership Reporting  Compliance" and
is  incorporated  herein by this  reference.  We  expect to file the 2001  Proxy
Statement  within 120 days after the close of the fiscal  year ended  January 5,
2001.

Officers are elected on an annual basis and serve at the discretion of the Board
of Directors.


ITEM 11 - EXECUTIVE COMPENSATION

The  information   required  by  this  item  is  contained  under  the  captions
"Compensation   of  Directors,"   "Compensation   of  Executive   Officers"  and
"Compensation  Committee Interlocks and Insider Participation" in the 2001 Proxy
Statement and is incorporated herein by this reference.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this item is contained in the 2001 Proxy Statement
under the caption "Stock Ownership of Certain  Beneficial Owners and Management"
and is incorporated herein by this reference.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this item is contained in the 2001 Proxy Statement
under the captions  "Employment  Contracts" and "Related Party Transactions" and
is incorporated herein by this reference.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      1.   Index to Consolidated Financial Statements

          The following  Consolidated  Financial Statements of Saucony, Inc. and
          its subsidiaries are included in this report immediately following the
          signature page:

     -    Report of Independent Accountants

     -    Consolidated balance sheets at January 5, 2001 and December 31, 1999

     -    Consolidated statements of income for the years ended January 5, 2001,
          December 31, 1999 and January 1,1999

     -    Consolidated  statements of  stockholders'  equity for the years ended
          January 5, 2001, December 31, 1999 and January 1, 1999

     -    Consolidated  statements  of cash flows for the years ended January 5,
          2001,   December  31,  1999  and  January  1,  1999

     -    Notes to the Consolidated Financial Statements


         2.   Index to Consolidated Financial Statement Schedules

              Schedule II  -- Valuation and Qualifying Accounts

              All other  schedules are omitted  because they are not applicable,
              or not required,  or because the required  information is included
              in the Consolidated Financial Statements or notes thereto.

              Separate  financial  statements  of the Company  have been omitted
              since it is primarily an  operating  company and its  subsidiaries
              included in the  Consolidated  Financial  Statements do not have a
              minority  equity interest or indebtedness to any person other than
              the Company in an amount  which  exceeds 5% of the total assets as
              shown by the Consolidated Financial Statements as filed herein.


         3.   Index to Exhibits

              The  exhibits  filed as part of this Form  10-K are  listed on the
              Exhibit Index immediately  preceding such exhibits,  which Exhibit
              Index is incorporated herein by this reference.


(b)      1.   Reports on Form 8-K
              -------------------

          No Current  Reports  on Form 8-K were  filed in the fourth  quarter of
          fiscal 2000.


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                   SAUCONY, INC.
                                   --------------------------------------------
                                   (Registrant)


                                   By: /s/ John H. Fisher
                                   --------------------------------------------
                                   John H. Fisher
                                   President and Chief Executive Officer

Date:    April 3, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

         NAME                     CAPACITY                            DATE
         ----                    ---------                            ----


/s/ John H. Fisher           President,                            April 3, 2001
John H. Fisher               Chief Executive Officer and
                             Director
                             (Principal Executive Officer)

/s/ Charles A. Gottesman     Executive Vice President,             April 3, 2001
Charles A. Gottesman         Chief Operating Officer and
                             Director

/s/ Michael Umana            Senior Vice President, Finance and    April 3, 2001
Michael Umana                Chief Financial Officer
                             (Principal Financial Officer)

/s/ Roger P. Deschenes       Vice President, Controller and        April 3, 2001
Roger P. Deschenes           Chief Accounting Officer
                             (Principal Accounting Officer)

/s/ John J. Neuhauser        Director                              April 3, 2001
John J. Neuhauser

/s/ Robert J. LeFort, Jr.    Director                              April 3, 2001
Robert J. LeFort, Jr.

/s/ John M. Connors, Jr.     Director                              April 3, 2001
John M. Connors, Jr.

/s/ Phyllis H. Fisher        Director                              April 3, 2001
Phyllis H. Fisher


REPORT OF INDEPENDENT ACCOUNTANTS


To The Board of Directors and Shareholders of
Saucony, Inc.

         In our opinion,  the  accompanying  consolidated  financial  statements
listed in the  index  appearing  under  Item  14(a)(1)  present  fairly,  in all
material respects,  the financial position of Saucony, Inc. and its subsidiaries
at January 5, 2001 and December 31, 1999 and the results of their operations and
their cash  flows for each of the three  years in the  period  ended  January 5,
2001, in conformity with accounting  principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index  appearing  under  Item  14(a)(2)  presents  fairly,  in all
material  respects,  the  information set forth therein when read in conjunction
with the related consolidated  financial statements.  These financial statements
and  financial  statement  schedule  are  the  responsibility  of the  Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements and financial  statement  schedule based on our audits.  We conducted
our audits of these statements in accordance with auditing  standards  generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audits provide a reasonable basis for our opinion.





                                                     PricewaterhouseCoopers LLP


Boston, Massachusetts
February 26, 2001

<TABLE>



                         SAUCONY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                     ASSETS
                      (in thousands, except share amounts)
                                                                                        January 5,    December 31,
                                                                                           2001           1999
                                                                                           ----           ----

<S>                                                                                    <C>             <C>
Current assets:
     Cash and cash equivalents.........................................................$    4,738      $   3,515
     Accounts receivable, net of allowance for doubtful accounts
       and discounts (2000, $2,047;1999, $3,534).......................................    26,706         23,968
     Inventories ......................................................................    38,404         35,270
     Deferred income taxes.............................................................     1,366          2,140
     Prepaid expenses and other current assets.........................................     2,317          1,587
                                                                                       ----------      ---------
       Total current assets............................................................    73,531         66,480
                                                                                       ----------      ---------

Property, plant and equipment, net of accumulated depreciation and amortization........     7,581          8,279
                                                                                       ----------      ---------

Other assets:
     Goodwill, net of accumulated amortization (2000, $420; 1999, $352)................     1,043          1,327
     Deferred charges, net of accumulated amortization (2000, $1,366; 1999, $1,569)....       294            271
     Marketable securities.............................................................       343            307
     Deferred income taxes.............................................................       266             99
     Other.............................................................................       227            418
                                                                                       ----------      ---------
       Total other assets..............................................................     2,173          2,422
                                                                                       ----------      ---------

Total assets...........................................................................$   83,285      $  77,181
                                                                                       ==========      =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Letters of credit payable...........................................................$    3,481       $    2,282
   Notes payable.......................................................................     2,596            1,928
   Current portion of long-term debt and capital lease obligations.....................       204              375
   Accounts payable....................................................................     3,173            3,615
   Accrued expenses....................................................................     6,465            7,203
                                                                                       ----------       ----------
     Total current liabilities.........................................................    15,919           15,403
                                                                                       ----------       ----------

Long-term obligations:
     Long-term debt, net of current portion............................................        --               20
   Capital lease obligations, net of current portion ..................................        34              272
   Deferred income taxes...............................................................     2,140            2,045
   Other long-term obligations.........................................................       187              171
                                                                                       ----------       ----------
     Total long-term obligations.......................................................     2,361            2,508
                                                                                       ----------       ----------
Commitments and contingencies..........................................................        --               --

Minority interest in consolidated subsidiaries.........................................       385              308
                                                                                       ----------       ----------

Stockholders' equity:
   Preferred stock, $1.00 par; authorized 500,000 shares; none issued..................        --               --

   Common stock:
      Class A, $.333 par; authorized 20,000,000 shares
     (issued 2000, 2,711,127 and 1999, 2,711,127)......................................       904              904
      Class B, $.333 par; authorized 20,000,000 shares
     (issued 2000, 4,019,469 and 1999, 3,955,309)......................................     1,340            1,318
   Additional paid-in capital..........................................................    17,112           16,815
   Retained earnings...................................................................    51,642           42,679
   Accumulated other comprehensive income..............................................      (792)            (564)
                                                                                       -----------      -----------
                                                                                           70,206           61,152
                                                                                       ----------       ----------
  Less:
   Common stock held in treasury, at cost (2000, 646,500 shares; 1999, 346,900 shares).    (5,285)          (2,179)
   Notes receivable....................................................................      (296)              --
     Unearned compensation.............................................................        (5)             (11)
                                                                                       -----------      -----------
                                                                                           64,620           58,962
                                                                                       ----------       ----------
Total liabilities and stockholders' equity.............................................$   83,285       $   77,181
                                                                                       ==========       ==========

                 See Notes to Consolidated Financial Statements

</TABLE>
<TABLE>

                         SAUCONY, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
   FOR THE YEARS ENDED JANUARY 5, 2001, DECEMBER 31, 1999 AND JANUARY 1, 1999
<CAPTION>

                      (in thousands, except share amounts)


                                                                            2000           1999          1998
                                                                            ----           ----          ----
                                                                          (53 Weeks)

<S>                                                                      <C>           <C>           <C>
Net sales................................................................$  166,029    $  154,058    $  105,074
Other revenue............................................................       333           633           736
                                                                         ----------    ----------    ----------

Total revenue............................................................   166,362       154,691       105,810
                                                                         ----------    ----------    ----------

Costs and expenses:
   Cost of sales.........................................................   103,876        95,234        67,623
   Selling expenses......................................................    25,602        22,511        17,507
   General and administrative expenses...................................    18,100        18,750        14,939
   Loss on disposition of cycling division...............................     2,661            --            --
                                                                         ----------    ----------    ----------
     Total costs and expenses............................................   150,239       136,495       100,069
                                                                         ----------    ----------    ----------

Operating income.........................................................    16,123        18,196         5,741

Non-operating income (expense):
   Interest, net.........................................................      (626)         (683)         (707)
   Foreign currency gains (losses).......................................       (28)          (88)          124
   Other.................................................................        44           164            80
                                                                         ----------    ----------    ----------

Income before income taxes and minority interest.........................    15,513        17,589         5,238

Provision for income taxes...............................................     6,461         7,194         1,629

Minority interest in income of consolidated subsidiaries.................        89            76            30
                                                                         ----------    ----------    ----------


Net income...............................................................$    8,963    $   10,319    $    3,579
                                                                         ==========    ==========    ==========

Per share amounts:

Net income per common share - basic......................................$     1.45    $     1.64    $     0.57
                                                                         ==========    ==========    ==========

Net income per common share - diluted....................................$     1.41    $     1.57    $     0.56
                                                                         ==========    ==========    ==========

Weighted average common shares and
   equivalents outstanding for diluted EPS...............................     6,341         6,568         6,373
                                                                         ==========    ==========    ==========


                 See Notes to Consolidated Financial Statements

</TABLE>
<TABLE>
                                                 SAUCONY, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                           FOR THE YEARS ENDED JANUARY 5, 2001, DECEMBER 31, 1999 AND JANUARY 1, 1999

                                              (in thousands, except share amounts)
<CAPTION>

                                                                       Additional
                                                       Common Stock      Paid-in   Retained      Treasury Stock
                                                     Class A   Class B   Capital   Earnings    Shares     Amount
                                                     -------   ------- ----------  --------    ------     ------

<S>                                                  <C>      <C>       <C>        <C>         <C>        <C>
Balance, January 2, 1998.............................$  902   $ 1,248   $ 15,652   $28,781     198,400    $(1,054)

Issuance of common stock, stock options exercised ...    --        28        269        --         --         --

Amortization of unearned compensation................    --        --         --        --         --         --

Repurchase of common stock, at cost..................    --        --         --        --     107,000      (611)

Net income...........................................    --        --         --     3,579         --         --

Foreign currency translation adjustments.............    --        --         --        --         --         --
                                                     ------   -------   --------   -------     ------     ------

Balance, January 1, 1999.............................$  902   $ 1,276   $ 15,921   $32,360     305,400    $(1,665)

Issuance of common stock, stock options exercised....     2        42        459        --         --         --

Issuance of non-qualified stock options..............    --        --        113        --         --         --

Tax benefit of non-qualified stock options...........    --        --        322        --         --         --

Amortization of unearned compensation................    --        --         --        --         --         --

Repurchase of common stock, at cost..................    --        --         --        --     41,500       (514)

Net income...........................................    --        --         --    10,319         --         --

Foreign currency translation adjustments.............    --        --         --        --         --         --
                                                     ------   -------   --------   -------     ------     ------

Balance, December 31, 1999...........................$  904   $ 1,318   $ 16,815   $42,679     346,900    $(2,179)

Issuance of common stock, stock options exercised....    --        22        297        --         --         --

Interest income on notes receivable..................    --        --         --        --         --         --

Amortization of unearned compensation................    --        --         --        --         --         --

Repurchase of common stock, at cost..................    --        --         --        --     299,600    (3,106)

Net income...........................................    --        --         --     8,963         --         --

Foreign currency translation adjustments.............    --        --         --        --         --         --
                                                     ------   -------   --------   -------     ------     ------

Balance, January 5, 2001.............................$  904   $ 1,340   $ 17,112   $51,642     646,500    $(5,285)
                                                     ======   =======   ========   =======     =======    ========

                                      See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>

                                              SAUCONY, INC. AND SUBSIDIARIES
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
                        FOR THE YEARS ENDED JANUARY 5, 2001, DECEMBER 31, 1999 AND JANUARY 1, 1999

<CAPTION>
                                           (in thousands, except share amounts)


                                                                                        Accumulated
                                                                                           Other         Total
                                                              Note        Unearned     Comprehensive Stockholders'
                                                           Receivable   Compensation      Income        Equity
                                                           ----------   ------------   ------------- ------------


<S>                                                         <C>          <C>           <C>          <C>
Balance, January 2, 1998....................................       --     $   (40)      $  (417)     $  45,072

Issuance of common stock, stock options exercised...........       --          --            --            297

Amortization of unearned compensation.......................       --          24            --             24

Repurchase of common stock, at cost.........................       --          --            --           (611)

Net income..................................................       --          --            --          3,579

Foreign currency translation adjustments....................       --          --          (111)          (111)
                                                            ---------     -------       --------     ----------

Balance, January 1, 1999....................................       --     $   (16)      $  (528)     $  48,250

Issuance of common stock, stock options exercised...........       --          --            --            503

Issuance of non-qualified stock options ....................       --          --            --            113

Tax benefit of non-qualified stock options..................       --          --            --            322

Amortization of unearned compensation.......................       --           5            --              5

Repurchase of common stock, at cost.........................       --          --            --           (514)

Net income..................................................       --          --            --         10,319

Foreign currency translation adjustments....................       --          --           (36)           (36)
                                                            ---------     -------       --------     ----------

Balance, December 31, 1999..................................       --     $   (11)      $  (564)     $  58,962

Issuance of common stock, stock options exercised...........     (276)         --            --             43

Interest income on notes receivable.........................      (20)         --            --            (20)

Amortization of unearned compensation.......................       --           6            --              6

Repurchase of common stock, at cost.........................       --          --            --         (3,106)

Net income..................................................       --          --            --          8,963

Foreign currency translation adjustments....................       --          --          (228)          (228)
                                                            ---------     -------       --------     ----------

Balance, January 5, 2001....................................$    (296)    $    (5)      $  (792)     $  64,620
                                                            ==========    ========      ========     =========


                                      See Notes to Consolidated Financial Statements

</TABLE>
<TABLE>


                                              SAUCONY, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED JANUARY 5, 2001, DECEMBER 31, 1999 AND JANUARY 1, 1999

<CAPTION>
                                                  (in thousands)


                                                                              2000           1999           1998
                                                                              ----           ----           ----
                                                                           (53 Weeks)
<S>                                                                        <C>            <C>             <C>
Cash flows from operating activities:
   Net income..............................................................$   8,963      $  10,319       $  3,579
Adjustments to reconcile net income to net cash
   provided (used) by operating activities:
     Loss on disposition of cycling division...............................    2,661             --             --
     Depreciation and amortization.........................................    1,958          1,862          1,836
     Provision for bad debt and discounts..................................    5,525          7,151          4,908
     Deferred income tax provision (benefit)...............................      678            (99)           461
     Compensation from stock grants and options............................       --            113             --
     Minority interest in income (loss) of consolidated subsidiaries.......       89             76             30
     Other.................................................................       (6)            45            (17)
Changes in operating  assets and  liabilities,  net of effects of
   acquisitions, dispositions and foreign currency adjustments:
Decrease (increase) in assets:
   Accounts and notes receivable...........................................   (8,599)       (11,508)        (5,718)
   Inventories.............................................................   (6,018)        (4,700)        (7,002)
   Prepaid expenses and other current assets...............................      125            (42)           176
Increase (decrease) in liabilities:
   Letters of credit payable...............................................    1,210            994          1,589
   Accounts payable........................................................     (412)        (1,242)           714
   Accrued expenses........................................................   (1,185)         3,337            977
   Income taxes............................................................     (889)          (801)           944
                                                                           ----------     ----------      --------
Total adjustments..........................................................   (4,863)        (4,814)        (1,102)
                                                                           ----------     ----------      ---------
Net cash provided by operating activities..................................    4,100          5,505          2,477
                                                                           ---------      ---------       --------

Cash flows from investing activities:
   Proceeds from the sale of cycling division..............................    1,350             --             --
   Purchases of property, plant and equipment..............................   (1,669)        (1,661)        (1,257)
   Proceeds from the sale of equipment.....................................       --              3             72
   Change in deferred charges, deposits and other..........................      (30)            (8)            92
   Marketable securities - realized and unrealized (gain) loss.............      (36)          (127)           (31)
   Payments for business acquisitions......................................       --             --           (863)
                                                                           ---------      ---------       ---------
Net cash used by investing activities......................................     (385)        (1,793)        (1,987)
                                                                           ----------     ----------      ---------

Cash flows from financing activities:
   Net short-term borrowings (payments)....................................      335         (5,429)          3,426
   Repayment of long-term debt and capital lease obligations...............     (360)          (375)         (2,364)
   Common stock repurchased................................................   (2,688)          (514)           (611)
   Issuances of common stock, stock option exercises.......................       43            503             297
                                                                           ---------      ---------       ---------
Net cash provided (used) by financing activities...........................   (2,670)        (5,815)            748
Effect of exchange rate changes on cash and cash equivalents...............      178            123            (175)
                                                                           ---------      ---------       ----------
Net increase (decrease) in cash and cash equivalents.......................    1,223         (1,980)          1,063
Cash and cash equivalents at beginning of period...........................    3,515          5,495           4,432
                                                                           ---------      ---------       ---------
Cash and cash equivalents at end of period.................................$   4,738      $   3,515       $   5,495
                                                                           =========      =========       =========


                 See Notes to Consolidated Financial Statements
</TABLE>


                         SAUCONY, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
           For the Years Ended January 5, 2001, December 31, 1999 and
                                 January 1, 1999

                      (in thousands, except share amounts)


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       BUSINESS ACTIVITY

       The  Company  is  an  importer  and  manufacturer  of  a  broad  line  of
       high-performance  athletic  footwear,  athletic  apparel and high-quality
       casual leather footwear.  The Company markets its products principally to
       domestic and international retailers and distributors.

       REPORTING PERIOD

       The  Company's  fiscal year ends on the first Friday  falling on or after
       December  31,   resulting  in  fiscal  years  of  52  or  53  weeks.  The
       Consolidated  Financial  Statements  and notes  for  2000,  1999 and 1998
       represent the fiscal years ended  January 5, 2001,  December 31, 1999 and
       January 1, 1999,  respectively.  There were 53 weeks in fiscal year 2000.
       In management's opinion, the Consolidated  Financial Statements for 2000,
       1999 and 1998 are comparable.

       PRINCIPLES OF CONSOLIDATION

       The Consolidated  Financial  Statements  include the accounts of Saucony,
       Inc. and all of its majority-owned subsidiaries, domestic and foreign.

       All  significant  intercompany  accounts  and  transactions  have  been
       eliminated in consolidation.

       USE OF ESTIMATES

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities at
       the date of the financial statements and the reported amounts of revenues
       and expenses  during the reporting  period.  Actual  results could differ
       from those estimates.

       RISKS AND UNCERTAINTIES

       Competition  is intense in the  markets  in which the  Company  sells its
       products.  The Company  competes with a large number of other  companies,
       both  domestic and  foreign,  several of which have  diversified  product
       lines,  well-known  brands  and  financial,  distribution  and  marketing
       resources  substantially  greater  than the  Company's.  Other  risks and
       uncertainties which could have a material adverse effect on the Company's
       financial condition and results of operations are:

|X|    The Company is substantially  dependent upon foreign manufacturers to
       supply  products and product  components.  During fiscal 2000, one of
       the   Company's   suppliers,   located   in  China,   accounted   for
       approximately 51% of the Company's total footwear purchases by dollar
       volume;
|X|    The Company is dependent  upon certain key  customers.  During fiscal
       2000,  fiscal 1999 and fiscal 1998, the Company had one customer that
       accounted  for  approximately  14%,  15%  and  13%  of  gross  sales,
       respectively;
|X|    The footwear and apparel industries in which the Company competes are
       subject to rapid changes in consumer  preferences and are affected by
       seasonal consumer buying patterns;
|X|    The Company's  revenues and quarterly  operating results may fluctuate;
|X|    The  Company's  revenues  are  subject  to  foreign  currency  exchange
       fluctuation;
|X|    The Company's operating results may be affected by order cancellations;
|X|    The Company is susceptible to the financial  difficulties of retailers;
|X|    The Company's marketing and advertising  programs need to be effective;
|X|    Changes in general economic conditions may adversely affect the Company's
       business.

       See Note 18 for additional disclosure of risks and uncertainties.

       REVENUE RECOGNITION

       Sales, net of discounts and estimated returns and allowances, and related
       costs of sales are recognized when title and all the rewards and risks of
       loss have been  transferred to the buyer and all the criteria for revenue
       recognition are met. Provisions for returns and allowances are determined
       on the basis of past experience and other factors.

       CASH AND CASH EQUIVALENTS

       Cash  equivalents  include  all  short-term  deposits  with  an  original
       maturity of three months or less.

       INVENTORIES

       Inventories  are  stated at lower of cost or market.  Cost is  determined
       using the first-in, first-out (FIFO) method.

       PROPERTY, PLANT AND EQUIPMENT

       Land,  buildings and equipment,  including  significant  improvements  to
       existing  facilities,  are at the  lower  of cost or  estimated  carrying
       values.  The assets are depreciated  over their estimated useful lives or
       lease terms, if shorter,  using the straight-line  method.  The estimated
       useful lives of the assets are: 33 years for buildings  and  improvements
       and 3 to 15  years  for  machinery  and  equipment.  Major  renewals  and
       betterments  are  capitalized.  Maintenance,  repairs and minor  property
       renewals  are  expensed as  incurred.  The cost and  related  accumulated
       depreciation  of all property,  plant and equipment  retired or otherwise
       disposed of are removed  from the  accounts.  Any gain or loss  resulting
       from the retirement or  disposition  of property,  plant and equipment is
       included in other non-operating income.

       INVESTMENTS IN MARKETABLE SECURITIES

       Investments  in  marketable   securities   are   categorized  as  trading
       securities  which are reported at fair value,  with changes in fair value
       recorded  in  consolidated  net income.  The  marketable  securities  are
       included  in other  assets,  because  the  Company  intends to hold these
       investments until certain deferred compensation payments are due.

       DEFERRED CHARGES AND GOODWILL

       Deferred charges consist primarily of acquired trademarks. Trademarks are
       amortized  over five  years;  goodwill,  representing  the  excess of the
       purchase  price  over the  estimated  fair value of the net assets of the
       acquired business, is being amortized over the period of expected benefit
       of 15 years.

       INCOME TAXES

       The provision  for income taxes is  calculated  according to Statement of
       Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
       Taxes." Under SFAS 109, income taxes are provided for the amount of taxes
       payable or refundable in the current year and for the expected future tax
       consequences  of  events  that  have  been  recognized  in the  financial
       statements or tax returns.  As a result of  recognition  and  measurement
       differences  between  tax  laws  and  financial   accounting   standards,
       temporary  differences  arise  between  the amount of taxable  income and
       pretax  financial  income  for a year  and the tax  bases  of  assets  or
       liabilities  and their reported amount in the financial  statements.  The
       deferred  tax assets and  liabilities  reported as of January 5, 2001 and
       December 31, 1999 reflect the estimated  future tax effects  attributable
       to temporary  differences  and  carryforwards  based on the provisions of
       enacted tax law.

       EARNINGS PER SHARE

       Earnings per common share is calculated in accordance  with  Statement of
       Financial  Accounting  Standards No. 128 "Earnings Per Share" (SFAS 128).
       Basic  earnings per share  excludes  the  dilutive  effect of options and
       warrants.  Diluted  earnings per share  includes  the dilutive  effect of
       options and warrants.

       STOCK-BASED COMPENSATION

       The Company grants stock options to officers,  key employees,  directors,
       consultants  and  advisors  with the  exercise  price  determined  by the
       Compensation  Committee of the Board of Directors.  The Company  accounts
       for stock option grants in accordance  with Accounting  Principles  Board
       Opinion No. 25, "Accounting for Stock Issued to Employees," which defines
       stock  compensation  as the  excess  of the  quoted  market  price of the
       Company's  stock at the date of the  grant  over  the  exercise  price an
       employee is required to pay.

       On April 3, 2000, the Financial  Accounting  Standards  Board issued FASB
       Interpretation  No. 44  "Accounting  for Certain  Transactions  Involving
       Stock  Compensation"  (FIN 44), an  interpretation of APB Opinion No. 25.
       FIN 44 is effective July 1, 2000; however, the interpretation  applies to
       certain  events that occur after  December  15, 1998 or January 12, 2000,
       but before July 1, 2000. FIN 44 addresses and defines the scope of APB 25
       with  respect to awards of stock or options to  independent  contractors,
       clarifies  the  definition of an employee for purposes of applying APB 25
       to include  non-employee  board members,  clarifies the criteria for plan
       qualification  as a  non-compensatory  plan and provides  guidance on the
       accounting  consequences  of  modifications  to the  terms of  previously
       issued  fixed  stock  options or awards.  The  Company  adopted FIN 44 in
       fiscal  2000,  the initial  application  of which did not have a material
       effect on earnings or on the Company's financial position.  As prescribed
       under SFAS 123,  "Accounting for Stock-Based  Compensation,"  the Company
       has  disclosed in Notes 11 and 12 the pro forma effects on net income and
       earnings per share of determining stock-based  compensation expense based
       upon the fair value of the stock options  granted  subsequent to December
       31, 1994.

       DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

       In June 1998, the Financial  Accounting  Standards Board issued Statement
       of Financial  Accounting  Standards No. 133,  "Accounting  for Derivative
       Instruments and Hedging  Activities"  (SFAS 133) (as amended by Statement
       of Financial  Accounting  Standards  No. 137, a deferral of the effective
       date of SFAS 133 (SFAS 137)),  which is effective for fiscal  quarters of
       fiscal  years  commencing  after  June  15,  2000,  with  early  adoption
       permitted.  SFAS 133 defines the accounting  for derivative  instruments,
       including certain derivative  instruments embedded in other contracts and
       hedging  activities.  Upon adoption of SFAS 133, all derivatives  must be
       recognized on the balance sheet at their then fair value and any deferred
       gains  or  losses   remaining  on  the  balance   sheet  under   previous
       hedge-accounting  rules must be removed  from the balance  sheet.  In the
       period  of  adoption,  the  transition  adjustments  may  affect  current
       earnings and other  comprehensive  income. SFAS 133 requires companies to
       recognize  adjustments  to the  fair  value of  derivatives  that are not
       hedges  currently  in earnings  when they  occur.  For  derivatives  that
       qualify as hedges,  changes in the fair value of the  derivatives  can be
       recognized  currently in earnings,  along with an  offsetting  adjustment
       against the basis of the  underlying  hedged item,  or can be deferred in
       other  comprehensive  income,  depending on the currency  exposure of the
       underlying transaction.

       From time to time,  the Company  enters  into  forward  foreign  currency
       exchange   contracts  to  hedge  certain  foreign  currency   denominated
       payables.  Gains and losses on forward exchange contracts that qualify as
       hedges have been  recognized  in  consolidated  net income  along with an
       offsetting adjustment against the basis of the underlying hedged item.

       The Company's forward currency  contracts  qualified for hedge accounting
       under  generally  accepted  accounting  principles  prior  to  SFAS  133;
       however,  upon adoption of SFAS 133, the Company has not designated these
       contracts as qualifying for hedge  accounting as defined by SFAS 133. The
       Company believes that these contracts  economically function as effective
       hedges of the underlying exposures,  but, due to the short term nature of
       the contracts,  the Company has not elected to designate  these contracts
       as hedges for accounting purposes.

       The Company adopted SFAS 133 on January 6, 2001. As a result, the Company
       recorded  an  approximately  $15  increase  in  the  fair  value  of  its
       derivatives as a cumulative effect of an accounting change on accumulated
       other comprehensive  income. These amounts will be recognized in earnings
       when the underlying transactions are recorded.

       ADVERTISING AND PROMOTION

       Advertising and promotion costs,  including print media production costs,
       are expensed as incurred, with the exception of co-operative advertising,
       which is accrued  and the  advertising  costs  expensed  in the period of
       revenue  recognition.  Advertising  and  promotion  expense  amounted  to
       $12,904, $10,065 and $7,912 for 2000, 1999 and 1998, respectively.

       RESEARCH AND DEVELOPMENT EXPENSES

       Expenditures  for  research and  development  of products are expensed as
       incurred.  Research and development  expenses  amounted to  approximately
       $1,083, $1,676 and $1,681 for 2000, 1999 and 1998, respectively.

       RELATED PARTY TRANSACTIONS

       At  January  5,  2001,   the  Company   held  notes  of  $169  and  $127,
       respectively,  from two  officers of the  Company who are also  principal
       shareholders of the Company's Class A Common Stock. The notes,  which are
       included as a component  of  stockholders'  equity,  are due on March 17,
       2002,  are not  collateralized  and  bear  interest  at 9.0%  per  annum.
       Interest  income  from  the two  notes  amounted  to $20 for  2000 and is
       included in notes receivable as of January 5, 2001.

2.     MARKETABLE SECURITIES:
       ---------------------

       As of January 5, 2001,  the Company's  holdings in marketable  securities
       consisted  primarily of equity securities which are classified as trading
       securities.

       The cost of the securities held at January 5, 2001, and December 31, 1999
       was $218 and $133,  respectively.  As of January 5, 2001 and December 31,
       1999,   the  market  value  of  such   securities   was  $343  and  $307,
       respectively.

       Included in the  determination  of net income for the years ended January
       5, 2001,  December 31, 1999 and January 1, 1999 were:  2000, net realized
       gains of $86 and unrealized losses of $50; 1999, net realized gains of $1
       and net unrealized gains of $127; and 1998, net realized losses of $3 and
       net unrealized gains of $35.

3.     INVENTORIES:

       Inventories  at January 5, 2001 and  December  31, 1999  consisted of the
       following:

                                                    2000                1999
                                                    ----                ----

         Finished goods..........................$ 31,529            $ 30,067
         Work-in-process.........................     827                 920
         Raw materials and supplies..............   6,048               4,283
                                                 --------            --------

         Total...................................$ 38,404            $ 35,270
                                                 ========            ========

4.     PROPERTY, PLANT AND EQUIPMENT:
       -----------------------------

       Major  classes  of property,  plant  and equipment at January 5, 2001 and
       December 31, 1999 were as follows:
                                                    2000               1999
                                                    ----               ----

         Land and improvements....................$     598        $      484
         Buildings and improvements...............    6,165             6,186
         Machinery and equipment..................   10,832            10,513
         Capitalized leases.......................    1,666             1,666
         Leasehold improvements...................      533               418
                                                  ---------        ----------
                                                     19,794            19,267
         Less accumulated depreciation
         and amortization.........................   12,213            10,988
                                                  ---------        ----------

         Total....................................$   7,581        $    8,279
                                                  =========        ==========

       Accumulated  amortization  of leased  property  was  $1,331 and $1,133 at
       January 5, 2001 and December 31, 1999, respectively.


5.     ACCRUED EXPENSES:

       Accrued expenses at January 5, 2001 and December 31, 1999 consisted of
       the following:
                                                         2000          1999
                                                         ----          ----

             Payroll and bonuses......................$  2,460     $   2,734
             Sales commissions........................     508           282
             Selling and advertising..................     287           567
             Other....................................   3,210         3,620
                                                      --------     ---------
             Total....................................$  6,465     $   7,203
                                                      ========     =========


6.     LONG-TERM DEBT:

       The Company  had two notes with  monthly  installments  of $0.6 and $0.7,
       respectively as of December 31, 1999. In fiscal 2000, the notes were paid
       in full. The notes had interest  rates ranging from 3.9% to 10.0%.  As of
       December 31, 1999, the  outstanding  balance was $31. The current portion
       of the long-term debt was $11 as of December 31, 1999. The Company had no
       long-term debt as of January 5, 2001.


7.     CAPITAL LEASE OBLIGATIONS:

       The  following is a schedule by years of future  minimum  lease  payments
       under capital  leases  together with the present value of the net minimum
       lease payments as of January 5, 2001:

           2001.......................................................$     219
           2002.......................................................       25
           2003.......................................................        6
                                                                      ---------
           Total minimum lease payments...............................      250
           Less amounts representing interest.........................       12
                                                                      ---------
           Present value of minimum lease payments....................      238
           Less current portion.......................................      204
                                                                      ---------
           Long-term portion..........................................$      34
                                                                      =========


8.     EMPLOYEE RETIREMENT PLANS:

       The Company has maintained a qualified  retirement  savings plan ("401(k)
       Plan") since 1991.  All United  States  employees of the Company who meet
       the minimum age and service  requirements  are eligible to participate in
       the  401(k)  Plan,  as  amended.   The  Company  may  make  discretionary
       contributions  to the 401(k)  Plan equal to a certain  percentage  of the
       participating  employees'  contributions,   subject  to  the  limitations
       imposed by the 401(k) Plan and the Internal  Revenue Code.  The Company's
       contributions  amounted  to $211,  $121 and $72 for 2000,  1999 and 1998,
       respectively.

       In 1995, the Company established a deferred  compensation program ("DCP")
       to  provide  key  executives  and  highly   compensated   employees  with
       supplemental  retirement  benefits.  Eligibility  is  determined  by  the
       Company's Board of Directors.  The DCP is not qualified under Section 401
       of  the  Internal  Revenue  Code.  The  Company  may  make  discretionary
       contributions   to  the  DCP  equal  to  a  certain   percentage  of  the
       participants' contributions. The Company's contributions amounted to $18,
       $31 and $14 for 2000, 1999 and 1998, respectively.


9.     COMMITMENTS AND CONTINGENCIES:
       -----------------------------

       OPERATING LEASE COMMITMENTS

       The Company is obligated under various operating leases for equipment and
       rental space through 2010.  Total equipment and rental expenses for 2000,
       1999 and 1998 were $1,261,  $903 and $959,  respectively.  Future minimum
       equipment and rental payments are as follows:  2001, $1,127;  2002, $940;
       2003, $791; 2004, $711; and thereafter, $862.

       SHORT-TERM BORROWING ARRANGEMENTS

       On August 31, 1998, the Company entered into a revolving credit agreement
       under  the  terms of which a bank  committed  a  maximum  credit  line of
       $15,000 to the Company  for cash  borrowings  and letters of credit.  The
       credit  facility  was amended and  increased on March 12, 1999 to $20,000
       and was  increased  on May 23, 2000 to $30,000 for the period from May 1,
       2000 through  September  30, 2000.  The facility  terminates  on July 31,
       2001.  The Company  expects to negotiate  and extend the  facility,  or a
       similar facility, under comparable terms and conditions. Borrowings under
       the facility  bear  interest at either the bank's prime rate of interest,
       less 1.0%, or at the LIBO rate, plus 1.5%. In addition,  the Company pays
       a quarterly  commitment  fee of 0.375% on the average daily unused credit
       line. The credit facility contains  restrictions and financial  covenants
       including:  restrictions on additional indebtedness,  restrictions on the
       declaration or payment of dividends and the repurchase of common stock, a
       minimum  tangible net worth,  as defined,  restrictions on annual capital
       expenditures,  a minimum  current ratio, as defined,  a minimum  leverage
       ratio and a minimum interest coverage, as defined. The credit facility is
       subject to the bank's periodic review of the Company's operations.

       The Company was in compliance  with such covenants at January 5, 2001. At
       January 5, 2001, there were no borrowings  outstanding under the facility
       and there were letters of credit outstanding of $4,004.

       On March 25,  1998,  the  Company's  primary  lender  and  several of the
       Company's foreign subsidiaries entered into demand lines of credit letter
       agreements to provide working capital  resources.  Demand lines of credit
       were made  available  as  follows:  Saucony  Sports  BV,  Dutch  Guilders
       3,500,000  and Saucony UK, Inc.,  British  Pounds  800,000.  The lines of
       credit are not  committed  facilities,  therefore,  the  availability  of
       advances  under  the lines of credit  are at the sole  discretion  of the
       bank. At January 5, 2001,  aggregate borrowings under the demand lines of
       credit amounted to $2,163.

       Saucony Canada,  Inc. maintains a credit facility with a Canadian lender.
       The  agreement  provides  Saucony  Canada  with a credit line of Canadian
       Dollars  1,000,000 for cash borrowings and letters of credit.  At January
       5, 2001, there were no borrowings or letters of credit  outstanding under
       this credit facility.

       EMPLOYMENT AGREEMENTS

       During fiscal 2000, the Company entered into  employment  agreements with
       two  key  executives.  The  employment  agreements  provide  for  minimum
       aggregate  annual base  salaries of $925 in fiscal 2000,  consumer  price
       index adjustments,  life insurance coverage, cash bonuses calculated as a
       percentage  of  the  Company's  consolidated  pre-tax  income  and  other
       perquisites commonly found in such agreements.  The employment agreements
       expire in August  2003,  but are  subject to  extension.  The Company has
       included an aggregate  bonus expense to the key executives of $853 in its
       general  and  administrative  expenses  for  fiscal  2001 and in  accrued
       expenses at January 5, 2001.

       LITIGATION

       The  Company is involved in various  routine  litigation  incident to its
       business.  Many of these  proceedings  are covered in whole or in part by
       insurance. In management's opinion, none of these proceedings is expected
       to have a material  adverse effect on the Company's  financial  position,
       operations  or  cash  flows  (irrespective  of  any  potential  insurance
       recovery).


10.    COMMON STOCK:
       ------------

       The Company has two classes of Common Stock. The Class A Common Stock has
       voting  rights.  The  Class B Common  Stock is  non-voting,  except  with
       respect to  amendments  to the Company's  Articles of  Organization  that
       alter or change the powers,  preferences or special rights of the Class B
       Common Stock so as to affect them adversely and as otherwise  required by
       law. The Class B Common Stock has certain features,  including a "Class B
       Protection"  feature  and a  premium  equal to 110% of the cash  dividend
       payable on Class A Common Stock,  if any,  which are intended to minimize
       the  economic  reasons for the Class A Common Stock to trade at a premium
       compared  to the Class B Common  Stock.  The  other  terms of the Class A
       Common Stock and Class B Common Stock,  including  rights with respect to
       special cash  dividends,  stock  dividends,  stock splits,  consideration
       payable in a merger or consolidation and distributions  upon liquidation,
       generally are the same.

       As of January 5, 2001,  December 31, 1999 and January 1, 1999, the number
       of shares of Class A Common  Stock and Class B Common  Stock  outstanding
       were as follows:

                                                      Class A         Class B
                                                      Common          Common
                                                       Stock           Stock

        Shares outstanding at January 2, 1998.......  2,703,227       3,548,087
        Shares issued...............................        800          83,318
        Shares repurchased..........................    (25,000)        (82,000)
                                                    ------------    ------------
        Shares outstanding at January 1, 1999.......  2,679,027       3,549,405
        Shares issued...............................      4,100         128,504
        Shares repurchased..........................    (15,000)        (26,500)
                                                    ------------    ------------
        Shares outstanding at December 31, 1999.....  2,668,127       3,651,409
                                                    ------------    ------------
        Shares issued...............................         --          64,160
        Shares repurchased..........................    (98,000)       (201,600)
                                                    ------------    ------------
        Shares outstanding at January 5, 2001.......  2,570,127       3,513,969
                                                    ===========     ===========


11.    STOCK OPTIONS:
       -------------

       Under the Company's  1993 Equity  Incentive  Plan (the "Equity  Incentive
       Plan") the Company may grant incentive stock options and restricted stock
       awards to officers,  key employees and Directors of the Company.  Outside
       consultants   and  advisors  to  the  Company  are  eligible  to  receive
       non-statutory stock options and awards of restricted stock.

       The Equity Incentive Plan is administered by the  Compensation  Committee
       of the Board of Directors, which, at its sole discretion,  grants options
       to purchase shares of Common Stock and makes awards of restricted  stock.
       The purchase  price per share of Common Stock shall be  determined by the
       Board of  Directors,  provided,  however,  that in the case of  incentive
       stock  options,  the purchase price may not be less than 100% of the fair
       market value of such stock at the time of grant of the option.  The terms
       of option agreements are established by the Board of Directors, except in
       the case of incentive stock options, the term of which may not exceed ten
       years.  The vesting schedule is subject to the discretion of the Board of
       Directors.

       Restricted  stock awards granted under the Equity  Incentive Plan entitle
       recipients to purchase  shares of the  Company's  Common Stock subject to
       restrictions  concerning the sale,  transfer and other disposition of the
       shares  issued  until such  shares  are  vested.  The Board of  Directors
       determines  the  purchase  price,  which may be less than the fair market
       value of the Common Stock, and the vesting schedule for such awards.

       At January 5, 2001, a total of 1,900,000  shares,  in the  aggregate,  of
       Class A Common Stock and Class B Common  Stock have been  reserved by the
       Company and may be issued under the Plan.

       The  Director  Stock  Option Plan  provides  for the  automatic  grant to
       non-employee  directors of  non-statutory  stock  options upon  specified
       occasions.  A total of 100,000  shares of Class B Common  Stock have been
       reserved for issuance under the plan. The option purchase price per share
       equals the fair market  value of Class B Common  Stock on the date of the
       grant.  The options  are  exercisable  at any time,  in whole or in part,
       prior to the  fifth  anniversary  of the date of the  grant.  No  further
       options  may be granted  under the  Director  Stock  Option  Plan,  which
       expired in 1998. The remaining  62,000 shares reserved under the Plan are
       no longer available for grant.

       The following table  summarizes the awards  available for grant under the
       Company's  1993 Equity  Incentive Plan and the Director Stock Option Plan
       for the three-year reporting period ended January 5, 2001:

                                                                      Shares

         Shares available at January 2, 1998......................    683,854
         Awards granted...........................................    (18,750)
         Options expired..........................................     26,666
         Director Stock Option Plan expiration....................    (62,000)
                                                                    ----------
         Shares available at January 1, 1999......................    629,770
         Awards granted...........................................   (346,575)
         Options expired or cancelled.............................     56,265
                                                                    ---------
         Shares available at December 31, 1999....................    339,460
         Additional shares reserved...............................    750,000
         Awards granted...........................................   (239,847)
         Options expired or cancelled.............................     21,300
                                                                    ---------
         Shares available at January 5, 2001......................    870,913
                                                                    =========

       Statement of Financial  Accounting  Standards  No. 123,  "Accounting  for
       Stock-Based  Compensation" (SFAS 123), encourages,  but does not require,
       companies  to  record   compensation   cost  for   stock-based   employee
       compensation  plans at fair value. The Company has elected to continue to
       measure stock-based compensation expense using the intrinsic value method
       prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
       Stock  Issued  to   Employees,"   as  further   interpreted  by  FIN  44.
       Accordingly,  compensation  cost for stock options and  restricted  stock
       awards is measured as the excess,  if any, of the quoted  market price of
       the Company's  stock at the date of the grant over the exercise  price an
       employee must pay to acquire the stock.

       The Company amortizes stock-based  compensation arising from the issuance
       of restricted stock warrants and below market options, is being amortized
       to expense over the vesting  period of the stock grant or option term and
       amounted to $6, $5 and $24 for 2000, 1999 and 1998, respectively.

       The following table  summarizes the Company's stock option activity as of
       January 1, 1999, December 31, 1999 and January 5, 2001:

<TABLE>
<CAPTION>
                                                                                  Weighted
                                                                                   Average
                                                                                  Exercise            Option
                                                                Shares              Price           Price Range
                                                               --------          ----------    --------------------

<S>                                                            <C>              <C>           <C>
           Outstanding at January 2, 1998.....................   426,618         $  4.32       $  2.00   - $  12.25

                Granted.......................................    18,750         $  5.05       $  4.44   - $   6.50
                Exercised.....................................   (84,118)        $  3.52       $  2.25   - $   5.00
                Forfeited.....................................    (3,266)        $  3.27       $  2.50   - $   5.00
                Expired.......................................   (23,400)        $  8.46       $  3.69   - $  12.25
                                                              -----------

           Outstanding at January 1, 1999.....................   334,584         $  4.28       $  2.00   - $   6.50

                Granted.......................................   346,575         $  9.81       $  4.13   - $  22.63
                Exercised.....................................  (132,604)        $  3.79       $  2.00   - $   6.50
                Forfeited.....................................   (42,265)        $  8.00       $  4.44   - $  23.63
                Expired.......................................    (4,000)        $  5.75       $  5.75
                Cancelled.....................................   (14,000)        $  5.13       $  4.75   - $   5.63
                                                              -----------

           Outstanding at December 31, 1999...................   488,290         $  7.99       $  4.00   - $  23.63

                Granted.......................................   239,847         $ 11.75       $  9.88   - $  14.25
                Exercised.....................................   (64,160)        $  4.73       $  4.00   - $   6.50
                Forfeited.....................................   (25,300)        $ 12.91       $  4.88   - $  23.63
                                                              -----------

           Outstanding at January 5, 2001.....................   638,677         $  9.59       $  4.00   - $  19.88
                                                              ==========         =======       =======     ========

</TABLE>

       Options  exercisable  for  shares  of the  Company's  Class A and Class B
       Common Stock as of January 1, 1999, December 31, 1999 and January 5, 2001
       are as follows:

<TABLE>

                                                                 Options Exercisable
                                       -----------------------------------------------------------------------
<CAPTION>

                                                                                          Weighted Average
                                                                                           Exercise Price
                                         Class A         Class B                       Class A        Class B
                                         Common          Common                        Common         Common
                                          Stock           Stock          Total          Stock          Stock
                                          -----           -----          -----          -----          -----

<S>                                        <C>           <C>             <C>          <C>           <C>
          January 1, 1999................  4,100         224,054         228,154      $  2.27       $   4.22
          December 31, 1999..............     --         203,220         203,220        --          $   5.88
          January 5, 2001................     --         232,090         232,090        --          $   7.89

</TABLE>

     The following table summarizes  information about stock options outstanding
     at January 5, 2001:

<TABLE>
<CAPTION>
                                                   Options Outstanding                      Options Exercisable
                                      ---------------------------------------------     ----------------------------
                                                          Weighted
                                            Shares         Average       Weighted           Shares         Weighted
                                          Outstanding     Remaining       Average         Exercisable       Average
                     Range of                 at         Contractual     Exercise             at           Exercise
                  Exercise Prices          01/05/01     Life (Years)       Price           01/05/01          Price
                  ---------------          --------     ------------     --------         -----------      ---------

<S>           <C>                          <C>              <C>          <C>                 <C>           <C>
              $  4.00   - $  4.88          109,390          1.69         $  4.43             75,570        $  4.42
              $  5.00   - $  5.64          152,540          2.78         $  5.25             76,020        $  5.20
              $  6.00   - $  7.00            1,900          2.84         $  6.47                750        $  6.30
              $  9.88   - $ 10.38            2,750          4.51         $ 10.18                 --        $    --
              $ 11.00   - $ 11.38          155,500          7.64         $ 11.26             30,000        $ 11.25
              $ 12.13   - $ 13.44          109,847          3.75         $ 12.42              1,200        $ 12.59
              $ 14.25   - $ 14.69           45,500          3.78         $ 14.68             30,967        $ 14.69
              $ 16.16   - $ 17.75           60,250          3.80         $ 16.53             17,383        $ 16.42
              $ 19.88                        1,000          3.58         $ 19.88                200        $ 19.88
                                          --------                                         --------
                                           638,677                                          232,090
                                          ========                                         ========
</TABLE>


12.    EARNINGS PER SHARE

       The  following  table sets forth the  computation  of basic  earnings per
       common share and diluted earnings per common share:
<TABLE>
<CAPTION>

                                                    2000                       1999                      1998
                                           ----------------------     ----------------------    ----------------------
                                            Earnings     Earnings     Earnings     Earnings     Earnings      Earnings
                                               per          per          per          per          per           per
                                             Common       Common       Common       Common       Common        Common
                                             Share -     Share -       Share -      Share -      Share -       Share -
                                              Basic       Diluted       Basic       Diluted       Basic        Diluted
                                              -----       -------       -----       -------       -----        -------

<S>                                        <C>          <C>           <C>          <C>          <C>          <C>
       Net income available for
         common shares and
         assumed conversions...............$  8,963     $  8,963      $10,319      $10,319      $  3,579     $  3,579
                                           ========     ========      =======      =======      ========     ========

       Weighted-average common shares and equivalents outstanding:

         Weighted-average shares
          outstanding......................   6,192        6,192        6,292        6,292         6,242        6,242

         Effect of dilutive securities:
          Stock options....................      --          149           --          276            --          131
                                           --------     --------      -------      -------      --------     --------
                                              6,192        6,341        6,292        6,568         6,242        6,373
                                           ========     ========      =======      =======      ========     ========
       Earnings per share:
         Net income........................$   1.45     $   1.41      $  1.64      $  1.57      $  0.57      $   0.56
                                           ========     ========      =======      =======      =======      ========

</TABLE>

       Options to  purchase  375,000  and  112,000  shares of common  stock were
       outstanding  at  January  5, 2001 and  December  31,  1999,  but were not
       included in the computations of EPS since the options were anti-dilutive.
       There were no anti-dilutive options outstanding at January 1, 1999.

       The weighted  average fair value at date of grant for options  granted in
       2000, 1999 and 1998 was $6.45, $4.91 and $2.30 per option,  respectively.
       The weighted-average fair value of these options at the date of grant was
       estimated using the Black-Scholes option-pricing model with the following
       weighted-average  assumptions  for  2000,  1999 and  1998,  respectively:
       risk-free  interest rates of 6.5%, 5.5% and 5.6%;  dividend yields of 0%,
       0% and  0%;  volatility  factors  of the  expected  market  price  of the
       Company's common stock of 70.0%,  62.3% and 42.9%; and a weighted-average
       expected life of the options of 3.7, 3.5 and 5.0 years.

       Had the Company determined the stock-based  compensation  expense for the
       Company's  stock  options based upon the fair value at the grant date for
       stock  option  awards  in  2000,  1999  and  1998,  consistent  with  the
       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:

<TABLE>
<CAPTION>

                                                   2000                     1999                       1998
                                          ----------------------     ---------------------     ----------------------

                                           Earnings     Earnings     Earnings     Earnings     Earnings     Earnings
                                              per          per          per          per          per          per
                                            Common       Common       Common       Common       Common       Common
                                            Share -     Share -       Share -      Share -      Share -      Share -
                                             Basic       Diluted       Basic       Diluted       Basic       Diluted
                                             -----       -------       -----       -------       -----       -------
<S>                                      <C>          <C>            <C>          <C>          <C>          <C>
       Net income:
         As reported                     $   8,963    $   8,963      $10,319      $10,319      $  3,579     $  3,579
         Compensation expense for
          stock, net of tax                   (535)        (535)        (304)        (304)          (81)         (81)
                                         ----------   ----------     --------     --------     ---------    ---------

       Pro forma net income              $   8,428    $   8,428      $10,015      $10,015         3,498        3,498
                                         =========    =========      =======      =======      ========     ========

       Pro forma earnings per share:
         As reported                     $    1.45    $    1.41      $  1.64      $  1.57      $  0.57      $  0.56
         Compensation expense for
          stock, net of tax                  (0.09)       (0.08)       (0.05)       (0.05)       (0.01)       (0.01)
                                         ----------   ----------     --------     --------     --------     --------


       Pro forma net income per share    $     1.36   $     1.33     $   1.59     $   1.52     $   0.56     $    0.55
                                         ==========   ==========     ========     ========     ========     =========

</TABLE>

       The  Black-Scholes  option  valuation  model  was  developed  for  use in
       estimating  the fair  value  of  traded  options  which  have no  vesting
       restrictions and are fully  transferable.  In addition,  option valuation
       models require the input of highly subjective  assumptions  including the
       expected stock price volatility.

       Because  the  Company's  employee  stock  options  have   characteristics
       significantly  different from those of traded options and because changes
       in the  subjective  assumptions  can  materially  affect  the fair  value
       estimate,  management  believes  the existing  models do not  necessarily
       provide a reliable single measure of the fair value of its employee stock
       options.


13.    INCOME TAXES:

       The  provision  for income taxes was based on pre-tax  income (loss) from
       operations  before minority interest which was subject to taxation by the
       following jurisdictions:

                                       2000             1999            1998
                                       ----             ----            ----
        Pre-tax income:

            United States...........$  14,660        $  15,864        $  3,870
            Foreign.................      853            1,725           1,368
                                    ---------        ---------        --------
            Total...................$  15,513        $  17,589        $  5,238
                                    =========        =========        ========

       The provision (credit) for income taxes consists of the following:

                                       2000            1999             1998
                                       ----            ----             ----
        Current:
            Federal...............$   4,129         $   5,349        $     830
            State.................    1,129             1,511              234
            Foreign...............      525               421              104
                                  ---------         ---------        ---------
                                      5,783             7,281            1,168
                                  ---------         ---------        ---------
        Deferred:
            Federal...............      523              (139)             239
            State.................      132               (47)              90
            Foreign...............      (62)              466              (36)
                                  ----------        ---------        ----------
                                        593               280              293
                                  ----------        ---------        ---------

       Change in valuation
          allowance..............        85              (367)             168
                                  ----------        -----------       ---------
           Total.................$    6,461        $    7,194        $   1,629
                                  ==========        ==========        =========


       The net  deferred  tax asset or  liability  reported on the  consolidated
       balance sheet  consist of the  following  items as of January 5, 2001 and
       December 31, 1999:

                                                               2000       1999
                                                               ----       ----
     Net current deferred tax assets:
       Allowance for doubtful accounts and discounts.........$   522    $ 1,207
       Inventory allowances and tax costing adjustments......    193        338
       Deferred compensation.................................    404        330
       Other accrued expenses................................    297        103
       Unrealized gain on marketable securities..............    (50)       (70)
       Foreign loss carryforwards............................     --        232
                                                             -------    --------
          Total..............................................$ 1,366    $ 2,140
                                                             -------    --------

     Net long-term deferred tax assets:
       Foreign loss carryforwards............................$   449    $   197
       Valuation allowance...................................   (183)       (98)
                                                             --------   --------
          Total..............................................$   266    $    99
                                                             --------   --------

     Net long-term deferred tax liabilities:
       Property, plant and equipment ....................... $   939    $   868
       Investment in limited partnership...................    1,201      1,177
                                                            --------    --------
          Total............................................ $  2,140    $ 2,045
                                                            --------    --------

     Net deferred tax asset (liability).................... $   (508)   $   194
                                                            =========   ========

       The  foreign   loss   carryforwards   relate  to   operating   losses  of
       approximately  $1,224,  which may be  carried  forward  indefinitely.  At
       January 5, 2001, the Company has  determined  that it is more likely than
       not that $183 of the deferred tax assets resulting from foreign operating
       losses will not be realized.

       The Company has not recorded  deferred income taxes on the  undistributed
       earnings of foreign  subsidiaries  that are  indefinitely  reinvested  in
       foreign  operations.  These earnings amounted to approximately  $2,505 at
       January 5, 2001.

       A reconciliation  from the U.S.  statutory federal income tax rate to the
       effective  income  tax rate on  pre-tax  income  from  operations  before
       minority interest follows:
<TABLE>
<CAPTION>

                                                                                    2000         1999        1998
                                                                                    ----         ----        ----

<S>                                                                                <C>          <C>         <C>
         U.S. federal income tax rate...............................................34.0%       34.3%       34.0%
         State income tax, net of federal benefit....................................5.4         5.5         4.8
         Non-deductible expenses and tax-exempt income...............................0.6         1.7         0.4
         International tax rate differences..........................................1.1         1.6        (7.6)
         Detriment (benefit) of valuation allowance relating
           to foreign losses.........................................................0.5        (2.1)        3.2
         Low-income housing tax credits..............................................0.0        (0.1)       (0.7)
         Adjustment of prior years' estimated tax liabilities......................  0.0         0.0        (3.0)
                                                                                   -----       -----       ------

         Effective income tax rate................................................. 41.6%       40.9%       31.1%
                                                                                   ======      ======      ======

</TABLE>

14.    SALE OF CYCLING DIVISION:

       On June 29, 2000,  the Company sold  substantially  all of the assets and
       business  of its  cycling  division,  consisting  of  inventory,  prepaid
       expenses,  equipment and  tradenames,  to QR Merlin  Acquisition  LLC for
       $1,350 in cash and the  assumption of $39 in  liabilities.  In connection
       with the sale, the Company  recorded a pre-tax loss of $2,661,  inclusive
       of $1,012 of expenses  associated with the transaction and resulting from
       the exit of the  cycling  business,  or  $1,553  after-tax  or $0.24  per
       diluted share. As a result of the transaction,  a majority of the cycling
       division  employees  were  severed  and  certain  long-lived  assets used
       exclusively  in the  cycling  business  were  deemed  impaired.  Expenses
       associated with the sale and exit of the cycling division are as follows:



         Transaction costs.............................................$    358

         Costs to exit facility and equipment leases and other
           non-cancelable contractual commitments......................     142

         Employee severance and termination benefits...................     210

         Writeoff leasehold improvements...............................      84

         Writeoff goodwill and other deferred charges..................     218
                                                                       --------

         Total.........................................................$  1,012
                                                                       ========

       Included  in  accrued  expenses  at  January  5,  2001  are $144 of costs
       associated  with the sale and exit of the  cycling  business,  which  the
       Company  expects will be paid by the end of the second  quarter of fiscal
       2001.

       The  non-recurring  charge  affected the United States and Other Products
       segment.

15.    GEOGRAPHIC SEGMENT DATA:
       -----------------------

       The following  table  summarizes  the Company's  operations by geographic
       area for the years ended  January 5, 2001,  December 31, 1999 and January
       1, 1999 and identifiable  assets as of January 5, 2001, December 31, 1999
       and January 1, 1999.
<TABLE>
<CAPTION>

                                                                              2000           1999          1998
                                                                              ----           ----          ----
<S>                                                                      <C>            <C>             <C>
      REVENUES:
         United States...................................................$   144,265    $   135,410     $    83,617
         International...................................................     22,097         19,281          22,193
                                                                         -----------    -----------     -----------
                                                                         $   166,362    $   154,691     $   105,810
                                                                         ===========    ===========     ===========

       INTERNATIONAL REVENUES:
         United States - sales to foreign distributors...................      5,119          3,560     $     4,086
         Foreign subsidiaries............................................     16,978         15,721          18,107
                                                                         -----------    -----------     -----------
                                                                         $    22,097    $    19,281     $    22,193
                                                                         ===========    ===========     ===========

       INTER-AREA REVENUES:
         United States...................................................$       870    $       828     $       629
         International...................................................      9,299          8,442           9,286
                                                                         -----------    -----------     -----------
                                                                         $    10,169    $     9,270     $     9,915
                                                                         ===========    ===========     ===========

       TOTAL REVENUES:
         United States...................................................$   145,135    $   136,238     $    84,246
         International...................................................     31,396         27,723          31,479
         Less:  Inter-area eliminations..................................    (10,169)        (9,270)         (9,915)
                                                                         ------------   ------------    ------------
                                                                         $   166,362    $   154,691     $   105,810
                                                                         ===========    ===========     ===========

       OPERATING INCOME:
         United States...................................................$    13,855    $    16,815     $     6,902
         International...................................................      2,412          1,469          (1,117)
         Less:  Inter-area eliminations..................................       (144)           (88)            (44)
                                                                         ------------   ------------    ------------
                                                                         $    16,123    $    18,196     $     5,741
                                                                         ===========    ===========     ===========

       IDENTIFIABLE ASSETS:
         United States...................................................$    78,130    $    79,288     $    72,677
         International...................................................     13,465         13,078          14,171
         Less:  Inter-area eliminations..................................     (8,310)       (15,185)        (16,969)
                                                                         ------------   ------------    ------------
                                                                         $    83,285    $    77,181     $    69,879
                                                                         ===========    ===========     ===========

</TABLE>

       Revenues  are  classified  based  on  customer  location.  Other  revenue
       consists  primarily of royalty income and freight and handling  income on
       product  shipments.  Inter-area  revenues consist  primarily of inventory
       shipments to the Company's international  subsidiaries.  These inter-area
       sales are generally  priced to recover cost plus an  appropriate  mark-up
       for profit and are eliminated in the  determination  of consolidated  net
       sales.  Operating income consists of revenue, less cost of sales, selling
       expenses, general and administrative expenses and the loss on the sale of
       the cycling division.

16.    OPERATING SEGMENT DATA:

       The Company's  operating  segments are  organized  based on the nature of
       products. The operating segments of the Company are as follows:

       SAUCONY SEGMENT

       Performance running,  walking,  cross training and outdoor trail footwear
       and  multi-sport  and triathlon  athletic  apparel sold under the Saucony
       brand name.

       OTHER PRODUCTS SEGMENT

       The Other Products  segment  aggregates  several  product lines,  none of
       which  individually  meets  the  criteria  as  defined  in SFAS 131 for a
       reportable  segment.  Included in Other  Products are:  Hind  multi-sport
       athletic  apparel;  Spot-bilt  coaches,  official,  leather  walking  and
       workplace footwear; Hyde Authentics casual footwear; the Company's retail
       factory outlet stores; and the Company's former cycling division.

       The following  table  summarizes  the results of the Company's  operating
       segments  for the years  ended  January 5, 2001,  December  31,  1999 and
       January 1, 1999 and identifiable  assets as of January 5, 2001,  December
       31, 1999 and January 1, 1999:

<TABLE>
<CAPTION>
                                                                     2000           1999           1998
                                                                     ----           ----           ----
<S>                                                              <C>             <C>            <C>
           REVENUES:
              Saucony............................................$  145,301      $ 132,275      $   86,651
              Other Products.....................................    21,061         22,416          19,159
                                                                 ----------      ---------      ----------
                                                                 $  166,362      $ 154,691      $  105,810
                                                                 ==========      =========      ==========
           PRE-TAX INCOME:
              Saucony............................................$   18,507      $  18,965      $    5,497
              Other Products.....................................    (2,994)        (1,376)           (259)
                                                                 -----------     ----------     -----------
              Total segment pre-tax income.......................    15,513         17,589           5,238
              Provision for income taxes.........................     6,461          7,194           1,629
              Minority interest..................................        89             76              30
                                                                 ----------      ---------      ----------

           NET INCOME............................................$    8,963      $  10,319      $    3,579
                                                                 ==========      =========      ==========

           ASSETS:
              Saucony............................................$   68,268      $  61,584      $   53,906
              Other Products.....................................    15,017         15,597          15,973
                                                                 ----------      ---------      ----------
                                                                 $   83,285      $  77,181      $   69,879
                                                                 ==========      =========      ==========
           DEPRECIATION AND AMORTIZATION:
              Saucony............................................$    1,701      $   1,516      $    1,606
              Other Products.....................................       257            346             230
                                                                 ----------      ---------      ----------
                                                                 $    1,958      $   1,862      $    1,836
                                                                 ==========      =========      ==========
           INTEREST, NET:
              Saucony............................................$      285      $     228      $      252
              Other Products.....................................       341            455             455
                                                                 ----------      ---------      ----------
                                                                 $      626      $     683      $      707
                                                                 ==========      =========      ==========
           COMPONENTS OF INTEREST, NET
              Interest expense...................................$      695      $     729      $      733
              Interest income....................................        69             46              26
                                                                 ----------      ---------      ----------
                Interest, net....................................$      626      $     683      $      707
                                                                 ==========      =========      ==========
</TABLE>


17.    ACQUISITIONS:

       MERLIN AND REAL DESIGN

       During  fiscal 1998, the Company and Quintana Roo,  Inc., a  wholly-owned
       subsidiary of the Company,  acquired  substantially  all of the assets of
       Merlin Materials, Inc., and Real Product Design, Inc.for $644 and $240 in
       cash, respectively. The acquisitions were accounted for as purchases. See
       Note 14 relating to the sale of the cycling division.


18.    CONCENTRATION OF CREDIT RISK:

       Financial  instruments  which  potentially  subject the Company to credit
       risk consist primarily of cash, cash equivalents and trade receivables.

       The  Company  maintains  cash and cash  equivalents  with  various  major
       financial   institutions.   Cash  equivalents   include   investments  in
       commercial  paper of companies with high credit  ratings,  investments in
       money market securities and securities backed by the U.S. Government.  At
       times such amounts may exceed the F.D.I.C. limits. The Company limits the
       amount of credit exposure with any one financial institution and believes
       that no significant  concentration  of credit risk exists with respect to
       cash investments.

       Trade  receivables  subject the Company to the  potential for credit risk
       with customers in the retail and  distributor  sectors.  To reduce credit
       risk,  the  Company  performs  ongoing   evaluations  of  its  customers'
       financial   condition   but  does  not  generally   require   collateral.
       Approximately  46% of the Company's gross trade  receivables  balance was
       represented by 17 customers at January 5, 2001, which exposes the Company
       to a concentration of credit risk.


19.    FINANCIAL INSTRUMENTS:

       The carrying value of cash, cash equivalents, receivables, long-term debt
       and other notes payable  approximates  fair value.  The Company  believes
       similar terms for current long-term debt and other notes payable would be
       attainable.  The fair value of marketable  securities is estimated  based
       upon quoted market prices for these  securities.  The Company enters into
       forward currency  exchange  contracts to hedge  intercompany  liabilities
       denominated in currencies  other than the functional  currency.  The fair
       value of the Company's foreign currency  exchange  contracts is estimated
       based on current foreign  exchange rates. At January 5, 2001 and December
       31, 1999, the notional value of the Company's  foreign currency  exchange
       contracts  to purchase  U.S.  dollars was $1,100 and $750,  respectively.
       Gains and losses on forward  exchange  contracts  are deferred and offset
       against  foreign  currency  exchange  gains and losses on the  underlying
       hedged item.  At January 5, 2001 and December  31, 1999,  estimated  fair
       value of the Company's  non-derivative financial instruments approximated
       the carrying value.


20.    COMPREHENSIVE INCOME:

       As defined in  Statement  of  Financial  Accounting  Standards  No.  130,
       "Reporting   Comprehensive  Income"  (SFAS  130),   comprehensive  income
       encompasses net income and other components of comprehensive  income that
       are excluded  from net income under U.S.  generally  accepted  accounting
       principles,    comprising   items   previously   reported   directly   in
       stockholders'  equity.  SFAS 130 limits the  excluded  components  to the
       following:  foreign  currency  translation  adjustments,  minimum pension
       liability   adjustments  and  unrealized  gains  and  losses  on  certain
       investments    in   debt   and   equity    investments    classified   as
       available-for-sale securities.

       The following table sets forth  comprehensive  income for the years ended
       January 5, 2001, December 31, 1999, and January 1, 1999:
<TABLE>
<CAPTION>

                                                                         2000           1999            1998
                                                                         ----           ----            ----

<S>                                                                    <C>            <C>            <C>
              Net income...............................................$   8,963      $  10,319      $   3,579

              Other comprehensive income (loss):
                Foreign currency translation adjustments...............$    (228)     $     (36)     $    (111)
                Income tax expense (benefit) related to
                  other comprehensive income (loss)....................      (96)           (30)           (32)
                Reclassification adjustment, net of tax................       --             57             27
                                                                       ---------      ---------      ---------
              Other comprehensive income (loss), net
                of tax.................................................$    (132)     $      51      $     (52)
                                                                       ----------     ---------      ----------

              Comprehensive income.....................................$   8,831      $  10,370      $   3,527
                                                                       =========      =========      =========
</TABLE>


21.    QUARTERLY INFORMATION:
<TABLE>
<CAPTION>
                                                                                   (Unaudited)

              2000                                                Quarter 1  Quarter 2 (1)  Quarter 3  Quarter 4 (2)
              ----                                                ---------  -------------  ---------  -------------

<S>                                                             <C>          <C>          <C>           <C>
              Net sales.........................................$   46,416   $   43,439   $   44,790    $   31,384
              Gross profit......................................    17,346       16,803       17,335        10,669
              Net income........................................     3,208        1,373        3,780           602
              Earnings per share:
                Basic...........................................      0.51         0.22         0.61         0.10
                Diluted.........................................      0.50         0.22         0.60         0.10



              1999                                                Quarter 1    Quarter 2    Quarter 3    Quarter 4
              ----                                                ---------    ---------    ---------    ---------

              Net sales.........................................$   42,406   $   37,706   $   43,454    $   30,492
              Gross profit......................................    15,421       14,137       17,371        11,895
              Net income........................................     3,333        2,257        3,094         1,635
              Earnings per share:
                Basic...........................................      0.54         0.36         0.49         0.26
                Diluted.........................................      0.52         0.34         0.47         0.25

       --------------

         (1)  The Company sold  substantially  all of the assets and business of
              its cycling division during the second quarter of fiscal 2000. See
              Note  14 for  further  information  relating  to the  sale  of the
              cycling division.

         (2)  The fourth quarter of fiscal 2000 consisted of 14 weeks.
</TABLE>


       Earnings  per share  amounts for each quarter are required to be computed
       independently  and,  as a  result,  their  sum may not  equal  the  total
       earnings per share amounts for fiscal 2000 and 1999.

22.    SUPPLEMENTAL CASH FLOW DISCLOSURE

       During 2000,  the Company  purchased  38,500  shares of its common stock,
       with  borrowed  funds,  for $418.  At January 5, 2001 the  borrowing  and
       accrued  interest  thereon of $15 are  included  in notes  payable.  Also
       during 2000, the Company received notes from two officers of the Company,
       aggregating $276, in conjunction with the exercise of options to purchase
       shares of the Company's Class B Common Stock. The notes are included as a
       component of  stockholders'  equity,  are due on March 17, 2002,  are not
       collateralized  and bear interest at 9.0% per annum.  At January 5, 2001,
       the notes amounted to $296 and included $20 of interest income recognized
       in 2000.

       The  following  table  summarizes  additional  disclosure  of  cash  flow
       information  for the years ended  January 5, 2001,  December 31, 1999 and
       January 1, 1999:

<TABLE>
<CAPTION>

                                                                              2000          1999           1998
                                                                              ----          ----           ----
<S>                                                                        <C>            <C>             <C>
         Supplemental disclosure of cash flow information:
           Cash paid during the period for:

              Income taxes, net of refunds.................................$   6,695      $   8,090       $     257
                                                                           =========      =========       =========
              Interest.....................................................$     605      $     688       $     657
                                                                           =========      =========       =========

          Non-cash Investing and Financing Activities:
              Property purchased under capital leases......................       --      $     160       $     141
                                                                           =========      =========       =========



</TABLE>
<TABLE>

                         SAUCONY, INC. AND SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

           For the Years Ended January 5, 2001, December 31, 1999 and
                                January 1, 1999

<CAPTION>
                             (dollars in thousands)



                                                                                  Additions
                                                                     Balance     charged to    Deductions      Balance
                                                                    beginning    costs and        from           end
                                                                    of year        expenses      reserve       of year
                                                                    -------        --------      -------       -------
<S>                                                               <C>            <C>           <C>           <C>
Year ended January 5, 2001:
  Allowance for doubtful accounts and discounts...................$   3,534      $  5,525      $   7,012     $   2,047

Year ended December 31, 1999:
  Allowance for doubtful accounts and discounts...................$   1,880      $  7,151      $   5,497     $   3,534

Year ended January 1, 1999:
  Allowance for doubtful accounts and discounts...................$   2,032      $  4,908      $   5,060     $   1,880

</TABLE>



                                  EXHIBIT INDEX

Exhibit
Number                              Description


3.1       Restated Articles of Organization,  as amended,  of the Registrant are
          incorporated herein by reference to the Registrant's current report on
          Form 8-K dated May 21, 1998. *

3.2       By-Laws,  as amended,  of the  Registrant are  incorporated  herein by
          reference to Exhibit 3.3 to the Registrant's Registration Statement on
          Form S-2, as amended (File No. 33-61040) (the "Form S-2"). *

10.1      Revolving  Credit  Agreement  between the  Registrant and State Street
          Bank  and  Trust   Company,   dated   August  31,  1998  (the  "Credit
          Agreement"),  is  incorporated  herein by reference to Exhibit 10.2 to
          the Registrant's  Quarterly Report on Form 10-Q for the fiscal quarter
          ended October 2, 1998. *

10.2      First  Amendment  dated  March 12,  1999 to the  Credit  Agreement  is
          incorporated  herein by reference to Exhibit 10.2 to the  Registrant's
          Annual  Report on Form 10-K for the fiscal year ended January 1, 1999.
          *

10.3      Second Amendment dated April 20, 1999 to the Credit Agreement.

10.4      Third  Amendment  dated  May  23,  2000  to the  Credit  Agreement  is
          incorporated  by  reference  to  Exhibit  10.1  to  the   Registrant's
          Quarterly  Report on Form 10-Q for the fiscal  quarter  ended June 30,
          2000. *

10.5**    1993 Equity  Incentive Plan,  as amended,  is incorporated  herein by
          reference to Exhibit 10.8 to the  Registrant's  Annual  Report on Form
          10-K for the fiscal year ended January 2, 1998. *

10.6**    Amendment  No. 3 to 1993 Equity  Incentive  Plan,  as  amended,  is
          incorporated  herein by reference to Exhibit 10.5 to the  Registrant's
          Annual  Report on Form 10-K for the  fiscal  year ended  December  31,
          1999. *

10.7**    Amendment  No. 4 to 1993 Equity  Incentive  Plan,  as  amended,  is
          incorporated  by  reference  to  Exhibit  10.1  to  the   Registrant's
          Quarterly  Report on Form 10-Q for the fiscal  quarter  ended June 30,
          2000. *

10.8**    VP Bonus Plan is  incorporated  herein by reference to Exhibit 10.19
          to the Form S-2. *

10.9**    1993  Director  Option Plan is  incorporated  herein by reference to
          Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
          fiscal quarter ended April 2, 1993. *

10.10**   Employment  Agreement  dated as of August 17, 2000, by and between
          the Registrant and John H. Fisher, is incorporated herein by reference
          to Exhibit 10.1 to the Registrant's  Quarterly Report on Form 10-Q for
          the fiscal quarter ended September 29, 2000.   *

10.11**   Executive  Retention  Agreement dated as of August 17, 2000, by and
          between the Registrant and John H. Fisher,  is incorporated  herein by
          reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
          10-Q for the fiscal quarter ended September 29, 2000. *

10.12**   Employment  Agreement  dated as of August 17, 2000, by and between
          the Registrant and Charles A.  Gottesman,  is  incorporated  herein by
          reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
          10-Q for the fiscal quarter ended September 29, 2000. *


10.13**   Executive  Retention  Agreement dated as of August 17, 2000, by and
          between the  Registrant  and  Charles A.  Gottesman,  is  incorporated
          herein by  reference  to Exhibit  10.4 to the  Registrant's  Quarterly
          Report on Form 10-Q for the fiscal quarter ended September 29, 2000. *

21        Subsidiaries of the Registrant.

23.1      Consent of PricewaterhouseCoopers LLP.



--------------------

*    Incorporated herein by reference.

**   Management  contract or  compensatory  plan or  arrangement  filed
     herewith in response to Item 14(a)(3) of the  instructions to Form 10-K.