-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vv70LDfIjfyhdtZlnl7SLqikof0CutMCAwpysEFuYBACTsJrCUm+wgmUM/0IQIVu szgsIgzwS8+fK0w9IPAF0g== 0000950147-00-000148.txt : 20000207 0000950147-00-000148.hdr.sgml : 20000207 ACCESSION NUMBER: 0000950147-00-000148 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELL SPORTS CORP CENTRAL INDEX KEY: 0000884063 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 363671789 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19873 FILM NUMBER: 523809 BUSINESS ADDRESS: STREET 1: 6350 SAN IGNACIO AVENUE STREET 2: STE I-100 CITY: SAN JOSE STATE: CA ZIP: 95119 BUSINESS PHONE: 4085743400 MAIL ADDRESS: STREET 1: 10601 N. HAYDEN ROAD STREET 2: SUITE I-100 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 10-Q 1 QUARTERLY REPORT FOR THE QTR ENDED 1/31/00 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarterly period ended JANUARY 1, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ COMMISSION FILE NUMBER 0-19873 BELL SPORTS CORP. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 36-3671789 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6350 San Ignacio Avenue, San Jose, California 95119 (Address of Principal Executive Offices) (Zip Code) (408) 574-3400 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE REGISTRANTS The number of shares outstanding of each of the registrant's classes of common stock, as of February 3, 2000: Class Number of Shares ----- ---------------- Class A Common Stock, $.01 par value 869,976 Class B Common Stock, $.01 par value 135,650 Class C Common Stock, $.01 par value 45,850 ================================================================================ BELL SPORTS CORP. INDEX TO FORM 10-Q PART I Page Number ----------- Bell Sports Corp. and Subsidiaries Consolidated Balance Sheets as of January 1, 2000 and July 3, 1999 ........................... 3 Bell Sports Corp. and Subsidiaries Consolidated Statements of Operations for the six months and three months ended January 1, 2000 and December 26, 1998 ............................ 4 Bell Sports Corp. and Subsidiaries Consolidated Condensed Statements of Cash Flows for the six months ended January 1, 2000 and December 26, 1998 ............................ 5 Notes to Consolidated Financial Statements ........................ 6 - 11 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................ 12 - 14 PART II Items 1 to 6 ....................................................... 15 Signatures ......................................................... 16 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BELL SPORTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA AND PER SHARE DATA) January 1, July 3, 2000 1999 ----------- ---------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,559 $ 8,875 Accounts receivable 59,830 58,634 Inventories 47,928 43,664 Deferred taxes 10,910 11,366 Other current assets 8,750 6,134 --------- --------- Total current assets 133,977 128,673 Property, plant and equipment 12,897 16,162 Long-term deferred taxes 12,500 12,500 Goodwill 52,028 52,429 Intangibles and other assets 8,772 9,170 --------- --------- Total assets $ 220,174 $ 218,934 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,764 $ 9,249 Accrued compensation and employee benefits 3,327 2,580 Accrued expenses 18,821 31,682 Notes payable and current maturities of long-term debt and capital lease obligations 17,780 10,433 --------- --------- Total current liabilities 54,692 53,944 Long-term debt 149,187 148,270 Capital lease obligations and other liabilities 8,275 10,255 --------- --------- Total liabilities 212,154 212,469 --------- --------- Commitments and contingencies Stockholders' equity: Series A Preferred Stock; 6% cumulative, $.01 par value; authorized 1,500,000 shares, 1,033,957 and 1,034,781 shares issued and outstanding at January 1, 2000 and July 3, 1999, respectively 10 10 Class A Common Stock; $.01 par value; authorized 900,000 shares, 869,976 and 870,661 shares issued and outstanding at January 1, 2000 and July 3, 1999, respectively 9 9 Class B Common Stock; $.01 par value; authorized 150,000 shares, 135,650 and 128,200 shares issued and outstanding at January 1, 2000 and July 3, 1999, respectively 1 1 Class C Common Stock; $.01 par value; authorized 50,000 shares, 45,850 and 50,000 shares issued and outstanding at January 1, 2000 and July 3, 1999, respectively 1 1 Additional paid-in capital 53,235 53,210 Accumulated other comprehensive income (2,267) (1,925) Accumulated deficit (42,969) (44,841) --------- --------- Total stockholders' equity 8,020 6,465 --------- --------- Total liabilities and stockholders' equity $ 220,174 $ 218,934 ========= ========= See accompanying notes to these consolidated financial statements. 3 BELL SPORTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS)
Six Months Ended Three Months Ended -------------------------- -------------------------- January 1, December 26, January 1, December 26, 2000 1998 2000 1998 -------- -------- -------- -------- Net sales $ 97,822 $ 85,939 $ 50,972 $ 45,021 Cost of sales 63,857 57,876 34,121 30,502 -------- -------- -------- -------- Gross profit 33,965 28,063 16,851 14,519 Selling, general and administrative expenses 24,488 23,299 11,832 11,943 Foreign exchange (gain) loss 12 1,949 (3) 330 Amortization of goodwill and intangible assets 1,079 1,061 552 499 Transaction costs -- 12,388 -- 2,505 Net investment income (175) (810) (69) (209) Interest expense 8,421 6,742 4,223 4,204 -------- -------- -------- -------- Income (loss) before income taxes 140 (16,566) 316 (4,753) Provision for (benefit from) income taxes 57 (3,315) 129 (1,949) -------- -------- -------- -------- Income (loss) before extraordinary items 83 (13,251) 187 (2,804) Extraordinary item: Gain on early extinguishment of debt, net of taxes of $2,006 -- 2,887 -- -- -------- -------- -------- -------- Net income (loss) $ 83 $(10,364) $ 187 $ (2,804) ======== ======== ======== ========
See accompanying notes to these consolidated financial statements. 4 BELL SPORTS CORP. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS) Six Months Ended ----------------------- January 1, December 26, 2000 1998 ------- --------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net cash provided by (used in) operating activities $(7,825) $ (3,390) ------- --------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Capital expenditures (1,728) (2,341) Expenditures to acquire intangible assets (557) -- ------- --------- Net cash provided by (used in) investing activities (2,285) (2,341) ------- --------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Proceeds from issuance of senior subordinated notes -- 110,000 Expenditures related to issuance of senior subordinated notes -- (4,700) Proceeds from issuance of senior discount notes -- 15,000 Proceeds from issuance of preferred stock 25 44,555 Repurchase of common stock -- (142,350) Tender of subordinated debentures -- (57,681) Net borrowings (payments) on notes payable, long-term debt and capital leases 279 (918) Net borrowings (payments) on line of credit agreement 7,732 5,404 Expenditures related to issuance of line of credit -- (1,381) ------- --------- Net cash provided by (used in) financing activities 8,036 (32,071) ------- --------- Effect of exchange rate changes on cash (242) (826) ------- --------- Net increase (decrease) in cash and cash equivalents (2,316) (38,628) Cash and cash equivalents at beginning of period 8,875 45,093 ------- --------- Cash and cash equivalents at end of period $ 6,559 $ 6,465 ======= ========= See accompanying notes to these consolidated financial statements 5 BELL SPORTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Bell Sports Corp. and its wholly-owned subsidiaries (collectively, the "Company" or "Bell") is the leading manufacturer and marketer of bicycle helmets worldwide and a leading supplier of a broad line of bicycle accessories in North America. The Company is also a supplier of bicycle accessories worldwide. PRINCIPLES OF CONSOLIDATION AND ACCOUNTING PERIOD The consolidated financial statements include the accounts of Bell Sports Corp. and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The Company's fiscal year is either a fifty-two or fifty-three week accounting period ending on the Saturday that is nearest to the last day of June. The Company's fiscal second quarter in both 2000 and 1999 had thirteen weeks. UNAUDITED INFORMATION AND BASIS OF PRESENTATION The consolidated balance sheet as of January 1, 2000 and statements of operations and of condensed cash flows for all periods included in the accompanying financial statements have not been audited. In the opinion of management these financial statements include all normal and recurring adjustments necessary for a fair presentation of such financial information. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. The financial information included herein has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The interim financial information and the notes thereto should be read in conjunction with the audited financial statements for the fiscal years ended July 3, 1999, June 27, 1998 and June 28, 1997 which are included in the Company's 1999 Annual Report on Form 10-K. ACCOUNTS RECEIVABLE Accounts receivable at January 1, 2000 and July 3, 1999 are net of allowances for doubtful accounts of $1.2 million and $1.8 million, respectively. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at January 1, 2000 and July 3, 1999 are net of accumulated depreciation of $21.3 million and $23.2 million, respectively. MANAGEMENT'S ESTIMATES AND ASSUMPTIONS 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 and disclosure of contingent 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. 6 BELL SPORTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) NOTE 2 - COMPREHENSIVE INCOME Comprehensive income for the periods presented is calculated as follows: Six Months Ended Three Months Ended ------------------------ ------------------------ January 1, December 26, January 1, December 26, 2000 1998 2000 1998 ---- ---- ---- ---- Net income (loss) $ 83 $(10,364) $ 187 $(2,804) Foreign currency translation adjustment, net of tax (342) (552) (284) (831) ----- -------- ----- ------- Comprehensive income (loss) $(259) $(10,916) $(162) $(3,635) ===== ======== ===== ======= NOTE 3 - INVENTORIES Inventories consist of the following components (in thousands): January 1, July 3, 2000 1999 ---- ---- Raw materials $4,336 $3,579 Work in process 1,293 1,089 Finished goods 42,299 38,996 ------- ------- Total $47,928 $43,664 ======= ======= NOTE 4 - COMMITMENTS AND CONTINGENCIES PRODUCT LIABILITY The Company is subject to various product liability claims and/or suits brought against it for claims involving damages for personal injuries or deaths. Allegedly, these injuries or deaths relate to the use by claimants of products manufactured by the Company and, in certain cases, products manufactured by others. The ultimate outcome of these existing claims and any potential future claims cannot presently be determined. The cost of product liability insurance fluctuated greatly in past years and the Company opted to self-insure claims for certain periods. The Company has been covered by product liability insurance since July 1, 1991. This insurance is subject to a self-insured retention. There is no assurance that insurance coverage will be available or economical in the future. The Company sold its auto racing helmet business in July 1999 and entered into a long-term royalty-free licensing agreement with the purchaser for auto racing helmets and automotive accessories to be marketed under the Bell brand name. The Company retains responsibility for product liability claims relating to auto racing helmets manufactured prior to the sale of the auto racing helmet business. The Company believes that, by virtue of its status as a licensor it could be named as a defendant in actions involving liability for auto racing helmets and automotive accessories manufactured by the purchaser of the Company's auto helmet business. In February 1996, a Toronto, Canada jury returned a verdict against the Company based on injuries arising out of a 1986 motorcycle accident. The jury found that the Company was 25% responsible for the injuries with the remaining 75% of the fault assigned to the plaintiff and the other defendant. In the second quarter of fiscal 2000, the Company paid the judgment of $3.6 million. Based on management's extensive consultation with legal counsel, the Company has established product liability reserves totaling $10.1 million. These reserves are intended to cover the estimated costs for the defense, payment or settlement of known claims. Management believes it will have adequate cash balances and sources of capital available to satisfy any payments necessary. 7 BELL SPORTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) ENVIRONMENTAL LITIGATION In May 1998, the Company received a De Minimis Notice Letter and Settlement Offer from the United States Environmental Protection Agency ("USEPA") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sections 9601 ET SEQ. for the Operating Industries, Inc. Landfill Superfund Site ("OII Site") in Monterey Park, California. CERCLA imposes liability for the costs of cleaning up, and certain damages resulting from, releases and threatened releases of hazardous substances. Although courts have interpreted CERCLA liability to be joint and several, where feasible, the liability typically is allocated among the responsible parties according to a volumetric or other standard. USEPA apparently has identified the Company as a DE MINIMIS potentially responsible party based on several waste shipments the Company allegedly sent to the site in the late 1970s and in 1980. USEPA's settlement offer to the Company is in the range of $29,000 to $36,000. The settlement would cover all past and expected future costs at the OII Site, and, with limited exceptions, provide the Company with covenants not to sue from the United States and California, and contribution protection from private parties. Accordingly, management does not expect this claim to have a material adverse effect on the Company. In another unrelated matter, the Company received a General Notice Letter in October 1998 from USEPA under CERCLA for the Casmalia disposal site in Santa Barbara County, California. USEPA apparently has identified the Company as a DE MINIMIS potentially responsible party based on several waste shipments the Company allegedly sent to the site during the 1980s. USEPA's settlement offer to the Company is in the range of $27,000 to $36,000. The benefits of the settlement are similar to those offered by USEPA for the OII site. Accordingly, management does not expect this claim to have a material adverse effect on the Company. Besides the litigation described above, management is not aware of any material litigation that, if adversely determined, would have a material effect on the Company's financial liabilities. NOTE 5 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS On August 17, 1998, the Company's wholly-owned subsidiary, Bell Sports, Inc. ("BSI"), issued Notes totaling $110.0 million, bearing interest at 11%, maturing on August 15, 2008. Interest on the Notes is payable on February 15 and August 15 of each year. The Notes are redeemable, in whole or in part, at the option of BSI at any time on or after August 15, 2003, in cash, at specified redemption prices. In addition, prior to August 15, 2001, BSI may redeem up to 35% of the Notes for 111% of their principal amount, plus accrued interest. The Company has fully and unconditionally guaranteed the Notes. Separate financial statements and other disclosures relating to BSI have not been made, as management believes that such information is not material to holders of the Notes. Summarized financial information regarding Bell Sports, Inc. is as follows: BELL SPORTS, INC. January 1, 2000 --------------- SUMMARIZED BALANCE SHEET DATA: (unaudited) Current assets $151,394 Total assets 201,425 Current liabilities 54,219 Total liabilities 172,495 Stockholder's equity 28,930 Six Months Ended January 1, 2000 ------------------ SUMMARIZED STATEMENT OF OPERATIONS DATA: (unaudited) Net sales $97,822 Gross profit 33,965 Net income 2,142 On August 17, 1998, the Company issued Discount Notes bearing interest at 14% totaling $15.0 million and maturing on August 14, 2009 to a related party in a private placement transaction. Interest on the Discount Notes accrues on June 1 and December 1 of each year. On March 12, 1999, Discount Notes with an accreted value of $2.4 million were exchanged for 47.6 thousand shares of Series A Preferred Stock and 39.2 thousand shares of Class A Common Stock. 8 BELL SPORTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The Company has also issued 4 1/4% Convertible Subordinated Debentures ("Debentures") due November 2000, of which $23.8 million were outstanding at January 1, 2000. The Debentures are redeemable at the Company's option at any time at specified redemption prices. In August 1998, the Company and BSI entered into a $60.0 million senior secured revolving credit facility ("Credit Agreement") expiring on August 17, 2003. The Credit Agreement provides for mandatory repayments from time to time to the extent the amount outstanding thereunder exceeds the maximum amount permitted under the borrowing base. Based on the provisions of the Credit Agreement, the Company could borrow a maximum of $55.1 million as of January 1, 2000. As of January 1, 2000, there were borrowings outstanding of $17.0 million under the Credit Agreement. The Credit Agreement provides the Company with the option of borrowing based either on the U.S. prime rate plus a margin or LIBOR plus a margin. The margin for the U.S. prime rate can fluctuate between 0.0% and 1.0%, and the margin for LIBOR loans can fluctuate between 1.0% and 2.0% based on the Company's earnings and debt. At January 1, 2000, the margin for U.S. prime was 0.75% and the margin for LIBOR was 1.75%. Under the Credit Agreement, the Borrower is required to pay a quarterly commitment fee on the unused portion of the facility at a rate that ranges from 0.375% to 0.50% per annum, based on a pricing ratio. At January 1, 2000, the quarterly commitment fee was 0.50% per annum. The Credit Agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum cash interest coverage ratio. It also contains covenants which restrict the ability of the Company to pay dividends, incur liens, issue certain types of debt or equity, engage in mergers, acquisitions or asset sales, or to make capital expenditures. At January 1, 2000, the Company was in compliance with or had obtained waivers for all bank covenants. Long-term debt consists of the following (in thousands): January 1, July 3, 2000 1999 ---- ---- 11% senior subordinated debentures maturing August 2008 $110,000 $110,000 4 1/4% convertible subordinated debentures maturing November 2000 23,750 23,750 14% senior discount notes due August 2009 15,437 14,434 Borrowings under line of credit 17,732 10,000 Notes collateralized by certain equipment -- 391 -------- -------- 166,919 158,575 Less: current maturities 17,732 10,305 -------- -------- Total long-term debt $149,187 $148,270 ======== ======== NOTE 6 - DISPOSITIONS AND RESTRUCTURING In September 1999, the Company sold its European manufacturing facility in Roche La Moliere, France. In addition, the Company entered into an agreement with the purchaser pursuant to which the purchaser has agreed to provide the Company with helmets. The Company recorded a charge in fiscal 1999 of approximately $2.5 million in connection with the sale and related reorganization of the Company's European manufacturing facility. No material gain or loss was recognized upon consummation of the sale in September 1999. In the fourth quarter of fiscal 1999, the Company recorded charges of $16.5 million associated with the consolidation of manufacturing facilities, the streamlining of administrative overhead, the divestiture of the Company's former auto racing division and the closure of the Australian sales and marketing office. At January 1, 2000, the remaining reserves related primarily to facilities leases. Activity in these accruals for the first two quarters of fiscal 2000 was as follows: 9 BELL SPORTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) July 3, Cash Non-cash January 1, 1999 Payments Charges 2000 -------- ------- ------- ------ ACCRUALS: Manufacturing consolidation $ 9,102 $(3,993) $(1,767) $3,342 Overhead reductions 2,224 (1,037) (1,159) 28 Sale of auto racing and Australia 788 (531) (200) 57 Restructuring accruals from prior years 493 (278) -- 215 ------- ------- ------- ------ $12,607 $(5,839) $(3,126) $3,642 ======= ======= ======= ====== NOTE 7 - SEGMENT INFORMATION The Company has three reportable segments: products sold to domestic mass merchants, products sold to domestic independent bicycle dealers (IBDs), and products sold in international operations. The international operations have been combined into one reportable segment as they share a majority of the aggregation criteria and are not individually reportable. The Company's domestic mass merchant segment markets a wide range of bicycle accessories and bicycle helmets through the mass merchant channel, including retailers such as Wal-Mart and K-Mart. The domestic IBD segment markets premium bicycle helmets and accessories to independent bicycle dealers such as bicycle chains, independent bicycle shops, specialized sporting goods stores, and mail order catalogs. International operations include sales of bicycle accessories and helmets sold to both mass merchant and IBD channels in Canada, Europe and, in fiscal 1999, Australia, in addition to distributing third party products. The Company evaluates the performance of, and allocates resources to, the reportable segments based on net sales and EBITDA. For internal purposes, EBITDA is defined as earnings before investment income and interest expense, income taxes, depreciation, amortization, and certain one-time charges such as transaction costs, product liability costs, restructuring charges, asset write-offs, other costs, loss on disposal of product line and sale of assets and other one-time costs such as foreign exchange loss and compensation expense related to the grant of stock options.
Mass Merchants IBD International Other (1) Total -------------- ------- ------------- --------- -------- SIX MONTHS ENDING JANUARY 1, 2000: Sales to unaffiliated customers $52,620 $28,684 $16,518 $ -- $ 97,822 EBITDA 9,567 1,614 586 (196) 11,571 SIX MONTHS ENDING DECEMBER 26, 1998: Sales to unaffiliated customers $39,739 $28,120 $18,080 $ -- $ 85,939 EBITDA 3,933 1,152 424 2,029 7,538 THREE MONTHS ENDING JANUARY 1, 2000: Sales to unaffiliated customers $26,192 $14,070 $10,710 $ -- $ 50,972 EBITDA 4,458 1,055 672 (148) 6,027 THREE MONTHS ENDING DECEMBER 26, 1998: Sales to unaffiliated customers $19,572 $13,701 $11,748 $ -- $ 45,021 EBITDA 1,874 449 702 619 3,644 TOTAL ASSETS: January 1, 2000 $54,938 $34,886 $19,621 $110,729 $220,174 July 3, 1999 59,176 27,996 29,335 102,427 218,934
- ---------- (1) The "Other" designation includes corporate expenditures and expenditures related to the Company's U.S. manufacturing facility. 10 BELL SPORTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) EBITDA for the periods shown is reconciled to net income before income taxes as follows:
Six Months Ended Three Months Ended ------------------------ ------------------------ January 1, December 26, January 1, December 26, 2000 1998 2000 1998 ---- ---- ---- ---- EBITDA $ 11,571 $ 7,538 $ 6,027 $ 3,644 Less: Depreciation 2,106 2,825 1,005 1,398 Amortization 1,079 1,061 552 499 One-time foreign exchange loss and compensation expense for stock options -- 1,898 -- -- Transaction costs -- 12,388 -- 2,505 Net investment income (175) (810) (69) (209) Interest expense 8,421 6,742 4,223 4,204 -------- -------- ------- ------- Net income (loss) before provision for (benefit from) income taxes $ 140 $(16,566) $ 316 $(4,753) ======== ======== ======= =======
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Bell Sports is the leading manufacturer and marketer of bicycle helmets worldwide and a leading supplier of a broad line of bicycle accessories in North America. The Company is also a supplier of bicycle accessories worldwide. Over its 45-year history, the Company has developed a reputation for innovation, design, quality and safety. RESULTS OF OPERATIONS NET SALES. Net sales for the second quarter of fiscal 2000 of $51.0 million increased 13% from $45.0 in the fiscal 1999 second quarter. Year to date net sales of $97.8 million increased 14% from $85.9 million in fiscal 1999. The quarterly and year to date increases are due primarily to strong U.S. sales in the mass merchant channel. Additional increases have come from the U.S. specialty retail channel and from Canadian sales. For the second quarter of fiscal 2000, bicycle accessories and bicycle helmets represented approximately 51% and 49%, respectively, of net sales. Year to date, bicycle accessories and bicycle helmets represented approximately 55% and 45%, respectively, of net sales. For the fiscal 1999 second quarter, bicycle accessories, bicycle helmets and auto racing helmets represented approximately 50%, 48% and 2%, respectively, of the Company's net sales. Year to date, bicycle accessories, bicycle helmets and auto racing helmets represented approximately 53%, 45% and 2%, respectively, of net sales. In July 1999, the Company sold its auto racing helmet business. GROSS MARGIN. Gross margins for the second quarter of fiscal 2000 increased to 33% of net sales from 32% in the prior year quarter. Year to date, gross margins increased to 35% of net sales from 33% in the prior year. The increase is mainly due to better sourcing of accessories and production efficiencies resulting from the manufacturing consolidations completed by the Company in the fiscal 1999 fourth quarter. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative costs as a percentage of net sales improved to 23% for the second quarter of fiscal 2000 from 27% for the prior year second quarter. Year to date, selling, general and administrative costs as a percentage of net sales have dropped to 25% in fiscal 2000 from 27% in fiscal 1999. The decrease is due to increased efficiency due to the Company's restructuring accomplished in the fourth quarter of fiscal 1999. AMORTIZATION OF INTANGIBLES. Amortization of goodwill and intangible assets increased slightly to $552,000 in the Company's second quarter of fiscal 2000 compared to $499,000 for the comparable prior year period. Year to date, amortization remained constant at $1.1 million for both fiscal 2000 and fiscal 1999. FOREIGN EXCHANGE. Foreign exchange gain of $3,000 for the second quarter increased from the prior year quarter loss of $330,000. Year to date, the foreign exchange loss for fiscal 2000 decreased to $12,000 from $1,949,000 in the prior year. The high foreign exchange losses in the prior year were due to the unusually high level of cash movement related to the August 1998 merger of Bell and HB Acquisition Corporation (the "Bell Merger"). NET INVESTMENT INCOME. Net investment income decreased to $69,000 in the second quarter of fiscal 2000 compared to $209,000 in the second quarter of fiscal 1999. Year to date, net investment income decreased to $175,000 from $810,000. The decrease was due to significantly lower cash balances. INTEREST EXPENSE. Interest expense for the second quarter of fiscal 2000 of $4.2 million remained constant from the prior year. Year to date, interest expense increased to $8.4 million from $6.7 million in the prior year. The year to date increase is due to the higher level of debt outstanding for the entire period, as the increase in debt occurred midway through the first quarter of fiscal 1999. 12 INCOME TAXES. The effective tax rate was 41% for the second quarter of both fiscal 2000 and fiscal 1999. Year to date the effective tax rate was 41% for fiscal 2000 compared to 20% for fiscal 1999. The increase is attributable to the non-deductibility of certain costs associated with the Bell Merger incurred in the prior year. LIQUIDITY AND FINANCIAL RESOURCES The Company has historically funded its operations, capital expenditures and working capital requirements from internal cash flow from operations and borrowings. The Company's working capital increased slightly to $79.3 million at January 1, 2000 from $74.7 million at July 3, 1999. The Company's capital expenditures were $1.7 million for the first six months of fiscal 2000, compared to $2.3 million in fiscal 1999. The Company estimates it will spend approximately $3.8 million on capital expenditures in fiscal 2000 for product tooling and to maintain and upgrade its facilities and equipment. In August 1998, the Company and BSI, entered into a $60.0 million senior secured revolving credit facility ("Credit Agreement") expiring on August 17, 2003. The Credit Agreement provides for mandatory repayments from time to time to the extent the amount outstanding thereunder exceeds the maximum amount permitted under the borrowing base. Based on the provisions of the Credit Agreement, the Company could borrow a maximum of $55.1 million as of January 1, 2000. As of January 1, 2000, there were borrowings outstanding of $17.0 million under the Credit Agreement. The Credit Agreement provides the Company with the option of borrowing based either on the U.S. prime rate plus a margin or LIBOR plus a margin. The margin for the U.S. prime rate loans can fluctuate between 0.0% and 1.0%, and the margin for LIBOR loans can fluctuate between 1.0% and 2.0% based on the Company's earnings and debt. At January 1, 2000, the margin for U.S. prime was 0.75% and the margin for LIBOR was 1.75%. Under the Credit Agreement, the Borrower is required to pay a quarterly commitment fee on the unused portion of the facility at a rate that ranges from 0.375% to 0.50% per annum, based on a pricing ratio. At January 1, 2000, the quarterly commitment fee was 0.50% per annum. The Credit Agreement contains certain financial covenants, including a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum cash interest coverage ratio. It also contains covenants which restrict the ability of the Company to pay dividends, incur liens, issue certain types of debt or equity, engage in mergers, acquisitions or asset sales, or to make capital expenditures. At January 1, 2000, the Company was in compliance with or had obtained waivers for all bank covenants. Management believes that cash flows from operations and borrowings available under the Credit Agreement will provide adequate funds for the Company's foreseeable working capital needs, planned capital expenditures, debt service obligations and the ultimate outcome of pending product liability claims. The Company does not anticipate paying dividends on its Preferred or Common Stock in the foreseeable future. YEAR 2000 COMPLIANCE The Year 2000 problem, which is common to most corporations, concerns the inability of information systems, including computer software programs as well as other systems dependent on computerized information such as phones, voicemail, security systems and elevators (collectively, "Non-IT Systems"), to properly recognize and process date sensitive information related to the year 2000 and beyond. 13 All Year 2000 efforts with respect to the Company and its subsidiaries' computer software programs were made through internal resources and through routine software upgrades provided by the Company's software vendors. The Company did not incur significant separately identifiable costs related to Year 2000 issues through January 1, 2000 and does not expect to incur significant additional costs related to Year 2000 issues. The Company's internal resources consist of an information technology support team comprised of approximately fifteen full-time employees, covering both technical and application areas. The Company did not hire additional employees, either full-time or contract, in order to address Year 2000 issues. The Company employs certain manufacturing processes that utilize computer controlled manufacturing equipment. Prior to January 1, 2000, the Company determined that such equipment was Year 2000 compliant. The Company's Non-IT Systems were also determined to be Year 2000 compliant prior to January 1, 2000. The Company utilized internal resources to address the Year 2000 compliance of its Non-IT Systems and did not incur significant separately identifiable costs related to Year 2000 issues through January 1, 2000 and does not expect to incur significant additional Year 2000 costs. In addition to reviewing its internal systems, the Company polled its outside software and other vendors, customers and freight carriers to determine whether they are Year 2000 compliant and to attempt to identify any potential issues. The Company's outside software vendors confirmed that they were Year 2000 compliant, including the products utilized by the Company. As of this date, the Company has experienced no material Year 2000 related failures. This includes both the Company's internal hardware and software systems and the basic utility services of its providers. The Company is also not aware of any Year 2000 related problems at any of its customers or critical suppliers that could adversely affect its business operations. The Company will continue to monitor its own systems and those of its business partners to identify and address any potential risk situation related to the Year 2000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued. SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. SFAS 133 is required to be adopted by the Company for fiscal year 2001. Upon initial application, all derivatives are required to be recognized in the statement of financial position as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be reassessed and documented pursuant to the provisions of SFAS 133. As the Company does not currently invest in derivatives, the adoption of SFAS 133 is not expected to have a material effect on the results of operations or the consolidated financial statements. FORWARD-LOOKING STATEMENTS Certain matters contained herein are forward-looking statements that are based on management's beliefs as well as on assumptions made by and information currently available to management. When used herein, the words "expect," "anticipate," "intend," "plan," "believe," "estimate," and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These include, but are not limited to: economic and market conditions, competitive activities or other business conditions, dependence on key customers, fluctuations in sales, profitability or working capital, weather conditions, currency fluctuations, and results of pending litigation. 14 BELL SPORTS CORP. PART II ITEM 1 LEGAL PROCEEDINGS None ITEM 2 CHANGES IN SECURITIES None ITEM 3 DEFAULTS UPON SENIOR SECURITIES None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Index Page 17 (b) None 15 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. Date: February 4, 2000 BELL SPORTS CORP. By: /s/ Richard S Willis -------------------------------- Richard S Willis Executive Vice President, Chief Operating Officer and Chief Financial Officer (principal financial and accounting officer) 16 BELL SPORTS CORP. INDEX TO EXHIBITS Exhibit Number Description ------ ----------- 27* Financial Data Schedule - ---------- * Filed herewith 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS 6-MOS JUL-01-2000 JUL-04-1999 JAN-01-2000 1 6,559 0 61,042 1,212 47,928 133,977 34,158 21,261 220,174 54,692 166,919 0 10 11 7,999 220,174 97,822 97,822 63,857 63,857 25,404 0 8,421 140 57 83 0 0 0 83 0 0
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