<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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: 0-28822
ROCKSHOX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0396555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 Charcot Avenue, San Jose, California 95131
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (408) 435-7469
NO CHANGE
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(Former name, former address and former fiscal year if changed since
last report)
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 [ ]
As of July 24, 1997 there were 13,688,319 shares of the registrant's common
stock outstanding.
This quarterly report on Form 10-Q contains 12 pages, of which this is page 1.
1
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INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 and March 31, 1997......................... 3
Condensed Consolidated Statements of Operations for the
three months ended June 30, 1997 and 1996................ 4
Condensed Consolidated Statements of Cash Flows for the
three months ended June 30, 1997 and 1996................ 5
Notes to Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
Part II: Other Information
Item 1. Legal Proceedings......................................... 9
Item 6. Exhibits and Reports on Form 8-K........................... 10
(a) Exhibit 11 - Statement regarding computation of net
income per share.................................... 12
(b) Reports on Form 8-K
None
</TABLE>
2
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
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<S> <C> <C>
Current assets:
Cash and cash equivalents.................... $14,827 $14,747
Trade accounts receivable, net of allowance
of $1,407 and $1,589, respectively........... 10,348 6,618
Inventories.................................. 12,580 10,800
Prepaid expenses and other current assets.... 833 1,132
Deferred income taxes........................ 4,739 4,739
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Total current assets....................... 43,327 38,036
Property, plant and equipment, net............... 10,715 7,700
Other assets, net................................ 139 139
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Total assets................................. $ 54,181 $ 45,875
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Current liabilities:
Accounts payable............................. $ 9,211 $ 3,459
Other accrued liabilities.................... 9,956 10,855
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Total current liabilities.................. 19,167 14,314
Stockholders' equity
Common stock................................. 137 136
Additional paid-in capital................... 65,380 64,828
Distributions in excess of net book value.... (45,422) (45,422)
Retained earnings............................ 14,919 12,019
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Total stockholders' equity.................. 35,014 31,561
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Total liabilities and stockholders'
equity................................... $ 54,181 $ 45,875
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997 June 30, 1996
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<S> <C> <C>
Net sales...................................... $24,706 $ 21,378
Cost of sales.................................. 16,060 13,733
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Gross profit................................. 8,646 7,645
Selling, general and
administrative expense........................ 2,963 2,916
Research, development
and engineering expense....................... 1,309 1,243
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Operating expenses........................... 4,272 4,159
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Income from operations....................... 4,374 3,486
Interest income................................ 193 49
Interest expense............................... -- (1,341)
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Income before income taxes................... 4,567 2,194
Provisions for income taxes.................... 1,667 845
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Net income before accretion.................. 2,900 1,349
Accretions for dividends on mandatorily
redeemable preferred stock.................... -- 92
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Net income available
to common stockholders...................... $ 2,900 $ 1,257
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Net income per share........................... $ 0.21 $ 0.14
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Shares used in per share calculation........... 14,048 9,240
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997 June 30, 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 2,900 $ 1,349
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization......................... 869 616
Changes in operating assets and liabilities:
Trade accounts receivable........................... (3,730) (164)
Inventories......................................... (1,780) 674
Prepaid expenses and other current assets........... 299 (382)
Accounts payable and accrued liabilities............ 4,853 1,133
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Net cash provided by operating activities......... 3,411 3,226
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Cash flows from investing activities:
Purchases of property and equipment..................... (3,884) (1,354)
Other................................................... -- (16)
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Net cash used in investing activities............. (3,884) (1,370)
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Cash flows from financing activities:
Repayment of short-term borrowings and bank
debt................................................... -- (750)
Proceeds from exercise of stock options................. 300 --
Tax benefits from disqualifying dispositions
of common stock........................................ 253 --
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Net cash provided by (used in) financing
activities....................................... 553 (750)
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Net increase in cash and cash equivalents............... 80 1,106
Cash and cash equivalents, beginning of period............ 14,747 1,808
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Cash and cash equivalents, end of period.................. $ 14,827 $ 2,914
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Supplemental disclosure of non-cash transactions:
Income taxes paid....................................... $ 40 $ 1,292
Interest paid........................................... -- 1,741
Accretion for dividends on mandatorily
redeemable preferred stock............................. -- 92
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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Part I: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of ROCKSHOX, INC. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three-month period ended June
30, 1997 are not necessarily indicative of the results that may be expected
for the year ending March 31, 1998. The unaudited condensed, consolidated
interim financial statements contained herein should be read in conjunction
with the audited consolidated financial statements and footnotes for the year
ended March 31, 1997 included in the Company's Annual Report on Form 10-K.
2. INVENTORIES
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 March 31, 1997
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<S> <C> <C>
Raw materials............... $ 8,389 $ 6,357
Finished goods.............. 4,191 4,443
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$12,580 $10,800
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</TABLE>
3. NET INCOME PER SHARE AMOUNTS
Net income per share is computed using the weighted average number of
common shares outstanding during the period and, pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, all common and common
equivalent shares issued during the twelve months preceding the filing date
of the Company's Initial Public Offering (the "IPO") are also included in the
calculation as if the shares had been outstanding for all periods presented
using the treasury stock method. For periods subsequent to the IPO, the
Company has used the treasury stock method to compute net income per share.
Under this method the weighted average number of common shares outstanding
during the period is added to the weighted average of all dilutive common
equivalent shares outstanding during the period. All per share data has been
restated to reflect the merger of the Company's former parent into the
Company (the "Merger"), which was effected concurrent with the IPO.
6
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4. CONTINGENCIES
On September 26, 1996, Answer Products, Inc. ("Answer"), filed a
compliant naming RockShox as the defendant in an action in the United States
District Court for the Southern District of Indiana entitled ANSWER PRODUCTS,
INC. V. ROCKSHOX, INC. (the "Indiana Action"). Answer's complaint in the
Indiana Action alleges that certain RockShox suspension forks infringe a
patent that was issued in 1995 and is exclusively licensed to Answer. The
complaint seeks preliminary and permanent injunctive relief, destruction of
the equipment used to make the allegedly infringing forks, and accounting,
compensatory damages, treble damages, attorney' fees, interest and costs. The
Company believes, after consultation with patent counsel, that it has
meritorious defenses to Answer's claims in the Indiana Action.
On September 27, 1996, RockShox commenced an action against Answer in
the United States District Court for the Northern District of California
entitled ROCKSHOX, INC. V. ANSWER PRODUCTS, INC. (the "California Action").
RockShox' complaint in the California Action seeks a declaratory judgement
that the patent at issue in the Indiana Action is invalid, unenforceable and
not infringed by RockShox, as well as preliminary and permanent injunctions
against Answer, compensatory damages, attorneys' fees and costs. On
October 21, 1996, Answer filed an answer to RockShox' complaint denying that
RockShox was entitled to the relief requested in the California Action and
requesting that the court declare the patent valid and infringed.
On December 30, 1996, the Indiana Action was transferred to Federal Court
in San Jose for consolidation with the California Action. Discovery in these
cases is ongoing. While the Company has estimated the cost of resolving this
matter and has accrued such amounts in the accompnanying financial
statements, due to the uncertainties surrounding litigation, the ultimate
outcome of this matter is not determinable.
In addition, the Company is involved in certain trademark and employment
related legal matters in the ordinary course of business. No provision for
any liability that may result upon the resolution of these matters has been
made in the accompanying financial statements nor is the amount or range of
possible loss, if any, reasonably estimable. While the Company has accrued
certain amounts for the estimated costs associated with defending these
matters, there can be no assurance that the Answer complaint or other third
party assertions will be resolved without costly litigation, in a manner that
is not adverse to the Company's financial position or results of operations,
or without requiring royalty payments in the future which may adversely
impact gross margins.
7
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Part I: Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Net sales. Net sales for the quarter ended June 30, 1997 increased by
15.6% to $24.7 million from $21.4 million for the corresponding period of the
prior year. For the quarter ended June 30, 1997, OEM sales increased by
32.3% to $17.6 million compared to $13.3 million in the corresponding period
of the prior year. This increase was principally due to demand for the
Company's updated 1998 product lines, which began shipping during the first
quarter of the 1998 fiscal year. Sales to the retail accessory market
decreased in the quarter ended June 30, 1997 to $7.1 million compared to $8.1
million in the corresponding period of the prior year due to the timing of
shipments.
Gross margin. Gross margin (gross profit as a percentage of net sales)
for the quarter ended June 30, 1997 decreased to 35.0% compared to 35.8% for
the corresponding period of the prior year. The decrease in gross margin was
principally due to certain start-up expenses associated with the change over
to the 1998 product model year which occurred during the quarter ended June
30, 1997.
Selling, general and administrative expense. Selling, general and
administrative ("SG&A") expense for the quarter ended June 30, 1997 increased
by 1.6% to $3.0 million (or approximately 12.0% of net sales) compared to
$2.9 million (or approximately 13.6% of net sales) in the corresponding
period of the prior year. The decrease of SG&A expense as a percent of net
sales was principally due to the termination of a bonus plan with founders of
the Company, partially offset by increased sales and marketing expenses.
Research, development and engineering expense. Research, development
and engineering ("R&D") expense for the quarter ended June 30, 1997 increased
by 5.3% to $1.3 million (or approximately 5.3% of net sales) compared to $1.2
million (or approximately 5.8% of net sales) in the corresponding quarter of
the prior year. The increase in R&D expense was principally due to increased
engineering headcount and certain other development expenses incurred for new
products offset by the termination of a bonus plan with founders of the
Company.
Interest income (expense). For the quarter ended June 30, 1997 the
Company incurred no interest expense and had interest income of $193,000 from
its cash and cash equivalent balances. During the quarter ended June 30,
1996, the Company incurred net interest expense of $1.3 million (which
included amortization of capitalized financing costs). The change was due to
the elimination of the Company's outstanding debt upon the closing of the
Company's IPO in October 1996.
Income tax expense. The Company's effective tax rate for the first
quarter of fiscal 1998 was 36.5% compared to 38.5% for the first quarter of
fiscal 1997. The decrease was principally due to certain capital investment
tax credits and a lower state tax rate.
Liquidity and Capital Resources:
For the three months ended June 30, 1997, net cash provided by operating
activities was $3.4 million which was comprised of net income of $2.9 million
increased by non-cash charges for depreciation and amortization of $869,000,
partially offset by a net increase in operating assets and liabilities of
$358,000.
Net cash used in investing activities was $3.9 million for the three
months ended June 30, 1997 which consisted of acquisitions of property and
equipment. Net cash provided by financing activities was $553,000 which
consisted of proceeds and tax benefits from the exercise of employee stock
options.
8
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At June 30, 1997, the Company had cash and cash equivalents of $14.8
million and working capital of $24.2 million. The Company believes that its
current cash balances will be sufficient to provide operating liquidity for
at least the next twelve months.
Certain statements made in this document constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other facts that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors are
discussed in detail in the Company's Annual Report on Form 10-K. Given these
uncertainties, prospective and current investors are cautioned not to place
undue reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of
any revisions to any of the forward-looking statements contained in the
Annual Report on Form 10-K or this document.
Part II: Other Information
Item 1. Legal Proceedings
On September 26, 1996, Answer Products, Inc. ("Answer"), filed a
compliant naming RockShox as the defendant in an action in the United States
District Court for the Southern District of Indiana entitled ANSWER PRODUCTS,
INC. V. ROCKSHOX, INC. (the "Indiana Action"). Answer's complaint in the
Indiana Action alleges that certain RockShox suspension forks infringe a
patent that was issued in 1995 and is exclusively licensed to Answer. The
complaint seeks preliminary and permanent injunctive relief, destruction of
the equipment used to make the allegedly infringing forks, and accounting,
compensatory damages, treble damages, attorney' fees, interest and costs.
The Company believes, after consultation with patent counsel, that it has
meritorious defenses to Answer's claims in the Indiana Action.
On September 27, 1996, RockShox commenced an action against Answer in
the United States District Court for the Northern District of California
entitled ROCKSHOX, INC. V. ANSWER PRODUCTS, INC. (the "California Action").
RockShox' complaint in the California Action seeks a declaratory judgment
that the patent at issue in the Indiana Action is invalid, unenforceable and
not infringed by RockShox, as well as preliminary and permanent injunctions
against Answer, compensatory damages, attorneys' fees and costs. On October
21, 1996, Answer filed an answer to RockShox' complaint denying that RockShox
was entitled to the relief requested in the California Action and requesting
that the court declare the patent valid and infringed.
On December 30, 1996, the Indiana Action was transferred to Federal
Court in San Jose for consolidation with the California Action. Discovery in
these cases is ongoing.
9
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Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2 Form of Agreement and Plan of Merger between RSx Holdings, Inc.
and RockShox, Inc. *
3.1 Form of Amended and Restated Certificate of Incorporation of
RockShox, Inc.*
3.2 Form of Amended and Restated Bylaws of RockShox, Inc. *
4 Form of Common Stock Certificate of RockShox, Inc. *
11 Statement regarding computation of net income (loss) per share.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
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* Previously filed with the Annual Report on Form 10-K for the
fiscal year ended March 31, 1997.
10
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SIGNATURES
Pursuant to the requirements 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.
ROCKSHOX, INC.
Dated: August 14, 1997 /s/ Charles E. Noreen, Jr.
---------------------------
Charles E. Noreen, Jr.
Chief Financial Officer and
Duly Authorized Officer
11
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Item 6.
Exhibit 11
ROCKSHOX, INC.
Statement regarding computation of net income per share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997 June 30, 1996
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<S> <C> <C>
Weighted average shares of
common stock................................ 13,643 8,820
Dilutive effect of stock options............. 405 420
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Shares used in per share calculations...... 14,048 9,240
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Net income before accretion.................. $ 2,900 $ 1,349
Accretion for dividends on mandatorily
redeemable preferred stock.................. -- (92)
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Net income available to common
stockholders.............................. $ 2,900 $ 1,257
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Net income per share......................... $ 0. 21 $ 0. 14
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</TABLE>
The difference in per share amounts computed under both the primary and fully
diluted basis is not material.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,827
<SECURITIES> 0
<RECEIVABLES> 11,755
<ALLOWANCES> 1,407
<INVENTORY> 12,580
<CURRENT-ASSETS> 43,327
<PP&E> 15,395
<DEPRECIATION> 4,680
<TOTAL-ASSETS> 54,181
<CURRENT-LIABILITIES> 18,167
<BONDS> 0
0
0
<COMMON> 137
<OTHER-SE> 34,877
<TOTAL-LIABILITY-AND-EQUITY> 54,181
<SALES> 24,708
<TOTAL-REVENUES> 24,708
<CGS> 18,080
<TOTAL-COSTS> 4,272
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,587
<INCOME-TAX> 1,687
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,900
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
