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 September 28, 1996
-------------------------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19873
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BELL SPORTS CORP.
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(Exact name of registrant as specified in its charter)
Delaware 36-3671789
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
15170 N. Hayden Rd. Suite 1, Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
(602) 951-0033
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(Registrant's telephone number, including area code)
N/A
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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) Yes X No and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Common Stock, $.01 par value October 30, 1996 13,700,960
- ---------------------------- ---------------- ----------
Class Date Number of shares
1
<PAGE>
BELL SPORTS CORP.
INDEX TO FORM 10-Q
PART I
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Bell Sports Corp. and Subsidiaries Balance Sheets
as of September 28, 1996, and June 29, 1996 3
Bell Sports Corp. and Subsidiaries Consolidated Statements of Operations
for the three months ended September 28, 1996, and
September 30, 1995 4
Bell Sports Corp. and Subsidiaries Consolidated Statements of Cash Flows
for the three months ended September 28, 1996
and September 30, 1995 5
Notes to Financial Statements 6 - 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 13
</TABLE>
PART II
<TABLE>
<S> <C>
Items 1 to 6 14
Signatures 15
</TABLE>
2
<PAGE>
PART 1. Financial Information
Item 1. Financial Statements
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 28, June 29,
1996 1996
---- ----
(unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 24,951 $ 23,140
Marketable securities 5,118 7,996
Accounts receivable 60,428 75,651
Inventories 61,321 59,413
Other current assets 18,684 17,285
--------- ---------
Total current assets 170,502 183,485
Property, plant and equipment 25,492 24,722
Goodwill 70,704 71,245
Intangibles and other assets 19,262 19,183
--------- ---------
Total assets $ 285,960 $ 298,635
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 10,954 $ 11,797
Accrued expenses 13,120 16,752
Accrued compensation and employee benefits 4,003 4,392
Notes payable and current maturities of long-term
debt and capital lease obligations 1,099 1,070
--------- ---------
Total current liabilities 29,176 34,011
Long-term debt and capital lease obligations 116,330 124,501
Other liabilities 3,952 4,082
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Total liabilities 149,458 162,594
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Stockholders' equity:
Preferred stock; $.01 par value; authorized 1,000,000
shares, none issued
Common stock; $.01 par value; authorized 25,000,000 shares;
issued 14,224,360 shares; outstanding 13,700,960 shares 142 142
Additional paid-in capital 141,738 141,647
Unrealized holding losses on marketable securities -- (461)
Foreign currency translation adjustments (10) 84
Retained earnings 149 146
--------- ---------
142,019 141,558
Less - 523,400 shares of common stock in treasury, at cost (5,517) (5,517)
--------- ---------
Total stockholders' equity 136,502 136,041
--------- ---------
Total liabilities and stockholders' equity $ 285,960 $ 298,635
========= =========
</TABLE>
See accompanying notes to these consolidated financial statements
3
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
September 28, September 30,
1996 1995
---- ----
<S> <C> <C>
Net sales $ 62,068 $ 57,675
Cost of sales 44,560 41,591
Inventory write-up -- 5,949
-------- --------
Gross profit 17,508 10,135
Selling, general and administrative expenses 15,279 14,589
Amortization of goodwill and intangible assets 862 587
Consolidation costs 1,358 387
Net investment income (1,792) (1,031)
Interest expense 1,796 2,318
-------- --------
Income (loss) before income taxes 5 (6,715)
Provision (benefit) for income taxes 2 (1,343)
-------- --------
Net income (loss) $ 3 $ (5,372)
======== ========
Net income (loss) per common and $ 0.00 $ (0.38)
common equivalent share ======== ========
Weighted average number of common and
common equivalent shares outstanding 13,754 14,131
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements
4
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
September 28, September 30,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net cash provided by operating activities $ 8,933 $ 4,909
-------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Capital expenditures (2,170) (1,237)
Net sale of marketable securities 3,162 15,073
Acquisition of other businesses -- (544)
-------- --------
Net cash provided by investing activities 992 13,292
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of stock -- 22
Treasury stock purchases -- (3,779)
Net payments on notes payable, long-term debt and capital leases (8,116) (22,160)
-------- --------
Net cash used in financing activities (8,116) (25,917)
-------- --------
Effect of exchange rate changes on cash 2 (12)
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Net increase (decrease) in cash and cash equivalents 1,811 (7,728)
Cash and cash equivalents at beginning of period 23,140 72,018
-------- --------
Cash and cash equivalents at end of period $ 24,951 $ 64,290
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements
5
<PAGE>
BELL SPORTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Bell Sports Corp. and its wholly-owned subsidiaries (collectively, the Company)
design, manufacture and market bicycle parts and accessories, bicycle helmets,
bicycles and automotive racing helmets.
Consolidation
- -------------
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.
Accounting Period
- -----------------
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.
Unaudited Information and Basis of Presentation
- -----------------------------------------------
The consolidated balance sheet as of September 28, 1996 and statements of
operations and 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. Audited financial statements for
the fiscal years ended June 29, 1996, July 1, 1995 and July 2, 1994 are included
in the Company's 1996 annual report to stockholders.
Income Per Share Information
- ----------------------------
Income per common and common equivalent share is computed using the weighted
average number of common stock and common stock equivalent shares outstanding
during the periods, using the treasury stock method for stock options and
warrants. Common equivalent shares are excluded from the computation if their
effect is anti-dilutive except that, pursuant to Staff Accounting Bulletin No.
83 of the Securities and Exchange Commission, certain stock options that were
granted at prices below the initial public offering price during the twelve
month period immediately preceding the April 1992 initial public stock offering
have been treated as common stock equivalents for all periods presented. Fully
diluted net income per common share for all periods included in accompanying
financial statements has not been presented since an assumed conversion (using
the if converted method, which includes the adjustment of reported net income
for interest charges on a net-of-tax basis) of the Company's 4 1/4% convertible
debentures (see Note 4) would be anti-dilutive.
Marketable Securities
- ---------------------
All marketable securities, consisting of preferred equity securities and U.S.
Government Agency instruments have been classified as available-for-sale
securities and are reported at fair value. The fair value of the marketable
securities was obtained from published market quotes or outside professional
pricing sources. The cost of the Company's marketable securities available for
sale approximated the fair market value of such securities at September 28, 1996
and exceeded the fair market value of such securities by approximately $461,000,
at June 29, 1996. Such excess was recorded as a reduction to the Company's
stockholders' equity at June 29, 1996.
6
<PAGE>
During the first quarter of fiscal 1997, the Company was successful in an
arbitration case related to the handling of certain marketable securities by an
outside investment advisor. The settlement proceeds, net of related expenses and
expected losses to sell certain securities in the net amount of $1.3 million, is
included in net investment income.
Accounts Receivable
- -------------------
Accounts receivable at September 28, 1996 and June 29, 1996 are net of
allowances for doubtful accounts of $3.1 million and $3.4 million, respectively.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment at September 28, 1996 and June 29, 1996 are net of
accumulated depreciation of $15.5 million and $14.1 million, respectively.
NOTE 2 - INVENTORIES
Inventories consist of the following:
(in thousands) September 28, June 29,
1996 1996
---- ----
Raw materials $ 5,895 $ 5,330
Work in process 2,558 2,315
Finished goods 52,868 51,768
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Total $61,321 $59,413
======= =======
As a result of the acquisition of SportRack in May 1995 and the merger with AMRE
in July 1995, inventories were written-up an aggregate of $13.0 million at the
respective acquisition dates. For the three months ended September 30, 1995,
$5.9 million relating to the inventory write-up was charged against cost of
sales.
NOTE 3 - PRODUCT LIABILITY 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. Management believes that existing product
liability claims/suits are defensible and that, based on the Company's past
experience and assessment of current claims, other than the February 1996 case
described below, the aggregate of defense costs and any uninsured losses will
not have a material adverse impact on the Company's liquidity or financial
position.
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.
7
<PAGE>
The Company sold its motorcycle helmet manufacturing business in June 1991 in a
transaction in which the purchaser assumed all responsibility for product
liability claims arising out of helmets manufactured prior to the date of
disposition and the Company agreed to use its in-house defense team to defend
these claims at the purchaser's expense. If the purchaser is for any reason
unable to pay any judgment, settlement amount or defense costs arising out of
these claims, the Company could be held responsible for the payment of such
amounts or costs. The Company believes that the purchaser does not currently
have the financial resources to pay any significant judgment, settlement amount,
or defense costs.
On February 2, 1996, a Toronto, Canada jury returned a verdict against Bell
based on injuries arising out of a 1986 motorcycle accident. The jury found that
Bell was 25% responsible for the injuries with the remaining 75% of the fault
assigned to the plaintiff and the other defendant. Unless reversed on appeal,
the verdict is estimated to be between $3.0 and $4.0 million, which includes
associated legal fees and tax implications.
The Company has filed an appeal of the Canadian verdict. Although the Company
cannot predict the outcome of an appeal, the Company currently has adequate cash
balances and sources of capital available to satisfy the judgment if the appeal
is unsuccessful. Accordingly, the Company currently does not believe the claim
will have a material adverse effect on liquidity or the financial condition of
the Company. Although the Company maintains product liability insurance, this
claim arose during a period in which the Company was self-insured. The Company
currently does not have a reserve for this judgment.
Environmental Litigation
- ------------------------
In the ordinary course of its business, the Company is required to dispose of
certain waste at off-site locations. During 1993, the Company became aware of an
investigation by the Illinois Environmental Protection Agency (the "Illinois
Agency") of a waste disposal site, owned by a third party, which was previously
utilized by the Company. As a result of that investigation, the Illinois Agency
informed the Company that certain of the Company's practices with respect to the
identification, storage and disposal of hazardous waste and related reporting
requirements may not have complied with the applicable law. On March 14, 1995,
the State of Illinois (the "State") filed a complaint with the Illinois
Pollution Control Board (the "Pollution Control Board") against the Company and
the disposal site owner based on the same allegations. The complaint seeks
penalties not exceeding statutory maximums and such other relief as the
Pollution Control Board determines appropriate. The disposal site owner filed a
cross-claim against the Company that seeks to have penalties assessed against
the Company and not against the disposal site owner. Any penalties as a result
of the cross-claim would be payable to the State. The State and the Company have
agreed in principle to a settlement in which the Company will pay $69,000 to the
State. The Company is seeking dismissal of the cross-claim on several grounds.
Additionally, the Illinois Agency has been negotiating with the disposal site
owner with respect to the procedures and actions necessary to close the disposal
site. The extent and nature of any actions which may be taken against the
Company with respect to this matter cannot presently be determined
Shareholder Litigation
- ----------------------
On February 16, 1995, an AMRE shareholder filed a lawsuit, on his own behalf,
and a purported class action, against AMRE and its directors in the Chancery
Court of the State of Delaware, alleging various breaches of fiduciary and
common law duties and requesting both monetary and injunctive relief. The
alleged basis for the claims are the action of AMRE and its directors in
connection with the authorization and approval of the AMRE Merger with Bell
Sports Corp. The AMRE Merger was consummated on July 3, 1995 and the case has
been inactive since that date. On October 2, 1995, the Company filed a motion to
dismiss the case.
8
<PAGE>
NOTE 4 - NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company has approximately $117 million in notes payable, long-term debt and
capital lease obligations outstanding at September 28, 1996. Of this amount,
$86.25 million relates to the outstanding balance on the Company's 4 1/4%
convertible subordinated debentures. Maturing November 15, 2000, the debentures
are convertible into common stock at any time prior to maturity at a conversion
price of $54.06 per share. Interest on the debentures is payable semi-annually.
The debentures are redeemable at the Company's option at any time on or after
November 15, 1996, at specified redemption prices.
In February 1996, the Company entered into a $100 million multicurrency,
revolving line of credit (the "Revolving Credit") with a syndicated bank group.
This facility replaces prior revolving credit facilities that were used by the
Company's North American operations. At September 28, 1996, a total of $27.1
million was outstanding under the credit facility.
The Revolving Credit, which expires in December 1999, provides the Company with
several interest rate options, including U.S. prime, LIBOR plus a margin,
Canadian prime plus the applicable LIBOR margin less 0.50%, Canadian banker's
acceptance plus the LIBOR margin plus 0.125%, and short-term fixed rates offered
by the agent bank in the loan syndication. The LIBOR margin is currently 1.25%
per annum, but it can range between 0.75% and 1.50% depending on the Company's
interest coverage ratio. Under the Revolving Credit, the Company is required to
pay a quarterly commitment fee on the unused portion of the facility at a rate
that ranges from 0.15% to 0.30% per annum. At September 28, 1996 the quarterly
commitment fee was 0.25% per annum.
The Revolving Credit contains certain financial covenants, the most restrictive
of which are a minimum interest coverage ratio, a maximum funded debt ratio and
a minimum consolidated tangible net worth amount. The Revolving Credit also
contains covenants that restrict the amount of cash dividends as well as the
amount that the Company can repurchase of its subordinated debt and common
stock.
In August, 1996, the Company amended the Revolving Credit to grant to the
syndicated bank group a security interest in U.S. accounts receivable and
inventories. The security interest is subject to automatic release by the bank
group upon the achievement of certain financial ratios after September 1, 1997.
The amendment among other things waived a default in the interest coverage ratio
covenant as of June 29, 1996.
NOTE 5 - COMMON STOCK
From time to time, the Company has granted to its executive officers,
non-employee directors and certain other employees options to purchase shares of
the Company's Common Stock. At September 30, 1996, options to purchase
approximately 1,607,000 shares of Common Stock were outstanding.
On August 24, 1995, the Company announced a stock repurchase program authorizing
the repurchase of up to 10% of the outstanding shares of the Company's Common
Stock from time to time in open market or private transactions. The timing of
any repurchases and the price and number of shares repurchased will depend on
market conditions and other factors. As of October 30, 1996, the Company had
repurchased a total of 523,400 shares at an aggregate purchase price of
approximately $5.5 million. Shares repurchased may be retired or used for
general corporate purposes.
9
<PAGE>
NOTE 6 - CONSOLIDATION COSTS
On June 27, 1995, the Company's stockholders approved the issuance of Common
Stock in connection with the Agreement and Plan of Merger dated February 15,
1995 among the Company, Bell Merger Co., a wholly-owned subsidiary of the
Company, and American Recreation Company Holdings, Inc. ("AMRE"). In
contemplation of the merger, the Company formulated a program (the "Program") to
consolidate and integrate the operations of Bell, SportRack (acquired May 15,
1995) and AMRE, as well as combine certain product lines. This Program called
for the consolidation of certain sales and marketing, research and development,
manufacturing, finance and management information systems functions.
During fiscal 1996, the Company commenced significant organizational and office
consolidations including closing the Cerritos, Providence, Commack and Calgary
offices. Most U.S. sales, marketing and research and development operations were
consolidated in San Jose, California and all corporate functions in Scottsdale,
Arizona. Substantially all of the Canadian operations were consolidated into one
facility in Granby, Quebec. Included in the first quarter of fiscal 1997 pre-tax
income are $1.4 million of consolidation costs related to the program, including
facility closing costs, severance benefits and relocation expenses. These
consolidation activities are substantially completed and should be finalized
during the second quarter of fiscal 1997.
The following table sets forth the details of activity during fiscal 1997 for
consolidation costs:
<TABLE>
<CAPTION>
(in thousands) Accrual at Consolidation Cash Accrual at
June 29, Costs Payments September 28,
1996 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease payments and other facility expenses $ 942 $ 157 $ (510) $ 589
Severance and other related benefits 2,832 408 (1,636) 1,604
Relocation and other 1,383 793 (1,530) 646
--------------------------------------------------------------------
Total $ 5,157 $ 1,358 $(3,676) $ 2,839
====================================================================
</TABLE>
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL POSITION AND LIQUIDITY
The Company's current ratio increased to 5.8 to 1 at September 28, 1996 from 5.4
to 1 at June 29, 1996. Cash and current marketable securities decreased to $30.1
million at September 28, 1996 from $31.1 million at June 29, 1996. The decline
relates to an $8.1 million reduction in the revolving credit facility and $2.2
million of capital expenditures, offset by cash provided by operations.
Accounts receivable at September 28, 1996 declined $15.2 million from June 29,
1996, due to the collection of receivables in the normal course of business.
Inventories increased $1.9 million in fiscal 1997 compared to the balance at
June 29, 1996. The increase is attributed to the normal business cycle in which
inventory is built up in the first half of the fiscal year in order to meet
increased sales demands in the second half of the fiscal year.
In February 1996, the Company entered into a $100.0 million multicurrency,
revolving line of credit (the "Revolving Credit") with a syndicated bank group.
This facility replaces prior revolving credit facilities that were used by the
Company's North American operations. At September 28, 1996, a total of $27.1
million was outstanding under the credit facility.
The Revolving Credit, which expires in December 1999, provides the Company with
several interest rate options, including U.S. prime, LIBOR plus a margin,
Canadian prime plus the applicable LIBOR margin less 0.50%, Canadian banker's
acceptance plus the LIBOR margin plus 0.125%, and short-term fixed rates offered
by the agent bank in the loan syndication. The LIBOR margin is currently 1.25%
per annum, but it can range between 0.75% and 1.50% depending on the Company's
interest coverage ratio. Under the Revolving Credit, the Company is required to
pay a quarterly commitment fee on the unused portion of the facility at a rate
that ranges from 0.15% to 0.30% per annum. At September 28, 1996 the quarterly
commitment fee was 0.25% per annum.
The Revolving Credit contains certain financial covenants, the most restrictive
of which are a minimum interest coverage ratio, a maximum funded debt ratio and
a minimum consolidated tangible net worth amount. It also contains covenants
that restrict the amount of cash dividends as well as the amount that the
Company can repurchase of its subordinated debt and common stock.
In August 1996, the Company amended the Revolving Credit to grant to the
syndicated bank group a security interest in U.S. accounts receivable and
inventories. The security interest is subject to automatic release by the bank
group upon the achievement of certain financial ratios after September 1, 1997.
The amendment, among other things, waived the interest coverage covenant default
as of June 29, 1996.
Capital expenditures were $2.2 million for the first quarter of fiscal 1997. The
Company expects to spend approximately $5.0 to $6.0 million on capital
expenditures in fiscal year 1997. The largest planned expenditures are for
computer systems and new product tooling.
A principal business strategy of the Company has been to pursue acquisitions of
businesses, products or technologies that will complement its current business.
The Company has identified the bicycle and sporting goods industries as possible
areas of focus. Such acquisitions may be funded with available cash, debt
financing, issuance of common stock or a combination thereof.
The Company believes its available cash flows from operations and the Revolving
Credit should be adequate to satisfy its working capital requirements in fiscal
1997. The Company does not anticipate paying dividends on its Common Stock in
the foreseeable future.
11
<PAGE>
Certain matters contained herein are forward-looking statements that involve
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: seasonality, competitive actions, timing of major customer shipments,
adverse weather conditions, retail environment, economic conditions and currency
fluctuations.
RESULTS OF OPERATIONS
Net Sales. Net sales increased by 8% to $62.1 million during the three
months ended September 28, 1996 as compared to $57.7 million for the same period
in 1995. The increase is due to strong helmet and bicycle sales in the
Independent Bicycle Dealer channel, compared to prior year. Helmets sales
increased by 16.7% mainly due to the inclusion of Giro in the current year and
increases in the Bell Pro Series brand. Giro contributed $3.5 million of
incremental sales for the fiscal quarter ended September 28, 1996. Bicycle sales
increased by 18.4% due to strong sales on old model year close outs and
pre-season shipments on new models.
The product line sales mix for the three month period is as follows:
Three Months Ended
------------------
September 28, September 30,
Product Line Sales Mix: 1996 1995
---- ----
Bicycle accessories 54% 58%
Bicycle helmets 28% 26%
Bicycles 16% 15%
Auto Racing helmets 2% 1%
The Company expects sales to also be higher in the second fiscal quarter
compared to a year ago due to incremental sales from Giro.
Gross Margin. Gross margins remained consistent at 28% of net sales in
the first quarter of fiscal 1997, when compared to fiscal 1996, excluding the
impact of the inventory write-up in fiscal 1996. Helmet margins improved during
the quarter due to the addition of Giro and the strong quarter for the Bell
brand, offset by a decline in bicycle margins due to greater discounting on end
of season close outs.
The inventory write-up of $5.9 million, related to the merger with AMRE and the
acquisition of SportRack, was charged to cost of sales during the first quarter
of fiscal 1996.
Selling, General and Administrative. Selling, general and
administrative costs remained consistent at 25% of net sales when compared to
the fiscal 1996 three month period. Actual selling, general and administrative
costs increased 5% to $15.3 million in the first three months of fiscal 1997 due
to the inclusion of Giro in fiscal 1997, which was acquired in January 1996.
When adjusting for the impact of Giro in fiscal year 1997, selling, general and
administrative expenses declined $660,000 when compared to fiscal 1996.
As a result of the timing of the Company's spring selling season, sales are
normally higher in the second half of the fiscal year than the first half.
Although some selling, general and administrative expenses are variable with
sales, most expenses are incurred evenly throughout the year.
12
<PAGE>
Amortization of intangibles. Amortization of goodwill and intangible
assets increased to $862,000 in the first quarter of fiscal 1997 from $587,000
in the first quarter of fiscal 1996, primarily due to the acquisition of Giro in
January 1996.
Consolidation Costs. During fiscal 1996, the Company commenced
significant organizational and office consolidations including closing the
Cerritos, Providence, Commack and Calgary offices. Most U.S. sales, marketing
and research and development operations were consolidated in San Jose,
California and all corporate functions in Scottsdale, Arizona. Substantially all
of the Canadian operations were consolidated into one facility in Granby,
Quebec. Included in the first quarter of fiscal 1997 pre-tax income is $1.4
million related to consolidation costs, including facility closing costs,
severance benefits and relocation expenses. These consolidation activities are
substantially completed and should be finalized during the second quarter of
fiscal 1997.
Net investment income and interest expense. Net investment income
increased to $1.8 million for the first three months in fiscal 1997, compared to
$1.0 million in fiscal 1996. The increase is due to settlement of an arbitration
case related to the handling of certain marketable securities by an outside
investment advisor. The settlement proceeds, net of related expenses and
expected losses to sell certain securities, of $1.3 million are included in net
investment income. Interest expense decreased to $1.8 million in the first
quarter of fiscal 1997 from $2.3 million in the first quarter of fiscal 1996,
due to lower levels of debt outstanding during fiscal 1997.
Income taxes. The effective tax rate was 44.0% for the first quarter of
fiscal 1997. The effective rate was 47.0% for the first quarter of fiscal 1996,
excluding consolidation costs and the impact of the inventory write-up, and
20.0% if these cost are included.
Net income and weighted average shares. Results from operations for the
fiscal 1997 first quarter was income of $3,000 or break-even on a per share
basis compared to a loss of $5.4 million or 38 cents per share for the fiscal
1996 first quarter. First quarter results included pretax consolidation charges
of $1.4 million and $400,000 in fiscal 1997 and fiscal 1996, respectively. In
addition, the fiscal 1996 results included a $5.9 million charge for the
inventory write-up arising from the acquisition of SportRack in May 1995 and the
merger with American Recreation Company Holdings, Inc. in July 1995. Weighted
average shares outstanding for the fiscal three month period ended September 28,
1996 was 13.7 million compared to 14.1 million at September 30, 1995, primarily
due to the Company's repurchase of 523,400 shares of its outstanding Common
Stock during fiscal 1996.
13
<PAGE>
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 16
(b) None
14
<PAGE>
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: October 30, 1996
BELL SPORTS CORP.
/s/ Howard A. Kosick Executive Vice President and Chief Financial Officer
- ------------------------- (Principal financial officer)
Howard A. Kosick
/s/ Linda K. Bounds Vice President and Corporate Controller
- ------------------------- (Principal accounting officer)
Linda K. Bounds
15
<PAGE>
BELL SPORTS CORP.
INDEX TO EXHIBITS
Exhibit
Number Description
- --------------------------------------------------------------------------------
11* .Statement re: computation of per share earnings
27* .Financial Data Schedule
- ----------------------------------
* Filed herewith
16
BELL SPORTS CORP.
EXHIBIT 11 - STATEMENT RE:
COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------
September 28, September 30,
1996 1995
---------------------------------------------
<S> <C> <C>
Net income (loss) $ 3 $(5,372)
Net effect of convertible subordinated 566 607
debentures (using the if-converted method)
---------------------------------------------
Adjusted net income (loss) $ 569 $(4,765)
=============================================
Weighted average number of common 13,754 14,131
and common equivalent shares
outstanding - primary
Additional shares assuming conversion of 1,595 1,595
convertible subordinated debentures
---------------------------------------------
Adjusted average shares outstanding for 15,349 15,726
fully diluted computation
=============================================
Per share amount - fully diluted $ 0.04 $ (0.30)
=============================================
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-28-1996
<EXCHANGE-RATE> 1
<CASH> 24,951
<SECURITIES> 5,118
<RECEIVABLES> 63,515
<ALLOWANCES> 3,086
<INVENTORY> 61,321
<CURRENT-ASSETS> 170,502
<PP&E> 40,969
<DEPRECIATION> 15,476
<TOTAL-ASSETS> 285,960
<CURRENT-LIABILITIES> 29,176
<BONDS> 120,282
0
0
<COMMON> 142
<OTHER-SE> 136,360
<TOTAL-LIABILITY-AND-EQUITY> 285,960
<SALES> 62,068
<TOTAL-REVENUES> 62,068
<CGS> 44,560
<TOTAL-COSTS> 44,560
<OTHER-EXPENSES> 17,499
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,796
<INCOME-PRETAX> 5
<INCOME-TAX> (2)
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> .00
<EPS-DILUTED> .04
</TABLE>
