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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 27, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 (I.R.S. EMPLOYERIDENTIFICATION NO.)
OFINCORPORATION OR ORGANIZATION)
6350 SAN IGNACIO AVENUE, SAN JOSE, 95119
CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(408) 574-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
TITLE OF EACH NAME OF EACH EXCHANGE
CLASS ON WHICH REGISTERED
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<S> <C>
Not applicable
---
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
4 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2000
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 22, 1998 was $106,922,000 (based on the average of the
high and low sales price as reported by The Nasdaq Stock Market on such date).
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of each of the registrant's classes of
common stock, as of July 22, 1998:
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<CAPTION>
NUMBER OF
CLASS SHARES
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Common Stock, $.01 par value................................... 13,915,436
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
None
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Item 7 of the Annual Report on Form 10-K for the year ended June 27, 1998
filed by Bell Sports Corp. is hereby amended to read in its entirety as
follows:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
Financial Statements, and the related notes thereto included elsewhere in this
Annual Report on Form 10-K. Certain statements in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of the Litigation Reform Act.
OVERVIEW
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. Bell Sports is also a leading supplier of auto racing helmets
and a supplier of bicycle accessories worldwide. The Company has developed a
reputation over its 44-year history for innovation, design, quality and
safety. Since its founding, the Company has engaged in the manufacture and
sale of bicycle helmets, bicycle accessories, auto racing helmets and
motorcycle helmets. In 1991, the Company elected to refocus its operations on
the growing bicycle helmet and accessory business by divesting its motorcycle
helmet business. Under the terms of the agreement providing for the sale of
the motorcycle helmet business, the Company entered into a long-term licensing
agreement under which the Company agreed to license the Bell brand name to the
purchaser for use on motorcycle helmets.
Throughout the 1980s and 1990s, the Company strengthened its position in the
bicycle helmet and accessory markets through a series of strategic
acquisitions, including: (i) Rhode Gear, a designer and marketer of certain
premium bicycle accessories, in November 1989; (ii) Blackburn, a designer and
marketer of certain premium bicycle accessories, in November 1992;
(iii) VistaLite, a designer and manufacturer of premium LED safety lights and
headlights for bicycles, in January 1994; (iv) SportRack Canada, Inc.
("SportRack"), a designer, manufacturer and marketer of automobile roof rack
systems, in May 1995; (v) AMRE, a leading designer, marketer and distributor
of bicycle helmets and accessories and marketer of a line of bicycles under
the Mongoose brand, in July 1995; and (vi) Giro, a leading designer,
manufacturer and marketer of premium bicycle helmets, in January 1996. Through
the acquisitions of Rhode Gear, Blackburn, VistaLite and AMRE, the Company
became one of the leading marketers and distributors of bicycle accessories in
North America. In addition, the acquisition of Giro enhanced the Company's
market position in the premium bicycle helmet market segment. Each of the
acquisitions described above was accounted for using the purchase method of
accounting, and accordingly, the Company's results of operations include the
operations of the acquired businesses since their respective dates of
acquisition. The Company has also expanded its international presence
throughout the 1990s. In 1991, the Company entered the European market by
opening a bicycle helmet manufacturing facility in France. In fiscal 1997, the
Company continued its international expansion with the opening of a sales,
marketing and distribution office in Australia to service the Australian, New
Zealand and Pacific Rim markets.
The domestic bicycle helmet market experienced significant growth in unit
sales during the early 1990s principally due to (i) increased safety awareness
among consumers and the adoption of mandatory bicycle helmet legislation by
several states, including California and New York, and (ii) the popularity of
bicycling, including speciality segments such as mountain biking. The
convergence of these trends led to a significant increase in shelf space,
particularly in the mass merchant channel, dedicated to bicycle helmets. As a
result, several small helmet manufacturers entered the domestic bicycle helmet
market in the early 1990s. In 1995 and 1996, as the increase in demand aided
by new mandatory bicycle helmet legislation subsided, mass merchants reduced
shelf space dedicated to the segment, driving down price points industry-wide.
As a result, the Company reduced prices in an effort to maintain market share,
and believes that this strategic decision proved successful as it effectively
responded to new competitors and enabled Bell Sports to maintain its leading
market position. However, this price pressure significantly reduced the
Company's margins and profitability during this period. The Company believes
that domestic bicycle helmet demand has stabilized.
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In fiscal 1996 and 1997, the Company refocused on the profitability of its
core businesses through the divestiture of nonstrategic and low margin
businesses, elimination of duplicative overhead and reduction of distribution
and manufacturing costs. As a result, management initiated the following
changes: (i) the April 1997 divestiture of Service Cycle/Mongoose, a designer,
marketer and distributor of bicycles and certain non-proprietary bicycle parts
and accessories; (ii) the divestiture of SportRack in July 1997; (iii) the
consolidation of its corporate headquarters into its San Jose, California
facility; (iv) the closure of the Memphis, Tennessee distribution facility by
consolidating operations into the Company's other existing distribution
facilities; and (v) the installation of a new computer system in the
warehouses and mass merchant operations to improve operational efficiency and
customer service. Unless otherwise noted, the Company's results of operations
include the operations of the divested businesses until the date of sale.
GENERAL
Net sales, as calculated by the Company, are determined by subtracting
estimated returns, discounts, allowances and net freight charges from gross
sales. The Company's cost of sales and its resulting gross margin (defined as
gross profit as a percentage of net sales) are principally determined by the
cost of raw materials, the cost of labor to manufacture its products, the
overhead expenses of its manufacturing facilities, the cost of sourced
products, warehouse costs, freight expenses, royalties and obsolescence
expenses. Selling, general and administrative expenses consist primarily of
sales and marketing expenses, research and development costs and
administrative costs. Sales and marketing expenses generally vary with sales
volume while administrative costs are relatively fixed in nature.
As of June 27, 1998, the Company had domestic net operating loss
carryforwards of approximately $32.7 million. The Company's net operating loss
carryforwards begin to expire in fiscal 2008. After the Merger, there will be
a change of ownership of more than 50%, resulting in an annual limitation of
the loss carryforward which may delay or limit the eventual utilization of the
carryforwards.
The Company believes its results of operations in fiscal 1998 are not
comparable to those of fiscal 1996 and 1997 due to the inclusion of results of
operations in fiscal 1996 and 1997 of Service Cycle/Mongoose and SportRack,
which were divested in April 1997 and July 1997, respectively. For ease of
comparison to fiscal 1998, which does not include the results of the divested
businesses, the Company has included adjusted information which excludes the
divested businesses from the net sales and gross margin data for fiscal 1996
and 1997.
COMPARISON OF THE FISCAL YEAR ENDED JUNE 27, 1998 WITH THE FISCAL YEAR ENDED
JUNE 28, 1997
Net Sales. Net sales decreased 20% to $207.2 million in fiscal 1998 from
$259.5 million in fiscal 1997 primarily as a result of the divestiture of
Service Cycle/Mongoose and SportRack. Excluding the results of the divested
businesses, which combined contributed $50.7 million in net sales in fiscal
1997, net sales decreased $1.6 million, or 1%, to $207.2 million in fiscal
1998 from $208.8 million in fiscal 1997. The decrease resulted from lower
bicycle accessory shipments due to a reduction in the number of days of
inventory carried by a major mass merchant customer, the elimination of
certain lower margin products from the Company's sales mix and a decrease in
the prices of certain helmets sold in the mass merchant channel. The decrease
was largely offset by strong international sales growth and continued strength
in the IBD helmet market.
For fiscal 1998, bicycle accessories, bicycle helmets and auto racing
helmets represented approximately 52%, 46% and 2%, respectively, of the
Company's net sales. For fiscal 1997, bicycle accessories, bicycle helmets and
auto racing helmets represented approximately 54%, 44% and 2%, respectively,
of the Company's net sales, excluding the results of the divested businesses.
Gross Margin. Gross margin increased to 34% of net sales in fiscal 1998 from
30% of net sales in fiscal 1997, on an actual basis, and from 32% of net sales
on an adjusted basis, excluding the results of the divested businesses.
Excluding the results of Service Cycle/Mongoose and SportRack, which had lower
gross margins than the Company's other product lines, the increase was
primarily attributable to the elimination of certain lower
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margin products from the Company's sales mix, the introduction of Bell-branded
bicycle accessories into the mass merchant channel in December 1997, lower
distribution costs due to the closure of the Company's Memphis, Tennessee
distribution facility in November 1997, improvements in manufacturing
efficiencies and a reduction in manufacturing overhead costs. Despite the
decrease in the prices of certain helmets sold in the mass merchant channel,
the Company was able to increase its gross margin in that channel by over one
percentage point, which was primarily attributable to the Company's cost
reduction initiatives.
Selling, General and Administrative. Selling, general and administrative
expenses were 23% of net sales in both fiscal 1998 and 1997. Selling, general
and administrative expenses decreased by $11.9 million to $48.5 million in
fiscal 1998 from $60.4 million in fiscal 1997. The decrease was primarily
attributable to continued cost savings produced by the Company's cost
reduction initiatives and the divestiture of Service Cycle/Mongoose and
SportRack.
Amortization of Goodwill and Intangible Assets. Amortization of goodwill and
intangible assets decreased to $2.3 million in fiscal 1998 from $3.3 million
in fiscal 1997. The decrease was a result of a write-off of intangible assets
relating to the divestiture of Service Cycle/Mongoose and SportRack.
Loss on Disposal of Product Lines and Sale of Assets. During fiscal 1998,
the Company negotiated a letter of intent to sell the assets of its domestic
foam molding facility in Rantoul, Illinois, and agreed to sublet the building
housing the foam molding facility to the purchaser. The Company expects to
enter into a foam molding supply agreement with the purchaser. The Company
recorded fiscal 1998 charges of approximately $2.6 million, including a $2.0
million charge related to the divestiture of SportRack, and approximately a
$0.6 million charge associated with the sale and related reorganization of the
Company's domestic foam molding facility. During fiscal 1998, the Company
reversed previously recorded charges of $1.9 million, including a $0.6 million
benefit based on the finalization of costs associated with the closure of
distribution facilities, and a $1.3 million benefit related to the reversal of
the remaining reserve for uncollectible receivables established in fiscal 1997
in connection with the divestiture of Service Cycle/Mongoose.
In April 1997, the Company completed the sale of its Service Cycle/Mongoose
inventory, trademarks and certain other assets to Brunswick Corporation. In
connection with the divestiture of Service Cycle/Mongoose, the Company
recorded a loss on disposal of product lines of $25.4 million, comprised of
the write-off of goodwill and intangibles ($14.8 million), disposal and exit
costs ($5.4 million) and reorganization costs associated with the distribution
network and operations ($5.2 million).
Restructuring Charges. Restructuring charges were approximately $1.2 million
and $4.1 million for fiscal 1998 and 1997, respectively. During fiscal 1998,
the Company approved a plan to restructure its European operations. In
connection with this plan, in December 1997, the Company consolidated its
Paris, France sales and marketing office into its Roche La Moliere, France
facility. In addition, the Company consolidated key management functions of
Giro Ireland (as defined) and EuroBell (as defined). As a result, in fiscal
1998, the Company recorded $1.2 million of restructuring charges related to
facility closing costs and severance benefits.
During fiscal 1997, the Company recorded $2.7 million of restructuring
charges related to the consolidation of its corporate headquarters into its
San Jose, California facility. The Company recorded an additional $1.5 million
of restructuring charges in fiscal 1997 related to the consolidation of the
Company's Canadian operations and closure of four offices in connection with
the AMRE Merger and the Company's cost reduction initiatives.
Net Investment Income and Interest Expense. Net investment income decreased
to $1.7 million in fiscal 1998 from $2.9 million in fiscal 1997. The decrease
was due to the settlement of an arbitration case related to the handling of
certain marketable securities by an outside investment advisor during fiscal
1997. The settlement proceeds, net of related expenses and losses to sell
certain securities, were $1.3 million. Interest expense decreased to
$4.7 million in fiscal 1998 from $7.3 million in fiscal 1997 as a result of
lower average debt balances outstanding.
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Income Taxes. An income tax provision of $5.3 million, or 38% of the pre-tax
income, was reported for fiscal 1998, compared to an income tax benefit of
$3.0 million, or 14% of the pre-tax loss, reported for fiscal 1997. A majority
of the difference in the effective tax rates was due to the write-off of non-
tax deductible goodwill in connection with the divestiture of Service
Cycle/Mongoose.
COMPARISON OF THE FISCAL YEAR ENDED JUNE 28, 1997 WITH THE FISCAL YEAR ENDED
JUNE 29, 1996
Net Sales. Net sales decreased 1% to $259.5 million in fiscal 1997 from
$262.3 million in fiscal 1996 primarily as a result of the divestiture, at the
beginning of the fourth quarter of fiscal 1997, of Service Cycle/Mongoose,
which contributed $68.6 million in net sales in fiscal 1996. Excluding the
results of Service Cycle/Mongoose and SportRack, net sales increased
$15.1 million, or 8%, to $208.8 million in fiscal 1997 from $193.7 million in
fiscal 1996. The increase primarily resulted from higher bicycle accessory
shipments to certain major mass merchants, which resulted in an increase in
net sales of approximately $5.8 million and higher bicycle helmet shipments in
the IBD market, which resulted in an increase in net sales of bicycle helmets
of approximately $9.8 million. Approximately $7.7 million of the IBD helmet
sales increase was due to the inclusion of Giro (which was acquired in January
1996) for a full year. The increase was partially offset by lower unit helmet
volumes and a decrease in the prices of certain helmets sold in the mass
merchant channel.
For fiscal 1997, bicycle accessories, bicycle helmets and auto racing
helmets represented 54%, 44% and 2%, respectively, of the Company's net sales,
excluding the results of the divested businesses. For fiscal 1996, bicycle
accessories, bicycle helmets and auto racing helmets represented 56%, 42%, and
2%, respectively, of the Company's net sales, excluding the results of the
divested businesses.
Gross Margin. Gross margin increased to 30% of net sales in fiscal 1997 from
29% in fiscal 1996, on an actual basis, excluding the $14.1 million inventory
write-up associated with the AMRE Merger and the acquisitions of SportRack and
Giro. On an adjusted basis, gross margin increased to 32% of net sales in
fiscal 1997 from 31% in fiscal 1996, excluding the results of the divested
businesses and the fiscal 1996 $14.1 million inventory write-up associated
with the AMRE Merger and the acquisitions of SportRack and Giro. The increase
was primarily attributable to the divestiture of Service Cycle/Mongoose and
SportRack, which had lower gross margins than the Company's other product
lines and an increase in the shipment of IBD bicycle helmets, which generally
have higher than average gross margins.
Selling, General and Administrative. Selling, general and administrative
expenses decreased by $6.4 million to $60.4 million in fiscal 1997 from $66.8
million in fiscal 1996. The decrease was primarily attributable to lower
advertising expenditures of $4.0 million, a full year benefit of cost savings
produced by the Company's restructuring plan related to the AMRE Merger and
the divestiture of Service Cycle/Mongoose in April 1997. In fiscal 1996, the
Company incurred $5.6 million in advertising expenses for a one-time
promotional campaign in connection with the launch of the Bell Pro helmet line
and the expansion of the Bell brand into the mass merchant channel. The
decrease in selling, general and administrative expenses was partially offset
by increases relating to opening a distribution and sales office in Sydney,
Australia during November 1996 and the inclusion of Giro for a full year.
Amortization of Goodwill and Intangible Assets. Amortization of goodwill and
intangible assets increased to $3.3 million in fiscal 1997 from $2.9 million
in fiscal 1996. The increase was due to the inclusion of a full year of
amortization related to the acquisition of Giro, partially offset by a
decrease in amortization as a result of the write-off in fiscal 1997 of
certain goodwill and intangible assets in connection with the divestiture of
Service Cycle/Mongoose.
Loss on Disposal of Product Lines and Sale of Assets. In April 1997, the
Company completed the sale of its Service Cycle/Mongoose inventory, trademarks
and certain other assets to Brunswick Corporation. In connection with the
divestiture of Service Cycle/Mongoose, the Company recorded a loss on disposal
of product lines of $25.4 million, comprised of the write-off of goodwill and
intangibles ($14.8 million), disposal and exit costs ($5.4 million) and
reorganization costs associated with the distribution network and operations
($5.2 million).
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Restructuring Charges. Restructuring charges were approximately $4.1 million
and $5.9 million for fiscal 1997 and 1996, respectively. During fiscal 1997,
the Company recorded $2.6 million of restructuring charges related to the
consolidation of its corporate headquarters into its San Jose, California
facility. The Company recorded an additional $1.5 million of restructuring
charges in fiscal 1997 related to the consolidation of the Company's Canadian
operations and closure of four offices in connection with the AMRE Merger and
the Company's cost reduction initiatives.
Restructuring charges were approximately $5.9 million in fiscal 1996. During
fiscal 1996, the Company commenced significant organizational and office
consolidations, including in connection with the AMRE Merger. Most U.S. sales,
marketing and research and development operations were consolidated into the
Company's San Jose, California office and all corporate functions were
consolidated into the Company's Scottsdale, Arizona office.
Net Investment Income and Interest Expense. Net investment income increased
slightly in fiscal 1997. The increase is due to the settlement of an
arbitration case related to the handling of certain marketable securities by
an outside investment advisor during fiscal 1997. The settlement proceeds, net
of related expenses and expected losses to sell certain securities were $1.3
million. Excluding this settlement, interest income decreased to $1.6 million
in fiscal 1997 from $2.9 million in fiscal 1996. This decline was due to lower
levels of cash and marketable securities invested during the year. Interest
expense decreased to $7.3 million for fiscal 1997 from $8.7 million for fiscal
1996. The decrease was due to lower average debt balances outstanding and
lower interest rates for fiscal 1997 when compared to fiscal 1996.
Income Taxes. An income tax benefit of $3.0 million, or 14% of the pre-tax
loss, was reported for fiscal 1997 compared to an income tax benefit of $8.3
million, or 40% of the pre-tax loss, was reported for fiscal 1996. A majority
of the difference in the effective tax rates was due to the write-off of non-
tax deductible goodwill in connection with the divestiture of Service
Cycle/Mongoose.
LIQUIDITY AND CAPITAL 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 decreased to $130.4 million at June
27, 1998 from $130.7 million at June 28, 1997. Cash provided by operating
activities for fiscal 1998 increased to $27.5 million from $0.9 million for
fiscal 1997. The increase was primarily due to the collection of Service
Cycle/Mongoose receivables subsequent to the divestiture of the business; a
decrease in accounts receivable and inventory resulting from the divestiture
of the SportRack business; and lower selling, general and administrative
expenses resulting from divested businesses and realization of savings from
consolidation and cost savings programs implemented. This was partially offset
by lower gross profit resulting from the divestiture of businesses and payment
of liabilities previously accrued for restructuring and facility closure
costs.
The Company's capital expenditures were $5.5 million, $7.1 million and $5.3
million in fiscal 1998, 1997 and 1996, respectively. These amounts primarily
reflect cash outlays for maintaining and upgrading the Company's manufacturing
facilities and equipment including new product tooling and computer systems.
Management estimates that the Company will continue to spend approximately
$5.0 million annually for product tooling and to maintain and upgrade its
facilities and equipment.
Following the Transactions, the Company's principal sources of liquidity
will be cash flow from operations supplemented by borrowings under the Senior
Secured Credit Facility.
In connection with the Merger, the Issuer will issue the Notes for $110.0
million in gross proceeds and will enter into the Senior Secured Credit
Facility, which will provide revolving loans in an aggregate amount of up to
$60.0 million (including letters of credit), subject to a borrowing base of
85% of eligible accounts receivable and 55% of eligible domestic inventory. As
of June 27, 1998, after giving effect to the Transactions, the Issuer
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anticipates that it would have had $46.3 million available to be borrowed
under the Senior Secured Credit Facility. Proceeds to the Issuer from the
issuance of the Notes, initial borrowings under the Senior Secured Credit
Facility and a portion of the Issuer's available cash will be paid to Holdings
to finance, in part, the Transactions and pay the related fees and expenses.
In connection with the Merger, the Investors will invest $45.0 million in the
equity of HB Acquisition and $15.0 million in Holdings Senior Discount Notes.
See "The Transactions" and "Description of Senior Secured Credit Facility."
Management believes that, upon completion of the Transactions, cash flow
from operations and borrowing availability under the Senior Secured Credit
Facility 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 judgments. The Company's ability
to fund its operations and make planned capital expenditures, to make
scheduled debt payments, to refinance indebtedness and to remain in compliance
with all of the financial covenants under its debt agreements depends on its
future operating performance and cash flow, which in turn, are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond the Company's control. In addition, a termination of
or other adverse change in the Company's relationship with, an adverse change
in the financial condition of, or a significant reduction in sales to, Wal-
Mart, which represented approximately 21% of the Company's net sales in fiscal
1998, could have a material adverse effect on the Company's liquidity and
results of operations. See "Risk Factors--Customer Concentration."
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 Non-IT Systems, to properly recognize and process date sensitive
information related to the year 2000 and beyond. The Company believes that it
will be able to achieve year 2000 compliance by the end of 1999 and does not
currently anticipate any material disruption of its operations as a result of
any failure by the Company to be year 2000 compliant. However, to the extent
the Company is unable to achieve year 2000 compliance, the Company's business
and results of operations could be materially affected. This could be caused
by computer related failures in a number of areas including, but not limited
to, the failure of the Company's financial systems, manufacturing and
warehouse management systems, phone system and electricity supply.
The Company has performed a preliminary examination of its major software
applications to determine whether each system is prepared to accommodate the
year 2000. In fiscal 1998, through routine upgrades, the Company made the
computer software programs used at the Company's domestic facilities and at
Bell Sports Canada year 2000 compliant. These upgrades include, but are not
limited to, the manufacturing, financial, customer and vendor purchase order
processing and warehouse management systems. In fiscal 1999, the Company
expects to further upgrade these programs to a year 2000 level certified by
the Company's outside software vendors. The computer software programs of Giro
and Bell Sports Australia are currently year 2000 compliant. The computer
software programs of Giro Ireland are currently being upgraded to be year 2000
compliant by December 1998. The computer software programs of EuroBell are not
currently year 2000 compliant but are expected to be converted to a year 2000
compliant system or otherwise made year 2000 compliant before the end of 1999.
All year 2000 efforts with respect to the Company and its subsidiaries'
computer software programs are being made through internal resources and
through routine software upgrades provided by the Company's software vendors.
The Company has not incurred significant separately identifiable costs related
to year 2000 issues through June 27, 1998 and does not expect to incur
significant additional costs in order to make its computer software programs
year 2000 compliant. 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 has
not hired additional employees, either full-time or contract, in order to
address year 2000 issues and expects all such issues will be adequately
addressed by the existing team.
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The Company employs certain manufacturing processes that utilize computer
controlled manufacturing equipment. The Company believes such equipment is
year 2000 compliant but has not completed its testing of such equipment.
Testing is expected to be completed by December 1998. In the event the Company
determines that such equipment cannot readily be made year 2000 compliant, the
Company believes that it could revert to the manual processes previously
employed or outsource such work with minimal incremental manufacturing cost.
The Company's facilities staff currently is investigating the status of the
Company's Non-IT Systems with respect to year 2000 compliance. The Company's
Non-IT Systems include phones, voicemail, heating/air conditioning,
electricity, security systems and lift trucks. The Company expects that its
Non-IT Systems will be year 2000 compliant before the end of 1999. The Company
is utilizing internal resources to address the year 2000 compliance of its
Non-IT Systems and has not incurred significant separately identifiable costs
related to the year 2000 issues through June 27, 1998 and does not expect to
incur significant additional costs in order to upgrade its Non-IT Systems to
year 2000 compliance.
In addition to reviewing its internal systems, the Company has polled or is
in the process of polling 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 have confirmed that they are year 2000 compliant, including the
products utilized by the Company. The Company believes based on the responses
it has received from its customers that its mass merchant customers will be
year 2000 compliant before the end of 1999.
If the Company's customers and vendors do not achieve year 2000 compliance
before the end of 1999, the Company may experience a variety of problems which
may have a material adverse effect on the Company. Among other things, to the
extent the Company's customers are not year 2000 compliant by the end of 1999,
such customers may lose EDI capabilities at the beginning of the year 2000.
Where EDI communication would no longer be available, the Company expects to
utilize voice, facsimile and/or mail communication in order to receive
customer orders and process customer billings. To the extent the Company's
vendors are not year 2000 compliant by the end of 1999, such vendors may fail
to deliver ordered materials and products to the Company and may fail to bill
the Company properly and promptly. Consequently, the Company may not have the
correct inventory to send to its customers and may experience a shortage or
surplus of inventory. Although the Company does not currently have a plan for
addressing these potential problems, with respect to its vendors, the Company
has alternative sources of supply.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" ("SFAS 130") was issued. SFAS 130 establishes
standards for the reporting of comprehensive income and its components in a
full set of general-purpose financial statements, and is required to be
adopted for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods for comparative purposes is
required.
In June 1997, SFAS No. 131, "Disclosures About Segments of An Enterprise and
Related Information" ("SFAS 131") was issued. SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and
major customers. SFAS 131 is required to be adopted for fiscal years beginning
after December 15, 1997.
In June 1998, SFAS 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 for
fiscal years beginning after June 15, 1999. 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.
8
<PAGE>
The Company plans to adopt SFAS 130 and SFAS 131 in fiscal 1999 and SFAS 133
in fiscal 2000 and does not expect such adoptions to have a material effect on
the consolidated financial statements.
EXHIBIT
- -------
23.1* Consent of PricewaterhouseCoopers LLP
- --------
*Filed herewith
9
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON
THIS 14TH DAY OF AUGUST, 1998.
<TABLE>
<CAPTION>
NAME
----
<S> <C>
/s/ Terry G. Lee Chairman and Chief Executive Officer
___________________________________________ (principal executive officer)
Terry G. Lee
/s/ Linda K. Bounds Chief Financial Officer, Secretary and
___________________________________________ Treasurer (principal financial and
Linda K. Bounds accounting officer)
/s/ Harry H. Manko Director and Vice Chairman
___________________________________________
Harry H. Manko
/s/ Phillip D. Matthews Director
___________________________________________
Phillip D. Matthews
/s/ Michael R. Hannon Director
___________________________________________
Michael R. Hannon
/s/ W. Leo Kiely, III Director
___________________________________________
W. Leo Kiely, III
</TABLE>
10
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-53634, No. 33-53636, No. 33-53638, No. 33-
56366, No. 33-56368, No. 33-77134, No. 33-77136, No. 33-94296, No. 33-94298,
No. 333-4468, No. 333-4470, No. 333-4472, and No. 333-22879) of Bell Sports
Corp. of our report dated July 27, 1998 appearing on page 17 of the Form 10-K.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 59 of the Form 10-K.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
August 14, 1998
