<PAGE> 1
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 SEPTEMBER 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-26742
GT BICYCLES, INC.
(Exact name of the registrant as specified in its charter)
Delaware 04-3210830
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 East Dyer Road, Santa Ana, California 92705
(Address of principal executive offices)
(714) 481-7100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001 per share
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 [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding at November 10, 1997
----- --------------------------------
Common Stock, $0.001 par value 9,810,707
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GT BICYCLES, INC.
INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the three
and nine month periods ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 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 9
Part II. Other Information 14
Item 5. Subsequent Event
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
</TABLE>
2
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- ------------
(in thousands)
<S> <C> <C>
Current assets:
Trade accounts receivable, net $ 45,694 $ 51,843
Inventories (note 2) 77,071 74,328
Deferred income taxes 2,022 1,915
Prepaid expenses and other current assets 4,266 1,980
---------- ----------
Total current assets 129,053 130,066
Property, plant and equipment, net 11,407 5,023
Goodwill and covenants not to compete, net 20,016 19,144
Restricted cash from issuance of Industrial Development Bonds (note 5) 5,000 --
Other assets 1,144 1,948
---------- ----------
Total Assets $ 166,620 $ 156,181
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (note 7) $ 71,202 $ 4,250
Current portion of capital lease obligations 415 376
Accounts payable 13,926 12,468
Accrued liabilities 6,190 4,519
Income taxes payable 439 1,061
---------- ----------
Total current liabilities 92,172 22,674
Long-term debt, net of current portion (note 5) 13,114 73,421
Capital lease obligations, net of current portion 496 629
Deferred income taxes 92 92
Other liabilities 84 212
---------- ----------
Total liabilities 105,958 97,028
---------- ----------
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
none issued -- --
Common stock, $0.001 par value, 20,000,000 shares authorized,
9,810,707 and 9,781,097 shares issued and outstanding
at September 30, 1997 and December 31, 1996, respectively 10 10
Additional paid-in-capital 47,121 46,916
Retained earnings 13,236 11,458
Foreign currency translation adjustment 295 769
---------- ----------
Total stockholders' equity 60,662 59,153
---------- ----------
Total Liabilities and Stockholders' Equity $ 166,620 $ 156,181
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 56,444 $ 52,435 $ 158,383 $ 145,399
Cost of sales 40,525 37,041 114,892 104,272
---------- ---------- ---------- ----------
Gross profit 15,919 15,394 43,491 41,127
Selling, general and administrative expenses (note 4) 13,428 10,888 36,371 27,795
---------- ---------- ---------- ----------
Operating income 2,491 4,506 7,120 13,332
Life insurance proceeds, net of guaranteed
severance payments (note 3) 1,276 1,276
Interest expense (1,352) (1,047) (4,143) (2,514)
---------- ---------- ---------- ----------
Income before taxes 1,139 4,735 2,977 12,094
Income taxes (461) (1,095) (1,199) (4,039)
---------- ---------- ---------- ----------
Net income $ 678 $ 3,640 $ 1,778 $ 8,055
========== ========== ========== ==========
Earnings per common and
common equivalent share (note 6) $ 0.07 $ 0.37 $ 0.18 $ 0.81
========== ========== ========== ==========
Weighted average common and
common equivalent shares 9,914 9,934 9,919 9,924
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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GT BICYCLES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,778 $ 8,055
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization 1,958 1,190
Provision for doubtful accounts 459 345
Deferred income taxes (107) --
Write-off of leasehold improvements in connection with relocation 279 --
Changes in assets and liabilities:
Trade accounts receivable 5,690 639
Inventories (2,743) (12,127)
Prepaid expenses and other assets (2,441) (1,010)
Accounts payable 1,458 (2,068)
Accrued and other liabilities 1,544 2,560
Income taxes payable (622) 871
---------- ----------
Net cash provided by (used in) operating activities 7,253 (1,545)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (7,811) (2,205)
Purchase of Caratti Sport Limited -- (14,225)
Additional investments in subsidiaries (723) --
---------- ----------
Net cash used in investing activities (8,534) (16,430)
---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit 4,768 1,991
Borrowings under term loan -- 17,000
Principal payments on term loan (3,188) --
Borrowings under capital lease obligations and other debt 195 144
Principal payments on capital lease obligations (225) (110)
Proceeds from issuance of common stock 205 35
---------- ----------
Net cash provided by financing activities 1,755 19,060
---------- ----------
Foreign currency translation adjustment (474) (14)
---------- ----------
Change in cash and cash equivalents -- 1,071
Cash and cash equivalents at beginning of period -- --
---------- ----------
Cash and cash equivalents at end of period $ -- $ 1,071
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,122 $ 2,460
========== ==========
Income taxes $ 1,714 $ 2,604
========== ==========
Restricted cash from issuance of Industrial Development Bonds $ 5,000 $ --
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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GT BICYCLES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The condensed consolidated financial statements of GT Bicycles, Inc. (the
"Company") include the wholly-owned subsidiaries, GT Bicycles California, Inc.,
GT BMX Products, Inc., Riteway Distributors, Inc., Riteway Distributors Central,
Inc., Riteway Products East, Inc., Riteway Products North Central, Inc., Riteway
Products Japan K.K. ("Riteway Japan"), Riteway Products France S.A.R.L.
("Riteway France") and Caratti Sport Limited ("Caratti"), as well as the
majority-owned subsidiaries, Innovations in Composites ("Innovations") and
Riteway Products Canada ("Riteway Canada"). Riteway Products North Central,
Inc., Riteway France and Caratti were acquired in July 1995, April 1996 and July
1996, respectively, and have been accounted for under the purchase method of
accounting and, accordingly, the purchase price of each entity was allocated to
assets acquired based on their estimated fair values. The excess of the purchase
price over the fair market values of the net assets acquired has been recorded
as goodwill. Riteway Products North Central, Inc., Riteway France and Caratti
have been included in the Company's consolidated results of operations since the
date of acquisition. Riteway Japan was formed in March 1996 as a wholly-owned
subsidiary of the Company.
The Company held a 45% interest in Innovations from 1993 until June 30, 1997,
and accounted for its investment using the equity method during that period. On
July 1, 1997, the Company increased its investment in Innovations to a 57%
ownership level. Accordingly, the operating transactions of this entity, which
manufactures certain bicycle parts, have been consolidated into the Company's
financial statements in the quarter ended September 30, 1997.
On September 1, 1997, the Company and another investor formed Riteway Canada to
distribute bicycles, parts and accessories throughout Canada. Since the Company
has an 85% ownership level, the operating transactions of this entity have
been consolidated into the Company's financial statements.
The inclusion of the Innovations and Riteway Canada operations did not have a
material impact on consolidated net sales or net income in the quarter ended
September 30, 1997. The excess of the respective purchase price over the
Company's share of the fair market value of the net assets acquired for each of
these entities has been recorded as goodwill. The interest of minority
shareholders in the equity of these entities is included in other liabilities
and their interest in the earnings of these entities is included in selling,
general and administrative expenses; such amounts were not significant in the
quarter ended September 30, 1997.
Investments in affiliates, for which the Company has an ownership interest of at
least 20% but not exceeding 50%, are recorded under the equity method of
accounting.
All significant intercompany balances and transactions are eliminated in
consolidation.
Foreign Currency Translation
The Company uses the local currency of the respective country as the functional
currency for its overseas operations. Accordingly, assets and liabilities
outside the United States were translated into dollars at the rate of exchange
in effect at the balance sheet date. Income and expense items were translated at
the weighted average exchange rates prevailing during the period. The cumulative
translation gain or loss is included as an adjustment to stockholders' equity.
There were no significant foreign currency transaction gains or losses in the
periods presented.
6
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Forward Exchange Contracts
The Company from time to time enters into short-term, forward exchange contracts
to hedge the impact of foreign currency fluctuations on specific purchase
commitments denominated in foreign currencies. The gains and losses on these
contracts are included in the value of the assets which they were intended to
hedge. The Company had forward exchange contracts outstanding, with maturities
of four months or less, to exchange foreign currencies for approximately $2.2
million at September 30, 1997 and $3.3 million at December 31, 1996.
Unaudited Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the operating results to be expected for the full
year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1996.
(2) INVENTORIES
A summary of the components of inventories follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(in thousands)
<S> <C> <C>
Raw materials $ 421 $ 95
Work in process 5,385 3,659
Finished goods and component parts 71,265 70,574
---------- ----------
$ 77,071 $ 74,328
========== ==========
</TABLE>
(3) LIFE INSURANCE PROCEEDS, NET OF GUARANTEED SEVERANCE PAYMENTS
Included in net income for the three and nine months ended September 30, 1996
were net life insurance proceeds of $1,276,000 that the Company received
following the death of former President and Chief Executive Officer, Richard
Long, in July 1996. The net proceeds consisted of a $2,000,000 insurance
settlement less guaranteed payments of $724,000 owed to Mr. Long's family.
(4) RELOCATION OF SOUTHERN CALIFORNIA FACILITIES
In May 1997, the Company consolidated its southern California operations, which
had previously been located in several facilities, to the present building in
Santa Ana, California. In connection with the relocation, the Company incurred
aggregate expenses of approximately $1,000,000, including moving costs and the
write-off of abandoned leasehold improvements at the former facilities. This
amount was charged to selling, general and administrative expenses during the
first half of 1997.
7
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(5) INDUSTRIAL DEVELOPMENT BONDS
In September 1997, the Company consummated a $5,000,000 borrowing under a
California Economic Development Financing Authority program. Use of the funds is
restricted to the purchase of qualifying property and equipment at the Company's
Santa Ana facility. Pending disbursement for such capital expenditures, the
funds have been placed in an interest-bearing bank account and are classified as
restricted cash in the balance sheet at September 30, 1997.
(6) EARNINGS PER SHARE
The calculation of earnings per share was determined by dividing net income by
the weighted average common and common equivalent shares outstanding when
dilutive. Primary earnings per share approximates fully diluted earnings per
share for all periods presented.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" which,
when adopted, will replace the current methodology for calculating and
presenting earnings per share. Under SFAS No. 128, primary earnings per share
will be replaced with a presentation of basic earnings per share and fully
diluted earnings per share will be replaced with diluted earnings per share.
Basic earnings per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed similarly to
fully diluted earnings per share. The statement will be effective beginning in
the Company's fourth quarter ending December 31, 1997, and accordingly, the
financial statements for such quarter will include a restatement of historical
earnings per share to conform to the requirements of SFAS No. 128. Management
does not expect that the presentation required by SFAS No. 128 to materially
differ from the current presentation of earnings per share.
(7) SUBSEQUENT EVENT
On October 23, 1997, the Company's domestic bank credit agreement was amended to
increase the total domestic revolving credit facility from $60,000,000 to
$80,000,000 through February 28, 1998 (after which time it reverts to
$60,000,000), to increase the interest rate to be paid by the Company, to amend
certain financial covenants, and to require the Company to close on $30,000,000
of unsecured financing by February 28, 1998 (evidence indicating such financing
must be provided by January 31, 1998).
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
GT Bicycles, Inc. (the "Company") is a leading designer, manufacturer and
marketer of mid-to premium-priced mountain and juvenile BMX bicycles sold under
the Company's brand names. The Company's Riteway Products and Caratti
distribution network is a leading distributor of the Company's bicycles, parts
and accessories, and parts and accessories of other manufacturers, to
independent bicycle dealers.
RESULTS OF OPERATIONS
Net Sales. Net sales increased $4.0 million (8%) and $13.0 million (9%),
respectively, during the three and nine month periods ended September 30, 1997
in comparison with the corresponding periods in 1996. The increase for the
quarter was attributable to an increase in domestic sales of $1.5 million and
foreign sales of $2.5 million, while substantially all of the increase for the
nine-month period was attributable to an increase in foreign sales. The
increases in foreign sales relate primarily to the addition and growth of the
Company's subsidiaries in the United Kingdom, France, Japan and Canada, which
were purchased or formed during 1996 and 1997. The increase in domestic sales
during the quarter was due to higher sales of both adult and juvenile bicycles,
partially offset by lower sales of parts and accessories. For the nine-month
period, domestic sales were relatively flat due to lower sales of adult bicycles
and parts and accessories, offset by higher sales of juvenile bicycles.
Gross Profit. Gross profit as a percentage of net sales decreased to 28.2% and
27.5%, respectively, for the three and nine month periods ended September 30,
1997 compared with 29.4% and 28.3% for the corresponding periods in 1996. The
decreases were primarily attributable to manufacturing inefficiencies during and
following the relocation of the Company's facilities, discounting of old
model-year inventory during the second quarter, and changes in product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the three and nine month periods ended
September 30, 1997 increased by $2.5 million and $8.6 million, respectively,
over the corresponding periods in 1996. As a percentage of net sales, SG&A
increased to 23.8% and 23.0% during the three and nine month periods ended
September 30, 1997, respectively, compared with 20.8% and 19.1% for the
corresponding prior year periods. The increases in the quarter and nine-month
periods were primarily due to higher administrative costs totaling $0.8 million
and $4.4 million, respectively, from the addition of subsidiaries in the United
Kingdom, France, Japan and Canada. The remainder of the increases were primarily
due to higher selling, marketing and advertising expenses to promote worldwide
sales and brand equity, and higher product development expenses. In addition,
the 1997 nine-month period includes approximately $1.0 million of relocation
costs related to the consolidation of the Company's southern California
manufacturing, distribution and administrative facilities in May 1997.
Interest Expense. Interest expense for the three and nine month periods ended
September 30, 1997 increased by $0.3 million and $1.6 million, respectively, in
comparison with the corresponding periods of 1996. The increase in each of the
periods was attributable to additional borrowings which were incurred primarily
to fund acquisitions and the expansion of the Company's domestic and foreign
operations.
Income Taxes. The Company's effective tax rate was 40.5% and 40.3% in the three
and nine month periods ended September 30, 1997, respectively, as compared with
23.1% and 33.4% for the corresponding periods last year. The relatively low 1996
tax rates reflect the effects of the $2.0 million of nontaxable life insurance
proceeds received during the third quarter of 1996.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operating cash needs primarily from bank credit, vendor
credit, and cash generated from operations. The Company has a credit agreement
with a bank that provides a domestic revolving credit facility, a domestic term
loan maturing quarterly through September 2000, and separate revolving credit
facilities for the Riteway Japan, Riteway France and Caratti subsidiaries. All
of the revolving credit facilities expire on June 30, 1998 and are classified
as current liabilities at September 30, 1997.
The domestic credit facility requires the Company to maintain certain financial
ratios and other covenants, which, among other things, restrict other
indebtedness, capital expenditures and certain investments. As of September 30,
1997, the Company was in technical violation of a certain covenant, for
which the bank has issued a waiver as of that date. Subsequent to September 30,
1997, the Company and the bank entered into an amended domestic credit facility
which provides for a revised covenant that the Company expects to meet on an
ongoing basis in the future.
On October 23, 1997, the Company's domestic bank credit facility was amended to
increase the total domestic line of credit from $60.0 million to $80.0 million
through February 28, 1998 (after which time it reverts to $60.0 million), to
increase the interest rate to be paid by the Company, to amend certain financial
covenants, and to require the Company to close on $30,000,000 of unsecured
financing by February 28, 1998 (evidence indicating such financing must be
provided by January 31, 1998).
The Company's operating activities provided cash of $7.3 million in the nine
months ended September 30, 1997, compared with a $1.5 million net use of cash in
operations in the corresponding 1996 nine-month period. The improvement in
operating cash flow in 1997 is principally related to a reduction in accounts
receivable and to a smaller inventory buildup than occurred in the prior
year. Capital expenditures of $7.8 million principally consisted of $5.3 million
of improvements, machinery and equipment at the Santa Ana facility, $1.0 million
of other machinery and equipment, and $0.7 million of construction-in-progress
at a new research and development facility in Colorado.
In May 1997, the Company consolidated its southern California manufacturing,
distribution and administrative operations, which had been located in several
facilities, to the present building in Santa Ana, California. The operating
lease on the present building terminates on January 31, 2007 and will result in
an incremental average annual increase in rent expense over 1996 of
approximately $0.9 million.
The Company anticipates that it will continue to rely on bank credit, vendor
credit and cash generated from operations in order to finance anticipated higher
inventory and accounts receivable levels. The Company is in the process of
seeking additional unsecured financing to supplement the Company's credit
requirements and to meet covenants under the Company's senior secured credit
facility with its bank. While the Company is in discussions with several
potential lenders about the additional financing, there can be no assurance that
the Company will be able to obtain such financing on acceptable terms, or at
all. The failure to obtain such financing could have a material adverse effect
on the Company's business, results of operations and financial condition.
10
<PAGE> 11
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS AND FUTURE RESULTS
ECONOMIC CONDITIONS; SUSTAINABILITY OF GROWTH. The Company's business is subject
to economic cycles and changing consumer trends. Purchases of discretionary
sporting goods tend to decline in periods of economic uncertainty. Any
significant decline in general economic conditions or continued uncertainties
regarding future economic prospects that affect consumer spending could have a
material adverse effect on the Company's business, results of operations and
financial condition. In the past ten years, there has been a renewed public
interest in bicycling and fitness activities. There can be no assurance that the
public interest in bicycling and fitness activities will continue, or that the
Company will continue to grow or be able to sustain the level of bicycle sales
that it has historically achieved. Any general decline in the size of the
bicycle market or in a segment of the bicycle market in which the Company
competes, whether from general economic conditions, a decrease in the popularity
of bicycling or otherwise, could have a material adverse effect on the Company's
business, results of operations and financial condition.
TECHNOLOGICAL ADVANCEMENTS AND NEW PRODUCT INTRODUCTIONS. The bicycle industry,
in recent years, has been characterized by significant technological advances
and frequent new product introductions. The Company believes that the frequent
introduction of new, innovative bicycles, parts and accessories that respond
timely to changing consumer demands and trends will be critical to its future
success. In the past, the Company generally has been successful in the
introduction of its bicycles, parts and accessories. No assurance can be given,
however, that the Company will be able to continue to design and manufacture
products that will achieve commercial success.
INDEBTEDNESS; LIQUIDITY. The credit agreement relating to the Company's bank
debt requires the Company to maintain certain financial ratios and profitability
requirements. Any failure to comply with covenants or restrictions contained in
the credit agreement could result in a default thereunder, which in turn could
cause the Company's indebtedness to be declared immediately due and payable. The
Company has in the past renegotiated certain provisions of the credit agreement
to relax certain of the financial covenants to adapt to the Company's then
existing financial condition, although there can be no assurance that the bank
will renegotiate provisions of the credit agreement in the future. Although the
Company believes that its cash from operations, its bank credit and vendor
credit, and its existing working capital will be sufficient to satisfy the
Company's anticipated working capital and capital expenditure requirements
through at least the next twelve months, the Company may need to seek additional
sources of capital as necessary or appropriate to finance acquisitions or
otherwise finance the Company's operations during such period of time and
thereafter. Further, the Company's current credit agreement requires that the
Company seek additional unsecured financing. There can be no assurance that
additional financing will be available or, if available, that it will be
available on acceptable terms. If adequate funds are not available, the
Company's business, results of operations and financial condition may be
adversely affected.
QUARTERLY FLUCTUATIONS AND SEASONALITY. Operating results fluctuate on a
quarterly basis due to a variety of factors, including the cycles of dealer
orders, shipment of products from foreign suppliers, the number and timing of
new product introductions, the timing of operating and advertising expenditures
and changes in the mix of products ordered by dealers. Typically, the Company's
operating expenses are higher in the third quarter primarily due to annual
introductions of new bicycle models and participation in annual industry trade
shows. In addition, the Company's business has seasonal elements based on
bicycle model years, weather, the year-end shopping season and other factors.
The Company believes that factors such as fluctuations in the quarterly
operating results could cause the price of the common stock to fluctuate
substantially.
11
<PAGE> 12
COMPETITION. The market for bicycles, parts and accessories, both in the United
States and internationally, is highly competitive. In all of its product
categories, the Company competes with other manufacturers and distributors, some
of which have well-recognized brand names and substantial financial,
technological, distribution, advertising and marketing resources. In addition,
there are several bicycle manufacturers and component suppliers with substantial
resources that do not currently compete directly with the Company, but which
could pose significant competition to the Company in the future. There can be no
assurance that the Company will be able to compete successfully in the future.
DEPENDENCE ON CERTAIN SUPPLIERS. As is common in the industry, a substantial
majority of the Company's multi-speed bicycles contain componentry supplied on a
purchase order basis by one Japanese manufacturer. Although this supplier has
not indicated any intention to limit or reduce sales of parts to the Company, if
it were to do so, the Company's business, results of operations and financial
condition could be adversely affected. In addition, the Company purchases
substantially all of its bicycles that are manufactured overseas from a limited
group of manufacturers, which varies from year to year. The Company has no
long-term contracts with these suppliers and competes with other companies for
their production capacities. Although the Company has established relationships
with its principal suppliers and manufacturing sources, the Company's future
success will depend on its ability to maintain such relationships and to develop
relationships with new suppliers and manufacturing sources for the production
and sale of bicycles, parts and accessories. In the event of a delay or
disruption in the supply or delivery of bicycles, parts and accessories, the
Company believes that suitable alternative suppliers and carriers could be
obtained, although the transition to other suppliers and delays in the delivery
of bicycle components could result in significant production delays. Any
significant delay or disruption in the supply of bicycles, parts and accessories
could have a material adverse effect on the Company's business, results of
operations and financial condition.
PRODUCT LIABILITY. Because of the nature of the Company's business, the Company
at any particular time is a defendant in a number of product liability lawsuits
and expects that this will continue to be the case in the future. These lawsuits
generally seek damages, sometimes in substantial amounts, for personal injuries
allegedly sustained as a result of defects in the Company's products. Although
the Company maintains product liability insurance, due to the uncertainty as to
the nature and extent of manufacturers' and distributors' liability for personal
injuries, there is no assurance that the product liability insurance maintained
by the Company is or will be adequate to cover product liability claims or that
the applicable insurer will be solvent at the time of any covered loss. In
addition, due to deductibles, self-retention levels and aggregate coverage
amounts applicable under the Company's insurance policies, the Company will bear
responsibility for a significant portion, if not all, of the defense costs
(which include attorneys' fees and expenses incurred in the defense of any
claim), and the related payments to satisfy any judgments associated with any
claim asserted against the Company in excess of any applicable coverage. The
successful assertion or settlement of an uninsured claim, the settlement of a
significant number of insured claims, or a claim exceeding the Company's
insurance coverage could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, there can
be no assurance that insurance will remain available, or if available, will not
be prohibitively expensive.
CURRENCY FLUCTUATIONS. A portion of the Company's sales outside of North America
are denominated in local currencies. In addition, certain components purchased
by the Company are purchased in local currencies. Accordingly, the Company is
subject to the risks associated with fluctuations in currency rates. The Company
has not in the past experienced significant losses associated with currency
exchange fluctuations, but there can be no assurance that it will not experience
such losses in the future, particularly in light of the increasing portion of
net revenues resulting from sales outside North America and through its foreign
operating subsidiaries. From time to time, the Company has entered into forward
contracts against certain foreign currencies in an effort to minimize its
exposure on certain significant foreign currency receivables and component
purchases. Such hedging activities only partially address the Company's risks in
currency exchange transactions, and there can be no assurance that this strategy
will
12
<PAGE> 13
continue to be successful. Further there can be no assurance that the Company's
results of operations will not be adversely affected by currency fluctuations.
FORWARD-LOOKING STATEMENTS. THIS QUARTERLY REPORT CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, THAT INVOLVE RISKS AND UNCERTAINTIES. IN ADDITION, THE COMPANY MAY
FROM TIME TO TIME MAKE ORAL FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS ARE
UNCERTAIN AND MAY BE IMPACTED BY THE FOLLOWING FACTORS. IN PARTICULAR, CERTAIN
RISKS AND UNCERTAINTIES THAT MAY IMPACT THE ACCURACY OF THE FORWARD-LOOKING
STATEMENTS WITH RESPECT TO REVENUES, EXPENSES AND OPERATING RESULTS INCLUDE,
WITHOUT LIMITATION, CYCLES OF DEALER ORDERS, GENERAL ECONOMIC AND COMPETITIVE
CONDITIONS AND CHANGING CONSUMER TRENDS, TECHNOLOGICAL ADVANCES AND THE NUMBER
AND TIMING OF NEW PRODUCT INTRODUCTIONS, SHIPMENTS OF PRODUCTS AND COMPONENTRY
FROM FOREIGN SUPPLIERS, THE TIMING OF OPERATING AND ADVERTISING EXPENDITURES AND
CHANGES IN THE MIX OF PRODUCTS ORDERED BY INDEPENDENT BICYCLE DEALERS. AS A
RESULT, THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS.
BECAUSE OF THESE AND OTHER FACTORS THAT MAY AFFECT THE COMPANY'S OPERATING
RESULTS, PAST FINANCIAL PERFORMANCE SHOULD NOT BE CONSIDERED AN INDICATOR OF
FUTURE PERFORMANCE, AND INVESTORS SHOULD NOT USE HISTORICAL TRENDS TO ANTICIPATE
RESULTS OR TRENDS IN FUTURE PERIODS
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 5. SUBSEQUENT EVENT
On October 23, 1997, the Company's domestic bank credit agreement was amended to
increase the total domestic revolving credit facility from $60.0 million to
$80.0 million through February 28, 1998 (after which time it reverts to $60.0
million), to increase the interest rate to be paid by the Company, to amend
certain financial covenants, and to require the Company to close on $30,000,000
of unsecured financing by February 28, 1998 (evidence indicating such financing
must be provided by January 31, 1998). The related amendment to the bank credit
agreement has been filed herein as Exhibit 10.53.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C>
10.51 Sixth Amendment to Second Amended and
Restated Credit Agreement (Receivables
and Inventory) among the Company, GT
Bicycles California, Inc., Riteway
Products East, Inc., Riteway Products
North Central, Inc., Riteway
Distributors Central, Inc., Riteway
Distributors, Inc. and Bank of America,
N.T. and S.A., dated August 15, 1997.
10.52 Seventh Amendment to Second Amended and
Restated Credit Agreement (Receivables
and Inventory) among the Company, GT
Bicycles California, Inc., Riteway
Products East, Inc., Riteway Products
North Central, Inc., Riteway
Distributors Central, Inc., Riteway
Distributors, Inc. and Bank of America,
N.T. and S.A., dated September 11, 1997.
10.53 Eighth Amendment to Second Amended and
Restated Credit Agreement (Receivables
and Inventory) among the Company, GT
Bicycles California, Inc., Riteway
Products East, Inc., Riteway Products
North Central, Inc., Riteway
Distributors Central, Inc., Riteway
Distributors, Inc. and Bank of America,
N.T. and S.A., dated October 23, 1997.
27.1 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GT BICYCLES, INC.
Date: November 18, 1997 By: /s/ Charles Cimitile
------------------------------------
Charles Cimitile
Vice President Finance
and Chief Financial Officer
(Principal Financial
and Duly Authorized Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number
--------------
<S> <C>
10.51 Sixth Amendment to Second Amended and
Restated Credit Agreement (Receivables
and Inventory) among the Company, GT
Bicycles California, Inc., Riteway
Products East, Inc., Riteway Products
North Central, Inc., Riteway
Distributors Central, Inc., Riteway
Distributors, Inc. and Bank of America,
N.T. and S.A., dated August 15, 1997.
10.52 Seventh Amendment to Second Amended and
Restated Credit Agreement (Receivables
and Inventory) among the Company, GT
Bicycles California, Inc., Riteway
Products East, Inc., Riteway Products
North Central, Inc., Riteway
Distributors Central, Inc., Riteway
Distributors, Inc. and Bank of America,
N.T. and S.A., dated September 11, 1997.
10.53 Eighth Amendment to Second Amended and
Restated Credit Agreement (Receivables
and Inventory) among the Company, GT
Bicycles California, Inc., Riteway
Products East, Inc., Riteway Products
North Central, Inc., Riteway
Distributors Central, Inc., Riteway
Distributors, Inc. and Bank of America,
N.T. and S.A., dated October 23, 1997.
27.1 Financial data schedule
</TABLE>
16
<PAGE> 1
EXHIBIT 10.51
SIXTH AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
(RECEIVABLES AND INVENTORY); WAIVER
This Sixth Amendment to Second Amended and Restated Credit Agreement
(Receivables and Inventory); Waiver (this "Amendment") is entered into as of
August 15, 1997, among Bank of America National Trust and Savings Association
("Bank") and GT Bicycles California, Inc. ("GTBC"), Riteway Products East, Inc.
("East"), Riteway Products North Central, Inc. ("North Central"), Rite-Way
Distributors Central, Inc. ("Central"), Rite-Way Distributors, Inc.
("Distributors"), GT Bicycles, Inc. ("GT"). GTBC, East, North Central, Central,
and Distributors are sometimes hereinafter referred to collectively as
"Borrowers" and individually as a "Borrower."
RECITALS
A. Bank, GI, and Borrowers are parties to that certain Second Amended
and Restated Credit Agreement (Receivables and Inventory) dated as of August 12,
1996, as modified by amendments dated September 15, 1996, October 15, 1996,
October 31, 1996, February 13, 1997, and March 14, 1997 (as amended, the
"Credit Agreement").
B. The parties hereto now desire to amend the Credit Agreement on the
terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed to them in the Credit Agreement.
2. Amendments. The Credit Agreement shall be amended as follows:
(a) The following definitions are added to Paragraph 1.1 in
alphabetical order:
"Contingent Obligation" means any obligation guaranteeing
or intended to guarantee any indebtedness, leases, dividends or other
obligations ("primary obligations") of any person, firm, or
corporation (the
-1-
<PAGE> 2
"primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of
the primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless
the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not
include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming that
performance thereunder is required) as determined in good faith.
"EBITDA" means, for GT and its Subsidiaries on a consolidated
basis for any period of determination, the sum of (i) net income (or
loss) for such period plus (ii) to the extent deducted in the
calculation of net income for such period, Interest Expense for such
period plus (iii) to the extent deducted in the calculation of net
income for such period, federal and state income taxes for such
period, plus (iv) to the extent deducted in the calculation of net
income for such period, depreciation and amortization expense for such
period.
"Funded Debt" means all liabilities of whatever nature or
duration consisting of indebtedness for borrowed money or indebtedness
(including obligations under capital leases) incurred to finance the
purchase of any asset, excluding any such indebtedness that consists
of obligations due to trade creditors within one year, accrued
liabilities, and deferred tax liabilities.
-2-
<PAGE> 3
"Interest Expense" means, for GT and its Subsidiaries on a
consolidated basis for any period of determination, the total interest
expense (including, without limitation, interest expense attributable
to capitalized leases for such period.
"Leverage Ratio" means, for GT and its Subsidiaries on a
consolidated basis for any period of determination, the ratio of:
(a) the sum of (i) Funded Debt (including any standby
letters of credit) plus (ii) Contingent Obligations, in each case
issued with respect to Funded Debt, as of that date; to
(b) EBITDA."
(b) The definition of "Applicable Margin" in Paragraph 1.1 is
amended in full to read as follows:
"Applicable Margin" means a percentage based on the
Leverage Ratio achieved by GT and its Subsidiaries on a consolidated
basis, calculated on a rolling four-quarter basis, as follows:
===================================================================
Leverage Ratio Margin Percentage
-------------------------------------------------------------------
Offshore Rate
Reference Rate and LIBOR Rate
-------------------------------------------------------------------
less than or equal to 1.75 to 1.00 0.00% 1.00%
------------------------------------------------------------------
greater than 1.75 to 1.00
less than or equal to 2.50 to 1.00 0.00% 1.25%
-----------------------------------------------------------------
greater than 2.50 to 1.00
less than or equal to 3.00 to 1.00 0.25% 1.50%
-----------------------------------------------------------------
greater than 3.00 to 1.00
less than or equal to 3.50 to 1.00 0.50% 1.75%
-----------------------------------------------------------------
greater than 3.50 to 1.00
less than or equal to 4.00 to 1.00 0.75% 2.00%
-----------------------------------------------------------------
greater than 4.00 to 1.00 1.00% 2.25%
=================================================================
-3-
<PAGE> 4
The Applicable Margin shall be determined based on the most recent compliance
certificate received by Bank and shall be effective on the related "Start Date".
"Start Date" means, with respect to each date the compliance certificate is due
to be delivered pursuant to Paragraph 8.2 of this Agreement, the date indicated
below:
Compliance certificate as Related
of fiscal period ending Start Date
------------------------- ----------
June 30 September 1
September 30 December 1
December 31 March 1
March 31 June 1"
(c) The definition of "Tangible Net Worth" is deleted in full.
(d) In Paragraph 2.2(c), the words "plus the Applicable Margin"
are added immediately after the words "Reference Rate."
(e) Paragraph 2.5(f) is amended in full to read as follows:
"(f) The Term Loan shall, at GTBC's election, bear interest
at a rate per annum equal to the Reference Rate plus the Applicable
Margin or, subject to the requirements set forth in Section 2.6, the
Offshore Rate plus the Applicable Margin, the LIBOR Rate plus the
Applicable Margin, or a combination thereof; provided, however, that
no more than seven designations of optional interest rates under the
Revolving Credit and the Term Loan may be in effect at any one time.
No CD Rate Portion shall be available for the Term Loan."
(f) The form of Compliance Certificate attached to the Credit
Agreement as Exhibit A is amended in full to read as provided on Exhibit A
attached hereto.
(g) Except as hereby amended, all of the terms and conditions of
the Credit Agreement shall remain in full force and effect.
-4-
<PAGE> 5
3. Applicable Margin. The parties hereto agree that an Applicable
Margin of 2.00% shall be in effect under the Credit Agreement from and after the
date of execution of this Amendment to the next Start Date.
4. Waiver. Bank hereby waives Borrowers' noncompliance with Paragraph
8.4 of the Credit Agreement for the fiscal quarter ended June 30, 1997. This
waiver is specific in time and in intent and does not constitute, nor should it
be construed as, a waiver of any other right, power or privilege under the
Credit Agreement, or under any agreement, or instrument mentioned in the Credit
Agreement, or as a waiver of any other default of the same or of any other term
or provision of the Credit Agreement.
5. Representations and Warranties. Borrowers represent and warrant to
Bank that: (i) after giving effect to the waiver provided in Paragraph 4 of this
Amendment, no Event of Default under Credit Agreement and no event which, with
notice or lapse of time or both, would become an Event of Default has occurred
and is continuing; (ii) after giving effect to the waiver provided in Paragraph
4 of this Amendment, Borrowers' representations and warranties made under the
Credit Agreement are true as of the date hereof; (iii) the making and
performance by Borrowers of this Amendment have been duly authorized by all
necessary corporate action; (iv) no consent, approval, authorization, permit, or
license is required in connection with the making or performance of this
Amendment.
-5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
BANK OF AMERICA NATIONAL GT BICYCLES CALIFORNIA, INC.
TRUST AND SAVINGS ASSOCIATION RITEWAY PRODUCTS EAST, INC.
RITEWAY PRODUCTS NORTH CENTRAL, INC.
By: /s/ E.M. AMENDT RITE-WAY DISTRIBUTORS CENTRAL, INC.
-------------------------
E.M. Amendt RITE-WAY DISTRIBUTORS, INC.
Title: Vice President GT BICYCLES, INC.
By: /s/ MICHAEL HAYNES
---------------------
Michael Haynes
Title: President
-6-
<PAGE> 7
EXHIBIT A
FORM OF
COMPLIANCE CERTIFICATE
To: BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
Reference is made to that certain Second Amended and Restated Credit
Agreement (Receivables and Inventory) dated as of August 12, 1996, among Bank of
America National Trust and Savings Association and GT Bicycles California, Inc.,
Riteway Products East, Inc., Riteway Products North Central, Inc., Rite-Way
Distributors Central, Inc., Rite-Way Distributors, Inc. and GT Bicycles, Inc.
(the "Credit Agreement"). Capitalized terms not otherwise defined in this
Certificate shall have the meanings ascribed to them in the Credit Agreement.
This Certificate is delivered in accordance with Paragraph 8.2(c) of the Credit
Agreement.
I. CALCULATION OF LEVERAGE RATIO REGARDING APPLICABLE MARGIN
As of the date of the attached financial statements, the Leverage
Ratio was calculated as follows for the period consisting of the most recently
ended fiscal quarter plus the immediately preceding three fiscal quarters
("Fiscal Period"):
(a) Funded Debt (including
Standby L/C's) $____________
plus Contingent Obligations $____________
equals $____________
Divided by
(b) The sum of:
net income (or loss)
for the Fiscal Period $____________
plus Interest Expense
for the Fiscal Period $____________
plus income taxes
for the Fiscal Period $____________
plus depreciation
for the Fiscal Period $____________
plus amortization
for the Fiscal Period $____________
equals $____________
- 1 -
<PAGE> 8
Compliance Certificate
Page 2
(c) The sum of the components of
section (a) above divided by the sum
of the components of section (b) above
equals, expressed as a ratio: to 1.00
------------
II. COMPLIANCE WITH FINANCIAL COVENANTS
Computations showing compliance with certain paragraphs of the Credit
Agreement are as follows:
Paragraph 8.4; Fixed Charge Coverage Ratio. As of the date of the
attached financial statements, the Fixed Charge Coverage Ratio was
calculated as follows for the period consisting of the most recently ended
fiscal quarter plus the immediately preceding three fiscal quarters
("Fiscal Period"):
(a) The sum of:
net income (or loss) from operations
(excluding extraordinary or non-
recurring gains) for the Fiscal
Period $____________
plus interest expense
for the Fiscal Period $____________
plus depreciation expense
for the Fiscal Period $____________
plus amortization expense
for the Fiscal Period $____________
plus equity contributions and
subordinated loans $____________
minus dividends paid
in the Fiscal Period $____________
equals $____________
Divided by $____________
(b) The sum of:
current portion of long-term
debt and capital leases for
the Fiscal Period $____________
plus capital expenditures made
in cash for the Fiscal Period $____________
- 2 -
<PAGE> 9
Compliance Certificate
Page 3
plus interest expense for
the Fiscal Period $____________
equals $____________
(c) The sum of the components
of section (a) above
divided by the sum of the
components of section (b)
above equals, expressed
as a ratio: to 1.00
------------
minimum permitted: to 1.00
-------------
Paragraph 8.5; Quick Ratio. As of the date of the
attached financial statements, the quick ratio was calculated
as follows:
(a) The sum of:
cash $____________
plus short-term cash investments $____________
plus marketable securities not
classified as long-term investments $____________
plus trade accounts receivable $____________
equals $____________
Divided by $____________
(b) The sum of:
current liabilities $____________
plus the portion of the
Revolving Facility classified
as long-term debt $____________
equals $____________
(c) The sum of the components
of section (a) above
divided by the sum of the
components of section (b)
above equals, expressed
as a ratio: to 1.00
------------
minimum permitted: to 1.00
------------
Paragraph 8.6; Other Indebtedness. As of the date of the attached
financial statements:
the outstanding amount of obligations under guaranties
- 3 -
<PAGE> 10
Compliance Certificate
Page 4
described in Paragraph 8.6(f) was $____________.
maximum permitted: $500,000
the outstanding amount of indebtedness incurred for the
acquisition of fixed or capital assets in the current fiscal year
of GT under Paragraph 8.6(g) was $ .
maximum permitted: $7,000,000
in fiscal
year ending 1997
$3,000,000 in
any fiscal year
thereafter
Paragraph 8.7; Liens. As of the date of the attached
financial statements, the outstanding amount of obligations
secured by liens was $____________.
maximum permitted: $2,000,000 in
any fiscal year
Paragraph 8.8; Acquisitions. [Neither GT nor any Subsidiary has acquired or
purchased any assets or businesses except as permitted under subparagraphs
(a) and (b) and (e) of Paragraph 8.8.] [The following acquisitions or
purchases of assets or businesses, excluding those permitted under
subsections (a) and (b) of Paragraph 8.8, have occurred: [briefly describe
transactions]. The total consideration paid (including assumption of debt)
in the current fiscal year of GT for these transactions was $____________.]
maximum permitted: $1,000,000 in
any fiscal year
III. PERFORMANCE OF OBLIGATIONS
A review of the activities of GT and Borrowers during the fiscal
period covered by this Certificate has been made under the supervision of the
undersigned with a view to determining whether during such fiscal period all
Guarantors and Borrowers performed and observed all of their respective
obligations. To the best knowledge of the undersigned, during the fiscal period
covered by this Certificate, all covenants and conditions have been so performed
and observed and no Event of Default or event which with notice or lapse of time
or both would be an Event of Default has occurred and is continuing, with any
exceptions set forth below, in response to which Borrowers and GT have taken or
propose to take the following actions (if none, so state):
- 4 -
<PAGE> 11
Compliance Certificate
Page 5
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
IV. NO MATERIAL ADVERSE CHANGE
To the best knowledge of the undersigned, no event or circumstance has
occurred that constitutes a material adverse change under Paragraph 9.15 of the
Credit Agreement since the date the most recent Certificate was executed and
delivered, with any exceptions being set forth below (if none, so state):
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
This Certificate is by a responsible officer of GT and Borrowers. The
undersigned hereby certify that each and every matter contained herein is
derived from GT's and its Subsidiaries' books and records and is, to the best
knowledge of the undersigned, true and correct.
Dated: ____________ , 19____.
In signing below, the undersigned is executing this Certificate
on behalf of all Guarantors and all Borrowers.
________________________
________________________
Printed Name and Title
- 5 -
<PAGE> 1
EXHIBIT 10.52
SEVENTH AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
(RECEIVABLES AND INVENTORY)
This Seventh Amendment to Second Amended and Restated Credit Agreement
(Receivables and Inventory) (this "Amendment") is entered into as of September
11, 1997, among Bank of America National Trust and Savings Association ("Bank")
and GT Bicycles California, Inc. ("GTBC"), Riteway Products East, Inc. ("East"),
Riteway Products North Central, Inc. ("North Central"), Rite-Way Distributors
Central, Inc. ("Central"), Rite-Way Distributors, Inc. ("Distributors"), GT
Bicycles, Inc. ("GT"). GTBC, East, North Central, Central, and Distributors are
sometimes hereinafter referred to collectively as "Borrowers" and individually
as a "Borrower."
RECITALS
A. Bank and Borrowers are parties to that certain Second Amended and
Restated Credit Agreement (Receivables and Inventory) dated as of August 12,
1996, as modified by amendments dated September 15, 1996, October 15, 1996,
October 31, 1996, February 13, 1997, March 14, 1997, and August 15, 1997
(as amended, the "Credit Agreement").
B. The parties hereto now desire to amend the Credit Agreement on the
terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed to them in the Credit Agreement.
2. Amendments. The Credit Agreement shall be amended as follows:
(a) Subparagraph (ii)(A) of the definition of "Borrowing Base" is
amended in full to read as follows:
-1-
<PAGE> 2
"(A) the following percentages of the value of Acceptable
Inventory consisting of Current Model Year Bicycles, Bicycling
Accessories, bicycle parts, and In-Transit Inventory as shown on the
borrowing certificates as of the last day of the months set opposite
such percentages:
Percentage Months
---------- ------
65% November through June in 1996-97
50% July in 1997
65% August through March in 1997-98 and
September through March in each year
thereafter
50% April through August in 1998
and each year thereafter;
provided, however, that for purposes of calculating the Borrowing Base
the total value of any In-Transit Inventory shall not exceed 15% of
the Borrowing Base as it would be calculated without reference to this
limitation and without the amount added under Subparagraph (C) of this
definition of Borrowing Base; and"
(b) Subparagraphs (iii) through (vii), inclusive, of the definition of
"Borrowing Base" are amended in full to read as follows:
"(iii) During the period from and including the date hereof to
and including October 15, 1997 only, $5,000,000;
(iv) Commencing in 1998, during the period from and including
January 1, to and including April 30 of each year, $5,000,000; and"
(c) Paragraph 8.6(g) is amended in full to read as follows:
"(g) additional indebtedness (excluding indebtedness permitted
under Paragraph 8.6(k) below)
-2-
<PAGE> 3
for the acquisition of fixed or capital assets, including capital
lease obligations, which does not exceed an aggregate principal amount
for Borrowers and Guarantors of Two Million Dollars ($2,000,000) in
GT's fiscal year ending 1997 and Three Million Dollars ($3,000,000) in
any fiscal year of GT thereafter;"
(d) The following is added as a new Paragraph 8.6(k):
"(k) indebtedness incurred under that certain Loan Agreement
among GE Capital Public Finance, Inc., as lender, a California
Economic Development Financing Authority, as issuer, and Borrower
dated as of September 1, 1997, providing for a loan of up to
$5,000,000 to finance certain equipment and capital improvements to be
located at Borrower's headquarters facility at 2001 Dyer Road, Santa
Ana, California (the "IRB Financing")."
(e) The following is added as a new Paragraph 8.7(n):
"(n) liens on certain equipment and other
property securing the IRB Financing."
(f) Paragraph 8.13 is amended in full to read as follows:
"8.13 Sales and Leasebacks. Not dispose of any of its assets
except for full, fair and reasonable consideration, or enter into any
sale and leaseback agreement covering any of its fixed or capital
assets, excluding sales and leasebacks of equipment financed under the
IRB Financing."
(g) Except as hereby amended, all of the terms and conditions of the
Credit Agreement shall remain in full force and effect.
3. Fee. Concurrently with the execution of this Amendment, Borrowers
will pay to Bank a fee of Twenty Five Thousand Dollars ($25,000).
4. Representations and Warranties. Borrowers represent and warrant to Bank
that: (i) no Event of Default under Credit Agreement and no event which, with
notice or lapse of time or
-3-
<PAGE> 4
both, would become an Event of Default has occurred and is continuing; (ii)
Borrowers' representations and warranties made under the Credit Agreement are
true as of the date hereof; (iii) the making and performance by Borrowers of
this Amendment have been duly authorized by all necessary corporate action; (iv)
no consent, approval, authorization, permit, or license is required in
connection with the making or performance of this Amendment.
5. Conditions. This Amendment will not become effective until Bank has
received the following:
(a) An original of this Amendment, executed by
Borrowers; and
(b) The fee provided in Paragraph 3 above.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
BANK OF AMERICA NATIONAL GT BICYCLES CALIFORNIA, INC.
TRUST AND SAVINGS ASSOCIATION RITEWAY PRODUCTS EAST, INC.
By: /s/ E.M. AMENDT RITEWAY PRODUCTS NORTH CENTRAL, INC.
--------------------
E.M. Amendt RITE-WAY DISTRIBUTORS CENTRAL, INC.
Vice President
RITE-WAY DISTRIBUTORS, INC.
GT BICYCLES, INC.
By: /s/ MICHAEL HAYNES
----------------------
Michael Haynes
President
-5-
<PAGE> 1
EXHIBIT 10.53
EIGHTH AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
(RECEIVABLES AND INVENTORY)
This Eighth Amendment to Second Amended and Restated Credit Agreement
(Receivables and Inventory) (this "Amendment") is entered into as of October 23,
1997, among Bank of America National Trust and Savings Association ("Bank") and
GT Bicycles California, Inc. ("GTBC"), Riteway Products East, Inc. ("East"),
Riteway Products North Central, Inc. ("North Central"), Rite-Way Distributors
Central, Inc. ("Central"), Rite-Way Distributors, Inc. ("Distributors"), GT and
Bicycles, Inc. ("GT"). GTBC, East, North Central, Central, and Distributors are
sometimes hereinafter referred to collectively as "Borrowers" and individually
as a "Borrower."
RECITALS
A. Bank, Borrowers, and GT are parties to that certain Second Amended
and Restated Credit Agreement (Receivables and Inventory) dated as of August 12,
1996, as modified by amendments dated September 15, 1996, October 15, 1996,
October 31, 1996, February 13, 1997, March 14, 1997, August 15, 1997, and
September 11, 1997 (as amended, the "Credit Agreement").
B. The parties hereto now desire to amend the Credit Agreement on the
terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed to them in the Credit Agreement.
2. Amendments. The Credit Agreement shall be amended as follows:
(a) Subparagraph (iii) of the definition of "Borrowing Base" in
Paragraph 1.1 is amended in full to read as follows:
"(iii) During the period from and including the date hereof to
and including February 28, 1998 only, $11,000,000;
(b) The definitions of "Private Placement" and "Private Placement
Funding Date" are added to Paragraph 1.1 in alphabetical order as follows:
-1-
<PAGE> 2
"Private Placement" means one or more promissory notes executed by
GT in a single private placement evidencing borrowings that:
(a) are at least equal to a total of $30,000,000;
(b) are unsecured;
(c) are funded on or before February 28, 1998; and
(d) are subject to terms and conditions reasonably satisfactory
to Bank.
"Private Placement Funding Date" means the date on which GT
receives the proceeds of the Private Placement."
(c) In the definition of "Revolving Credit Limit" in Paragraph 1.1,
the words "and $60,000,000 thereafter" are amended to read "$60,000,000 during
the period from and including August 1, 1997 to and including October 23, 1997,
$80,000,000 during the period from and including October 24, 1997, to and
including the earlier of February 28, 1998, or the Private Placement Funding
Date, and $60,000,000 thereafter."
(d) Paragraph 8.4 is amended in full to read as follows:
"8.4 EBITDA; Fixed Charge Coverage Ratio. Cause GT to achieve on a
consolidated basis (a) EBITDA of at least $1,600,000 for the fiscal
quarter ending September 30, 1997, and EBITDA of at least $5,500,000
for the fiscal quarter ending December 31, 1997, and (b) for each
fiscal quarter thereafter, a Fixed Charge Coverage Ratio of at least
1.20 to 1.00. This ratio shall be calculated quarterly using the
results of the most recently concluded quarterly accounting period and
each of the three (3) immediately preceding quarterly accounting
periods;"
(e) The following is added as a new Paragraph 8.6(l):
"(l) indebtedness under the Private Placement."
(f) The following are added as new Paragraphs 8.24 through 8.27,
inclusive:
"8.24 Private Placement Proceeds. Use all of the net proceeds of the
Private Placement (i) first to repay in full the outstanding principal
balance of the Term Loan and (ii) second to repay a portion of the
outstanding principal balance of the Revolving Facility.
-2-
<PAGE> 3
"8.25 Capital Expenditures. Not spend more than $2,000,000 in cash
in GT's fiscal quarter ending December 31, 1997, and not more than
$500,000 in cash in any fiscal year of GT thereafter, to acquire fixed
or capital assets. This covenant shall be measured quarterly and the
cash expenditures shall be net of financings funded by third party
lenders prior to quarter end."
"8.26 Loans and Investments. Not make any loans or other extensions
of credit to, or make any investments in, or make any capital
contributions or other transfers of assets to, any individual or
entity, except for:"
(a) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services
in the ordinary course of business.
(b) investments in any of the following:
(i) certificates of deposit;
(ii) U.S. treasury bills and other obligations of the
federal government;
(iii) readily marketable securities (including commercial
paper, but excluding restricted stock and stock subject to the
provisions of Rule 144 of the Securities and Exchange Commission)
rated at least "A-1" by Standard & Poor's Ratings Group or at least
"P-1" by Moody's Investors Service, Inc.;
(iv) bankers' acceptances issued by financial institutions
rated at least "A" by Moody's Investors Services;
(v) repurchase agreements covering U.S. government
securities.
(c) extensions of credit to and investments in any Borrower or
Guarantor;
(d) extensions of credit to Innovations to finance the purchase
of equipment that do not exceed $1,200,000 in GT's fiscal quarter
ending December 31, 1997; provided, however, that at least 75% of
the purchase price of such equipment shall be refinanced by a third
party lender on or before February 28, 1998; and
(e) other extensions of credit to and investments in any entity
which is not a Borrower or Guarantor that do not exceed an aggregate
amount of
-3-
<PAGE> 4
$750,000 outstanding during the period from and including
October 31, 1997 to and including GT's 1997 fiscal year end, and
$500,000 outstanding in any one fiscal year of GT thereafter.
"8.27 Total Liabilities to Tangible Net Worth. Cause GT to maintain
on a consolidated basis a ratio of total liabilities to Tangible Net
Worth of not greater than 2.75 to 1.00. This ratio shall be calculated
on a quarterly basis."
(g) The following is added as a new Paragraph 9.20:
"9.20 Private Placement `Circles'. Bank does not receive evidence,
satisfactory to Bank, on or before January 31, 1998, that GT has
received a commitment or `circles' from investors to purchase notes
under the Private Placement, with terms and conditions reasonably
satisfactory to Bank."
(h) Except as hereby amended, all of the terms and conditions of
the Credit Agreement shall remain in full force and effect.
3. Fee. Concurrently with the execution of this Amendment, Borrowers
will pay to Bank a fee of --- $100,000.
4. Representations and Warranties. Borrowers represent and warrant to
Bank that: (i) no Event of Default under Credit Agreement and no event which,
with notice or lapse of time or both, would become an Event of Default has
occurred and is continuing; (ii) Borrowers' representations and warranties made
under the Credit Agreement are true as of the date hereof; (iii) the making and
performance by Borrowers of this Amendment have been duly authorized by all
necessary corporate action; (iv) no consent, approval, authorization, permit, or
license is required in connection with the making or performance of this
Amendment.
5. Conditions. This Amendment will not become effective until Bank has
received the following:
(a) An original of this Amendment, executed by Borrowers and
Bank; and
(b) The fee provided in Paragraph 3 above.
(signatures on next page)
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
BANK OF AMERICA NATIONAL GT BICYCLES CALIFORNIA, INC.
TRUST AND SAVINGS ASSOCIATION RITEWAY PRODUCTS EAST, INC.
RITEWAY PRODUCTS NORTH CENTRAL, INC.
By: /s/ E.M. AMENDT RITE-WAY DISTRIBUTORS CENTRAL, INC.
--------------------------------- RITE-WAY DISTRIBUTORS, INC.
E.M. Amendt GT BICYCLES, INC.
Vice President
By: /s/ MICHAEL HAYNES
--------------------------------
Michael Haynes
President
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 45,694
<ALLOWANCES> 1,833
<INVENTORY> 77,071
<CURRENT-ASSETS> 129,053
<PP&E> 15,055
<DEPRECIATION> 3,648
<TOTAL-ASSETS> 166,620
<CURRENT-LIABILITIES> 92,172
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 60,652
<TOTAL-LIABILITY-AND-EQUITY> 166,620
<SALES> 158,383
<TOTAL-REVENUES> 158,383
<CGS> 114,892
<TOTAL-COSTS> 114,892
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 459
<INTEREST-EXPENSE> 4,143
<INCOME-PRETAX> 2,977
<INCOME-TAX> 1,199
<INCOME-CONTINUING> 1,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,778
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
