<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 AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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 August 5, 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 JUNE 30, 1997
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the three
and six month periods ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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GT BICYLES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- -----------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Trade accounts receivable, net $ 47,087 $ 51,843
Inventories (note 2) 67,149 74,328
Deferred income taxes 1,915 1,915
Prepaid expenses and other assets 2,505 1,980
-------- --------
Total current assets 118,656 130,066
Property, plant and equipment, net 8,953 5,023
Goodwill, net 18,971 18,689
Covenants not to compete, net 390 455
Other assets 2,155 1,948
-------- --------
$149,125 $156,181
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 60,435 $ 4,250
Current portion of capital lease obligations 364 376
Accounts payable 12,498 12,468
Accrued liabilities 4,918 4,519
Income taxes payable 607 1,061
-------- --------
Total current liabilities 78,822 22,674
Long-term debt, net of current portion 9,563 73,421
Capital lease obligations, net of current portion 459 629
Deferred income taxes 92 92
Other liabilities 95 212
-------- --------
Total liabilities 89,031 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, 9,799,749 and 9,781,097 shares
issued and outstanding at June 30, 1997 and
December 31, 1996, respectively 10 10
Additional paid-in-capital 47,066 46,916
Retained earnings 12,557 11,458
Foreign currency translation adjustment 461 769
-------- --------
Total stockholders' equity 60,094 59,153
-------- --------
$149,125 $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 Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 50,769 $ 44,114 $101,939 $ 92,964
Cost of sales 36,972 30,921 74,367 67,231
-------- -------- -------- --------
Gross profit 13,797 13,193 27,572 25,733
Selling, general and administrative expenses 11,948 8,780 22,943 16,907
-------- -------- -------- --------
Operating income 1,849 4,413 4,629 8,826
Interest expense 1,405 737 2,791 1,467
-------- -------- -------- --------
Income before taxes 444 3,676 1,838 7,359
Income tax expense 160 1,471 738 2,944
-------- -------- -------- --------
Net income $ 284 $ 2,205 $ 1,100 $ 4,415
======== ======== ======== ========
Net income per common and common
equivalent share $ 0.03 $ 0.22 $ 0.11 $ 0.45
======== ======== ======== ========
Weighted average common and
common equivalent shares 9,909 9,929 9,922 9,910
======== ======== ======== ========
</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>
Six Months Ended
June 30,
----------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,100 4,415
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,080 693
Provisions for discounts and losses on
accounts receivable 120 201
Changes in assets and liabilities:
Trade accounts receivable 4,636 (2,308)
Inventories 7,179 (1,097)
Prepaid expenses and other assets (525) (947)
Other assets (231) --
Accounts payable 30 2,592
Accrued and other liabilities 282 (186)
Income taxes (454) 1,457
-------- --------
Net cash provided by operating activities 13,217 4,820
Cash flows used in investing activities:
Additions of property, plant and equipment, net (4,491) (1,277)
Additional investment in subsidiary (713) --
-------- --------
Net cash used by investing activities (5,204) (1,277)
Cash flows used in financing activities:
Net repayments under line of credit (5,548) (3,488)
Principal payments on term loan (2,125) --
Principal payments on capital lease obligations (182) (70)
Proceeds from exercise of stock options 150 15
-------- --------
Net cash used in financing activities (7,705) (3,543)
Foreign currency translation adjustment (308) --
Change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
-------- --------
Cash and cash equivalents at end of period $ -- $ --
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,823 $ 1,458
======== ========
Income taxes $ 1,219 305
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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(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"). 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 net of 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. All significant intercompany balances
and transactions have been eliminated in consolidation.
Investments in affiliates, owned between 20% but not exceeding 50%, are recorded
under the equity method of accounting.
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.
Inventories
- -----------
Inventories are stated at the lower of cost or market ("net realizable value").
Cost is determined using the first-in, first-out ("FIFO") method.
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. At June 30, 1997, the Company had forward exchange contracts outstanding,
with maturities of three months or less, to exchange foreign currencies for
approximately $5.2 million. At June 30, 1996, there were no forward exchange
contracts outstanding.
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 six month periods ended June 30, 1997 are not
necessarily indicative of the operating results to be expected for the full
year.
6
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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>
June 30, December 31,
1997 1996
-------- ------------
(in thousands)
<S> <C> <C>
Raw materials $ 202 $ 95
Work in process 4,855 3,659
Finished goods and component parts 62,092 70,574
------- -------
$67,149 $74,328
======= =======
</TABLE>
(3) NET INCOME PER SHARE
The calculation of net income 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.
(4) SUBSEQUENT EVENTS
Investment in Affiliate
- -----------------------
On July 1, 1997, the Company increased its investment in an Affiliate to greater
than 50%. Accordingly, the operating transactions of this entity will be
consolidated into the financial statements of GT Bicycles, Inc. beginning for
the quarter ending September 30, 1997. For the quarter ended June 30, 1997 this
Affiliate was accounted for under the equity method of accounting.
7
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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 were $50.8 million and $101.9 million, respectively, for
the three and six month periods ended June 30, 1997, compared with $44.1 million
and $93.0 million, respectively, for the corresponding periods in 1996. The
overall increase in net sales for the three and six month periods ended June 30,
1997 was primarily attributable to an increase in foreign net sales of $6.5
million and $11.0 million, respectively. The overall increase in foreign net
sales was primarily attributable to the addition of the Company's foreign
subsidiaries which were purchased during 1996 as well as sales growth in exports
to independent international distributors. The foreign net sales increase for
the first six months of 1997 was partially offset by a decrease in domestic
bicycle sales attributable to a general softening in demand for adult bicycles
in the United States.
Gross Profit. Gross profit as a percentage of net sales decreased to 27.2% and
27.0%, respectively, for the three and six month periods ended June 30, 1997
compared with 29.9% from 27.7%, for the corresponding periods in 1996. The
decreases were primarily attributable to changes in product mix throughout the
Company's bicycle and parts and accessory product lines, discounting of
discontinued product lines during the second quarter, and certain manufacturing
inefficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the three and six month periods ended June
30, 1997 increased by $3.2 million and $6.0 million to $11.9 million and $22.9
million, respectively. As a percentage of net sales, SG&A increased to 23.5% and
22.5%, respectively, compared with 19.9% and 18.1% for the corresponding periods
in 1996. The increase in each of the three and six month periods was primarily
due to higher administrative costs totaling $1.5 million and $3.6 million,
respectively, from the addition of foreign subsidiaries in Japan, France and the
United Kingdom, along with approximately $0.7 million and $1.0 million,
respectively, in relocation costs related to the consolidation of the Company's
California manufacturing and distribution operations.
Operating Income. Compared with the prior year, operating income for the three
and six month periods ended June 30, 1997 decreased by $2.6 million and $4.2
million, respectively, to $1.8 million and $4.6 million, and as a percentage of
net sales decreased from 10.0% and 9.5% for the three and six month periods
ended June 30, 1996 to 3.6% and 4.5% for the corresponding periods in 1997. The
decreases were due to a softening of bicycle sales in the United States during
the first half of 1997 together with increases in worldwide general and
administrative expenses.
Interest Expense. Interest expense for the three and six month periods ended
June 30, 1997 increased by $0.7 million and $1.3 million, respectively, to $1.4
million and $2.8 million. 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 during 1996.
Income Tax Expense. The Company's effective tax rate decreased to 36% for the
three month period ended June 30, 1997 as compared with 40% for the same period
last year. The decrease is primarily due to growth in the Company's foreign
business which had a lower weighted-average effective tax rate during the second
quarter. The effective tax rate for the six month period ended June 30, 1997
remained flat at 40% compared with the corresponding prior year period.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operating cash needs primarily from bank credit, vendor
credit, and cash generated from operations. In November 1995, the Company
entered into a domestic credit facility (as amended in August 1996, February
1997, and March 1997) with a bank that provides a domestic revolving credit
facility and a domestic term loan. During 1996, the Company also entered into
separate credit agreements with the same bank to provide revolving credit
facilities to Riteway Japan, Riteway France and Caratti subsidiaries. All the
revolving credit facilities expire on June 30, 1998 and are classified as
current liabilities.
The domestic credit facility requires that the Company maintain certain
financial ratios and other covenants, which, among other things, restrict other
indebtedness, capital expenditures and certain investments. As of June 30, 1997,
the Company was in violation of a certain earnings coverage ratio for which the
bank issued the Company a waiver as of that date. Subsequent to June 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 comply with on an
ongoing basis in the future.
The Company's operating activities provided cash of $13.2 million in the six
months ended June 30, 1997 compared with $4.8 million in the six months ended
June 30, 1996. Inventories decreased by approximately $7.2 million in the six
months ended June 30, 1997 compared with an increase of $1.1 million in the six
months ended June 30, 1996. Trade accounts receivable decreased by $4.6 million
in the six months ended June 30, 1997 compared with an increase of $2.3 million
in the six months ended June 30, 1996. Capital expenditures were $4.5 million in
the six months ended June 30, 1997, compared with $1.3 million for the six
months ended June 30, 1996. The increase in capital expenditures of $3.2 million
was due to approximately $3.0 million in leasehold improvements for the
Company's new California facility.
In January 1997, the Company entered into an operating lease on its building in
Santa Ana, California. This lease terminates January 31, 2007 and will result in
an incremental average annual increase in rent expense over 1996 of
approximately $0.9 million. In May 1997, the Company completed the move to this
facility and incurred moving costs of approximately $1.0 million and leasehold
improvements of $3.0 million through the six month period ended June 30, 1997.
As the relocation is substantially complete, any additional capital expenditures
and moving expenses are not expected to be material.
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 believes that cash from
operations, its bank 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. Nonetheless,
the Company may seek additional sources of capital as necessary or appropriate
to finance acquisitions or otherwise finance the Company's operations. There can
be no assurance, however, that additional financing will be available, or, if
available, that it will be available on acceptable terms.
9
<PAGE> 10
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. In recent months, there has been a
decline in domestic adult bicycle sales. There can be no assurance, however,
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. 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
tradeshows. 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.
10
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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 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.
11
<PAGE> 12
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
12
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
-------------- -------------
<S> <C> <C>
10.50 Fifth 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 March 14, 1997. 14
27.1 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
During the second quarter of 1997, the Company filed a Form 8-K dated
April, 3, 1997, regarding the Company not meeting analysts' estimates
for sales and net income for the first quarter of 1997.
13
<PAGE> 14
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: August 15, 1997 By: /s/ Charles Cimitile
-------------------------
Charles Cimitile
Vice President Finance and
Chief Financial Officer
(Principal Financial and
Duly Authorized Officer)
14
<PAGE> 1
EXHIBIT 10.50
FIFTH AMENDMENT TO SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
(RECEIVABLES AND INVENTORY); WAIVER
This Fifth Amendment to Second Amended and Restated Credit Agreement
(Receivables and Inventory); Waiver (this "Amendment") is entered into as of
________________, 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, and February 13, 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) 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) for the fiscal quarter ending June 30, 1997
only, net income from operations (determined without giving effect to
extraordinary or non-recurring gains), plus, to the
-1-
<PAGE> 2
extent deducted in calculating such net income, the sum of (i) income
tax expense, plus (ii) interest expense, plus (iii) depreciation
expense, plus (iv) amortization expense at least equal to Four Million
Eight Hundred Thousand Dollars ($4,8000,000) 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;"
(b) Paragraph 8.6(g) is amended in full to read as follows:
"(g) additional indebtedness 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
Seven Million Dollars ($7,000,000) in GT's fiscal year ending 1997 and
Three Million Dollars ($3,000,000) in any fiscal year of GT
thereafter;"
(c) Except as hereby amended, all of the terms and conditions of
the Credit Agreement shall remain in full force and effect.
3. Waiver. Bank hereby waives Borrowers' noncompliance with Paragraph
8.4 of the Credit Agreement for the fiscal quarter ended March 31, 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.
4. Representations and Warranties. Borrowers represent and warrant to
Bank that: (i) after giving effect to the waiver provided in Paragraph 3 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
3 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
-2-
<PAGE> 3
necessary corporate action; (iv) no consent, approval, authorization, permit, or
license is required in connection with the making or performance of this
Amendment.
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: RITE-WAY DISTRIBUTORS
---------------------------- CENTRAL, INC.
E.M. Amendt RITE-WAY DISTRIBUTORS, INC.
Title: Vice President GT BICYCLES, INC.
By:
---------------------------
Michael Haynes
Title: President
-3-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 48,751
<ALLOWANCES> (1,664)
<INVENTORY> 67,149
<CURRENT-ASSETS> 118,656
<PP&E> 11,922
<DEPRECIATION> (2,969)
<TOTAL-ASSETS> 149,125
<CURRENT-LIABILITIES> 78,822
<BONDS> 9,563
0
0
<COMMON> 47,076
<OTHER-SE> 13,018
<TOTAL-LIABILITY-AND-EQUITY> 149,125
<SALES> 50,769
<TOTAL-REVENUES> 50,769
<CGS> 36,972
<TOTAL-COSTS> 36,972
<OTHER-EXPENSES> 11,948
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 1,405
<INCOME-PRETAX> 444
<INCOME-TAX> 160
<INCOME-CONTINUING> 284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
