Global Motorsport Reports Q2 Results
20 August 1998
Global Motorsport Reports Second Quarter Results
MORGAN HILL, Calif.--Aug. 19, 1998--Global Motorsport Group, Inc. (formerly Custom Chrome, Inc.) today reported results for the three and six month periods ended July 31, 1998.
Second Quarter Results
Net sales for the three months ended July 31, 1998 rose 40.0% to $45,325,000 from $32,297,000 in the like period of the prior year. Net sales for the second quarter of the current year include sales of $10.8 million for its Chrome Specialties unit, which was acquired by the Company in September of 1997.
Net income for the three months ended July 31, 1998, excluding the after tax impact of costs of approximately $744,000 or $0.13 per share related to the Company's defense against the unsolicited tender offer by Golden Cycle to purchase the Company, was $3,120,000 or $0.56 per share on a diluted basis. This represents an increase of 24% from net income of $2,524,000, or $0.49 per share on a diluted basis in the same period last year. Net income for the second quarter, including the costs associated with the tender offer defense, was $2,376,000 or $0.43 per share, on a diluted basis.
Operating income for the second quarter was $6,455,000, excluding the impact of pre-tax costs of $1,271,000 related to the unsolicited tender offer defense, an increase of 39% from operating income of $4,642,000 in the second quarter of last year.
During the second quarter of the fiscal year, the Company also reduced total net debt by $10.6 million, from $62.0 million on April 30, 1998 to $51.4 million at July 31, 1998. This resulted in a net debt reduction of $17.3 million for the first six months of this fiscal year.
Six Months Results
Net sales for the six months ended July 31, 1998 rose 41% to $90,121,000 from $64,004,000 in the like period of the prior year. Net sales for the first six months of the year included sales of $21.7 million for its Chrome Specialties unit, which was acquired by the Company in September of 1997.
Net income for the six months ended July 31, 1998, excluding the after tax impact of costs of approximately $999,000 or $0.18 per share related to the Company's defense against the unsolicited tender offer by Golden Cycle to purchase the Company, was $5,836,000 or $1.07 per share on a diluted basis. This represents an increase of 20% from net income of $4,867,000 or $0.93 per share on a diluted basis in the same six months of the prior year. Net income for the six months ended July 31, 1998, including the costs associated with the tender offer defense, was $4,837,000 or $0.88 per share, on a diluted basis.
Operating income for the six months ended July 31, 1998 was $12,633,000, excluding the impact of pre-tax costs of $1,708,000 related to the unsolicited tender offer defense, an increase of 41% from operating income of $8,948,000 in the same period of the prior year.
As announced on August 11, 1998, the Company, at the request of Fremont Acquisition Company III, LLC extended to September 25, 1998 its previously announced tender offer to acquire up to 4,820,000 outstanding shares of its Common Shares (and associated rights) for $21.75 per share in cash. The extension of the tender offer is intended to provide additional time to satisfy the financing conditions to the tender offer in view of current market conditions in the high yield debt securities market.
Joseph F. Keenan, Chairman of the Board of Global Motorsport Group, Inc., stated: "The results of the second quarter demonstrate that the Company is achieving its goals of growth in sales and operating profitability while reducing capital employed in the business. We believe it is a significant achievement that net debt has been reduced by $17.3 million since the end of our last fiscal year. Despite the disappointing delay in the tender offer made in conjunction with our definitive Merger Agreement with Fremont, the Board of Directors of Global will continue to both work with Fremont to achieve the financing required for the tender and to improve the Company's operations and financial results." The Company added that no assurance can be given that a sale transaction for substantially all of the Company's common shares will ultimately occur or as to the timing or price of such a transaction.
Global Motorsport Group, Inc. was founded in 1970 and it is the parent organization for an international group of motorcycle aftermarket providers that focus their business on Harley-Davidson motorcycles sold worldwide. Global's organization includes Custom Chrome, the leading aftermarket supplier of Harley-Davidson motorcycle parts and accessories; Chrome Specialties, an aftermarket supplier of Harley-Davidson motorcycle parts and accessories located in Fort Worth, Texas; Custom Chrome Far East, a product development, engineering, tooling management and warehouse of proprietary products for Global, located in Taiwan; Custom Chrome Europe, a distribution company located in Germany that specializes in aftermarket accessories for Harley-Davidson motorcycles and other "cruiser" motorcycles, and Santee Industries, a manufacturer of frames and exhaust systems and other aftermarket components for Harley-Davidson motorcycles, located in California.
Global Motorsport Group, Inc.
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
For three months For six months
ended July 31 ended July 31
1998 1997 1998 1997
Sales, net $45,325 $32,297 $90,121 $64,004
Cost of sales 28,169 19,964 56,198 39,836
Gross profit 17,156 12,333 33,923 24,168
Operating expenses
Selling, general and
administrative 10,288 7,343 20,625 14,509
Cost associated with
unsolicited tender offer 1,271 1,708
Product development 413 348 665 711
------ ----- ------ ------
11,972 7,691 22,998 15,220
Operating income 5,184 4,642 10,925 8,948
Interest expense 1,121 415 2,629 872
Income before income taxes 4,063 4,227 8,296 8,076
Income taxes 1,687 1,703 3,459 3,209
Net income $ 2,376 $ 2,524 $ 4,837 $ 4,867
Net income per share, basic $ 0.46 $ 0.50 $ 0.95 $ 0.96
Net income per share, diluted $ 0.43 $ 0.49 $ 0.88 $ 0.93
Shares outstanding:
Basic 5,201,000 5,048,000 5,106,000 5,117,000
Diluted 5,577,000 5,191,000 5,478,000 5,224,000
Global Motorsport Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
For six months ended
July 31,
1998 1997
Cash flow from operating activities:
Net income $4,837 $4,867
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 2,036 1,161
Deferred income tax 319
Changes in items affecting
operations:
Accounts receivable 8 810
Merchandise inventories 10,014 3,192
Deposits & prepaid expenses 905 597
Accounts payable, accrued
expenses & other liabilities 48 (357)
Net cash provided by operating activities 18,167 10,270
Cash flow from investing activities:
Additions to property and equipment (1,971) (2,676)
Cash flow from financing activities
Bank repayment, net (13,741) (979)
Repayment on capital lease obligations
and long term debt (4,067) (139)
Issuance of common stock 1,127 141
Repurchase of common stock (3,489)
Net cash used in financing activities (16,681) (4,466)
Net change in cash and cash equivalents (485) 3,128
Cash and cash equivalents at beginning
of period 1,432 40
Cash and cash equivalents at end of period $947 $3,168
Supplemental disclosures of cash paid
during the period
Interest $2,629 $869
Income taxes $1,413 $1,425
Global Motorsport Group, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)
July 31, July 31, January 31,
1998 1997 1998
Assets
Current Assets
Cash and cash equivalents $ 947 $ 3,168 $ 1,432
Accounts receivable, net 12,950 10,539 12,958
Merchandise inventories 56,324 46,330 66,338
Deferred income taxes 3,055 1,334 3,079
Prepaid income taxes 1,076 2,378 1,926
Deposits and prepaid expenses 2,559 2,254 2,614
------ ------ ------
76,911 66,003 88,347
Property and equipment, net 18,906 17,435 18,408
Other assets 34,764 8,103 35,327
------ ------ ------
$130,581 $ 91,541 $142,082
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of
long-term debt and
capital lease obligations $ 4,149 $ 3,297 $ 4,176
Bank borrowings 3,899 13,741
Accounts payable 6,029 3,120 6,757
Accrued expenses and other
liabilities 5,551 3,035 4,775
------ ------ ------
15,729 13,351 29,449
Long term debt and capital lease
obligations 48,262 16,011 52,302
Deferred income tax 1,283 817 988
Shareholders' equity
Common stock, $.001 par value:
20,000,000 shares authorized:
5,449,077 issued and 5,173,077
shares outstanding as of July
31, 1998; 5,301,767 issued and
5,025,767 outstanding as of
July 31, 1997; and 5,358,312
issued and and 5,082,312 shares
outstanding as of Jan. 31,
1998 5 5 5
Additional paid-in capital 30,104 28,412 28,977
Retained earnings 35,198 32,945 30,361
------ ------ ------
65,307 61,362 59,343
Commitment and contingencies
------ ------ ------
$130,581 $ 91,541 $142,082