BlueStar Reports Third Quarter Results
13 September 2000
BlueStar Reports Third Quarter Results
* Records Provisions for Impairment of Goodwill and Other Assets
* Impacted by Disposals
* Announces Restructuring of Canadian Distribution Organization
VANCOUVER, B.C. and RALEIGH, N.C., Sept. 12 BlueStar
Battery Systems International Corp. (CDNX: BHW) ("BlueStar") announced today
that revenues from continuing operations for the nine months ended June 30,
2000 were $78.1 million, compared to $107.9 million for the same period last
year. Revenues from continuing operations for the third quarter were
$23.5 million, a decrease of 25% compared to $31.2 million for the
corresponding period in 1999. The decrease in revenues for the period ended
June 30, 2000 was primarily due to liquidity issues created by certain bank
defaults that resulted in a lack of working capital to purchase new inventory
and the result of exiting relationships with lower-margin suppliers and
customers.
EBITDA (earnings (loss) before interest, taxes, depreciation and
amortization, and one-time items) was a $1.8 million loss for the nine-month
period, as compared to income of $3.3 million for the same period in 1999.
EBITDA was a $2.3 million loss for the three-month period ended June 30, 2000,
as compared to income of $0.9 million for the same period in 1999, resulting
from the lower revenue.
"During the third quarter we took significant steps to reduce debt and to
restructure and streamline BlueStar's operations," said Marty R. Kittrell,
BlueStar's Executive Vice President of Finance and Administration and member
of the Board of Directors. "The restructuring process that began with the
recruiting of new management in February has continued through the third
quarter of fiscal 2000. While we have significantly reduced the size of our
balance sheet, we still must restructure certain liabilities to ensure the
long-term viability of the company. To achieve this the Board of Directors
decided it was necessary to carry out a plan of compromise and arrangement for
BlueStar and its Canadian subsidiary under the Companies' Creditors
Arrangement Act (CCAA). Our CCAA filing was made on September 5, and with our
creditors' support, we hope to complete the process before the end of the
year."
Mr. Kittrell continued, "The Company has utilized the services of
Silverman Consulting, a corporate turnaround firm, to assist the Company with
the turnaround of its Canadian operations. Working with Silverman, the
Company has taken several actions, including reducing the number of employees
in Canada and selling the assets of seven branches of the Canadian
distribution network. We also recorded a provision to eliminate the goodwill
in the Canadian subsidiary during the third quarter of approximately $28
million. The Company completed the sale of the assets of the seven branches
on September 1, 2000. In addition, the Company has included in its third
quarter results charges of approximately $7.9 million for recording provisions
for accounts receivable and excess or obsolete inventory, and the write-down
of the computer system and other deferred costs."
Mr. Kittrell continued, "The Company continues to focus on its core
business of distribution in the automotive aftermarket and developing its e-
commerce business opportunities. This strategy has required the organization
to assess its portfolio of business units. As previously announced, during
the third quarter of fiscal 2000 the Company sold BlueStar Battery Systems
Corporation and BlueStar Advanced Technology Corporation, the Company's
specialty manufacturing and research and development subsidiaries, to Eagle-
Picher Technologies, LLC of Joplin, Missouri. Their results of operations
have been accounted for as a discontinued operation. The Company also entered
into an agreement with the previous owner of the Company's California
subsidiary to discontinue its relationship with that subsidiary. Together,
the sale of the battery manufacturing business and the liquidation of the
California subsidiary resulted in one-time losses of $19.5 million during the
third quarter, but generated a significant reduction in debt and working
capital for the Company which will enable management to better allocate future
cash flows to the Company's core distribution and e-commerce initiatives."
Mr. Kittrell continued, "Sales, general and administrative expenses
increased for the period ended June 30, 1999 to June 30, 2000, primarily as a
result of the increased level of activities at the new head office in Raleigh,
NC, the winding down of activities in Surrey, BC, and investments in our
e-commerce activities."
"Overall we are committed to improving our remaining distribution
business. We are currently implementing the turnaround plan for the Canadian
distribution business. In addition, we have focused our attention on cash
flow and working capital management throughout the entire company.
Availability of product and customer service are our top priorities," added
Mr. Kittrell.
James A. Risher, Chairman and Chief Executive Officer stated, "We are
pleased that we were able to complete the sale of the Company's specialty
manufacturing and research and development subsidiaries, and the liquidation
of the California subsidiary, in a timely manner. These two significant
transactions will better focus the Company on its core business of
distribution and its e-commerce initiative. Upon a successful restructuring
of the Canadian companies under CCAA, we will be a more focused distribution
company with less debt and a greater ability to invest in developing
Pano8(SM)."
Pano8(SM) is BlueStar's new business-to-business (B2B) e-commerce system
that provides timely, comprehensive information, including ordering, tracking
and core recovery. It features comprehensive audio and video information such
as electronic catalogs, schematics, technical information, sales tips,
training videos and audio instruction. With the B2B system operational,
BlueStar will focus on building its customer base in North America, a large
market opportunity for the company.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
(unaudited) ($ in thousands)
2000 1999
ASSETS
Current assets 33,644 56,821
Capital assets 6,166 12,763
Advanced battery technology -- 5,203
Goodwill and customer lists 11,806 48,914
Contract deposits and deferred costs 2,401 6,206
54,017 129,907
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Bank and short-term indebtedness 14,119 13,630
Other current liabilities 36,006 43,330
Long-term debt and capital leases 2,403 3,185
Convertible debentures 13,530 17,856
Deferred payable -- 3,642
Shareholders' equity (deficit):
Share capital 82,321 71,785
Currency translation adjustment (52) (88)
Deficit (94,310) (23,433)
(12,041) 48,264
54,017 129,907
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
($ in thousands, except per share)
3-months ended 3-months ended 9-months ended 9-months ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
Revenue 23,538 31,212 78,106 107,912
Cost of products 20,730 26,462 65,984 93,193
Gross Margin 2,808 4,750 12,122 14,719
Operating expenses:
Sales, general &
administrative 5,117 3,824 13,909 11,443
Earnings (loss)
before interest,
taxes, depreciation
and amortization,
and one-time
items (2,309) 926 (1,787) 3,276
Other expenses:
Restructuring
provision -- -- 1,000 --
Loss from
liquidation of
subsidiary 11,490 -- 11,490 --
Provision to
reduce the
carrying value
of assets 7,915 -- 7,915 --
Provision for
impairment of
goodwill 28,158 -- 28,158 --
Other expenses
(income) 90 (297) 1,074 (252)
Interest expense 1,104 1,176 3,567 2,893
Depreciation and
amortization 1,475 1,628 5,536 4,938
50,232 2,507 58,740 7,579
Loss before income
taxes 52,541 1,581 60,527 4,303
Income tax 84 -- 115 --
Loss from continuing
operations 52,625 1,581 60,642 4,303
(Earnings) from
discontinued
operations (643) (59) (1,930) (177)
Loss on disposal of
discontinued
operations 7,977 -- 7,977 --
Loss for the
period 59,959 1,522 66,689 4,126
Loss per share $ 2.07 $ 0.06 $ 2.30 $ 0.17