Takes Steps to Position Company for Long-term Growth and Success
Will Host Conference Call to Discuss Financial Results and Company
Outlook on March 26 at 4:00 p.m. Eastern Time
VAN NUYS, Calif.--()--Easton-Bell Sports, Inc. (the “Company”), a leading designer, developer and marketer of branded sports equipment, protective products and related accessories, today announced financial results for the fourth quarter and full fiscal year ended December 29, 2012.
“Easton-Bell had a difficult fourth quarter due to challenging market conditions and certain external events such as disappointing weather during the snow season, which resulted in declines that offset our growth during the first nine months of the year. Importantly, however, our underlying businesses remain strong, which can be seen by the fact that Riddell football, Easton baseball and Bell powersports all experienced market share gains and contributed significantly to the Company’s operating cash flow in 2012,” stated Terry Lee, Executive Chairman and Chief Executive Officer of Easton-Bell.
Mr. Lee continued, “We recently made several leadership changes throughout the organization to position Easton-Bell for long-term growth and success. We also recorded certain litigation and inventory reserves in the fourth quarter of 2012. While these strategic decisions impacted our short-term financial results, we are confident that we now have the right team and plan in place to grow our business and create meaningful value in 2013 and beyond.”
Unless otherwise specified below, references to Adjusted EBITDA in this press release refer to Adjusted EBITDA, as reported for purposes of compliance with the debt covenants in our senior credit facilities. A detailed reconciliation of such Adjusted EBITDA and our Adjusted EBITDA, normalized for certain one-time reserve adjustments, to net income, which we consider to be the most closely comparable GAAP financial measure, is included in the section entitled “Reconciliation of Non-GAAP Financial Measures,” which appears at the end of this press release.
Results for the Fourth Quarter
The Company had net sales of $183.5 million for the fourth quarter of 2012, a decrease of 11.4% as compared to $207.1 million of net sales for the fourth quarter of 2011, gross margin decreased by 350 basis points (“bps”) to 31.7% from 35.2%, and Adjusted EBITDA decreased by $17.0 million or 68.5%.
Team Sports net sales decreased $11.5 million, or 9.6% for the quarter as the prior year benefited from the non-recurring effects that the BBCOR bat transition and the new ten-year helmet life policy had on Easton baseball and Riddell football sales, respectively. Easton baseball and softball sales also reflect reduced pre-season orders as mass retailers right-size their inventories going into the 2013 season.
Action Sports net sales decreased $12.2 million, or 13.9% for the quarter due to the depressed global snow market effect on Giro sales, the timing of mass channel cycling product line transitions and the decision to exit the non-core fitness business, partially offset by double-digit sales growth in Giro cycling products and expanded product offerings and global distribution in Bell powersports helmets.
Margins in the fourth quarter reflect normalized sales levels for the BBCOR bat transition and football helmet life policy change, hockey skate close-outs in preparation for the upcoming Mako launch, reduced sales of Giro snow products and the write-off of Easton cycling inventory due to a design change, partially offset by product cost reduction initiatives.
Operating expenses increased $6.5 million or 11.8% and 690 bps as a percentage of net sales during the fourth quarter due to increased litigation expenses, higher non-cash equity compensation expense and planned investments in product innovation and sales infrastructure, partially offset by reduced incentive compensation and bad debt expense.
Results for Fiscal Year 2012
The Company had net sales of $827.2 million for fiscal 2012, a decrease of 0.9% as compared to $834.9 million of net sales for fiscal 2011. For the year, gross margin increased by 10 bps to 34.1% from 34.0%, and Adjusted EBITDA decreased by $15.3 million or 15.5% to $83.0 million.
For the year, Team Sports net sales increased $7.9 million or 1.7% as the Riddell football market share gains and success of the Easton RS and Mako hockey stick launches were dampened by the comp for the BBCOR baseball bat transition. In spite of the effect of the BBCOR transition, our baseball bat market share increased substantially in the specialty retail channel driven by the strength of our Power Brigade bat line and the fourth quarter introduction of the 2nd generation of this highly successful family of products. Action Sports net sales decreased $15.7 million, or 4.3% for the year for similar reasons that affected the fourth quarter.
The margin expansion realized for the year was partially offset by the events that affected the fourth quarter, but also benefited from the double-digit sales growth in Riddell football products and Bell powersports helmets for the year. Margins through the third quarter reflected sequential improvement and were up 130 bps year-over-year.
Operating expenses increased $18.5 million or 8.7% and 250 bps as a percentage of net sales for the year driven by the items that affected the fourth quarter.
Adjusted EBITDA was $83.0 million for the year, a decrease of $15.3 million or 15.5%, from $98.2 million during the prior year. Adjusted EBITDA for the year when normalized for certain one-time litigation and inventory reserve adjustments of $8.8 million was $91.8 million and is computed as follows:
| Adjusted EBITDA, reported | $ | 83.0 | ||||||||||||||||
| One-time Expenses: | ||||||||||||||||||
| Litigation | $ | 6.0 | ||||||||||||||||
| Inventory Reserves | $ | 2.8 | ||||||||||||||||
| Total | $ | 8.8 | ||||||||||||||||
| Adjusted EBITDA, normalized | $ | 91.8 | ||||||||||||||||
In addition, we note that severance expenses related to the recent leadership changes and product category exit costs of approximately $8.0 million and $2.5 million, respectively, will be reflected in the first quarter financial results for 2013. These expenses do not impact our results for 2012.
Balance Sheet Items
Net debt totaled $341.4 million (total debt of $382.3 million less cash of $40.9 million) as of December 29, 2012, a decrease of $17.8 million compared to the net debt amount as of December 31, 2011. Working capital as of December 29, 2012 was $273.7 million (current assets of $450.9 million less current liabilities of $177.2 million) as compared to $265.9 million as of December 31, 2011. The increase in working capital primarily results from the increase in cash, and the reduction in accounts payable and revolving credit facility borrowings, partially offset by the decrease in accounts receivable related to the sales decline and timing of payments.
The Company continues to have substantial borrowing capacity and liquidity as of December 29, 2012, with $181.1 million of additional borrowing availability under the revolving credit facility and liquidity of $221.9 million when including $40.9 million of cash.
Conference Call to Discuss Fourth Quarter and Full Year Results
The Company will host a conference call and webcast to discuss its financial results for the fourth quarter and fiscal year ended December 29, 2012 on a conference call to be held on Tuesday, March 26, 2013, beginning at 4:00 p.m. Eastern Time. The call can be accessed by dialing 1-800-901-5241 (within the United States and Canada) or 1-617-786-2963 (outside the United States and Canada). The pass code for the call is 41427158. The call will also be available via live webcast at: http://www.media-server.com/m/p/ssoi6fn4.
A replay of the call will be available on March 27, 2013 through April 2, 2013 by dialing 1-888-286-8010 (within the United States and Canada) or 1-617-801-6888 (outside the United States and Canada). The pass code for both replay phone numbers is 13791225.
About Easton-Bell Sports, Inc.
Easton-Bell Sports, Inc. is a leading designer, developer and marketer of branded sports equipment, protective products and related accessories. The Company markets and licenses products under such well-known brands as Easton, Bell, Giro, Riddell and Blackburn. The Company’s products incorporate leading technology and designs and are used by professional athletes and enthusiasts alike. Headquartered in Van Nuys, California, the Company has thirty-five facilities worldwide. More information is available at www.eastonbellsports.com.
“Safe Harbor” Statement under Private Securities Litigation Reform Act of 1995
This press release may include forward-looking statements that reflect the Company’s current views about future events and financial performance. All statements other than statements of historical facts included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events are forward-looking statements.
Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, the Company does not know whether its expectations will prove correct. They can be affected by inaccurate assumptions that the Company might make or by known or unknown risks and uncertainties including: (i) the level of competition in the sporting goods industry; (ii) legal and regulatory requirements, including changes in the laws that relate to use of the Company’s products and changes in product performance standards maintained by athletic governing bodies; (iii) the success of new products; (iv) whether the Company can successfully market its products, including use of its products by high profile athletes; (v) the Company’s dependence on and relationships with its major customers; (vi) fluctuations in costs of raw materials; (vii) risks associated with using foreign suppliers including increased transportation costs, potential supply chain disruption and foreign currency exchange rate fluctuations; (viii) the Company’s labor relations; (ix) departure of key personnel; (x) failure to protect the Company’s intellectual property or guard against infringement of the intellectual property rights of others; (xi) product liability claims; (xii) the timing, cost and success of opening or closing manufacturing facilities; (xiii) the Company’s level of indebtedness; (xiv) interest rate risks; (xv) the ability to successfully complete and integrate acquisitions and realize expected synergies; (xvi) an increase in return rates; (xvii) negative publicity about the Company’s products or the athletes that use them; (xviii) the seasonal nature of the Company’s business; (xix) failure to maintain an effective system of internal controls and (xx) other risks outlined under “Risk Factors” in the Company’s 2012 Annual Report on Form 10-K.
These forward-looking statements are expressed in good faith and the Company believes there is a reasonable basis for them. However, there can be no assurance that the events, results or trends identified in these forward-looking statements will occur or be achieved. Investors should not place undue reliance on any of the Company’s forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from the Company’s expectations. The forward-looking statements in this press release speak only as of the date of this release and, except as required by law, the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
Contacts
Easton-Bell Sports, Inc. / Mark Tripp, 818-902-5803
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