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Cannondale's Future Uncertain
Fri Jan 24, 2003
Source: Bicycle Retailer

Cannondale officials declined to confirm or deny on Friday reports that the company's bicycle, motorcycle and apparel factories in Bethel, CT had been closed, the locks changed and its employees let go without pay.

Citing Securities and Exchange Commission rules, Scott Montgomery, Cannondale's vice president, declined to comment on the closure or the company's future.

He also declined to comment on an article in the Friday edition of the Bedford Gazette, a local newspaper. It reported that Cannondale was likely headed for bankruptcy, echoing speculation from within the industry since before Christmas.

Montgomery also declined to comment on reports that the company laid off Bill Luca, its vice president of finance, earlier in the week.

All this comes after Cannondale furloughed about 500 of its 650 employees at the Bedford factories in late December then failed to rehire them in mid-January as the company had promised.

At the time, Tom Armstrong, a Cannondale spokesman, said the company traditionally cut back factory operations during December and January, reflecting low consumer demand during the winter months. "It's something we've always done," he said at the time.

It looks as if there are several scenarios for the troubled bicycle and motorcycle maker, all of which would result in drastic changes in the way Cannondale operates.

Besides filing for Chapter 11 bankruptcy protection, the company could split up, selling off the motorsports and bicycle divisions to separate companies; divest its unprofitable motorcycle division; find a white-knight; or be taken over by creditor Pegasus Partners, which has an option to buy an aggregate of nearly 3 million shares of stock.

Several companies have been named as possible buyers of the business among them the American Bicycle Group, K2 and Trek. Officials at K2 admitted taking a look at the company, but said it was common practice to sniff around when a company is looking for a buyer.

One other possibility is that Joe Montgomery, the company's founder, will somehow find a new creditor willing to bankroll the company and its struggling motorsports division. Despite Montgomery's history of pulling the company from the brink of collapse, despite heavy odds, few think he can pull off another miracle.

Cannondale ended its fiscal year last June posting a $15.4 million loss. In the first three months of its 2003 fiscal year (July through September), the company reported a net loss of $8.4 million--a rate almost three times faster than all of last year. And the company's list of creditors is long. Many industry suppliers report that they stopped offering the company credit months ago, shipping everything C.O.D. only.

The motorsports division is at the heart of the company's problems. Last year, the bicycle division generated more than $134 million in sales, compared to $22 million from motorcycles and ATVs. Yet every motorcycle and ATV sold in 2002 was sold at a loss, according to Cannondale's annual report.

Throughout most of last week Cannondale's stock was trading below $1. It closed on Friday at 80 cents, up 3.9 percent.

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