1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended April 1, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5325
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Huffy Corporation
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(Exact name of registrant as specified in its charter)
Ohio 31-0326270
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Byers Road, Miamisburg, Ohio 45342
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(Address of principal executive offices) (Zip Code)
(937) 866-6251
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding Shares: 10,164,583 as of May 10, 2000
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED). COMPANY FOR WHICH REPORT IS FILED:
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar Amounts in Thousands, Except Per Share Data)
Three Months Ended
April 1,
--------------------------------------
2000 1999
---------------- ----------------
Net sales $142,206 $149,333
Cost of sales 118,962 127,347
---------------- ----------------
Gross profit 23,244 21,986
Selling, general and administrative expenses 19,007 19,047
Plant closure and manufacturing
reconfiguration 1,718 2,087
---------------- ----------------
Operating income 2,519 852
Other expense (income)
Interest expense, net 3,147 1,615
Other (157) 135
---------------- ----------------
Loss before income taxes (471) (898)
Income tax benefit (179) (333)
---------------- ----------------
Loss from continuing operations (292) (565)
---------------- ----------------
Discontinued operations:
Loss from discontinued operations, net of income
tax benefit of $208 -- (312)
Gain on disposal of discontinued
operations, net of income tax expense
of $2,338 -- 3,028
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $519 (848)
---------------- ----------------
Net earnings (loss) $(1,140) $ 2,151
================ ================
Earnings (loss) per common share:
Basic:
Weighted average number of
common shares 10,164,583 11,759,942
================ ================
Loss from continuing operations $(0.03) $(0.05)
Earnings from discontinued operations -- 0.23
Extraordinary loss from early
extinguishment of debt (0.08) --
---------------- ----------------
Net earnings (loss) per common share $(0.11) $ 0.18
================ ================
Diluted:
Weighted average number of
common shares 10,164,583 11,898,056
================ ================
Loss from continuing operations $(0.03) $(0.05)
Earnings from discontinued operations -- 0.23
Extraordinary loss from early
extinguishment of debt (0.08) --
---------------- ----------------
Net earnings (loss) per common share $(0.11) $ 0.18
================ ================
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HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
April 1, December 31,
2000 1999
-------------------- ---------------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ -- $ 20,190
Accounts and notes receivable, net 98,446 65,862
Inventories 26,808 23,354
Prepaid expenses and federal income taxes 34,863 34,426
-------------------- ---------------------
Total current assets 160,117 143,832
-------------------- ---------------------
Property, plant and equipment, at cost 98,735 97,855
Less: accumulated depreciation and amortization 68,796 67,460
-------------------- ---------------------
Net property, plant and equipment 29,939 30,395
Excess of cost over net assets acquired, net 30,869 31,347
Deferred federal income taxes 19,948 18,207
-------------------- ---------------------
$240,873 $223,781
==================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 44,413 $ 21,902
Current installments of long-term obligations 276 9,141
Accounts payable 35,659 34,397
Accrued expenses and other current liabilities 47,459 46,260
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Total current liabilities 127,807 111,700
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Long-term obligations, less current installments 54,144 52,028
Other long-term liabilities 22,419 22,571
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Total liabilities 204,370 186,299
-------------------- ---------------------
Shareholders' equity:
Common stock 16,667 16,667
Additional paid-in capital 66,243 66,242
Retained earnings 47,591 48,571
Accumulative comprehensive income (2,854) (2,854)
Less: cost of treasury shares 91,144 91,144
-------------------- ---------------------
Total shareholders' equity 36,503 37,482
-------------------- ---------------------
$240,873 $223,781
==================== =====================
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HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
Three Months Ended
April 1,
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2000 1999
---------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (292) $ (565)
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 2,308 3,527
Loss on sale of property, plant and equipment -- 509
Extraordinary charge for early extinguishment of debt (848) --
Deferred federal income tax expense -- (2,499)
Changes in assets and liabilities:
Accounts and notes receivable, net (32,584) (34,520)
Inventories (3,454) (5,574)
Prepaid expenses and federal income taxes (437) (3,931)
Other assets (1,742) 201
Accounts payable 1,262 23,837
Accrued expenses and other current liabilities 2,047 12,162
Other long-term liabilities 17 (1,474)
---------------------- --------------------
Net cash used in continuing operating activities (33,723) (8,327)
Discontinued operations:
Gain on disposal of discontinued operations -- 3,028
Loss from discontinued operations -- (312)
Items not affecting cash, net -- 877
Cash provided by discontinued operations -- 69,461
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Net cash provided by discontinued operating activities -- 73,054
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Net cash provided by (used in) operating activities (33,723) 64,727
============================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,375) (4,097)
Proceeds from sale of property, plant and equipment -- 1,345
---------------------- --------------------
Net cash used in investing activities (1,375) (2,752)
============================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term borrowings (14,587) (64,340)
Reduction of long-term debt (20,355) (28)
Issuance of long-term debt 50,704 --
Issuance of common shares 2 193
Purchase of treasury shares -- (2,500)
Dividends paid (856) (997)
---------------------- --------------------
Net cash provided by (used in) financing activities 14,908 (67,672)
============================================================================================================================
Net change in cash and cash equivalents
Cash and cash equivalents: (20,190) (5,697)
Beginning of the year 20,190 17,834
---------------------- --------------------
End of the three month period $ -- $ 12,137
============================================================================================================================
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands)
Note 1: Footnote disclosure, which would substantially duplicate the
disclosure contained in the Annual Report to Shareholders for the
year ended December 31, 1999, has not been included. The unaudited
interim consolidated financial statements reflect all adjustments
which, in the opinion of management, are necessary to a fair
statement of the results for the periods presented and to present
fairly the consolidated financial position of Huffy Corporation as of
April 1, 2000. All such adjustments are of a normal recurring nature.
Note 2: Inventories of Huffy Bicycle Company and Huffy Sports Company are
at cost (not in excess of market) determined by the FIFO method. The
components of inventories are as follows:
December
April 1, 2000 31, 1999
--------------- ---------------
Finished Goods $20,651 $17,345
Work-in-Progress 106 106
Raw Materials & Supplies 6,051 5,903
--------------- ---------------
$26,808 $23,354
=============== ===============
Note 3: During the fourth quarter of 1999, the Company closed its remaining
domestic bicycle manufacturing facilities in Farmington, Missouri and
Southaven, Mississippi and reorganized its bicycle operations. During
the first quarter of 2000, the Company increased imports from a
global network of sourcing partners to offset this loss of production
capacity. Closing the plants eliminated the costs required to operate
the facilities and completed Huffy Bicycle Company's transformation
from a single brand manufacturer and marketer of bicycles, to a
multi-brand design, marketing and distribution company. During the
first quarter of 2000, reorganization charges included severance and
related benefits ($633); and facility shutdown and related costs
($1,085). It is anticipated that the Company will continue to incur
costs associated with this transformation through year-end 2000.
During the second quarter of 1998, the Company took action to
maximize operational efficiency by eliminating excess production
capacity and annual operating costs by closing its manufacturing
facility in Celina, Ohio. Throughout 1999, the Company incurred
charges in support of this action for severance and related benefits
($359); facility shutdown and asset write-downs ($678); and new
facility startup and equipment, personnel, and inventory relocation
costs of ($1,050).
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Note 4. The Company has classified its operations into the following business
segments:
Consumer Products - bicycles, backboards and related products.
Service for Retail - in-store assembly, repair, and display
services and inventory counting services.
Earnings (loss)
Before Income
Sales Taxes
------------------- -------------------
THREE MONTHS ENDED
APRIL 1, 2000
Consumer Products $82,880 $3,266
Service for Retail 59,390 1,450
Eliminations (64)
Interest, net (3,147)
General Corporate (2,040)
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$ 142,206 $ (471)
=================== ===================
THREE MONTHS ENDED
MARCH 31, 1999
Consumer Products $91,427 $1,264
Service for Retail 58,084 448
Eliminations (178)
Interest, net (1,615)
General Corporate (995)
------------------- -------------------
$ 149,333 $ (898)
=================== ===================
Note 5: The components of comprehensive income are immaterial and are therefore
not disclosed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 2000
COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1999
(Dollar Amounts in Thousands, Except Per Share Data)
NET EARNINGS (LOSS)
For the first quarter of 2000, Huffy Corporation ("Huffy" or "Company") had a
net loss of $0.11 per common share versus earnings of $0.18 for the same period
last year. First quarter 2000 net earnings included an extraordinary loss of
$0.08 per common share related to early debt extinguishment. The first quarter
1999 results of $0.18 per common share included a one-time gain of $0.23 related
to the sale of True Temper Hardware Company in March 1999. The loss from
continuing operations was $292 or $0.03 per common share for the quarter ended
April 1, 2000 compared to a loss of $565, or $0.05 per common share for the same
period last year. Current year earnings from continuing operations included a
pretax charge of $1,718 ($1,065 after tax), or $0.11 per common share for
charges related to the bicycle reorganization and a pretax charge of $854 ($529
after tax), or $0.05 per common share for refinancing expenses. Earnings from
continuing operations were also negatively impacted by $1,532, or $0.09 per
common share, due to higher interest costs associated with new financing put in
place in January 2000.
NET SALES
Net sales from continuing operations for the quarter ended April 1, 2000 were
$142,206, a decrease of 4.8% from sales of $149,333 for the same quarter in
1999. For the three months ended April 1, 2000, net sales in the Consumer
Products segment decreased $8,547 compared to the same period in the prior year.
The Consumer Products segment was negatively impacted by the overall softness of
the sporting goods category and the impact it had on sales in the basketball
business during the quarter. In the Services for Retail segment, net sales
increased $1,306, reflecting stronger demand for both assembly and inventory
counting services.
GROSS PROFIT
Gross profit for the quarter ended April 1, 2000 was $23,244, up from $21,986 in
the first quarter of 1999. As a percent of net sales, gross profit for the first
quarter of 2000 was 16.3% compared to 14.7% for the first quarter of 1999. Gross
profit as a percent of net sales for the Consumer Products segment increased to
16.7% from 16.1% for the same period in the prior year. Cost containment
throughout the Consumer Products segment coupled with the favorable impact of
the domestic plant closures and reorganization offset volume driven margin
declines at Huffy Sports. In the Services for Retail segment, gross margins as a
percent of net sales increased by 3.4 percentage points, primarily as a result
of significant improvements in field productivity at Washington Inventory
Service.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $19,007 for the first quarter
of 2000, compared to $19,047 for the same period in 1999. As a percent of net
sales, selling, general and administrative expenses for the quarter ended April
1, 2000 were 13.3%, compared to 12.8% for the first quarter of 1999. The
increase in selling, general and administrative expenses as a percent of sales
for the quarter ended April 1, 2000 is primarily due to the drop in sales volume
within the basketball business in the Consumer Products segment.
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PLANT CLOSURE AND MANUFACTURING RECONFIGURATION
During the third quarter of 1999, the Company implemented the final steps in the
reorganization of its bicycle operations, eliminating U.S. bicycle
manufacturing. Huffy Bicycle Company closed its U.S. production facilities in
Farmington, Missouri and Southaven, Mississippi in December of 1999 and offset
the lost capacity in the first quarter of 2000 with increased imports from a
global network of sourcing partners. Closing the plants eliminated the costs
required to operate the facilities and completed Huffy Bicycle Company's
transformation from a single brand manufacturer to a multi-brand design,
marketing and distribution company. During the first quarter of 2000, these
closure charges included severance and related benefits ($633); and facility
shutdown and related costs ($1,085).
During the second quarter of 1998, the Company implemented a plan to maximize
operational efficiency by eliminating excess production capacity thus closing
the Celina, Ohio bicycle manufacturing facility and implementing other actions
to reduce operating costs. In 1999, these charges included facility shutdown and
asset write-downs $(359); new facility startup and equipment, personnel, and
inventory relocation $(678); and severance and related benefits $(1,050).
SALE OF TRUE TEMPER HARDWARE
In March 1999, the Company sold the assets of its lawn and garden tool and
wheelbarrow business, True Temper Hardware Company, to U.S. Industries, Inc. The
purchase price was $100 million cash and was subject to certain post-closing
adjustments based on closing date financial statements.
The net earnings from continuing operations exclude True Temper Hardware
operating results and the gain on the sale of the Company's lawn and garden tool
and wheelbarrow business. The first quarter 1999 gain on the sale of the lawn
and garden tool and wheelbarrow business was $3,028, offset by a loss from
discontinued operations of $312, for a net of $0.23 per common share.
LIQUIDITY AND CAPITAL RESOURCES
On January 26, 2000, the Company signed a new $170 million, 18 month, secured
lending facility. Management believes that the new facility provides adequate
liquidity to fund the Company's operations throughout the term of the agreement.
As of April 1, 2000, the Company had $40,000 of senior term debt and $10,704 of
subordinated debt outstanding. In addition, the Company has a $100,000 secured
credit facility with availability of $77,930 of which $44,413 was outstanding as
of April 1, 2000. Other obligations at April 1, 2000 totaled $3,716.
ENVIRONMENTAL
As disclosed in the Company's Annual Report to Shareholders for the year ended
December 31, 1999, the Company, along with others, has been designated as a
potentially responsible party ("PRP") by the U.S. Environmental Protection
Agency (the "EPA") with respect to claims involving the discharge of hazardous
substances into the environment in the Baldwin Park Operable Unit of the San
Gabriel Valley Superfund site ("Superfund"). On May 15, 1997, the Company, along
with other PRPs, received special notice letters from the EPA requesting a good
faith offer of remediation for the Superfund. A group of PRPs, including the
Company, filed a good faith offer on September 9, 1999 for remediation of the
Baldwin Park operable unit, and the offer was accepted. This acceptance
committed the PRPs and the EPA to negotiate a final consent decree. At this
time, the relative liabilities of the parties are uncertain as to the allocation
of remediation and past costs. The Company's total accrual for estimated
environmental remediation costs related to the Superfund site and other
potential environmental liabilities is approximately $8,000 at April 1, 2000.
Management believes the majority of expenditures relating to costs accrued could
occur during 2000. In developing its estimate of environmental remediation
costs, the Company considers, among other things,
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currently available technological solutions, alternative cleanup methods and
risk-based assessments of the contamination and, as applicable, an estimation of
its proportionate share of remediation costs. The Company may also make use of
external consultants, and consider, when available, estimates by other PRPs and
governmental agencies and information regarding the financial viability of other
PRPs. The Company believes it is unlikely that it will incur substantial
previously unanticipated costs as a result of failure by other PRPs to satisfy
their responsibilities for remediation costs. Based upon information currently
available, such future costs are not expected to have a material adverse effect
on the results of operations in future periods. However, such costs could
materially impact liquidity and the Company's financial condition.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company along with numerous California water companies and other potentially
responsible parties for the Baldwin Park Operable Unit of the San Gabriel Valley
Superfund (see the section entitled "Environmental") have been named in nine
civil lawsuits which allege claims related to the contaminated groundwater in
the Azusa, California area. On March 12, 1998, the Public Utilities Commission
("PUC") issued an Order Instituting Investigation ("OII"), stating that because
the toxic tort lawsuits relate to water quality, public health and safety, and
the operations and practices of the public utilities subject to the PUC's
jurisdiction, the PUC intends to pursue its jurisdiction by investigating the
operations and practices of the named defendant public utilities, their
compliance with the PUC standards and policies regarding water quality, and
whether those standards and policies regarding water quality continue to be
adequate to protect the public health and safety. The PUC investigation and
decision is expected to conclude in 2000. As a result of the PUC OII, a majority
of the lawsuits were stayed pending the PUC determination. The plaintiffs
appealed the decisions to stay. Following a hearing on the matter, the Court of
Appeals took the matter under submission. In September 1999, the Court of
Appeals issued preemptory writs of mandate and three other actions to vacate
stays and to reconsider various motions, demurrers and the stays in view of the
Court of Appeals findings. Petitions for review were filed before the California
Supreme Court and on December 15, 1999, the Supreme Court of California granted
petitions for review of such Court of Appeals decision. To date, the matters are
in their initial stage. It is impossible to currently predict the outcome of the
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held April 27, 2000. At
such meeting, the Shareholders of the Company elected as Directors W. Anthony
Huffman, Donald K. Miller and Joseph P. Viviano, each for a three-year term
expiring in 2003. Shares were voted as follows: FOR: W. Anthony Huffman
(8,828,028), Donald K. Miller (8,669,447), and Joseph P. Viviano (8,668,804);
WITHHELD (including broker non-votes): W. Anthony Huffman (461,171), Donald K.
Miller (619,751), and Joseph P. Viviano (620,394).
In addition, the Shareholders also ratified the appointment of KPMG LLP as the
Company's independent public accountants for calendar year 2000. In accordance
with such ratification, 9,074,773 shares were voted for ratification, 187,632
shares cast against, and 26,793 shares cast to abstain (including broker
non-votes).
The Shareholders voted to approve an amended and restated Code of Regulations of
the Corporation to (i) permit the electronic and telephone solicitation,
delivery and appointment of proxies in accordance with and to the extent
permitted under Ohio law, and (ii) permit the Board of Directors to establish
the number of Directors at not less than four but no more than fourteen. Shares
were voted as follows: For approval: 7,175,804; Against approval: 557,431;
Abstain: 37,813; and Non-Vote: 1,518,150.
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The Shareholders also voted on one shareholder proposal. The Shareholders voted
against the shareholder proposal which requested the Company to adopt an
executive compensation policy that would freeze the pay of corporate officers
during periods of downsizing in which the lesser of 5% of the Company's
workforce or 200 workers lose their jobs, which pay freeze would continue for a
one-year period following the completion of the layoffs. Shares were voted as
follows: For the proposal: 1,181,871; Against the proposal: 6,380,004; Abstain:
209,173; Non-Vote: 1,518,150.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - The Exhibits, as shown in the "Index of Exhibits",
attached hereto as page 13, are filed as a part of this Report.
b. The Company filed two reports on Form 8-K, one dated January 31,
2000, which was filed with the Securities and Exchange Commission on
February 4, 2000, and one dated April 26, 2000, which was filed with
the Securities and Exchange Commission on April 27, 2000.
Please see the Company's meaningful cautionary statements regarding forward
looking statements contained in the Company's report on Form 8-K filed with the
Securities and Exchange Commission on April 27, 2000 which is hereby
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUFFY CORPORATION, registrant
May 10, 2000 /s/ Timothy G. Howard
- ------------------------------------- --------------------------------------
Date Timothy G. Howard
Vice President - Corporate Controller
(Principal Accounting Officer)
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INDEX OF EXHIBITS
Exhibit
No. Item
- ------- --------------------------------------------------------------
(2) Not applicable
(3) Amended and Restated Code of Regulations of Huffy Corporation,
dated 4/27/00.
(4) Amendment appointing LaSalle Bank, National Association
Successor Rights Agent, dated as of February 18, 2000, to
Rights Agreement as amended and restated as of December 9,
1994, between Huffy Corporation and Bank One, Indianapolis,
National Association.
(10) Not applicable
(11) Not applicable
(15) Not applicable
(18) Not applicable
(19) Not applicable
(22) Not applicable
(23) Not applicable
(24) Not applicable
(27) Financial Data Schedule
(99) Not applicable
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