FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM
_________ TO __________
COMMISSION FILE NUMBER 1-5325
HUFFY CORPORATION
(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
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (937) 866-6251
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates
of the registrant, as of January 31, 2002, was $63,405,504.
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of January 31, 2002, was 10,387,422.
"Index to Exhibits" at page 39 of this Report
1
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
SIGNATURES
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
INDEPENDENT AUDITORS' CONSENT
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
INDEX TO EXHIBITS
2
PART I
ITEM 1. BUSINESS
Huffy Corporation, an Ohio corporation formed in 1928, and its subsidiaries
(collectively called "Huffy" or the "Company") are engaged in the design,
manufacture and sale of wheeled products and basketball backboards and
accessories and the assembly and repair of a variety of wheeled and other
products and merchandising services to retail customers. The Company's executive
offices are located in Miamisburg, Ohio and its principal business offices
and/or manufacturing facilities are located in Miamisburg and Springboro, Ohio,
and Sussex, Wisconsin.
The general development of the business is discussed in more detail below.
Huffy Bicycle Company including Royce Union Bicycle Company and American Sports
Design Company, Huffy Sports Company and Huffy Service First, Inc. operate as
one business segment providing consumer products and services. Principal
products and services include wheeled products, basketball backboards, and
related products, and assembly, repair and merchandising services sold to retail
customers. Sales of wheeled products represented 55.8 percent, 70.1 percent and
62.6 percent of consolidated revenues of the Company for the years ended
December 31, 2001, 2000, and 1999. Sales of portable basketball backboards,
poles, and goals represented 20.4 percent, 12.7 percent, and 12.4 percent of
consolidated revenues of the Company for the years ended December 31, 2001,
2000, and 1999. In-store assembly and repair services provided by Huffy Service
First, Inc. to its customers represented 23.8 percent, 11.8 percent, and 14.3
percent of consolidated revenues of the Company for the years ended December 31,
2001, 2000, and 1999.
Although to date the export business is not significant, Huffy Bicycle Company
and Huffy Sports Company participate in various foreign markets and are actively
involved in expanding export volume. On April 21, 1997, Huffy sold the assets of
Gerry Baby Products Company and Gerry Wood Products Company to Evenflo Company,
Inc. On March 16, 1999, Huffy sold substantially all of the assets of True
Temper Hardware Company and all of the shares of the capital stock of True
Temper Limited to an affiliate of U.S. Industries, Inc. On November 3, 2000,
Huffy sold all of the issued and outstanding shares of Washington Inventory
Service to WIS Holdings Corp., an affiliate of Sterling Investment Partners,
L.P.
PRODUCTS, MARKETING AND DISTRIBUTION
Huffy Bicycle Company: The Huffy(R) branded wheeled products, including
bicycles, scooters, and tricycles, hold a leading market position in the United
States. In September 1999, in response to an unprecedented decline in Chinese
bicycle pricing, the Company announced its decision to cease its United States
manufacturing operations at its facilities located in Southaven, Mississippi and
Farmington, Missouri. These facilities were closed in December 1999 and sold or
the lease terminated, as applicable, in 2000. In 2001, the Huffy Bicycle Company
terminated, effective May 2002, its shelter services agreement pursuant to which
it imported wheeled products. The Huffy Bicycle Company imports Huffy(R) wheeled
products from Taiwan and China. Included in the Huffy(R) product line are adult
all-purpose bicycles; adult all-terrain bicycles; a series of innovative boys'
and girls' 20" bicycles; a series of popular children's 12" and 16" sidewalk
bicycles; scooters and tricycles. In 1996, the Company purchased the Rebike(R)
business which produces a line of recumbent style bicycles and in December 1997,
the Company acquired the assets of Royce Union Bicycle Company, which
participates in the growing sporting goods distribution channel. In addition, in
July 1999, the Company acquired the assets of American Sports Design Company,
which markets and distributes high-end bicycles primarily available over the
World Wide Web, through distributors and directly from the Company's advertised
order center. Huffy(R) wheeled products are extensively advertised and are sold
predominantly through national and regional high volume retailers, a
distribution network accounting for approximately 85 percent of all wheeled
products sold in the United States. Approximately 80 percent of Huffy Bicycle
Company's wheeled products are sold under the Huffy(R) brand name with the
balance being sold under private label or other Company brands.
Huffy Sports Company: Huffy Sports Company, a division of the Company located in
Sussex, Wisconsin, is a leading supplier of basketball backboards, poles, goals,
and related products and lighted basketball, football, and soccer balls for use
at home. In 1997, the Company purchased the business and assets of Sure
Shot(R)/Hydra-Rib(R) which produces basketball units for institutional and
in-arena use. Huffy Sports Company products, many of which bear the logo of the
National Basketball
3
Association ("NBA") as well as the Huffy Sports(R) trademark, are sold
predominately through national and regional high volume retailers in the United
States.
Huffy Service First, Inc.: Huffy Service First, Inc., a wholly-owned subsidiary
of the Company, headquartered in Miamisburg, Ohio, serves the needs of major
retailers in 50 states, Puerto Rico, Guam and the Virgin Islands by providing
in-store and in-home assembly and repair, and in-store display services for a
variety of products, including, among other things, wheeled products, such as
for bicycles, and also for barbeque grills and lawn mowers, physical fitness
equipment, and furniture. Huffy Service First, Inc. is the only assembly service
business of this kind available to high volume retailers on a nationwide basis.
Huffy Service First, Inc. also offers merchandising services (product resets and
periodic maintenance of displays) to manufacturers who supply high volume
retailers.
RAW MATERIALS
Basic materials such as raw steel, steel and aluminum tubing, plastic, resins,
and welding materials used in the Huffy Sports Company domestic manufacturing
operations are purchased primarily from domestic sources. Alternate sources are
available for all critical products and components, but the sudden loss of any
major supplier could cause a temporary negative effect on Huffy Sports Company's
operations.
PATENTS, TRADEMARKS AND LICENSES
The patents, trademarks (including the registered trademarks "Huffy" and "Huffy
Sports"), licenses (including the license to use the NBA logo) and other
proprietary rights of the companies are deemed important to the Company.
Generally, the NBA license has five-year terms which are renegotiated upon
termination. The loss by the Company of its rights under any individual patent,
trademark (other than "Huffy"), license or other proprietary right would not
have a material adverse effect on the Company. The Company's patents, by law,
have a limited life, and patent rights expire periodically. The loss of the
registered trademark "Huffy" could have a material adverse effect on the
Company. The Company has no reason to believe that anyone has rights to either
the "Huffy" trademark or the products for which the Company uses such
trademarks.
SEASONALITY AND INVENTORY
Due to the relatively short lapse of time between placement of orders for
products and shipments, the Company normally does not consider its backlog of
orders as significant. Because of rapid delivery requirements of their
customers, the product companies maintain sufficient quantities of inventories
of finished goods to meet their customers' requirements. Sales of wheeled
products are seasonal in that sales tend to be higher in the Spring and Fall of
each year. Basketball products tend to have varying degrees of seasonality, none
of which are significant to the operations of the Company. The demand for
services provided by Huffy Service First, Inc. is seasonal in that assembly
service demand is generally strongest in Spring and at the Winter holiday
season.
COMPETITION AND CUSTOMERS
In the high volume retailer bicycle business, Huffy Bicycle Company has numerous
competitors in the United States market, two of which are major competitors.
Even though competition in the bicycle industry is intense, Huffy Bicycle
Company believes that following its transformation from a single brand
manufacturer of bicycles to a multibrand design, marketing and distribution
company, it is cost competitive in the high volume retailer bicycle market and
that its decision to import, rather than manufacture, its wheeled products will
allow it to profitably maintain a leading market position. Huffy Bicycle
Company's ability to provide its customers with low cost, innovative new
products has enabled it to maintain its market position despite the marketing
efforts of domestic competitors and competitors from Taiwan, China, and other
nations. Huffy Sports Company has several competitors of which one is currently
a major competitor. Huffy Sports Company maintains its competitive position by
offering its customers high quality, innovative products at competitive prices
and by supporting its products with outstanding customer service. Huffy Service
First, Inc. has numerous competitors in the United States market, none of which
is a major national competitor in the in-store and in-home assembly service
business and three of which are major competitors in the merchandising services
business. Huffy Service First, Inc. believes it remains competitive due to its
nationwide network of operations, competitive pricing and full service solution
marketing approach. Sales to two customers, [Kmart and Wal*Mart] aggregated over
ten percent or more of the Company's consolidated revenues from each such
customer for the year ended December 31, 2001, and the loss of any one of these
customers could have a material adverse effect on the Company and its
subsidiaries as a whole.
4
The number of persons employed full-time by the Company as of December 31, 2001,
was 1,136.
ITEM 2. PROPERTIES
Location and general character of the principal plants and other materially
important physical properties of the Company as of January 2, 2002.
OWNED OR
EXPIRATION
BUILDING AREA DATE
LOCATION DESCRIPTION (SQ. FT.) OF LEASE
- -------- ----------- --------- --------
Miamisburg, Ohio Offices and display and warehouse facilities 47,000 2011(1)
(Corporate and Huffy Service First, Inc.)
Springboro, Ohio Offices and warehouse facility 69,220 2005(2)
(Huffy Bicycle Company)
Sussex, Wisconsin Offices and manufacturing 192,000 2004(3)
(Huffy Sports Company)
(1) Subject to two consecutive options to renew for additional terms of
five years each.
(2) Subject to one option to renew for an additional term of five years.
(3) Subject to an option to purchase during the term of or at the
expiration of the lease.
All of the Company's facilities are in good condition and are considered
suitable for the purposes for which they are used. The Sussex, Wisconsin
manufacturing facility normally operates on a one full shift basis, with second
shift operations scheduled as needed.
ITEM 3. LEGAL PROCEEDINGS
The Company along with numerous California water companies and other potentially
responsible parties ("PRPs") for the Baldwin Park Operable Unit of the San
Gabriel Valley Superfund (see Note 10 to the Company's financial statements
regarding the Superfund in which a tentative remediation settlement has been
reached) have been named in fourteen civil lawsuits which allege claims related
to the contaminated groundwater in the Azusa, California area (collectively, the
"San Gabriel Cases").
As of January 2002, the cases have been stayed for a variety of reasons,
including a number of demurrers and writs taken in the Appellate Division,
relating primarily to the California Public Utilities Commission ("PUC")
investigation described below. The resulting Appellate Division decisions are
currently under review by the California Supreme Court, and thus a stay is still
technically in place over all of the aforementioned cases. The court had also
ordered that a stay of certain of the cases would remain in place until such
time as a coordination judge was formally assigned to those cases. The
Coordination Judge assignment took place in January 2001, and thus, the explicit
stay was lifted. The cases will remain temporarily inactive as the California
Supreme Court, which held oral arguments on November 7, 2001, only filed its
opinion on February 4, 2002 and therein remand the case to the Court of Appeal
for further proceedings consistent with its opinion.
The Company, along with the other PRPs for the Baldwin Park Operable Unit of the
San Gabriel Valley Superfund Site (the "BPOU"), has also been named in four
civil lawsuits filed by water purveyors. The water purveyor lawsuits allege
CERCLA, property damage, nuisance, trespass and other claims related to the
contaminated groundwater in the BPOU (collectively, the "Water Entity Cases").
The Company was named as a direct defendant by the water purveyor in two of
these cases, and was added as a third party defendant in the two others by
Aerojet General Corporation, which, in those cases, was the only PRP sued by the
water purveyors.
As of this date, the Water Entity Cases are in their initial stages. Thus, it is
impossible to currently predict the outcome of any of the actions. Based upon
information presently available, such future costs are not expected to have a
material adverse effect on
5
the Company's financial condition, liquidity, or its ongoing results of
operations. However, such costs could be material to results of operations in a
future period. As part of the tentative Superfund settlement, these cases will
be dismissed.
On March 12, 1998, the PUC commenced an investigation in response to the
allegations in the toxic tort actions that "drinking water delivered by the
water utilities caused death and personal injury to customers." The PUC's
inquiry addressed two broad issues central to these allegations: 1) "whether
current water quality regulation adequately protects the public health;" and 2)
"whether respondent utilities are (and for the past 25 years have been)
complying with existing drinking water regulation." On November 2, 2000, the PUC
issued its Final Opinion and Order Resolving Substantive Water Quality Issues.
Significantly, the Order finds, in pertinent part, that: 1) "existing maximum
contaminant level ("MCLs") and action level ("ALs") established by the DHS are
adequate to protect the public health;" 2) "there is a significant margin of
safety when MCLs are calculated so that the detection of carcinogenic
contaminants above MCLs that were reported in this investigation are unlikely to
pose a health risk;" 3) based upon its comprehensive review of 25 years of
utility compliance records, that for all periods when MCLs and ALs for specific
chemicals were in effect, the PUC regulated water companies complied with DHS
testing requirements and advisories, and the water served by the water utilities
was not harmful or dangerous to health; and 4) with regard to the period before
the adoption by DHS of MCLs and ALs, a further limited investigation by the PUC
Water Division will be conducted.
The toxic tort cases are in their initial stages. Thus, it is impossible to
currently predict the outcome of any of the actions. Based upon information
presently available, such future costs are not expected to have a material
adverse effect on the Company's financial condition, liquidity, or its ongoing
results of operations. However, such costs could be material to results of
operations in a future period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The market information and other related security holder matters pertaining to
the Common Stock of the Company for the year ended December 31, 2001 set forth
in Note 7 of the accompanying financial statements.
6
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
(Dollar amounts in thousands, except per share data)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS
Net sales $331,138 $488,181 $422,866 $468,351 $481,534
Gross profit 39,950 81,342 36,723 76,178 74,038
Selling, general, and administrative expenses 47,607 53,763 56,158 59,723 61,825
Operating income (loss) (11,370) 26,865 (57,994) (4,865) 12,213
Other expense (income), net 303 1,342 333 (3) 1,376
Interest expense, net 1,128 8,428 1,816 2,542 533
Earnings (loss) before income taxes (12,801) 17,095 (60,143) (7,404) 10,304
Income tax expense (benefit) (4,391) 6,429 (20,788) (2,904) 2,715
Earnings (loss) from continuing operations (8,410) 10,666 (39,355) (4,500) 7,589
Discontinued operations -- 25,318 6,067 2,335 1,368
Extraordinary loss -- (998) -- -- --
Net earnings (loss) (8,410) 34,986 (33,288) (2,165) 8,957
- ----------------------------------------------------------- --------------- ------------ ------------ ------------ ------------
Earnings (loss) per common share:
Basic Continuing operations (0.82) 1.05 (3.70) (0.37) 0.59
Net earnings (0.82) 3.43 (3.13) (0.18) 0.70
Diluted Continuing operations (0.82) 1.03 (3.70) (0.37) 0.58
Net earnings (0.82) 3.39 (3.13) (0.18) 0.69
Common dividends declared -- -- 2,869 4,092 4,365
Common dividends per share -- -- 0.26 0.34 0.34
Capital expenditures for plant and equipment 2,553 2,510 6,444 14,989 9,128
Weighted average common share outstanding:
Basic 10,298 10,187 10,642 12,122 12,895
Diluted 10,298 10,320 10,642 12,280 13,062
- ----------------------------------------------------------- --------------- ------------ ------------ ------------ ------------
FINANCIAL POSITION AT YEAR END
Total assets 145,485 180,493 214,283 324,068 307,501
Working capital 44,376 57,642 56,636 85,730 116,122
Net investment in plant and equipment 9,267 12,680 19,028 53,476 51,305
Notes payable -- 17,656 21,902 99,240 43,000
Long-term obligations -- -- 51,348 29,110 35,482
Shareholders' equity 65,602 73,131 37,482 95,390 116,578
Equity per share outstanding 6.32 7.15 3.68 7.91 8.87
- ----------------------------------------------------------- --------------- ------------ ------------ ------------ ------------
CASH FLOWS
Net cash provided by (used in) continuing operating 40,786 (16,541) 12,239 21,513 (1,637)
activities
Net cash provided by (used in) discontinued operations -- 60,902 75,402 (5,878) 45,075
Net cash provided by operating activities 40,786 44,361 87,641 15,635 43,438
Net cash provided by (used in) investing activities (2,549) 4,867 (7,644) (27,901) (27,040)
Net cash provided by (used in) financing activities (16,030) (65,084) (77,641) 27,984 (16,407)
Net change in cash and cash equivalents 22,207 (15,856) 2,356 15,718 (9)
- ----------------------------------------------------------- --------------- ------------ ------------ ------------ ------------
PERFORMANCE MEASUREMENTS
Earnings from continuing operations as a % of net sales N/A 2.2 % N/A N/A 1.6 %
Average working capital turnover 5.9 8.1 5.3 5.0 8.3
Return on net assets N/A 15.4 % N/A N/A 6.8 %
Return on beginning shareholders' equity N/A 93.8 % N/A N/A 8.8 %
Current ratio 1.7 1.6 1.5 1.5 1.9
Long term debt/total capital 0.0% 0.0 % 61.7 % 27.1 % 27.1 %
Number of common shareholders 3,211 3,271 3,250 3,454 3,127
- ----------------------------------------------------------- --------------- ------------ ------------ ------------ ------------
N/A - Not Applicable.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
The Company recorded a net loss from continuing operations of $8,410, or $0.82
per common share, in 2001 compared to net earnings from continuing operations of
$10,666, or $1.03 per common share in 2000. Earnings for 2001 included a pretax
charge of $3,713 ($2,440 after tax), or $0.24 per common share, associated with
the termination of Mexican manufacturing operations, reduction of staffing
levels at Huffy Bicycle Company, and consolidation of the financial and
information technology groups. On January 22, 2002, Kmart filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Court. The Company
recorded a fourth quarter 2001 charge of $4,680 ($3,075 after tax) or $0.30 per
common share, to reflect expected receivable losses from Kmart. Earnings for
2000 included a pretax charge of $714 ($446 after tax), or $0.05 per common
share for reconfiguration of the bicycle business, and $702 ($438 after tax), or
$0.04 per common share, for refinancing the Company. The net loss from
continuing operations, excluding the reconfiguration, refinancing, and Kmart
receivable charges was $2,896, or $0.28 per common share, in 2001 compared to
2000 net earnings of $11,550, or $1.12 per common share.
Net sales in 2001 were $331,138, a decrease of 32.1%, compared to net sales of
$488,181 in 2000. The sales decrease was primarily attributable to lower sales
of Micro(TM) scooters. The Company sold over $128,000 of scooters in 2000 and
had only minimal scooter sales in 2001. The remaining decline in sales is
primarily the result of a shift to opening price point products in the bicycle
business. Basketball products experienced improved sales during 2001 up 7.5%
over last year. Despite a strong fourth quarter, retail service revenue was down
6.2%.
Consolidated gross profit for 2001 was $39,950, or 12.1% of net sales, down from
$81,342, or 16.7% of net sales in 2000. Improved margins from retail services,
ongoing cost reduction efforts company-wide, and aggressive foreign sourcing
programs partially offset the effect of lower sales of high margin scooters in
2000.
Selling, general, and administrative expenses of $47,607, for 2001, include a
charge for the Kmart bankruptcy of $4,680. Including this charge, current year
expenses are 11.5% lower than those incurred in 2000. These lower expenses are
attributable to reduced variable selling and marketing costs, as well as steps
taken throughout 2001 to properly align SG&A expense with the revised operating
structure.
Net interest expense decreased from $8,428 in 2000 to $1,128 in 2001. The
Company has been debt free, with cash invested since the first quarter of 2001.
2001 interest expense is primarily comprised of amortization of financing costs,
letter of credit, and non-usage revolver fees.
Huffy Corporation disclosed in the 2001 second quarter 10-Q that it had executed
a purchase agreement to purchase the trademarks and selected cycling assets of
Schwinn/GT Corp. The Bankruptcy Court conducted an auction for the assets of
Schwinn/GT Corporation in September 2001. The Company elected to withdraw from
the bidding process and received a break-up fee of $1,250 in late September.
Costs incurred exceeded the break-up fee by $506 ($332 after tax), or $0.03 per
common share, and were included in 2001 results. The expenses not covered by the
break-up fee are classified as other expense on the Consolidated Statement of
Operations.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31,
1999
The Company recorded net earnings from continuing operations of $10,666, or
$1.03 per common share, in 2000 compared to a net loss of $39,355, or $3.70 per
common share, for 1999. Earnings from continuing operations for 2000 include a
pretax charge of $714 ($446 after tax), or $0.05 per common share, for
reconfiguration of the bicycle business, and $702 ($438 after tax), or $0.04 per
common share, for refinancing the Company. The earnings for 1999 include a
pretax charge of $38,559 ($25,218 after tax), or $2.37 per common share, for the
reconfiguration of the bicycle business. Net earnings from continuing
operations, excluding the bicycle reconfiguration charges and refinancing
charges, were $11,550 or $1.12 per common share, in 2000 compared to a net loss
of $14,137, or $1.33 per common share for 1999.
8
Net earnings from continuing operations in 2000 exclude both the operating
results and the gain from the sale of Washington Inventory Service, a
transaction that occurred in November 2000. Through the date of disposition,
Washington Inventory Service had sales of $142,195 and net earnings of $4,537,
or $0.44 per common share, compared to full year sales of $138,173 and net
earnings of $119 in 1999. The gain on the sale of Washington Inventory Service
was $20,781 after tax, or $2.01 per common share.
The improvement in year-over-year earnings is primarily related to the success
of the bicycle reconfiguration to a multi-brand, design, marketing and
distribution company. In addition, the success of two new products, the Huffy
Micro(TM) scooters, and X-Games(R) bicycles contributed significantly to
improved profitability.
Net sales in 2000 were $488,181, a 15.4% increase compared to net sales of
$422,866 in 1999. Net sales growth was driven primarily by strong demand for
X-Games(R) bicycles, Huffy Micro(TM) scooters, and merchandising services,
offset by an overall softness in the sporting goods industry that negatively
impacted the Huffy Sports Company's basketball backboard business.
Consolidated gross profit for 2000 was $81,342, or 16.7% of net sales, compared
to $36,723, or 8.7% of net sales for 1999. The gross profit improvement is
directly related to the favorable impact of the bicycle business
reconfiguration, the elimination of domestic manufacturing, and new products
such as the Huffy Micro(TM) scooters and X-Games(R) bicycles. This favorable
impact was partially offset by volume driven margin declines at Huffy Sports and
higher costs of travel and training at Huffy Service First. 1999 gross profit
included an inventory write-down of $6,300, which negatively impacted gross
margin by 1.5 percentage points.
Selling, general, and administrative expenses in 2000 were $53,763, a 4.3%
decrease versus 1999. The decrease in selling, general, and administrative
expenses is primarily the result of the Huffy Bicycle Company reconfiguration,
but was also significantly impacted by SG&A reduction programs at all Huffy
Companies.
Net interest expense was $8,428 in 2000, up 364% over 1999. The increase in
interest expense is due to higher borrowing levels, and higher interest rates
associated with the new financing package consummated in January of 2000.
Net extraordinary charges of $1,573 ($998 after taxes) were recorded in 2000
from the early extinguishment of debt. Unamortized financing costs of $2,189
were offset by interest forgiven on the subordinated note of $404 and early
repayment debt forgiveness of $212 on an economic development grant.
LIQUIDITY AND CAPITAL RESOURCES
The Company experiences seasonal fluctuations in sales and operating earnings,
which cause variations in the required investments in working capital, primarily
inventory and receivables. A significant investment in receivables was required
during the fourth quarter of 2000 to support the strong demand for Huffy
Micro(TM) scooters. This investment was liquidated in the first quarter of 2001,
providing the cash to repay all outstanding debt. The drop in receivables
provided $30,877 of cash flow in 2001. Improved inventory management and the
lower sales volume in 2001 reduced the Company's inventory levels by $30,841
from 2000 to 2001.
As the Company's largest customer, Kmart comprised 38% of consolidated net sales
in 2001. In January 2002, Kmart filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The loss of Kmart as a customer could have a material
adverse effect on the Company.
The Company entered into an Amended and Restated Loan and Security Agreement,
dated January 31, 2001 with Congress Financial Corporation. The $75 million
revolving credit facility is secured by all assets of the Company and its
affiliates and will expire on December 31, 2002, with a 12-month renewal option.
As of December 31, 2001, the revolving credit facility had availability of $24.7
million and no outstanding borrowing. Management believes that the amended
credit facility and internally generated cash flows will be sufficient to
finance the seasonal working capital and capital expenditure needs in the coming
year.
9
Funds expended for capital additions and improvements totaled $2,553, $2,510,
and $6,444 in 2001, 2000 and 1999, respectively. This decline from 1999 levels
in capital requirements is consistent with the multi-brand, design, marketing
and distribution format for the reconfigured bicycle business. Capital
expenditures are expected to be approximately $2,930 in 2002.
PLANT CLOSURE AND MANUFACTURING RECONFIGURATION
The Company incurred a $2.7 million charge associated with the termination of
the Shelter Services Agreement with Elamex, S.A. de C.V. in December 2001. The
resulting drop in North American production will be sourced through our existing
global supplier network. During the fourth quarter of 2001, the Company also
incurred $1.0 million of reconfiguration charges associated with staffing
reductions at Huffy Bicycle Company and the consolidation of the finance and
information technology groups.
During the fourth quarter of 1999, the Company closed its remaining domestic
bicycle manufacturing facilities in Farmington, Missouri and Southaven,
Mississippi, and reconfigured 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. The
plan included the termination of 742 hourly and salaried employees.
In 2000, the Company incurred plant closure and manufacturing reconfiguration
charges of $714 ($446 after tax), or $0.05 per common share. Reconfiguration
charges included severance and related benefits of $1,190, and facility shutdown
costs of $3,965, offset by gains from sales of the Farmington, Missouri plant of
$3,050 and the settlement of the Miamisburg, Ohio office capital lease of
$2,105.
In 1999, the Company incurred plant closure and manufacturing reconfiguration
charges of $38,559 ($25,218 after tax), or $2.37 per common share. Of these
charges, $34,744 related to the 1999 reconfiguration, and $3,815 related to the
reconfiguration implemented in 1998. The 1999 reconfiguration charges included
severance and related benefits of $4,165, and facility shutdown costs and asset
write-downs of $30,579.
During 1998, the Company implemented a plan to maximize operational efficiency
by eliminating excess production capacity and reducing annual operating expenses
at the Huffy Bicycle Company. The plan included the closure of the Celina, Ohio
manufacturing facility to reduce capacity; the leasing of a parts fabrication
facility to support other plants; and the continuation of its import program for
opening price point bikes. The plan included the termination of 935 hourly and
salaried employees. In 1999, charges associated with the 1998 reconfiguration
included severance and related benefits of $2,248; and new facility startup
costs and equipment, personnel and inventory relocation of $1,567.
OTHER MATTERS
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.
Currently, the Company, along with other PRPs, the Main San Gabriel Basin
Watermaster (Watermaster), the San Gabriel Water Quality Authority (WQA), and
numerous local water districts (Water Districts), are working with the EPA on a
mutually satisfactory remedial plan. In January 2002, a tentative settlement for
remediation of such Superfund site was reached among the Company, certain PRPs
and the Watermaster, the WQA and the Water Districts with the expectation to be
finalized in the first quarter 2002.
The total accrual for estimated environmental remediation costs related to the
Superfund site and other potential environmental liabilities was $6,959 at
December 31, 2001. Management expects that the majority of expenditures relating
to costs currently accrued will be made over the next year.
As a result of factors such as the continuing evolution of environmental laws
and regulatory requirements, the availability and application of technology, the
identification of presently unknown remediation sites and the allocation of
costs among PRPs, estimated costs for future environmental compliance and
remediation are necessarily imprecise and it is not possible to fully predict
the amount or timing of future environmental remediation costs, which may
subsequently be determined.
10
Based upon information presently available, such future costs are not expected
to have a material adverse effect on the Company's financial condition,
liquidity, or its ongoing results of operations. However, such costs could be
material to results of operations in a future period.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted SFAS 133 as of January 1, 2001. During 2001, the Company
recorded an adjustment of $311 in accumulated other comprehensive loss to
recognize at fair value an interest rate swap that is designated as a cash-flow
hedging instrument.
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies the
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of Statement 142. Statement 142 also
requires that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with FAS Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The Company adopted Statement 141 as of July 2001 but made no acquisitions
during 2001 and, therefore adoption had no impact on 2001 results. The Company
is adopting Statement 142 on January 1, 2002. As of the date of adoption, the
Company will have $8,038 of unamortized goodwill. Goodwill amortization expense
was $726 in 2001, $726 in 2000, and $663 in 1999. The Company has tested the
unamortized goodwill for impairment and found the assets unimpaired as of the
date of adoption.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development or
normal use of the asset.
Statement No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, the
Company will recognize a gain on settlement.
The Company is required and plans to adopt the provisions of Statement No. 143
for the quarter ending March 31, 2003. To accomplish this, the Company must
identify legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations at the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company will
be required to develop processes to track and monitor those obligations. Because
of the effort necessary to comply with the adoption of Statement No. 143, it is
not practicable for management to estimate the impact of adopting this Statement
at the date of this report.
On October 3, 2001, the Financial Accounting Standards Board issued Statement
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. While Statement No. 144 supersedes Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, it retains many of the fundamental provisions of that Statement.
Statement No. 144 also supersedes the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. However, it retains the requirement in
Opinion No. 30 to report separately discontinued operations and extends that
reporting to a component of an entity that either has been disposed by sale,
abandonment, or in a distribution to owners, or is classified as held for sale.
11
The Company is required and plans to adopt the provisions of Statement No. 144
for the quarter ending March 31, 2002. Management has assessed the impact of
adopting this statement and found it to be immaterial.
INFLATION
Inflation rates in the United States have not had a significant impact on the
Company's operating results for the three years ended December 31, 2001. The
impact on the Company is minimized as a result of rapid turnover of inventories
and partially offset by cost reduction programs and increased operating
efficiency.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to short-term interest rate risks. A portion of these
risks is hedged, but fluctuations could impact the Company's results of
operations and financial position.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
HUFFY CORPORATION:
We have audited the accompanying consolidated balance sheets of Huffy
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Huffy Corporation
and subsidiaries at December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
[GRAPHIC]
KPMG LLP
February 1, 2002
Cincinnati, Ohio
13
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
December 31, 2001 2000
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26,541 $ 4,334
Receivables:
Trade 48,180 79,617
Taxes and other 6,520 1,566
------------------ ------------------
54,700 81,183
Less allowance for doubtful accounts 5,766 1,372
------------------ ------------------
Net receivables 48,934 79,811
Inventories 12,483 43,324
Deferred federal income taxes 13,900 16,935
Prepaid expenses 3,903 3,644
------------------ ------------------
Total current assets 105,761 148,048
------------------ ------------------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and land improvements 182 182
Buildings and building improvements 3,399 2,948
Machinery and equipment 16,818 19,557
Office furniture, fixtures, and equipment 16,348 16,788
Leasehold improvements 1,584 2,346
Construction in progress 989 1,600
------------------ ------------------
39,320 43,421
Less accumulated depreciation and amortization 30,053 30,741
------------------ ------------------
Net property, plant, and equipment 9,267 12,680
------------------ ------------------
OTHER ASSETS:
Excess of cost over net assets acquired, net of
accumulated amortization of $3,237 in 2001
and $2,511 in 2000 8,038 8,764
Deferred federal income taxes 1,906 --
Other 20,513 11,001
------------------ ------------------
Total assets $ 145,485 $ 180,493
================== ==================
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
14
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
December 31, 2001 2000
---- ----
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ -- $ 17,656
Current installments of long-term obligations -- --
Accounts payable 31,161 28,015
Accrued expenses:
Salaries, wages, and other compensation 4,363 6,295
Insurance 7,403 11,235
Environmental 6,959 8,050
Other 4,403 10,867
------------------- ------------------
Total accrued expenses 23,128 36,447
Other current liabilities 7,096 8,278
------------------- ------------------
Total current liabilities 61,385 90,396
------------------- ------------------
LONG TERM LIABILITIES:
Long-term obligations, less current installments -- --
Pension liabilities 5,294 2,091
Postretirement benefits other than pensions 9,570 9,707
Other liabilities 3,634 5,168
------------------- ------------------
Total liabilities 79,883 107,362
------------------- ------------------
SHAREHOLDERS' EQUITY:
Preferred stock -- --
Common stock 16,931 16,704
Additional paid-in capital 67,226 66,204
Retained earnings 75,147 83,557
Accumulated other comprehensive loss (3,421) (2,676)
------------------- ------------------
155,883 163,789
Treasury stock, at cost 90,281 90,658
------------------- ------------------
Total shareholders' equity 65,602 73,131
------------------- ------------------
Total liabilities and shareholders' equity $ 145,485 $ 180,493
=================== ==================
Common stock, shares issued 16,931,469 16,704,340
Treasury shares held 6,544,524 6,567,276
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
15
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Years Ended December 31, 2001 2000 1999
---- ---- ----
Net sales $ 331,138 $ 488,181 $ 422,866
Cost of sales 291,188 406,839 386,143
--------------- ---------------- ----------------
Gross profit 39,950 81,342 36,723
Selling, general, and administrative expenses 47,607 53,763 56,158
Plant closure and manufacturing reconfiguration 3,713 714 38,559
--------------- ---------------- ----------------
Operating income (loss) (11,370) 26,865 (57,994)
Other expense (income):
Interest expense 1,761 8,629 2,241
Interest income (633) (201) (425)
Other 303 1,342 333
--------------- ---------------- ----------------
1,431 9,770 2,149
--------------- ---------------- ----------------
Earnings (loss) before income taxes (12,801) 17,095 (60,143)
Income tax expense (benefit) (4,391) 6,429 (20,788)
--------------- ---------------- ----------------
Earnings (loss) from continuing operations (8,410) 10,666 (39,355)
--------------- ---------------- ----------------
Discontinued operations:
Earnings (loss) from discontinued operations -- 4,537 (193)
Gain on disposal of discontinued operations -- 20,781 6,260
Extraordinary loss -- (998) --
--------------- ---------------- ----------------
Net earnings (loss) $ (8,410) $ 34,986 $ (33,288)
--------------- ---------------- ----------------
EARNINGS (LOSS) PER COMMON SHARE:
Basic
Weighted average number of common shares 10,298,076 10,187,048 10,642,257
Earnings (loss) from continuing operations $ (0.82) $ 1.05 $ (3.70)
Earnings from discontinued operations -- 2.48 0.57
Extraordinary loss -- (0.10) --
--------------- ---------------- ----------------
Net earnings (loss) per common share $ (0.82) $ 3.43 $ (3.13)
--------------- ---------------- ----------------
Diluted
Weighted average number of common shares 10,298,076 10,320,362 10,642,257
Earnings (loss) from continuing operations $ (0.82) $ 1.03 $ (3.70)
Earnings from discontinued operations -- 2.45 0.57
Extraordinary loss -- (0.09) --
--------------- ---------------- ----------------
Net earnings (loss) per common share $ (0.82) $ 3.39 $ (3.13)
=============== ================ ================
- ----------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands, except per share data)
Years Ended December 31, 2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations $ (8,410) $ 10,666 $ (39,355)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 4,676 5,706 9,643
(Gain) loss on sale of property, plant, and equipment (4) (3,446) 8,679
Write-down of certain property, plant, and equipment 2,018 -- 23,278
Extraordinary charge for the early extinguishments of debt -- (998) --
Deferred federal income tax expense (benefit) 1,323 18,943 (17,269)
Increase (decrease) in cash resulting from changes in:
Receivables, net 30,877 (23,014) 6,749
Inventories 30,841 (19,970) 26,946
Prepaid expenses (259) 1,101 (1,872)
Other assets (9,475) (1,941) (5,490)
Accounts payable 3,146 (2,214) (630)
Accrued expenses (13,319) (575) 9,614
Other current liabilities (1,182) 937 (1,628)
Postretirement benefits other than pensions (137) (4,196) (1,500)
Other long-term liabilities 691 2,463 (4,926)
Other -- (3) --
------------ --------------- ---------------
Net cash provided by (used in) continuing operating
activities 40,786 (16,541) 12,239
------------ --------------- ---------------
Discontinued operations:
Gain on disposal of discontinued operations -- 20,781 6,260
Gain (loss) from discontinued operations -- 4,537 (193)
Non-cash items from discontinued operations -- 3,648 2,841
Cash provided by discontinued operations -- 31,936 66,494
------------ --------------- ---------------
Net cash provided by discontinued operating activities -- 60,902 75,402
------------ --------------- ---------------
Net cash provided by operating activities 40,786 44,361 87,641
------------ --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,553) (2,510) (6,444)
Proceeds from sale of property, plant, and equipment 4 7,377 48
Acquisitions of businesses -- -- (1,248)
------------ --------------- ---------------
Net cash provided by (used in) investing activities (2,549) 4,867 (7,644)
------------ --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (17,656) (4,246) (77,338)
Issuance of long-term obligations -- -- 37,098
Reduction of long-term obligations -- (60,467) (12,124)
Issuance (repurchase) of common shares 1,626 485 (22,419)
Dividends paid -- (856) (2,858)
------------ --------------- ---------------
Net cash used in financing activities (16,030) (65,084) (77,641)
------------ --------------- ---------------
Net change in cash and cash equivalents 22,207 (15,856) 2,356
Cash and cash equivalents:
Beginning of year 4,334 20,190 17,834
------------ --------------- ---------------
End of year $ 26,541 $ 4,334 $ 20,190
============ =============== ===============
Cash paid (refunded) during the year for:
Interest $ 845 $ 14,145 $ 7,201
Income taxes 1,532 4,646 (420)
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data)
Accumulated
Additional Other
Common Paid-In Retained Comprehensive Treasury
Total Stock Capital Earnings Loss Stock
---------- ---------- ----------- ---------- ------------- -----------
BALANCE AT DECEMBER 31, 1999 $37,482 $16,667 $66,242 $48,571 $ (2,854) $(91,144)
Comprehensive income, net of
tax:
Net earnings 34,986 34,986
Minimum pension liability
adjustment, net of income
tax expense of $205 178 178
----------
Total comprehensive
income 35,164
Issuance of 36,671 shares in
connection with common
stock plans 485 37 (38) 486
---------- ---------- ----------- ---------- ------------- -----------
BALANCE AT DECEMBER 31, 2000 $73,131 $16,704 $66,204 $83,557 $ (2,676) $(90,658)
---------- ---------- ----------- ---------- ------------- -----------
Comprehensive loss, net of
tax:
Net Loss (8,410) (8,410)
Minimum pension liability
adjustment, net of income
tax benefit of $194 (434) (434)
Unrealized loss on derivative
instruments (311) (311)
----------
Total comprehensive
loss (9,155)
Issuance of 227,129 shares in
connection with common
stock plans 1,626 227 1,022 377
---------- ---------- ----------- ---------- ------------- -----------
BALANCE AT DECEMBER 31, 2001 $65,602 $16,931 $67,226 $75,147 $ (3,421) $(90,281)
---------- ---------- ----------- ---------- ------------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
Huffy Corporation and its subsidiaries. All inter-company transactions and
balances have been eliminated.
RECLASSIFICATION - Certain prior year balances have been reclassified to conform
with the 2001 presentation.
CASH AND CASH EQUIVALENTS - Cash equivalents consist principally of short-term
money market instruments with original maturities of three months or less.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially expose
the Company to concentrations of credit risk, as defined by Statement of
Financial Accounting Standards (SFAS) No. 105, consist primarily of trade
accounts receivable. In the normal course of business, Huffy extends credit to
various companies in the retail industry where certain concentrations of credit
risk exist. These concentrations of credit risk may be similarly affected by
changes in economic or credit conditions and may, accordingly, impact Huffy's
overall credit risk. Management believes that the accounts receivable are well
diversified, thereby reducing potential market credit risk, and that the
allowance for doubtful accounts is adequate to absorb estimated losses as of
December 31, 2001.
INVENTORIES - Inventories are valued at cost (not in excess of market)
determined by the first-in, first-out (FIFO) method. Management periodically
reviews inventory for salability and believes that the reserve for obsolescence
at December 31, 2001 is adequate to absorb estimated losses.
PROPERTY, PLANT, AND EQUIPMENT - Depreciation and amortization of plant and
equipment is provided on the straight-line method.
Annual depreciation and amortization rates are as follows:
Land Improvements 5 - 10%
Buildings and improvements 2-1/2 - 10%
Office furniture, fixtures, equipment 10 - 33-1/3%
and computer software
Leasehold improvements 4-1/2 - 33-1/3%
AMORTIZATION OF INTANGIBLES - The excess of cost over net assets acquired was
amortized on a straight-line basis over fifteen to forty years in 2001, 2000 and
1999.
In July 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of.
The Company is adopting Statement 142 on January 1, 2002. As of the date of
adoption, the Company will have $8,038 of unamortized goodwill. The Company has
tested the unamortized goodwill for impairment and found the assets unimpaired
as of the date of adoption.
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value
of cash and cash equivalents, trade receivables, trade accounts payable, notes
payable, and accrued expenses approximates fair value due to the short maturity
of these instruments. The Company had no long-term debt obligations at either
December 31, 2000 or 2001.
19
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In accordance with Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, and SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an Amendment to SFAS No.
133, during 2001 the Company recorded an adjustment of $311 in accumulated other
comprehensive loss to recognize at fair value an interest rate swap that is
designated as a cash-flow hedging instrument. No other derivative instruments
have been identified.
The interest rate swap is recognized on the balance sheet at fair value. The
Company has determined that the swap is highly effective; therefore, changes in
the fair value of the swap are recorded on a quarterly basis as an adjustment to
other comprehensive loss.
EARNINGS (LOSS) PER COMMON SHARE - Basic earnings (loss) per share of common
stock is based upon the weighted average number of shares of common stock
outstanding during the year. Diluted earnings (loss) per share are computed
based on the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Earnings (loss) per common share are
not diluted if the Company has a loss from continuing operations.
USE OF ESTIMATES - Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
STOCK OPTION PLANS - Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123.
REPORTING SEGMENTS - Huffy Bicycle Company including Royce Union Bicycle Company
and American Sports Design Company, Huffy Sports Company and Huffy Service
First, Inc. operate as one business segment providing consumer products and
services.
NOTE 2. DISCONTINUED OPERATIONS
On November 3, 2000, the Company sold the stock of its Washington Inventory
Service subsidiary to WIS Acquisition Corp., a subsidiary of WIS Holdings Corp.,
for $84,750 subject to certain post-closing adjustments. The results for
Washington Inventory Service have been classified as discontinued operations in
the Consolidated Statements of Operations and Consolidated Statements of Cash
Flows.
On March 16, 1999, the Company sold the assets of the Harrisburg, Pennsylvania
based lawn and garden tools and wheelbarrows business, True Temper Hardware
Company, for $100 million to U.S. Industries, Inc. The results for True Temper
Hardware Company have been classified as discontinued operations in the
Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
NOTE 3. PLANT CLOSURE AND MANUFACTURING RECONFIGURATION
The Company incurred a $2.7 million charge associated with the termination of
the Shelter Services Agreement with Elamex, S.A. de C.V. in December 2001. The
resulting drop in North American production will be sourced through our existing
global supplier network. During the fourth quarter of 2001, the Company also
incurred $1.0 million of reconfiguration charges associated with staffing
reductions at Huffy Bicycle Company and the consolidation of the finance and
information technology groups.
During the fourth quarter of 1999, the Company closed its remaining domestic
bicycle manufacturing facilities in Farmington, Missouri and Southaven,
Mississippi, and reconfigured its bicycle operations. During the first quarter
of 2000, the Company
20
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. The plan included the termination of 742
hourly and salaried employees.
In 2000, the Company incurred plant closure and manufacturing reconfiguration
charges of $714 ($446 after tax), or $0.05 per common share. Reconfiguration
charges included severance and related benefits of $1,190, and facility shutdown
costs of $3,965, offset by gains from sales of the Farmington, Missouri plant of
$3,050 and the settlement of the Miamisburg, Ohio office capital lease of
$2,105.
In 1999, the Company incurred plant closure and manufacturing reconfiguration
charges of $38,559 ($25,218 after tax), or $2.37 per common share. Of these
charges, $34,744 related to the 1999 reconfiguration, and $3,815 related to the
reconfiguration implemented in 1998. The 1999 reconfiguration charges included
severance and related benefits of $4,165, and facility shutdown costs and asset
write-downs of $30,579.
During 1998, the Company implemented a plan to maximize operational efficiency
by eliminating excess production capacity and reducing annual operating expenses
at the Huffy Bicycle Company. The plan included the closure of the Celina, Ohio
manufacturing facility to reduce capacity; the leasing of a parts fabrication
facility to support other plants; and the continuation of its import program for
opening price point bikes. The plan included the termination of 935 hourly and
salaried employees. In 1999, charges associated with the 1998 reconfiguration
included severance and related benefits of $2,248; and new facility startup
costs and equipment, personnel and inventory relocation of $1,567.
NOTE 4. INVENTORIES
The components of inventories are as follows:
2001 2000
-------------- ------------
Finished goods $ 10,768 $ 39,284
Work-in-process 105 147
Raw materials and supplies 1,610 3,893
-------------- ------------
$ 12,483 $ 43,324
NOTE 5. LINES OF CREDIT AND LONG-TERM OBLIGATIONS
In January 2000, the Company signed a $170 million, 18-month lending facility
secured by all of the assets of the Company. The facility consisted of $40
million of senior term debt, $30 million of subordinated debt, and a $100
million revolving credit facility. In November 2000, the senior term debt and
subordinated debt were repaid.
The Company entered into an Amended and Restated Loan and Security Agreement,
dated January 31, 2001 with Congress Financial Corporation. The $75 million
revolving credit facility is secured by all assets of the Company and its
affiliates and will expire on December 31, 2002, with a 12-month renewal option.
The Company has been debt free, with cash invested since the first quarter of
2001, interest expense in 2001 is primarily comprised of amortization of
financing costs, letters of credit and non-usage revolver fees. Should the
Company need to borrow against this facility, the interest rate varies based
upon excess availability from prime to prime plus .25%, or LIBOR plus 1.75% to
LIBOR plus 2.75%. As of December 31, 2001, the revolving credit facility had
availability of $24.7 million and no outstanding balance. Management believes
that the $26.5 million cash balance as of December 31, 2001, the amended credit
facility and internally generated cash flows will be sufficient to finance the
seasonal working capital and capital expenditure needs in the coming year.
21
NOTE 6. PREFERRED STOCK
Under the Company's Amended Articles of Incorporation, there are 1,000,000
authorized, unissued shares of Cumulative Preferred Stock, $1.00 par value.
Subject to certain limitations, the Articles provide that the Board of Directors
may fix the conditions of each series of Preferred Stock.
The Company entered into a Rights Agreement with its transfer agent in 1988, as
amended in 1991 and 1994, and the Board of Directors declared a dividend of one
Preferred Share Purchase Right for each outstanding share of the Company's
Common Stock. Upon the occurrence of certain events, Preferred Share Purchase
Rights entitle the holder to purchase at a price of $60.00, one one-hundredth of
a share of Series C Cumulative Preferred Stock, subject to adjustment. The
Rights become exercisable only if a person or group acquires 15% or more of the
Company's Common Stock, or announces a tender offer for 15% or more of the
Common Stock. Under certain circumstances all Rights holders, except the person
or group holding 15% or more of the Company's Common Stock, will be entitled to
purchase a number of shares of the Company's Common Stock having a market value
of twice the Right's current exercise price. Alternately, if the Company is
acquired in a merger or other business combination, after the Rights become
exercisable, the Rights will entitle the holder to buy a number of the acquiring
Company's common shares having a market value at that time of twice each Right's
current exercise price.
Further, after a person or group acquires 15% or more (but less than 50%) of the
Company's outstanding Common Stock, the Company's Board of Directors may
exchange part or all of the Rights (other than the Rights held by the acquiring
person or group) for shares of Common Stock. The Rights expire December 9, 2004
and may be redeemed by the Company for $0.01 per Right at any time prior to the
acquisition by a person or group of 15% or more of the Company's Common Stock.
NOTE 7. COMMON STOCK AND COMMON STOCK PLANS
Under the Company's Amended Articles of Incorporation, there are 60,000,000
authorized shares of Common Stock, $1.00 par value.
At December 31, 2001, the Company has stock-based compensation plans which are
described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its stock purchase plan
except for options issued below fair market value. The compensation cost that
has been charged against income for options issued below fair market value and
options issued to replace canceled options, was $122, $725, and $81 for 2001,
2000, and 1999, respectively. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with FASB Statement
No. 123, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
2001 2000 1999
------------- ----------- ------------
As Reported $(8,410) $ 34,986 $ (33,288)
Pro Forma (9,297) 34,497 (34,053)
Diluted net earnings
(loss) per common share
As Reported $ (0.82) $ 3.39 $ (3.13)
Pro Forma (0.90) 3.34 (3.20)
22
2001 2000 1999
Weighted- Weighted- Weighted-
2001 Average 2000 Average 1999 Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
------------ ---------- ----------- ----------- ----------- -----------
1998 NON-QUALIFIED PLAN
Outstanding at January 1 353,825 $ 10.13 350,950 $ 12.33 244,950 $ 15.73
Granted at fair value 161,250 6.37 142,500 6.79 138,000 7.31
Granted below fair value -- -- -- -- -- --
Forfeited (35,000) 12.00 (139,375) 12.28 (32,000) 16.67
Exercised (2,625) 6.20 (250) 8.50 -- --
------------ ---------- ----------- ----------- ----------- -----------
Outstanding at December 31 477,450 $ 8.74 353,825 $ 10.13 350,950 $ 12.33
============ ========== =========== =========== =========== ===========
Exercisable at December 31 170,549 $ 11.49 101,288 $ 13.37 58,858 $ 15.75
============ ========== =========== =========== =========== ===========
Weighted-average fair value of
options granted during the year;
Issued at fair value on grant date $ 3.34 $ 3.10 $ 3.42
Issued below fair value on grant date -- -- --
1998 QUALIFIED PLANS
Outstanding at January 1 314,558 $ 5.92 294,875 $ 15.22 231,958 $ 16.57
Granted at fair value 190,495 5.72 237,160 4.23 63,976 10.10
Granted below fair value -- -- -- -- -- --
Forfeited -- -- (204,500) 17.46 -- --
Exercised (44,210) 3.35 (12,977) 4.51 (1,059) 1.00
------------ ---------- ----------- ----------- ----------- -----------
Outstanding at December 31 460,843 $ 6.08 314,558 $ 5.92 294,875 $ 15.22
============ ========== =========== =========== =========== ===========
Exercisable at December 31 287,093 $ 5.68 196,389 $ 4.93 111,500 $ 12.49
============ ========== =========== =========== =========== ===========
Weighted-average fair value of
options granted during the year;
Issued at fair value on grant date $ 3.01 $ 1.84 $ 6.40
Issued below fair value on grant date -- -- --
1988 PLAN
Outstanding at January 1 825,477 $ 12.42 1,055,888 $ 12.67 1,131,763 $ 12.73
Granted at fair value -- -- -- -- -- --
Granted below fair value -- -- -- -- -- --
Forfeited (299,724) 14.30 (211,723) 14.04 (63,412) 13.28
Exercised (85,000) 1.00 (18,688) 8.34 (12,463) 11.22
------------ ---------- ----------- ----------- ----------- -----------
Outstanding at December 31 440,753 $ 13.36 825,477 $ 12.42 1,055,888 $ 12.67
============ ========== =========== =========== =========== ===========
Exercisable at December 31 437,003 $ 13.34 790,186 $ 12.33 851,457 $ 12.45
============ ========== =========== =========== =========== ===========
Weighted-average fair value of
options granted during the year;
Issued at fair value on grant date $ -- $ -- $ --
Issued below fair value on grant date -- -- --
1987 DIRECTOR STOCK OPTION PLAN
Outstanding at January 1 188,913 $ 13.43 189,612 $ 13.38 196,078 $ 12.98
Granted at fair value -- -- -- -- -- --
Granted below fair value -- -- -- -- -- --
Forfeited (56,250) 13.67 -- -- -- --
Exercised (617) 0.67 (699) 0.67 (6,466) 1.00
------------ ---------- ----------- ----------- ----------- -----------
Outstanding at December 31 132,046 $ 13.39 188,913 $ 13.43 189,612 $ 13.38
============ ========== =========== =========== =========== ===========
Exercisable at December 31 132,046 $ 13.39 188,913 $ 13.43 189,612 $ 13.38
============ ========== =========== =========== =========== ===========
Weighted-average fair value of
options granted during the year;
Issued at fair value on grant date $ -- $ -- $ --
Issued below fair value on grant date -- -- --
23
Options Outstanding Options Exercisable
--------------------------------------------------------- -------------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/01 Life Price at 12/31/01 Price
1998 Non-Qualified Plans $ 4 to 13 359,125 9.1 years $ 3.94 77,716 $ 6.66
13 to 17 94,575 6.9 years 15.04 75,021 15.04
17 to 20 23,750 6.6 years 17.62 17,812 17.62
1998 Qualified Plan $ 0 to 1 105,843 8.0 years $ 1.00 105,843 $ 1.00
4 to 10 293,000 9.3 years 6.17 134,250 6.14
13 to 18 62,000 6.9 years 14.33 47,000 14.47
1988 Plan $10 to 12 160,270 4.3 years $ 11.16 160,270 $ 11.16
12 to 17 259,729 5.0 years 14.26 255,979 14.26
17 to 20 20,754 1.9 years 19.00 20,754 19.00
1987 Director Stock Option Plan $ 0 to 1 19,546 3.0 years $ 1.00 19,546 $ 1.00
13 to 18 112,500 3.7 years 15.54 112,500 15.54
The Company has fixed option plans, which include the 1998 Qualified Plans, the
1998 Key Employee Non-Qualified Plan, the 1988 Stock Option Plan and Restricted
Share Plan, and the 1987 Director Stock Option Plan. The 1998 Qualified Plans
consist of the 1998 Director Stock Option Plan, the 1998 Key Employee Stock
Plan, and the 1998 Restricted Share Plan.
The 1998 Non-Qualified Plan, the 1998 Key Employee Stock Plan, and the 1988
Stock Option Plan and Restricted Share Plan authorize the issuance of
non-qualified stock options, restricted shares, incentive stock options (except
under the 1998 Key Employee Non-Qualified Stock Plan), and stock appreciation
rights, although no incentive stock options or stock appreciation rights have
been issued. The exercise price of each non-qualified stock option, granted
under the plan, equals the market price of the Company's stock on the date of
the grant. The options maximum term ranges from four to ten years. Options vest
at the end of the first through fourth years.
The 1998 Director Stock Option Plan and 1987 Director Stock Option Plan
authorize the automatic issuance of non-qualified stock options to members of
the Board of Directors who are not employees of the Company. Directors can elect
to receive discounted stock options in lieu of all or part of the annual
retainer fee. Such shares cannot include stock appreciation rights. Under the
1998 Director Stock Option Plan, options vest at the end of six months. Under
the 1987 Director Stock Option Plan, options vest at the end of the third,
fourth, and fifth years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000, and 1999, respectively; expected
volatility of 43.3% in 2001, 42.2% in 2000, and 36.0% in 1999; risk-free
interest rates from 4.75% to 6.80% for all plans and years; and expected lives
from 4.00 to 8.83 years.
The 1989 Employee Stock Purchase Plan, as amended, authorizes the offering and
sale to employees of up to 975,000 shares of the Company's common stock at a
price approximately 90% of the closing price of the common stock on the offering
date. Under the plan, the Company sold: 9,516; 5,167; and 14,895 shares, to
employees in 2001, 2000, and 1999, respectively. At December 31, 2001, rights to
purchase approximately 62,500 shares were outstanding under this plan at an
exercise price of $5.38 per share and 530,543 additional shares were available
for issuance.
Under FASB Statement No. 123, compensation cost is recognized for the fair value
of the employee's purchase rights, which was estimated using the Black-Scholes
model with the following assumptions for 2001, 2000, and 1999, respectively: an
expected life of one year for all years; a risk-free interest rate of 6.1% for
2001 grants, 5.2% for 2000 grants, and 6.7% for 1999 grants, and expected
volatility of 43.3% in 2001, 42.2% in 2000, and 36.0% in 1999. The
weighted-average fair value of those purchase rights granted in 2001, 2000, and
1999 was $1.22, $1.72, and $1.56, respectively.
24
NOTE 8. EARNINGS PER SHARE
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
2001
BASIC EPS
Net earnings available to common shareholders $ (8,410) 10,298,076 $(0.82)
EFFECT OF DILUTIVE SECURITIES
Stock options -- --
-------------- -------------
DILUTED EPS
Net earnings available to common shareholders and assumed
conversions $(8,410) 10,298,076 $(0.82)
============== ============= =============
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
2000
BASIC EPS
Net earnings available to common shareholders $34,986 10,187,048 $ 3.43
EFFECT OF DILUTIVE SECURITIES
Stock options -- 133,314
-------------- -------------
DILUTED EPS
Net earnings available to common shareholders and assumed conversions $34,986 10,320,362 $ 3.39
============== ============= =============
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ------
1999
BASIC EPS
Net earnings available to common shareholders $ (33,288) 10,642,257 $(3.13)
EFFECT OF DILUTIVE SECURITIES
Stock options -- --
-------------- -------------
DILUTED EPS
Net earnings available to common shareholders and assumed
conversions $ (33,288) 10,642,257 $(3.13)
============== ============= =============
Options to purchase 1,026,691; 1,276,776; and 990,533; shares of common stock
were outstanding in 2001, 2000, and 1999, respectively, but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares.
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing and warehouse facilities, office space,
machinery, and vehicles under cancelable and non-cancelable operating leases,
most of which expire within ten years and may be renewed by the Company. Rent
expense under such arrangements totaled approximately $3,488, $4,205, and
$3,596, in 2001, 2000, and 1999, respectively.
25
Future minimum rental commitments under non-cancelable operating leases at
December 31, 2001 are as follows:
2002 $2,311
2003 2,192
2004 1,673
2005 1,017
2006 766
Thereafter 1,350
------------
Total minimum $9,309
============
The Company is subject to a number of lawsuits, investigations, and claims
arising out of the conduct of its business primarily related to commercial
transactions and product liability. While it is not feasible to predict the
outcome of all pending suits and claims, management is of the opinion that their
ultimate disposition will not have a material adverse effect upon the
consolidated financial position, liquidity, or ongoing results of operations of
the Company.
NOTE 10. ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Remediation costs that relate to an existing
condition caused by past operations are accrued when it is probable that these
costs will be incurred and can be reasonably estimated.
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.
Currently, the Company, along with other PRPs, the Main San Gabriel Basin
Watermaster (Watermaster), the San Gabriel Water Quality Authority (WQA), and
numerous local water districts (Water Districts), are working with the EPA on a
mutually satisfactory remedial plan. In January 2002, a tentative settlement for
remediation of such Superfund site was reached among the Company, certain PRPs
and the Watermaster, the WQA and the Water Districts with the expectation to be
finalized in the first quarter 2002. In developing its estimate of environmental
remediation costs, the Company considers, among other things, 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. Based upon information currently available, 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.
The Company has recorded environmental accruals, based upon the information
available, that are adequate to satisfy known remediation requirements. The
total accrual for estimated environmental remediation costs related to the
Superfund site and other potential environmental liabilities was $6,959 at
December 31, 2001. Management expects that the majority of expenditures relating
to costs currently accrued will be made over the next year. As a result of
factors, such as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, the identification
of presently unknown remediation sites, and the allocation of costs among
potentially responsible parties, estimated costs for future environmental
compliance and remediation are necessarily imprecise and it is not possible to
fully predict the amount or timing of future environmental remediation costs
which may subsequently be determined.
Based upon information presently available, such future costs are not expected
to have a material adverse effect on the Company's financial condition,
liquidity, or its ongoing results of operations. However, such costs could be
material to results of operations in a future period.
2001 2000 1999
---- ---- ----
Total expenditures $ 2,471 $ 1,031 $ 690
Expenditures charged to environmental accrual 1,092 450 52
Environmental accrual $ 6,959 $ 8,050 $ 7,250
26
NOTE 11. BENEFIT PLANS
The Company sponsors defined benefit pension plans covering certain salaried and
hourly employees. Benefits to salaried employees are based upon the highest
three consecutive years of earnings out of their last ten years of service;
benefits to hourly workers are based upon their years of credited service.
Contributions to the plans reflect benefits attributed to employees' service
to-date and also to services expected to be provided in the future. Plan assets
consist primarily of common and preferred stocks, common stock index funds,
investment grade corporate bonds, and U.S. government obligations.
The sale of Washington Inventory Service Company in 2000 generated a curtailment
gain of $861 and a settlement loss of $890, which were included in the gain on
disposal of discontinued operations.
In 1999, the Company changed the benefit formulas for Huffy Service First and
Washington Inventory Service hourly employees, resulting in a curtailment gain
of $1,612. The 1999 sale of the True Temper Hardware Company generated a
curtailment gain of $1,138, included in gain on disposal of discontinued
operations.
In addition to the Company's defined benefit pension plans, the Company sponsors
several defined benefit health care and life insurance plans that provide
postretirement medical, dental, and life insurance benefits to full-time
employees who meet minimum age and service requirements. The plans are
contributory, with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductibles and coinsurance. The Company's policy
is to fund the cost of medical benefits in amounts determined at the discretion
of management.
In 2000, the Company changed the eligibility formulas for the postretirement
medical and dental plans resulting in a curtailment gain of $2,840.
In connection with the sale of the Washington Inventory Service Company, True
Temper Hardware Company and the Celina plant closure; future benefits were
terminated for their employees under the postretirement medical and dental
plans, and settlement and curtailment gains of $1,219 in 2000 and $1,343 in 1999
were included in the gain on disposal of discontinued operations and plant
closure and manufacturing reconfiguration, respectively.
The Company also sponsors a deferred compensation plan for the benefit of highly
compensated management employees. The eligible employees make contributions to
the plan and receive postretirement benefits based upon a stated rate of return
on those contributions. The Company's policy is to fund the cost of the benefits
in amounts determined at the discretion of management.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
2001 2000
---------------------
One-Percentage-Point Increase
Effect on total service and interest cost components $ 17 $ 65
Effect on postretirement benefit obligations 261 240
One-Percentage-Point Decrease
Effect on total service and interest cost components $ (16) $ (55)
Effect on postretirement benefit obligations (238) (219)
The Company maintains defined contribution retirement plans covering its
eligible employees under Section 401(k) of the Internal Revenue Code. The
purpose of these defined contribution plans is generally to provide additional
financial security during retirement by providing employees with an incentive to
make regular savings. The Company's contributions to the plans are based on
employee contributions and were $871, $544, and $1,171, in 2001, 2000, and 1999,
respectively.
27
The following table sets forth the plans' funded status and amounts recognized
in the Company's Consolidated Statements of Operations of December 31, 2001 and
2000:
Health Care & Life Deferred Compensation
Pension Plans Insurance Plans Plan
--------------------------- -------------------------- -------------------------
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Change in benefit obligations:
Benefit obligation at beginning of year $77,995 $76,129 $ 3,667 $ 6,113 $ 6,971 $ 7,039
Service cost 1,144 1,724 2 136 -- --
Interest cost 5,885 6,066 286 405 544 483
Plan Participant Contributions -- -- 85 -- -- --
Amendments (315) 238 -- (42) -- --
Actuarial (gain) loss 2,521 4,919 655 340 (624) (255)
Disbursements (5,928) (4,762) (618) (696) (345) (296)
Curtailments -- (973) -- (2,589) -- --
Settlements -- (5,346) -- -- -- --
----------- ----------- ----------- ----------- ---------- -----------
Benefit obligation at end of year 81,302 77,995 4,077 3,667 6,546 6,971
----------- ----------- ----------- ----------- ---------- -----------
Change in plan assets:
Fair value of plan assets at beginning
of year 79,760 91,187 -- -- -- --
Actual return on plan assets (4,837) (513) -- -- -- --
Employer contribution 4,225 498 533 696 345 296
Plan Participant Contribution -- -- 85 -- -- --
Disbursements (5,928) (4,762) (618) (696) (345) (296)
Settlements -- (6,650) -- -- -- --
----------- ----------- ----------- ----------- ---------- -----------
Fair value of plan assets at end of year 73,220 79,760 -- -- -- --
----------- ----------- ----------- ----------- ---------- -----------
Funded status (8,082) 1,765 (4,077) (3,667) (6,546) (6,971)
Unrecognized net actuarial (gain) loss 20,846 6,404 (983) (1,808) 2,035 2,737
Unrecognized prior service cost 519 914 -- -- -- --
Unrecognized initial net asset (552) (663) -- -- -- --
----------- ----------- ----------- ----------- ---------- -----------
Net amount recognized 12,731 8,420 (5,060) (5,475) (4,511) (4,234)
----------- ----------- ----------- ----------- ---------- -----------
Amounts recognized in the balance sheets consist of:
Prepaid benefit cost 15,267 10,703 -- -- -- --
Accrued benefit liability (5,912) (4,991) (5,060) (5,475) (4,511) (4,234)
Intangible asset 352 312 N/A N/A N/A N/A
Accumulated other comprehensive income 3,024 2,396 N/A N/A N/A N/A
----------- ----------- ----------- ----------- ---------- -----------
Net amount recognized 12,731 8,420 (5,060) (5,475) (4,511) (4,234)
----------- ----------- ----------- ----------- ---------- -----------
Weighted-average assumption as of December 31:
Discount rate 7.625% 7.75% 7.625% 7.75% 7.625% 7.75%
Expected return on plan assets 9.50% 9.50% N/A N/A N/A N/A
Rate of compensation increase Age- Age-
Graded Graded N/A N/A N/A N/A
For measurement purposes, a 10.00% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001, and assumed to
decrease gradually to 5.50% for 2006.
28
The following table sets forth the plans' funded status and amounts recognized
in the Company's Consolidated Statements of Operations at December 31, 2001 and
2000:
Health Care & Life Deferred
Pension Plans Insurance Plans Compensation Plan
2001 2000 2001 2000 2001 2000
---- ---- ---- ---- ---- ----
Components of net periodic benefit cost:
Service cost $ 1,144 $ 1,724 $ 2 $ 136 $ -- $ --
Interest cost 5,885 6,066 286 405 544 483
Expected return on plan assets (7,387) (8,394) -- -- -- --
Amortization of prior service cost 80 156 -- (4) -- --
Amortization of initial net asset (111) (210) -- -- -- --
Recognized net actuarial loss (gain) 302 206 (171) (274) 79 109
Settlement loss (gain) -- 890 -- (1,470) -- --
Curtailment gain -- (861) -- (2,589) -- --
----------- ------------ --------- ----------- --------- ---------
Net periodic benefit cost $ (87) $(423) $117 $(3,796) $623 $592
=========== ============ ========= =========== ========= =========
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $6,961, $6,914, and $1,003 respectively, as of
December 31, 2001, and $6,514, $6,047, and $1,055 respectively, as of December
31, 2000.
NOTE 12. INCOME TAXES
The provisions for federal and state income taxes attributable to income from
continuing operations consist of:
2001 2000 1999
----------- ---------- -------------
Current tax expense (benefit):
Federal $ (4,950) $ 723 $ (3,141)
State ( 942) 560 (72)
Foreign 71 181 117
----------- ---------- -------------
(5,821) 1,464 (3,096)
Deferred tax expense (benefit) 1,430 4,965 (17,629)
----------- ---------- -------------
Total tax expense (benefit) $ (4,391) $ 6,429 $(20,725)
=========== ========== =============
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited or settled through the year
1996.
Management expects that the Company's future level of taxable income will be
sufficient to fully utilize the net deferred tax asset. Therefore, the valuation
allowance has not been established.
29
The components of the net deferred tax asset as of December 31, 2001 and 2000
were as follows:
2001 2000
------------- ------------
DEFERRED TAX ASSETS:
Allowance for doubtful accounts $ 2,018 $ 481
Inventory, principally due to additional cost inventoried for tax
purposes 1,270 1,001
Property, plant, and equipment 405 (256)
Workers' compensation 1,417 3,383
Product liability 1,085 1,251
Deferred compensation 2,791 1,108
Accrued vacation 30 29
Incurred, but not reported 322 333
Pension liability (2,661) (1,336)
Postretirement benefits other than pensions 1,506 2,797
Environmental reserves 2,436 2,890
Severance reserves 110 438
Promotional allowances 1,535 1,675
Net operating loss carry forward and tax credits 3,450 459
Other liabilities and reserves 92 2,504
------------- ------------
Other deferred tax assets 15,806 16,757
------------- ------------
DEFERRED TAX LIABILITIES:
Other assets -- 96
------------- ------------
Total deferred tax liabilities -- 96
------------- ------------
Net deferred tax asset $ 15,806 $ 16,661
============= ============
Net operating losses of $4,550 expire in 2021. State net operating losses of
$459 expire through varying dates between 2004 and 2020. Tax credits of $736
expire through varying dates between 2002 and 2019.
2001 2000 1999
------------- ------------ -------------
Earnings (loss) before income taxes from $ (12,801) $ 17,095 $ (59,961)
continuing operations ------------- ------------ -------------
Tax provision (benefit) computed at statutory rate (4,480) 5,983 (20,387)
Increase (reduction) in taxes due to:
Impact of foreign losses for which a current tax
benefit is not available 71 181 (117)
State income taxes (net of federal tax benefit) (612) 364 (507)
Goodwill amortization 8 8 136
Foreign sales corporation (140) (155) (102)
Life insurance (104) (41) (45)
Non-deductible meals and entertainment 120 135 518
Tax credits (71) (120) (205)
Change in prior year income tax estimate 662 -- --
Miscellaneous
155 74 (16)
------------- ------------ -------------
Actual tax provision (benefit) $ (4,391) $ 6,429 $ (20,725)
============= ============ =============
NOTE 13. CREDIT CONCENTRATION
Kmart is the Company's largest customer comprising 38%, 28% and 32% of
consolidated net sales in 2001, 2000 and 1999. In January 2002, Kmart filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The provision for
uncollectible receivables was increased in 2001, to reflect the expected
collectibility of unpaid receivables from Kmart. The Company's next largest
customer made up 18%, 21% and 19% of consolidated net sales in 2001, 2000 and
1999.
30
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 2001 and 2000 are as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total[1]
------------ ------------- ------------ ------------ --------------
2001
Net sales $ 81,243 $ 86,864 $ 77,945 $ 85,086 $331,138
Gross profit 11,635 12,077 7,677 8,561 39,950
------------ ------------- ------------ ------------ --------------
Net earnings (loss) 994 768 (2,801) (7,371) (8,410)
EARNINGS PER COMMON SHARE:
Basic
Net earnings (loss) per common share $ 0.10 $ 0.07 $ (0.27) $ (0.71) $ (0.82)
Diluted
Net earnings (loss) per common share $ 0.10 $ 0.07 $ (0.27) $ (0.71) $ (0.82)
2000
Net sales $ 100,068 $122,029 $ 123,875 $ 142,209 $ 488,181
Gross profit 14,762 17,064 21,841 27,675 81,342
------------ ------------- ------------ ------------ --------------
Earnings (loss) from continuing operations (1,121) 636 4,869 6,282 10,666
Discontinued operations 829 3,875 160 20,454 25,318
Extraordinary gain (loss) (848) -- 213 (363) (998)
------------ ------------- ------------ ------------ --------------
Net earnings (loss) (1,140) 4,511 5,242 26,373 34,986
EARNINGS PER COMMON SHARE:
Basic
Earnings (loss) from continuing operations $ (0.11) $ 0.06 $ 0.48 $ 0.62 $ 1.05
Discontinued operations 0.08 0.38 0.01 2.01 2.48
Extraordinary gain (loss) (0.08) -- 0.02 (0.04) (0.10)
------------ ------------- ------------ ------------ --------------
Net earnings (loss) per common share $ (0.11) $ 0.44 $ 0.51 $ 2.59 $ 3.43
Diluted
Earnings (loss) from continuing operations $ (0.11) $ 0.06 $ 0.47 $ 0.61 $ 1.03
Discontinued operations 0.08 0.38 0.01 1.97 2.45
Extraordinary gain (loss) (0.08) -- 0.02 (0.04) (0.09)
------------ ------------- ------------ ------------ --------------
Net earnings (loss) per common share $ (0.11) $ 0.44 $ 0.50 $ 2.54 $ 3.39
(1) Quarterly per share amounts are computed independently for each quarter and
the full year based upon the respective weighted average number of common
shares outstanding and may not equal the total for the year.
31
COMMON STOCK
Huffy Corporation Common Stock is traded on the New York Stock Exchange. The
quarterly high and low prices of Huffy Corporation Common Stock during the years
ended December 31, 2001 and 2000 were as follows:
Year Ended December 31, 2001 Year Ended December 31, 2000
---------------------------- ----------------------------
Common Stock Common Stock
Price Range Price Range
----------------------- ----------------------
Quarter High Low Quarter High Low
- ------- ---- --- ------- ---- ---
First $ 7.74 $ 6.08 First $ 6.31 $ 4.50
Second 10.50 6.14 Second 4.69 3.00
Third 9.81 6.25 Third 13.69 4.13
Fourth 6.62 5.41 Fourth 11.75 6.06
As of December 31, 2001, there were 10,386,945 shares of Huffy Corporation
Common Stock outstanding and there were 3,211 shareholders of record. Management
estimates an additional 4,500 shareholders hold their stock in nominee name.
Trading volume of the Company's Common Stock during the twelve months ended
December 31, 2001 totaled 9,008,500 shares. The average number of common shares
outstanding during this period was approximately 10,298,076 shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The name, age and background information for each of the Company's Directors is
set forth in the section entitled ELECTION OF DIRECTORS and the table therein
contained in the Company's Proxy Statement for its 2002 Annual Meeting of
Shareholders, and is hereby incorporated herein by reference.
32
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers are elected annually to their respective positions,
effective at the April meeting of the Board of Directors. The Executive Officers
of the Company at January 2, 2002, were as follows:
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
Don R. Graber 58 Chairman of the Board, July 1996
President and Chief
Executive Officer
Timothy G. Howard 55 Vice President -- Controller September 1978
Robert W. Lafferty 57 Vice President -- Finance, January 2000
Chief Financial Officer
and Treasurer
Nancy A. Michaud 55 Vice President -- General February 1993
Counsel and Secretary
Mr. Lafferty was elected Vice President-Finance, Chief Financial Officer and
Treasurer on January 3, 2000. Prior to such election, he served as Vice
President and Chief Financial Officer of Gencor Industries, Inc. (a manufacturer
of highway construction and food processing equipment) from 1998; prior thereto
he was Senior Vice President of Hoechst Marion Roussel AG (a pharmaceutical
business) from 1996; prior thereto he was Senior Vice President, Finance of
Hoechst Marion Roussel Inc. (a pharmaceutical business).
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation set forth in the section entitled
EXECUTIVE COMPENSATION and the tables therein, is contained in the Company's
Proxy Statement for its 2002 Annual Meeting of Shareholders, and is hereby
incorporated herein by reference. Notwithstanding anything to the contrary set
forth herein or in any of the Company's previous filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
that might incorporate future filings, including this Form 10-K, the section
entitled REPORT OF COMPENSATION COMMITTEE and the Performance Graph which is set
forth in the Company's Proxy Statement for its 2002 Annual Meeting of
Shareholders are not deemed to be incorporated by reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The number of shares of Common Stock of the Company beneficially owned by each
Director and by all Directors and Officers as a group as of January 2, 2002, set
forth in the section entitled SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT, and the table therein, is contained in the Company's Proxy
Statement for its 2002 Annual Meeting of Shareholders, and is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain transactions with management set forth in the section
entitled CERTAIN RELATIONSHIPS AND OTHER RELATED TRANSACTIONS is contained in
the Company's Proxy Statement for its 2002 Annual Meeting of Shareholders, and
is hereby incorporated herein by reference.
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial statements
The following financial statements are filed as part of this
report. See index on page 2 of this report.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 2001, and 2000
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements
(2) The Accountants' Report on Consolidated Financial Statements
and the following Financial Statement Schedule of the Company
is included as part of this Report at Item 8 hereof:
Schedule II. Valuation and Qualifying Accounts -- years ended
December 31, 2001, 2000, and 1999
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
(3) The exhibits shown in "Index to Exhibits" are filed as a part
of this Report.
(b) REPORTS ON FORM 8-K
During the fiscal quarter ended December 31, 2001, the Company filed no
reports on Form 8-K.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Don R. Graber Date: February 12, 2002
-----------------------------------------------------
Don R. Graber
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer
and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Timothy G. Howard Date: February 12, 2002
-----------------------------------------------------
Timothy G. Howard
Vice President - Controller
(Principal Accounting Officer)
/s/ Robert W. Lafferty Date: February 12, 2002
-----------------------------------------------------
Robert W. Lafferty
Vice President -- Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
/s/ W. Anthony Huffman Date: February 12, 2002
-----------------------------------------------------
W. Anthony Huffman, Director
/s/ Linda B. Keene Date: February 12, 2002
-----------------------------------------------------
Linda B. Keene, Director
/s/ Donald K. Miller Date: February 12, 2002
-----------------------------------------------------
Donald K. Miller, Director
/s/ James F. Robeson Date: February 12, 2002
-----------------------------------------------------
James F. Robeson, Director
/s/ Thomas C. Sullivan Date: February 12, 2002
-----------------------------------------------------
Thomas C. Sullivan, Director
/s/ Joseph P. Viviano Date: February 12, 2002
-----------------------------------------------------
Joseph P. Viviano, Director
35
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors,
Huffy Corporation:
Under date of February 1, 2002, we reported on the consolidated balance sheets
of Huffy Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2001,
which are included in the Company's 2001 Annual Report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule as listed in Part IV, Item 14(a)(2) of Form 10-K. The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Cincinnati, Ohio
February 1, 2002
/s/ KPMG LLP
-----------------------------
KPMG LLP
36
INDEPENDENT AUDITORS' CONSENT
The Board of Directors,
Huffy Corporation:
We consent to the incorporation by reference in the Registration Statements, and
the Prospectuses constituting part thereof, of (i) the Form S-8 Registration
Statement (No. 333-62903) pertaining to the Master Deferred Compensation Plan;
(ii) the Form S-8 Registration Statement (No. 333-52095) pertaining to the 1998
Director Stock Option Plan, the 1998 Key Employee Stock Plan, and the 1998
Restricted Share Plan; (iii) the Form S-8 Registration Statement (No. 333-52077)
pertaining to the 1998 Key Employee Non-Qualified Stock Plan; (iv) the Form S-8
Registration Statement (No. 33-25487) pertaining to the 1988 Stock Option Plan
and Restricted Share Plan; (v) the Form S-8 Registration Statement (No.
33-25143) pertaining to the 1987 Director Stock Option Plan; (vi) the Form S-8
Registration Statement (Nos. 33-28811 and 33-42724) pertaining to the 1989
Employee Stock Purchase Plan and (vii) the Form S-8 Registration Statement (No.
33-44571) pertaining to five company savings plans of our report dated February
1, 2002, relating to the consolidated balance sheets of Huffy Corporation and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2001, which report appears in
the Company's 2001 Annual Report on Form 10-K.
Cincinnati, Ohio [GRAPHIC]
February 1, 2002 KPMG LLP
/s/ KPMG LLP
-----------------------------
37
HUFFY CORPORATION
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
BALANCE AT ADDITIONS
BEGINNING CHARGED TO COSTS BALANCE AT END
OF PERIOD AND EXPENSES DEDUCTIONS OF PERIOD
Reserves deducted from assets to which
they apply:
Allowance for doubtful accounts:
Year ended December 31, 2001 $1,372 4,819 (425) $5,766
Year ended December 31, 2000 $1,784 597 (1,009) $1,372
Year ended December 31, 1999 $1,863 465 (544) $1,784
Inventory obsolescence:
Year ended December 31, 2001 $ 365 3,327 (2,639) $1,053
Year ended December 31, 2000 $1,620 38 (1,293) $ 365
Year ended December 31, 1999 $2,518 8,074 (8,972) $1,620
Note: Represents accounts written off, less recoveries for allowance for
doubtful accounts. Represents inventory written off, less scrap value
for inventory obsolescence.
38
INDEX TO EXHIBITS
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
3.a Amended Articles of Incorporation, dated June 16, 1995, incorporated *
by reference to Exhibit (3)(i) to Form 10-Q for the quarter ended June
30, 1995
3.b Amended and Restated Code of Regulations, as amended, dated April *
27, 2000, incorporated by reference to Exhibit (3) to Form 10-Q for
the fiscal quarter ended April 1, 2000
4.a Specimen Common Stock Certificate of Huffy Corporation, incorporated *
by reference to Exhibit 4(a) to Form 10-K for the year ended December
31, 1997
4.b Rights Agreement, dated as of December 16, 1988, as amended *
August 23, 1991, and as amended and restated as of December
9, 1994, between Huffy Corporation and Bank One, Indianapolis,
National Association, incorporated by reference to Form 8-K,
dated December 22, 1994
4.c Amendment appointing Harris Trust and Savings Bank Successor *
Rights Agent, dated as of June 10, 1997, to Rights Agreement
as amended and restated as of December 9, 1994, between Huffy
Corporation and Bank One, Indianapolis, National Association,
incorporated by reference to Exhibit (4)(c) to Form 10-K for
the fiscal year ended December 31, 1999
4.d Amendment appointing LaSalle Bank, N.A. 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, incorporated
by reference to Exhibit (4) to Form 10-Q for the fiscal quarter
ended April 1, 2000
4.e Amended and Restated Loan and Security Agreement, dated as of *
January 31, 2001, between Huffy Corporation and its
subsidiaries and Congress Financial Corporation (Central),
incorporated by reference to Exhibit 4.e to Form 10-K for
the fiscal year ended December 31, 2000
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
39
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
10.a Lease and Development Agreement, dated as of May 29, 1996, between *
Asset Holdings Company VI, LLC and Huffy Corporation, incorporated by
reference to Exhibit (10)(c) to Form 10-K for the fiscal year ended
December 31, 1999
10.b First Addendum to Lease and Development Agreement, dated November 3, *
2000, between Asset Holdings Company VI, LLC and Huffy Corporation,
incorporated by reference to Exhibit 10.b to Form 10-K for the fiscal
year ended December 31, 2000
10.c Participation Agreement, dated as of May 29, 1996, among Asset *
Holdings Company VI, LLC, Huffy Corporation, and Bank One, Dayton,
N.A., incorporated by reference to Exhibit (10) (d) to Form 10-K for
the fiscal year ended December 31, 1999
10.d Special Deferred Compensation Agreements, as amended, between *
Huffy Corporation and certain of its officers and key
employees, in substantially the forms incorporated by reference
to Exhibit (ix) to Form 10-K for the fiscal year ended June 24,
1977, to Exhibit (2) to Form 10-Q for the fiscal quarter ended
September 23, 1983, and to Exhibit (19)(c) to Form 10-Q for the
fiscal quarter ended September 30, 1986
10.e Deferred Compensation Agreements, as amended, between Huffy *
Corporation and certain of its officers and key employees, in
substantially the forms incorporated by reference to Exhibit
(vi) to Form 10-K for the fiscal year ended June 29, 1979, and
to Exhibit (3) to Form 10-Q for the fiscal quarter ended
September 23, 1983
10.f Master Deferred Compensation Plan, incorporated by reference
to Exhibit 4 to Form S-8, dated August 28, 1998 *
10.g Form of Amended and Restated Severance/Retention/Non-Compete *
Agreements, as revised and restated, between Huffy
Corporation and its Officers, incorporated by reference to
Exhibit 10.a to Form 10-Q for the fiscal quarter ended July 1, 2000
10.h Long Term Incentive Plan, incorporated by reference to Exhibit 10.h
to Form 10-K for the fiscal year ended December 31, 2001
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
40
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
10.i Description of supplemental group life insurance arrangement between *
Huffy Corporation and certain officers and key employees, incorporated
by reference to Exhibit (10)(aa) to Form 10-K for the fiscal year
ended December 31, 1991
10.j Description of financial planning and tax preparation services, *
and automobile allowances, between Huffy Corporation and
certain officers and key employees incorporated by reference to
Exhibit (10)(m) to Form 10-K for the fiscal year ended December
31, 1999
10.k Annual Performance Incentive Plan of Huffy Corporation for the ***
fiscal year ended December 31, 2001
10.l Supplemental Benefit Agreement, dated as of June 21, 1996, between *
Huffy Corporation and Don R. Graber, incorporated by reference to
Exhibit 10.u to Form 10-K for the fiscal year ended December 31, 1996
10.m Supplemental/Excess Benefit Plan, dated as of January 1, 1988, *
incorporated by reference to Exhibit (10)(aa) to Form 10-K for the
fiscal year ended December 31, 1987
10.n First Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of January 1, 1988, incorporated by reference to
Exhibit (10)(ee) to Form 10-K for the fiscal year ended December 31,
1990
10.o Second Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, dated as of June 30, 1991, incorporated by reference to Exhibit
(10)(y) to Form 10-K for the fiscal year ended December 31, 1994
10.p Third Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, dated as of June 27, 1994, incorporated by reference to Exhibit
(10)(2) to Form 10-K for the fiscal year ended December 31, 1994
10.q Fourth Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan dated as of May 26, 1995, incorporated by reference to Exhibit
10.s to Form 10-K for the fiscal year ended December 31, 1997
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
41
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
10.r Fifth Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of July 15, 1996, incorporated by reference to
Exhibit 10.z to Form 10-K for the fiscal year ended December 31, 1996
10.s Sixth Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of June 15, 1997, incorporated by reference to
Exhibit 10.u to Form 10-K for the fiscal year ended December 31, 1997
10.t Seventh Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of December 22, 1997, incorporated by reference to
Exhibit 10.v to Form 10-K for the fiscal year ended December 31, 1997
10.u Eighth Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of February 12, 1998, incorporated by reference to
Exhibit (10)(x) to Form 10-K for the fiscal year ended December 31,
1999
10.v Ninth Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of February 15, 2000, incorporated by reference to
Exhibit (10)(d) to Form 10-Q for fiscal quarter ended July 1, 2000
10.w Tenth Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective as of May 25, 2000, incorporated by reference to
Exhibit (10)(e) to Form 10-Q for fiscal quarter ended July 1, 2000
10.x Eleventh Amendment to Huffy Corporation Supplemental/Excess Benefit *
Plan, effective February 15, 2001, incorporated by Reference to
Exhibit 10.x to Form 10-K for the fiscal year ended December 31, 2000
10.y Twelfth Amendment to Huffy Corporation Supplemental/Excess ***
Benefit Plan, effective as of January 1, 2001
10.z Huffy Corporation 1998 Restricted Share Plan, effective April 17, *
1998, incorporated by reference to Exhibit 3 to the Company's Proxy
Statement dated March 5, 1998 for the Annual
Meeting of Shareholders held April 17, 1998
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual
Report on Form 10-K for the year ended December 31, 2001.
42
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
10.aa Amendment No. 1 to Huffy Corporation 1998 Restricted Share ***
Plan, effective as of April 27, 2001
10.bb Form of Restricted Share Agreements between Huffy Corporation and *
its Officers, incorporated by reference to Exhibit 10.w to Form 10-K
for the fiscal year ended December 31, 1997
10.cc Huffy Corporation Master Benefit Trust Agreement as Restated, dated *
June 9, 1995, incorporated by reference to Exhibit 10.aa for Form 10-K
for the fiscal year ended December 31, 1995
10.dd First Amendment to Huffy Corporation Master Benefit Trust Agreement *
as Restated, effective as of July 25, 1996, incorporated by reference
to Exhibit 10.bb to Form 10-K for the fiscal year ended December 31,
1996
10.ee Amendment No. 2 to Huffy Corporation Master Benefit Trust *
Agreement, dated January 2, 1998, incorporated by reference
to Exhibit 10.z to Form 10-K for the fiscal year ended
December 31, 1998
10.ff Third Amendment to Huffy Corporation Master Benefit Trust Agreement, *
as Restated, effective August 20, 1998, incorporated by reference to
Exhibit 10.aa to Form 10-K for the fiscal year ended December 31, 1998
10.gg Huffy Corporation 1987 Director Stock Option Plan, incorporated by *
reference to Exhibit 19(a) to Form 10-Q for the fiscal quarter ended
June 30, 1988
10.hh First Amendment to Huffy Corporation 1987 Director Stock Option *
Plan, effective as of April 30, 1991, incorporated by reference to
Exhibit (10)(nn) to Form 10-K for the fiscal year ended December 31,
1991
10.ii Second Amendment to Huffy Corporation 1987 Director Stock Option *
Plan, effective as of December 15, 1991, incorporated by reference to
Exhibit (10)(oo) to Form 10-K for the fiscal year ended December 31,
1991
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
43
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
10.jj Third Amendment to Huffy Corporation 1987 Director Stock Option *
Plan, effective as of February 15, 1996, incorporated by reference to
Exhibit 10.ff to Form 10-K for the fiscal year ended December 31, 1996
10.kk Huffy Corporation 1998 Director Stock Option Plan, effective April
17, 1998, incorporated by reference to Exhibit 1 to the Company's
Proxy Statement dated March 5, 1998 for the Annual
Meeting of Shareholders held April 17, 1998
10.ll Amendment No. 1 to Huffy Corporation 1998 Director Stock Option ***
Plan, effective April 27, 2001
10.mm Huffy Corporation 1988 Stock Option Plan and Restricted Share *
Plan, as amended, incorporated by reference to Exhibit 19(b)
to Form 10-Q for the fiscal quarter ended June 30, 1988; to
Exhibit A to the Company's Proxy Statement dated March 13,
1992 for the Annual Meeting of Shareholders held April 24,
1992; and to Annex I to the Company's Proxy Statement dated
March 7, 1996 for the Annual Meeting of Shareholders held
April 26, 1996
10.nn Third Amendment to Huffy Corporation 1988 Stock Option Plan and *
Restricted Share Plan, effective October 22, 1998, incorporated by
reference to Exhibit 10.hh to Form 10-K for the fiscal year ended
December 31, 1998
10.oo Huffy Corporation 1998 Key Employee Stock Plan, effective April 17, *
1998, incorporated by reference to Exhibit 2 to the Company's Proxy
Statement dated March 5, 1998 for the Annual Meeting of Shareholders
held April 17, 1998
10.pp First Amendment to Huffy Corporation 1998 Key Employee Stock Plan, *
effective October 22, 1998, incorporated by reference to Exhibit 10.jj
to Form 10-K for the fiscal year ended December 31, 1998
10.qq Second Amendment to Huffy Corporation 1998 Key Employee Stock Plan, *
effective July 20, 2000, incorporated by reference to Exhibit 10.nn to
Form 10-K for the fiscal year ended December 31, 2000
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
44
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
10.rr Amendment No. 3 to Huffy Corporation 1998 Key Employee Stock Plan, ***
effective April 29, 2001
10.ss Form of Subscription Agreement between Huffy Corporation and Don R. *
Graber, incorporated by reference to Exhibit 10.ee to Form 10-K for
the fiscal year ended December 31, 1997
10.tt 1998 and 1999 Subscription Agreements between Huffy *
Corporation and Don R. Graber, incorporated by reference to
Exhibits (10)(b) and (10)(c) to Form 10-Q for the fiscal
quarter ended July 1, 2000
10.uu Huffy Corporation 1990 Directors' Retirement Plan incorporated by *
reference to Exhibit (10)(qq) to Form 10-K for the fiscal year ended
December 31, 1991
10.vv First Amendment to Huffy Corporation 1990 Directors' Retirement *
Plan, effective as of February 15, 1996, incorporated by reference to
Exhibit 10.ii to Form 10-K for the fiscal year ended December 31, 1996
10.ww Second Amendment to Huffy Corporation 1990 Directors' Retirement *
Plan, effective as of February 15, 1996, incorporated by reference to
Exhibit 10.jj to Form 10-K for the fiscal year ended December 31, 1996
10.xx Agreement and Plan of Reorganization, dated November 3, 2000, *
by and among Huffy Corporation, Huffy Brands Company,
Washington Inventory Service, WIS Holdings Corp. and WIS
Acquisition Corp., incorporated by reference to Exhibit 2 to
Form 10-Q for the fiscal quarter ended September 30, 2000
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
45
EXHIBIT FORM 10-K
NO. EXHIBITS
- --- --------
OTHER FILINGS
21. List of all direct and indirect Subsidiaries of the registrant:
JURISDICTION IN
NAME OF SUBSIDIARY WHICH INCORPORATED
------------------ ------------------
Hufco-Delaware Company Delaware
Huffy FSC, Inc. Virgin Islands
Huffy International Finance, N.V. Netherland Antilles
Huffy Risk Management, Inc. Ohio
Huffy Service First, Inc. Ohio
Huffy Sports, Inc. Wisconsin
Royce Union Bicycle Company Ohio
HCAC, Inc. Ohio
American Sports Design Company Ohio
Huffy Brands Company Ohio
HSGC, Inc. Delaware
99.a Cautionary Statement for Purposes of the "Safe Harbor" ***
Provisions of the Private Securities Litigation Reform Act
of 1995
* Indicates that the exhibit is incorporated by reference into this
Annual Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report
on Form 10-K for the year ended December 31, 2001.
46