1
EXHIBIT NO. 13
CERTAIN SECTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
2
TEN-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
(Dollar amounts in thousands, except per share data)
1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $757,863 $703,345 $678,936
Gross profit 138,288 122,608 132,485
Selling, general and administrative expenses 102,493 95,163 92,499
Operating income [1] 7,040 27,445 39,986
Other income (expense), net [2] (1,379) 497 (482)
Earnings before interest, taxes and
cumulative effect of accounting changes 5,661 27,942 39,504
Interest expense, net (8,739) (9,321) (8,047)
Earnings (loss) before income taxes and
cumulative effect of accounting changes (3,078) 18,621 31,457
Income taxes (benefit) 755 6,778 11,630
Earnings (loss) before cumulative effect of accounting changes (3,833) 11,843 19,827
Cumulative effect of accounting changes, net of income taxes (1,084) (7,628) --
Net earnings (loss) (4,917) 4,215 19,827
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary (.38) .33 1.52
Fully diluted [4] (.38) .33 1.41
- ---------------------------------------------------------------------------------------------------------
Common dividends declared 4,175 3,809 3,740
Common dividends per share .31 .30 .29
Capital expenditures for plant and equipment 21,322 23,914 24,509
Average common and common equivalent shares outstanding:
Primary 13,240 12,903 13,056
Fully diluted 14,818 14,940 15,114
- ---------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 319,337 335,328 316,577
Working capital 93,595 91,308 99,110
Net investment in plant and equipment 73,647 80,020 72,226
Notes payable 3,500 18,975 --
Long-term obligations 43,211 74,918 80,208
Redeemable preferred stock -- -- --
Shareholders' equity 136,029 117,687 124,997
Equity per share 9.27 9.35 9.68
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS
Net earnings (loss) (4,917) 4,215 19,827
Depreciation and amortization 20,260 17,965 16,181
Changes in working capital (2,287) 7,802 (11,552)
(Acquisitions) divestitures -- -- --
Capital additions, net (20,437) (23,523) (21,074)
Net issuance (reduction) of debt (16,465) (4,280) (5,267)
Dividends paid (3,872) (3,834) (3,617)
Other 28,369 (3,318) (7,887)
Net change in cash and cash equivalents 651 (4,973) (13,389)
- ---------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin (before cumulative effect of accounting changes) N/A 1.7% 2.9%
Average working capital turnover 8.2 7.4 7.3
Return on net assets N/A 4.1% 11.5%
Return on beginning shareholders' equity N/A 3.4% 18.6%
Current ratio 1.9 1.8 2.0
Debt/total capital 26.6% 40.5% 40.3%
- ---------------------------------------------------------------------------------------------------------
Number of common shareholders 3,760 3,883 3,016
Number of employees 5,854 6,339 6,330
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(1) Operating income in 1993 includes a provision of $28,755 for restructuring
the Company's lawn and garden tool business.
(2) Other income (expense), net includes the following: August 1985-($4,288)
cost for discontinuance of product line; October 1988-($5,584) loss on
sale of capital stock of Raleigh Cycle Company of America.
(3) The 1993 net loss per share is computed using actual average outstanding
shares. In 1992 the assumed conversion of the 7.25% Convertible
Subordinated Debentures was antidilutive, and therefore, the per share
amounts reported for primary and fully diluted are the same.
(4) The 1993 loss per share before cumulative effect of accounting changes is
$(.30). The 1992 fully diluted earnings per share before the cumulative
effect of accounting changes is $.89.
N/A = Not Applicable
TEN-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
(Dollar amounts in thousands, except per share data)
1990 1989 1988 1987 1986 1985 1984
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net sales $516,744 $449,389 $335,713 $340,551 $294,698 $263,935 $269,482
Gross profit 102,545 84,638 62,847 67,328 54,145 45,393 52,707
Selling, general and administrative expenses 69,957 57,972 45,511 46,726 40,280 38,671 36,467
Operating income [1] 32,588 26,666 17,336 20,602 13,865 6,722 16,240
Other income (expense), net [2] 370 605 (5,704) (352) (82) (4,830) 1,465
Earnings before interest, taxes and
cumulative effect of accounting changes 32,958 27,271 11,632 20,250 13,783 1,892 17,705
Interest expense, net (4,390) (3,467) (3,856) (3,048) (2,873) (2,293) (3,016)
Earnings (loss) before income taxes and
cumulative effect of accounting changes 28,568 23,804 7,776 17,202 10,910 (401) 14,689
Income taxes (benefit) 10,561 8,811 3,240 7,111 5,003 (646) 6,433
Earnings (loss) before cumulative effect of
accounting changes 18,007 14,993 4,536 10,091 5,907 245 8,256
Cumulative effect of accounting changes,
net of income taxes -- -- -- -- -- -- --
Net earnings (loss) 18,007 14,993 4,536 10,091 5,907 245 8,256
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary 1.37 1.17 .36 .81 .49 .02 .66
Fully diluted [4] 1.28 1.11 .36 .78 .48 .02 .63
- ------------------------------------------------------------------------------------------------------------------------------------
Common dividends declared 3,461 3,071 2,613 2,333 2,148 2,137 2,140
Common dividends per share .27 .24 .20 .19 .18 .18 .18
Capital expenditures for plant and equipment 9,832 14,143 14,786 6,806 7,638 5,356 5,605
Average common and common equivalent
shares outstanding:
Primary 13,157 12,882 12,641 12,441 12,074 12,095 12,092
Fully diluted 15,179 14,271 13,376 13,415 13,112 12,095 13,134
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 297,310 234,532 183,255 149,259 141,267 129,264 136,603
Working capital 87,558 80,189 45,884 61,649 54,161 50,034 58,110
Net investment in plant and equipment 65,423 45,659 41,360 27,895 27,495 26,679 26,869
Notes payable -- -- -- -- -- -- --
Long-term obligations 84,348 57,525 37,196 15,181 18,427 19,529 28,253
Redeemable preferred stock -- -- -- -- -- -- --
Shareholders' equity 106,747 95,645 80,776 78,914 68,848 64,678 66,573
Equity per share 8.39 7.43 6.50 6.35 5.68 5.38 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS
Net earnings (loss) 18,007 14,993 4,536 10,091 5,907 245
Depreciation and amortization 11,757 10,252 7,211 6,320 5,565 5,796
Changes in working capital (10,445) (2,195) 7,561 (6,493) (5,239) 4,748
(Acquisitions) divestitures (53,639) -- (20,368) (55) -- 3,779
Capital additions, net (9,473) (13,842) (14,176) (6,480) (6,018) (5,101)
Net issuance (reduction) of debt 27,192 26,275 19,487 (814) (1,128) (8,724)
Dividends paid (3,481) (2,868) (2,391) (2,402) (2,144) (2,137)
Other (9,940) 3,906 656 943 1,919 (1,933)
Net change in cash and cash equivalents (30,022) 36,521 2,516 1,110 (1,138) (3,327)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin (before cumulative effect
of accounting changes) 3.5% 3.3% 1.4% 3.0% 2.0% .1% 3.1%
Average working capital turnover 6.2 6.9 6.2 5.9 5.7 4.9 4.7
Return on net assets 13.8% 13.7% 6.7% 12.5% 8.8% 1.8% --
Return on beginning shareholders' equity 18.8% 18.6% 5.7% 14.7% 9.1% .4% 13.6%
Current ratio 2.0 2.1 1.8 2.2 2.1 2.2 2.6
Debt/total capital 45.7% 40.5% 33.3% 17.3% 22.2% 24.3% --
- ------------------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 2,410 2,473 2,180 2,173 2,615 3,019 3,467
Number of employees 5,736 4,650 3,571 3,330 2,943 3,073 2,749
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CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
DECEMBER 31, 1993 DECEMBER 31, 1992
- ---------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,140 $ 3,489
Receivables:
Trade 93,233 115,343
Other 2,417 7,043
-------- --------
95,650 122,386
Less allowance for doubtful accounts 2,382 2,208
-------- --------
Net receivables 93,268 120,178
Inventories 82,144 71,298
Deferred federal income taxes 12,444 6,325
Prepaid expenses 5,369 5,539
-------- --------
Total current assets 197,365 206,829
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land and land improvements 1,657 2,805
Buildings 14,607 18,910
Machinery and equipment 109,581 100,488
Office furniture, fixtures and equipment 23,456 21,659
Leasehold improvements 13,412 12,411
Construction in progress 8,006 8,522
-------- --------
170,719 164,795
Less accumulated depreciation and amortization 97,072 84,775
-------- --------
Net property, plant and equipment 73,647 80,020
OTHER ASSETS:
Excess of cost over net assets acquired, net of
accumulated amortization of $4,763 in 1993
and $4,245 in 1992 26,555 32,352
Deferred federal income taxes 11,853 4,378
Other 9,917 11,749
-------- --------
$319,337 $335,328
======== ========
<FN>
See accompanying notes to consolidated financial statements.
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December 31, 1993 December 31, 1992
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 3,500 $ 18,975
Current installments of long-term obligations 5,968 5,246
Accounts payable 43,713 55,363
Accrued expenses:
Salaries, wages and other compensation 14,910 12,347
Insurance 10,581 7,568
Other 11,975 11,257
-------- --------
Total accrued expenses 37,466 31,172
Restructuring reserve 9,296 --
Other current liabilities 3,827 4,765
-------- --------
Total current liabilities 103,770 115,521
-------- --------
Long-term obligations, less current installments 43,211 74,918
Pension liability 12,688 5,767
Postretirement benefits other than pensions 15,010 14,190
Other liabilities 8,629 7,245
-------- --------
Total liabilities 183,308 217,641
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1 per share
Authorized 1,000,000 shares -- --
Common stock, par value $1 per share
Authorized 60,000,000 shares; issued 15,963,246
shares in 1993 and 13,860,290 in 1992 15,963 13,860
Additional paid-in capital 58,059 29,553
Retained earnings 82,029 91,121
Minimum pension liability adjustment (4,839) (2,415)
Cumulative translation adjustment (1,270) (723)
-------- --------
149,942 131,396
Less cost of 1,289,647 treasury shares
in 1993 and 1,277,866 in 1992 13,913 13,709
-------- --------
Total shareholders' equity 136,029 117,687
-------- --------
$319,337 $335,328
======== ========
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Years Ended December 31, 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------
Net Sales $757,863 $703,345 $678,936
Cost of sales 619,575 580,737 546,451
-------- -------- --------
Gross profit 138,288 122,608 132,485
Selling, general and administrative expenses 102,493 95,163 92,499
Provision for restructuring 28,755 -- --
-------- -------- --------
Operating income 7,040 27,445 39,986
Other expense (income)
Interest expense, net 8,739 9,321 8,047
Other 1,379 (497) 482
-------- -------- --------
10,118 8,824 8,529
-------- -------- --------
Earnings (loss) before income taxes and cumulative
effect of accounting changes (3,078) 18,621 31,457
Income taxes 755 6,778 11,630
-------- -------- --------
Earnings (loss) before cumulative effect
of accounting changes (3,833) 11,843 19,827
Cumulative effect of accounting
changes, net of income taxes (1,084) (7,628) --
-------- -------- --------
Net earnings (loss) $ (4,917) $ 4,215 $ 19,827
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:[1]
PRIMARY
Weighted average number of common shares 13,023,211 12,903,209 13,055,608
Earnings (loss) per common share before
cumulative effect of accounting changes $ (.30) $ .92 $ 1.52
Cumulative effect of accounting changes,
net of income taxes (.08) (.59) --
-------- -------- --------
Net earnings (loss) per common share $ (.38) $ .33 $ 1.52
======== ======== ========
FULLY DILUTED
Weighted average number of common shares 13,023,211 14,940,493 15,113,734
Earnings (loss) per common share before
cumulative effect of accounting changes $ (.30) $ .89 $ 1.41
Cumulative effect of accounting changes,
net of income taxes (.08) (.59)[2] --
-------- -------- --------
Net earnings (loss) per common share $ (.38) $ .33[2] $ 1.41
======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
(1) Net loss per common share in 1993 is based on actual weighted average shares
of common stock outstanding, as addition of common stock equivalents and
assumed conversion of the 7.25% Convertible Subordinated Debentures were
antidilutive.
(2) The assumed conversion of the 7.25% Convertible Subordinated Debentures
was antidilutive, and therefore, the per share amounts reported for
primary and fully diluted are the same.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Years Ended December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (4,917) $ 4,215 $ 19,827
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Provision for restructuring 28,755 -- --
Depreciation and amortization 20,260 17,965 16,181
Loss on sale of property, plant and equipment 744 56 228
Increase (decrease) in cash resulting from changes in:
Receivables, net 26,928 (24,040) (14,445)
Inventories (14,926) 6,110 (11,121)
Prepaid expenses 170 (190) (1,151)
Other assets (401) (1,165) (178)
Accounts payable (11,650) 4,697 15,067
Accrued expenses 6,729 (1,982) (883)
Other current liabilities (938) (5,200) (10,297)
Postretirement benefits other than pensions 820 14,190 --
Other long-term liabilities 1,384 (2,202) 2,641
Deferred federal income taxes (10,989) (387) (758)
Other (547) (650) 58
-------- --------- ---------
Net cash provided by operating activities 41,422 11,417 15,169
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (21,322) (23,914) (21,414)
Proceeds from sale of property, plant and equipment 140 335 112
Reduction of notes receivable -- 1,205 1,271
Acquisition purchase price contractual adjustments -- -- (1,753)
-------- --------- ---------
Net cash used in investing activities (21,182) (22,374) (21,784)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to bank (15,475) 18,975 --
Issuance of long-term obligations 3,967 76 --
Reduction of long-term obligations (4,957) (4,356) (5,267)
Issuance of common shares 952 568 2,116
Purchase of treasury shares (204) (5,445) (6)
Dividends paid (3,872) (3,834) (3,617)
-------- --------- ---------
Net cash provided by (used in) financing activities (19,589) 5,984 (6,774)
-------- --------- ---------
Net change in cash and cash equivalents 651 (4,973) (13,389)
Cash and cash equivalents:
Beginning of year 3,489 8,462 21,851
-------- --------- ---------
End of year $ 4,140 $ 3,489 $ 8,462
======== ========= =========
Cash paid during the year for:
Interest $ 9,188 $ 8,734 $ 9,433
Income taxes 5,612 8,003 13,807
Supplemental disclosure of non-cash financing activities:
During 1993, the Company issued 1,973,305 shares of common stock
upon the conversion of $29,995 principal amount of debentures.
<FN>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar amounts in thousands, except per share data)
MINIMUM
ADDITIONAL PENSION CUMULATIVE
COMMON PAID-IN RETAINED LIABILITY TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT STOCK
BALANCE AT DECEMBER 31, 1990 $ 9,066 $ 31,663 $ 74,628 $ (404) $ 52 $ (8,258)
Net earnings 19,827
Issuance of 199,957 shares in
connection with common stock
plans and convertible debentures 200 1,916
Issuance of 4,538,161 shares of
common stock (including 295,142
of treasury shares) to effect a
three-for-two common stock split 4,538 (4,538)
Common dividends $.29 per share (3,740)
Purchase of 267 treasury shares (6)
Minimum pension liability adjustment 178
Foreign currency
translation adjustment (125)
------- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1991 13,804 29,041 90,715 (226) (73) (8,264)
Net earnings 4,215
Issuance of 56,521 shares in
connection with common stock
plans and convertible debentures 56 512
Common dividends $.30 per share (3,809)
Purchase of 392,439 treasury shares (5,445)
Minimum pension liability adjustment (2,189)
Foreign currency
translation adjustment (650)
------- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1992 13,860 29,553 91,121 (2,415) (723) (13,709)
Net (loss) (4,917)
Issuance of 2,102,956 shares in
connection with common stock
plans and convertible debentures 2,103 28,506
Common dividends $.31 per share (4,175)
Purchase of 11,781 treasury shares (204)
Minimum pension liability adjustment (2,424)
Foreign currency
translation adjustment (547)
------- ------- ------- -------- -------- --------
BALANCE AT DECEMBER 31, 1993 $15,963 $58,059 $82,029 $ (4,839) $ (1,270) $(13,913)
======= ======= ======= ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
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Huffy Corporation, Fiscal Year 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(a) Consolidation -- The consolidated financial statements include the
accounts of Huffy Corporation and its subsidiaries. All intercompany
transactions and balances have been eliminated.
(b) Cash and Cash Equivalents -- Cash equivalents consist principally of
short-term money market instruments, with original maturities of three months
or less, of approximately $4,065 at December 31, 1993 and $3,400 at December
31, 1992.
(c) 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 other conditions and may, accordingly,
impact Huffy's overall credit risk. However, management believes that
consolidated accounts receivable are well diversified, thereby reducing
potential material credit risk, and that the allowance for doubtful accounts is
adequate to absorb estimated losses as of December 31, 1993.
(d) Inventories -- Inventories are valued at cost (not in excess of market)
determined by the last-in, first-out (LIFO) method for all Huffy bicycle and
basketball inventories. Baby product and lawn and garden tool inventories are
valued on the first-in, first-out (FIFO) method. At December 31, 1993 and 1992,
53% and 46%, respectively, of the Company's inventories were valued using the
LIFO method.
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(e) Property, Plant and Equipment -- Depreciation and amortization of plant
and equipment is provided generally on the straight-line method, except for
minor land improvements and certain buildings for which the
sum-of-the-years-digits method is used. Annual depreciation and amortization
rates are as follows:
Land improvements 5 -- 10%
Buildings 2-1/2 -- 10%
Machinery and equipment 5 -- 33-1/3%
Office furniture, fixtures and equipment 10 -- 33-1/3%
Leasehold improvements 4-1/2 -- 33-1/3%
(f) Amortization of Intangibles and Other Assets -- The excess of cost over
net assets acquired is amortized on a straight-line basis over forty years.
Other assets are amortized on a straight-line basis over periods ranging from
five to fifteen years.
(g) Income Taxes -- Effective January 1, 1992, the Company adopted SFAS No.
109, "Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Pursuant to the deferred method under Accounting Principles Board Opinion
11, which was applied in 1991 and prior years, deferred income taxes are
recognized for income and expense items that are reported in different years
for financial reporting purposes and income tax purposes using the tax rate
applicable in the year of the calculation. Under the deferred method, deferred
taxes are not adjusted for subsequent changes in tax rates.
(h) Postretirement Benefits Other Than Pensions -- Effective January 1,
1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires employers to
accrue the cost of such retirement benefits during the employees' service with
the company. Prior to 1992, the cost of providing these benefits was charged
against income as incurred.
(i) Postemployment Benefits -- Effective January 1, 1993, the Company
adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits,"
which requires companies to recognize the obligation to provide postemployment
benefits in accordance with SFAS No. 43, "Accounting for Compensated Absences,"
or SFAS No. 5, "Accounting for Contingencies." Prior to 1993, the cost of
providing these benefits was charged against income as incurred.
(j) Disclosures About the Fair Value of Financial Instruments -- The
carrying amount of cash and cash equivalents, trade receivables, trade accounts
payable, notes payable to bank,
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and accrued expenses approximates fair value due to the short maturity of
these instruments. The fair value of each of the Company's long-term debt
instruments is disclosed in Note (4).
(k) Earnings (Loss) Per Common Share -- Primary earnings (loss) per common
share is based on the weighted average number of shares of Common Stock and
Common Stock equivalents outstanding during the year. Fully diluted earnings
(loss) per common share is computed based on the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding and, when not
antidilutive, assuming the full conversion of the 7.25% Convertible
Subordinated Debentures, and the elimination of the interest requirements
thereon. The 1993 loss per common share was based on average shares
outstanding. The 1992 fully diluted per share computations of the cumulative
effect of accounting changes, net of income taxes and fully diluted net
earnings were antidilutive, and therefore, the amounts reported for primary and
fully diluted are the same.
(l) Foreign Currency Translation -- The functional currency of the
Company's non-U.S. subsidiaries is the local currency. Adjustments resulting
from the translation of financial statements are reflected as a separate
component of shareholders' equity.
(m) Reclassifications -- Certain reclassifications have been made to prior
year amounts to conform with the current year presentation.
(2) RESTRUCTURING PROVISION
In the fourth quarter of 1993, the Company recorded a $28,755 ($20,329
after-tax) charge to restructure operations of its lawn and garden tools
business. The restructuring plan entails consolidation of certain manufacturing
facilities and the discontinuation of certain unprofitable product lines as
well as a reduction in personnel. The restructuring charge is comprised of
the following components:
Write-down to net realizable value:
Goodwill and intangible assets $ 6,670
Fixed assets 8,709
Inventories 4,080
Severance and related costs 4,363
Facilities consolidation costs 2,792
Estimated operating losses of discontinued product lines 2,141
-------
Total restructuring provision $28,755
=======
(3) INVENTORIES
The components of inventories are as follows:
1993 1992
-------- --------
Finished goods $45,219 $29,375
Work-in-process 12,817 11,745
Raw materials and supplies 32,904 38,860
------- -------
90,940 79,980
Excess of FIFO cost over LIFO inventory value (8,796) (8,682)
------- -------
$82,144 $71,298
======= =======
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(4) LINES OF CREDIT AND LONG-TERM OBLIGATIONS
During 1993, the Company had a short-term committed line of credit with
various banks in the form of a $50,000 revolving credit agreement, which had no
outstanding balance at December 31, 1993. The line of credit expires December
31, 1995. The Company also has $75,000 in uncommitted lines of credit that
exist on a no fee basis, of which $3,500 was outstanding at December 31, 1993.
Short-term borrowings are summarized as follows:
1993 1992
------- -------
Average borrowings $12,742 $27,590
Maximum at any month end 31,200 53,350
Weighted average rate 3.46% 4.17%
Long-term obligations are summarized as follows:
1993 1992
------- -------
Unsecured notes payable:
9.62% due serially through 2000 $27,000 $30,000
9.81% due serially through 1998 16,000 17,800
7.25% Convertible Subordinated Debentures -- 29,995
Obligations under capital leases 159 194
Other 6,020 2,175
------- -------
49,179 80,164
Less current installments 5,968 5,246
------- -------
$43,211 $74,918
======= =======
During 1993, the Company called for the redemption of all its outstanding
7.25% Convertible Subordinated Debentures due 2014. All of the debentures were
converted into 1,973,305 shares of Huffy Corporation Common Stock at a
conversion price of $15.20 per share.
Principal payments required on long-term obligations during each of the
years 1995 through 1998 are approximately $5,300, $7,500, $7,300, and $7,700,
respectively.
Certain of the loan agreements contain covenants which, among other things,
require the Company to maintain current assets equal to 150% of current
liabilities, limit the percentage of capitalization from funded debt, and
require that certain levels of net worth be maintained.
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires entities to disclose the fair value of certain on- and off-balance
sheet financial instruments. The estimated fair value of the Company's
long-term obligations at December 31, 1993 is as follows: 9.62% unsecured note
payable - $31,950; 9.81% unsecured note payable - $18,500; other - $5,900.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. Fair value
estimates were
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based on the amount of future cash flows discounted using the
Company's current borrowing rate for loans of comparable maturity. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(5) PREFERRED STOCK
Under the Company's Amended Articles of Incorporation, there are 1,000,000
authorized 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.
In 1988, the Company's 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, the new Preferred Share
Purchase Rights entitle the holder to purchase two three-hundredths of a share
of Series C Cumulative Preferred Stock at a price of $45.00 per one-hundredth
of a share, subject to adjustment. During 1991, the Board of Directors
approved certain changes to the existing Shareholder Rights Plan. 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 January 13, 1999
and may be redeemed by the Company for $.02 per Right at any time prior to the
acquisition by a person or group of 15% or more of the Company's Common Stock.
4 H U F F Y
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14
(6) COMMON STOCK AND COMMON
STOCK PLANS
The 1988 Stock Option Plan and Restricted Share Plan authorizes the
issuance of both incentive stock options and non-qualified stock options, and
allows for the subscription of restricted shares of Common Stock. The total
number of shares which may be issued under this Plan shall not exceed 1,125,000
shares. These options may also include stock appreciation rights. Under the
1974 and 1984 Stock Option Plans, both incentive stock options and
non-qualified stock options were granted. Under the 1974 and 1984 Plans, no
additional options can be granted; however, options remain outstanding and
exercisable.
The 1987 Director Stock Option Plan authorizes 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 fees. The total number of
shares issued under the Plan shall not exceed 337,500 shares, and such shares
cannot include stock appreciation rights.
Activity in 1993 and 1992 for the Common Stock Option Plans was as follows:
1993 1993 1992 1992
Number Option Price Number Option Price
of Shares Per Share of Shares Per Share
--------- ------------ --------- ------------
1988, 1984, AND 1974 PLANS
Outstanding at January 1 829,088 $4.83-20.00 802,955 $4.83-20.00
Granted 141,993 19.00 124,892 20.00
Cancelled (24,391) 4.83-20.00 (48,640) 4.83-20.00
Exercised (120,465) 4.83-11.33 (50,119) 4.83-11.33
--------- ----------- ------- -----------
Outstanding at December 31 826,225 $4.83-20.00 829,088 $4.83-20.00
========= =========== ======= ===========
Exercisable at December 31 335,073 $4.83-15.50 316,816 $4.83-13.58
========= =========== ======= ===========
1987 DIRECTOR STOCK OPTION PLAN
Outstanding at January 1 107,238 $ .67-13.67 100,439 $ .67-13.67
Granted 5,904 1.00 8,382 1.00
Exercised -- -- (1,583) .67
--------- ----------- ------- -----------
Outstanding at December 31 113,142 $ .67-13.67 107,238 $ .67-13.67
========= =========== ======= ===========
Exercisable at December 31 98,856 $ .67-13.67 41,989 $ .67-13.67
========= =========== ======= ===========
H U F F Y 4
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The 1989 Employee Stock Purchase Plan, as amended, authorizes the offering
and sale of up to 975,000 shares of the Company's Common Stock at a price
approximating 90% of the closing price of the Common Stock on the offering
date. During 1993 and 1992, 9,186 and 14,083 common shares, respectively, which
had been granted under the 1989 Plan were issued at a purchase or option price
of $13.61 and $16.22 per share, respectively. At December 31, 1993, rights to
purchase 109,647 shares were outstanding under this Plan at an exercise price
of $13.61 per share and 746,585 shares were available for issuance.
(7) COMMITMENTS
The Company leases certain manufacturing and warehouse facilities, office
space, machinery, and vehicles under cancellable and non-cancellable operating
leases, most of which expire within ten years and may be renewed by the
Company. Rent expense under such arrangements totaled approximately $4,900,
$5,175 and $4,980 in 1993, 1992 and 1991, respectively.
Future minimum rental commitments under non-cancelleable operating leases
at December 31, 1993 are as follows:
AMOUNT
1994 $ 5,313
1995 4,800
1996 3,950
1997 2,855
1998 2,408
Thereafter 9,720
-------
Total minimum payments $29,046
=======
(8) 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, investment grade
corporate bonds and U.S. government obligations.
4 H U F F Y
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16
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1993
and 1992:
1993 1993 1992 1992
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS:
Vested benefit obligation $ 20,928 $ 28,762 $ 14,886 $ 20,427
--------- -------- --------- ---------
Accumulated benefit obligation 22,542 34,096 17,338 24,485
--------- -------- --------- ---------
Projected benefit obligation for
service rendered to date 27,713 35,505 24,303 26,660
Plan assets at fair value 27,025 22,100 24,518 18,967
--------- -------- --------- ---------
Plan assets in excess (less than)
projected benefit obligation (688) (13,405) 215 (7,693)
Unamortized transition asset (2,516) (768) (2,731) (897)
Unrecognized prior service cost (533) 6,391 (573) 4,523
Unrecognized net loss 5,129 8,104 4,132 4,206
Adjustment required to recognize
minimum liability -- (12,688) -- (5,767)
--------- -------- --------- ---------
Pension costs prepaid (accrued)
at year end $ 1,392 $(12,366) $ 1,043 $ (5,628)
========= ======== ========= =========
1993 1992 1991
NET PENSION COST INCLUDED
THE FOLLOWING COMPONENTS:
Service cost benefits earned during the period $ 1,994 $ 1,997 $ 1,554
Interest cost on projected benefit obligation 4,215 4,007 3,465
Actual return on plan assets (4,812) (1,802) (5,544)
Net amortization and deferral 592 (2,170) 2,138
------- ------- -------
Net periodic pension cost $ 1,989 $ 2,032 $ 1,613
======= ======= =======
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate 7.25% 8.5% 8.75%
Rate of return on assets 10.0% 10.0% 10.0%
Rate of increase in compensation 5.0% 6.0% 6.0%
H U F F Y 4
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17
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability of $12,688 at December 31, 1993 and $5,767 at
December 31, 1992, representing the excess of unfunded accumulated benefit
obligations over previously recorded pension cost liabilities. A corresponding
amount is recognized as an intangible asset except to the extent that these
additional liabilities exceed related unrecognized prior service cost and net
transition obligation, in which case the increase in liabilities is charged
directly to shareholders' equity. In 1993 and 1992, the excess minimum pension
liability resulted in a charge to equity, net of income taxes, of $2,424 and
$2,189, respectively.
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 $834, $607, and $449 in 1993, 1992, and 1991,
respectively.
(9) OTHER POSTRETIREMENT BENEFIT PLANS AND POSTEMPLOYMENT BENEFITS
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.
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.
The Company adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions", effective January 1, 1992. The effect of
adopting SFAS No. 106 on earnings before cumulative effect of accounting
changes and net earnings for the year ended December 31, 1992 was a decrease
of $453 and $7,475 respectively.
4 H U F F Y
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18
The following table presents the plans' funded status reconciled with
amounts recognized in the Company's Consolidated Balance Sheet at December 31,
1993 and 1992 and the net periodic postretirement benefit cost recorded in the
Company's 1993 and 1992 Consolidated Statements of Operations:
1993
--------------------------------------------------
Health Care and Deferred
Life Insurance Compensation
Plans Plan Total
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees $ 5,048 $ 1,625 $ 6,673
Fully eligible active plan participants 1,050 2,628 3,678
Other active plan participants 5,688 -- 5,688
-------- ------- --------
11,786 4,253 16,039
UNRECOGNIZED NET LOSS (585) (427) (1,012)
-------- -------- --------
Postretirement benefits other than pensions
accrued at year end $11,201 $ 3,826 $15,027
======== ======== ========
NET PERIODIC POSTRETIREMENT BENEFIT COST:
Service cost $ 488 $ -- $ 488
Interest cost 941 290 1,231
-------- -------- --------
Net periodic postretirement benefit cost $ 1,429 $ 290 $ 1,719
======== ======== ========
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate 7.25% 7.25%
Health care cost trend rate for expenses
of participants under age 65 14.25%
Health care cost trend rate for expenses of
participants over age 65 12.25%
1992
--------------------------------------------------
Health Care and Deferred
Life Insurance Compensation
Plans Plan Total
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees $ 3,277 $ 843 $ 4,120
Fully eligible active plan participants 792 3,131 3,923
Other active plan participants 6,147 -- 6,147
-------- -------- --------
Postretirement benefits other than pensions
accrued at year end $10,216 $ 3,974 $14,190
======== ======== ========
NET PERIODIC POSTRETIREMENT BENEFIT COST:
Service cost $ 497 $ -- $ 497
Interest cost 825 311 1,136
-------- -------- --------
Net periodic postretirement benefit cost $ 1,322 $ 311 $ 1,633
======== ======== ========
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate 8.5% 8.5%
Health care cost trend rate for expenses of
participants under age 65 15.0%
Health care cost trend rate for expenses of
participants over age 65 8.0%
H U F F Y 4
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For measurement purposes, in 1994, a 12.00 percent health care cost trend
rate was assumed for expenses of participants under age 65; this rate was
assumed to decrease gradually to 5.5 percent by the year 2003 and remain at
that level thereafter. In addition, for 1994, a 10.00 percent health care cost
trend rate was assumed for expenses of participants over age 65; this rate was
assumed to decrease gradually to 5.5 percent by the year 2000 and remain at
that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1993 by $1,647 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year ended December 31, 1993
by $234.
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. The effect of adopting SFAS No. 112 on
loss before cumulative effect of accounting changes and net loss for the year
ended December 31, 1993 was an increased loss of $45 and $1,084, respectively.
(10) INCOME TAXES
The provisions for federal and state income taxes attributable to income
from continuing operations consist of:
1993 1992 1991
Current tax expense:
Federal $ 9,458 $ 2,876 $ 9,667
State 1,598 727 1,382
Foreign 105 322 589
--------- -------- -------
11,161 3,925 11,638
Deferred tax expense (benefit) (10,406) 2,853 (8)
--------- -------- -------
Total tax expense $ 755 $ 6,778 $11,630
========= ======== =======
Effective January 1, 1992, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes," which requires recognition of deferred tax
liailities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Effective January 1, 1992, the Company
recorded a tax debit of approximately $153 or $0.01 per share, which amount
represents the net decrease to the deferred tax asset
4 H U F F Y
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20
as of that date. Such amount has been reflected in the Consolidated Statement
of Operations as a cumulative effect of an accounting change. Prior years'
financial statements have not been restated to apply the provisions of
SFAS No. 109.
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited and settled through the year
1989.
The deferred tax expense (benefit) attributable to continuing operations
consists of the following:
1993 1992 1991
Change in statutory tax rate $ (315) $ -- $ --
Provision for restructuring (8,426) -- --
Property, plant and equipment (351) 176 (145)
Other temporary differences, net (1,314) 2,677 137
-------- ------ --------
Total $(10,406) $2,853 $ (8)
======== ====== ========
The components of the net deferred tax asset as of December 31, 1993 and
1992 were as follows:
1993 1992
Deferred tax assets:
Allowance for doubtful accounts $ 984 $ 728
Inventory obsolescence reserve 2,160 377
Property, plant and equipment 243 --
Workers' compensation 1,728 1,188
Product liability 1,301 1,003
Deferred compensation 2,039 2,102
Accrued vacation 1,332 1,204
Restructuring reserves 3,254 --
Pension liability 2,317 --
Postretirement benefits other than pensions 5,254 4,824
Other liabilities and reserves 5,157 2,740
Purchase price adjustments -- 1,218
---------- ----------
Total deferred tax assets 25,769 15,384
---------- ----------
Deferred tax liabilities:
Property, plant and equipment -- 3,156
Pension liability -- 109
Other assets 1,472 1,416
---------- ----------
Total deferred tax liabilities 1,472 4,681
---------- ----------
Net deferred tax asset $ 24,297 $ 10,703
======== ========
Management expects that the Company's future levels of taxable income will
be sufficient to fully utilize the net deferred tax asset. Therefore, a
valuation allowance has not been established.
H U F F Y 5
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21
The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal
income tax rate to the earnings (loss) before income taxes and cumulative
effect of accounting changes.
Years Ended December 31, 1993 1992 1991
Earnings (loss) before income taxes and cumulative
effect of accounting changes $ (3,078) $ 18,621 $ 31,457
======== ======== ========
Tax provision computed at statutory rate $ (1,077) $ 6,331 $ 10,695
Increase (reduction) in taxes due to:
State income taxes (net of federal tax benefit) 1,039 480 912
Goodwill amortization 1,615 286 308
Benefit plans (461) (174) (213)
Reduction in liability due to favorable
IRS settlement (900) -- --
Change in statutory tax rate (315) -- --
Intangible asset write-down 499 -- --
Miscellaneous 355 (145) (72)
-------- -------- --------
Actual tax provision $ 755 $ 6,778 $ 11,630
======== ======== ========
(11) BUSINESS SEGMENTS
The Company's operations are transacted in the following business segments:
- - RECREATION AND LEISURE TIME PRODUCTS -- bicycles, basketball related
equipment, and lawn and garden tools.
- - JUVENILE PRODUCTS -- baby care and development products including car seats,
infant carriers, safety gates, cribs, and electronic safety products.
- - SERVICES FOR RETAIL -- in-store assembly, repair and display services as well
as inventory counting services.
5 H U F F Y
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22
A summary of the Company's 1993, 1992, and 1991 operations by business
segment is as follows:
EARNINGS (LOSS)
BEFORE INCOME TAXES
AND CUMULATIVE
EFFECT OF DEPRECIATION
ACCOUNTING IDENTIFIABLE AND CAPITAL
SALES CHANGES ASSETS AMORTIZATION EXPENDITURES
1993
Recreation and Leisure
Time Products $513,639 $ (4,765)[1] $196,585 $ 12,547 $ 13,881
Juvenile Products 124,274 8,081 [2] 60,007 3,604 3,873
Services for Retail 121,284 6,779 36,809 3,506 3,226
Eliminations (1,334)
Interest expense (8,830)
Interest income 91
General corporate (4,434) 23,331 603 342
-------- -------- -------- -------- --------
$757,863 $ (3,078) $316,732 $ 20,260 $ 21,322
======== ======== ======== ======== ========
1992
Recreation and Leisure
Time Products $478,837 $ 17,911 $222,050 $ 10,850 $ 15,541
Juvenile Products 115,535 9,535 60,837 2,708 4,924
Services for Retail 109,573 4,013 35,934 3,799 3,138
Eliminations (600)
Interest expense (9,590)
Interest income 269
General corporate (3,517) 16,507 608 311
-------- -------- -------- -------- --------
$703,345 $ 18,621 $335,328 $ 17,965 $ 23,914
======== ======== ======== ======== ========
1991
Recreation and Leisure
Time Products $465,582 $ 33,808 $205,128 $ 10,034 $ 14,941
Juvenile Products 108,509 7,096 56,167 2,199 3,785
Services for Retail 105,558 2,919 35,464 3,437 4,544
Eliminations (713)
Interest expense (8,964)
Interest income 917
General corporate (4,319) 19,818 511 1,239
-------- -------- -------- -------- --------
$678,936 $ 31,457 $316,577 $ 16,181 $ 24,509
======== ======== ======== ======== ========
<FN>
[1] Includes a $28,755 provision to restructure the Company's lawn and garden
tool business.
[2] Includes a charge of $858 associated with the disposition of previous
manufacturing facility and move to new facility, and a charge of $502 for
asset write offs associated with discontinued product.
The effect of adopting SFAS No. 112 on earnings (loss) before income taxes
and cumulative effect of accounting changes was immaterial in 1993.
The effect of adopting SFAS No. 106 on earnings before income taxes and
cumulative effect of accounting changes in 1992 was to reduce earnings of the
Recreation and Leisure Time Products, Juvenile Products, and Services for Retail
segments by $662, $36, and $157, respectively.
In 1993, 1992, and 1991, two customers individualy accounted for 13% and
13%, 13% and 12%, and 12% and 11% of total consolidated net sales,
respectively.
H U F F Y 5
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(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1993 and 1992 are as follows:
1ST[1] 2ND 3RD 4TH[2]
QUARTER QUARTER QUARTER QUARTER Total
1993
Net sales $214,999 $220,095 $167,232 $ 155,537 $757,863
Gross profit 39,572 42,033 30,219 26,464 138,288
Earnings (loss) before cumulative effect
of accounting change 4,909 6,869 2,308 (17,919) (3,833)
Cumulative effect of accounting change,
net of income taxes (1,084) (1,084)
-------- -------- -------- --------- --------
Net earnings (loss) $ 3,825 $ 6,869 $ 2,308 $ (17,919) $ (4,917)
======== ======== ======== ========= ========
EARNINGS PER COMMON SHARE: [3]
PRIMARY
Earnings (loss) before cumulative
effect of accounting change $ .38 $ .54 $ .18 $(1.26) $(.30)
Cumulative effect of accounting
change, net of income taxes (.08) (.08)
-------- -------- -------- --------- --------
Net earnings (loss) $ .30 $ .54 $ .18 $(1.26) $(.38)
======== ======== ======== ========= ========
FULLY DILUTED
Earnings (loss) before cumulative
effect of accounting change $ .35 $ .48 $ .18 $(1.26) $(.30)
Cumulative effect of accounting
change, net of income taxes (.07) (.08)
-------- -------- -------- --------- --------
Net earnings (loss) $ .28 $ .48 $ .18 $(1.26) $(.38)
======== ======== ======== ========= ========
1992
Net sales $179,615 $180,910 $156,076 $186,744 $703,345
Gross profit 37,821 34,263 25,190 25,334 122,608
Earnings (loss) before cumulative effect
of accounting changes 5,774 4,743 1,647 (321) 11,843
Cumulative effect of accounting changes,
net of income taxes (7,628) (7,628)
-------- -------- -------- --------- --------
Net earnings (loss) $ (1,854) $ 4,743 $ 1,647 $ (321) $ 4,215
======== ======== ======== ========= ========
EARNINGS PER COMMON SHARE: [3]
PRIMARY
Earnings (loss) before cumulative
effect of accounting changes $ .43 $ .36 $ .13 $(.02) $ .92
Cumulative effect of accounting changes,
net of income taxes (.59) (.59)
-------- -------- -------- --------- --------
Net earnings (loss) $ (.14) $ .36 $ .13 $(.02) $ .33
======== ======== ======== ========= ========
FULLY DILUTED [4]
Earnings (loss) before cumulative effect
of accounting changes $ .40 $ .34 $ .13 $(.02) $ .89
Cumulative effect of accounting changes,
net of income taxes (.59) (.59)
-------- -------- -------- --------- --------
Net earnings (loss) $(.14) $ .34 $ .13 $(.02) $ .33
======== ======== ======== ========= ========
<FN>
[1] Amounts differ from those previously reported as a result of the adoption of SFAS No. 112 in the fourth quarter, effective
January 1, 1993.
[2] Includes a $28,755 ($20,329 after-tax) provision to restructure the Company's lawn and garden tools business.
[3] 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.
[4] Where the assumed conversion of the 7.25% Convertible Subordinated Debentures was antidilutive, the per share amounts reported
for primary and fully diluted are the same.
5 H U F F Y
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24
Huffy Corporation, Fiscal Year 1993
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, 1993 TO THE YEAR
ENDED DECEMBER 31, 1992
The Company recorded a net loss of $4,917 in 1993, compared to net earnings
of $4,215 reported in 1992. The 1993 net loss included an after-tax charge of
$20,329 to reflect the restructure of the Company's lawn and garden tools
business, and an after-tax charge of $1,084 to reflect the cumulative effect of
a change in accounting for postemployment benefits upon adoption of Statement
of Financial Accounting
H U F F Y 2
8
25
Standards (SFAS) No. 112. The 1992 net earnings included an after-tax charge
of $7,628 to reflect the cumulative effects of changes in accounting for
postretirement benefits and income taxes upon adoption of SFAS No. 106 and
SFAS No. 109.
Net loss per share of common stock was $.38 in 1993 compared to net
earnings per common share of $.33 in 1992. If net earnings (loss) were
adjusted to exclude the impact of the restructuring charge in 1993 and the
cumulative effects of changes in accounting resulting from the adoption of SFAS
No. 112 in 1993, and SFAS No. 106 and SFAS No. 109 in 1992, net earnings per
common share on a fully diluted basis would have been $1.20 in 1993 compared to
$.89 in 1992.
PROVISION FOR RESTRUCTURING
In the fourth quarter of 1993, the Company recorded a $28,755 ($20,329
after-tax) charge to restructure its lawn and garden tools business. During
1992 and 1993, True Temper Hardware Company experienced operating losses due to
several unprofitable product lines, and inefficiencies in the manufacturing
process. In order to position this business for future profitability,
Management determined it necessary to restructure operations by discontinuing
certain unprofitable products, relocating production to improve manufacturing
efficiency, and writing off impaired assets.
The restructuring plan entails the shutdown of facilities in Anderson,
South Carolina and certain other locations; discontinuation of certain
unprofitable product lines; and other facilities consolidation. The
restructuring charge is comprised of the following components:
Write-down to net realizable value:
Goodwill and intangible assets $ 6,670
Fixed assets 8,709
Inventories 4,080
Severance and related costs 4,363
Facilities consolidation costs 2,792
Estimated operating losses of discontinued product lines 2,141
-------
Total restructuring provision $28,755
=======
The Company anticipates that it will take approximately six months to
wind-down operations at facilities that will be closed. At that time, certain
operations will be relocated to the Camp Hill, Pennsylvania facility. The
Company expects to complete the restructuring within the next year and,
accordingly, estimates that the majority of anticipated cash charges included
in the restructuring provision will be incurred in 1994.
The Company will benefit immediately from reduced depreciation and
amortization charges of approximately $1,600 in 1994 related to intangibles and
fixed asset write-downs to net realizable value. Additionally, the Company
expects to benefit in the future from increased production efficiency and
reduced overhead expenses, which should improve operating cash flow and
liquidity.
2 H U F F Y
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26
NET SALES
Net sales in 1993 were $757,863, a 7.8% increase over net sales of $703,345
in 1992. The net sales increase was spread across all business segments as
follows: Recreation and Leisure Time Products, 7.3%; Juvenile Products, 7.6%;
and Services for Retail, 10.7%.
The net sales increase in the Recreation and Leisure Time Products segment
was due primarily to significant sales increases at Huffy Bicycle Company and
Huffy Sports Company. Net sales increased at Huffy Bicycle Company due to
increased demand in the mountain bike category and strong sales of new bicycle
introductions in the youth bike category. Huffy Sports Company experienced
significant sales increases attributable primarily to new product
introductions, particularly portable basketball systems. Net sales decreased
slightly at True Temper Hardware Company primarily due to soft demand for lawn
and garden tool products in the fourth quarter as a result of eliminated
year-end rebates, and reductions of inventory by some of the Company's
important customers.
The Juvenile Products segment had record sales in 1993 due primarily to new
product introductions and increased distribution of existing products.
The net sales increase in the Services for Retail segment occurred
primarily at Huffy Service First with sales volume increases attributable to
increased bicycle assemblies caused by an overall improvement in the bicycle
market and further penetration into additional product category assemblies and
display programs. The net sales increase at Washington Inventory Service was
due to a broadening of the customer base and increased sales to existing
customers.
GROSS PROFIT
Consolidated gross profit for 1993 was $138,288, or 18.2% of net sales,
compared to $122,608, or 17.4% of net sales reported for 1992. Gross profit as
a percentage of net sales increased in the Recreation and Leisure Time Products
segment. This increase was caused primarily by the sale of a more profitable
product mix and volume related efficiencies at Huffy Bicycle Company. This
increase was partially offset by a reduction in gross profit as a percentage
of net sales at True Temper Hardware Company due to competitive pricing
pressures, costly customer promotional programs, and manufacturing
inefficiencies. The Services for Retail segment showed an improved gross
profit percentage, primarily as a result of increased volume and operating
efficiencies. Gross profit as a percentage of sales remained at 1992 levels in
the Juvenile Products segment.
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Consolidated gross profit in total and as a percentage of sales varies by
quarter due to normal seasonal fluctuations at several Huffy companies. True
Temper Hardware Company typically experiences lower sales in the third quarter
due to the seasonal nature of its products. Lower gross profit percentages in
the fourth quarter are typically caused by seasonal fluctuations at Huffy
Bicycle Company and Washington Inventory Service. Huffy Bicycle Company
typically stops production for a period during December to prevent inventory
build-up. The fixed costs associated with this shutdown reduce fourth quarter
profitability. Washington Inventory Service also experiences a significant
unfavorable seasonal impact during the fourth quarter as retailers typically do
not conduct inventories during the Christmas season, causing low fourth quarter
sales volume and reduced gross profit.
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in 1993 were $102,493, or
13.6% of net sales, compared to $95,163, or 13.6% of net sales in 1992. The
overall dollar increase in selling, general and administrative expenses was
caused primarily by volume related increases in selling expenses, increases in
incentive pay, increases in product engineering costs, and overall inflation.
NET INTEREST EXPENSE
Net interest expense decreased by 6.2% in 1993 due to the call for
redemption and subsequent conversion of the Company's 7.25% Convertible
Subordinated Debentures in October, 1993, lower interest rates for short-term
borrowing in 1993 compared to 1992, and lower average short-term borrowings.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1992 TO THE YEAR
ENDED DECEMBER 31, 1991
Net earnings for the year ended December 31, 1992, were $4,215, or $.33 per
common share, compared to $19,827, or $1.41 per common share reported in 1991.
The 1992 net earnings and net earnings per common share include a one-time
cumulative charge of $7,628, or $.59 per common share, from the adoption of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 109, "Accounting for Income Taxes."
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The primary reduction in earnings before the cumulative effect of
accounting changes in 1992 occurred in the Recreation and Leisure Time Products
segment at Huffy Bicycle Company and True Temper Hardware Company. At Huffy
Bicycle Company, both sales volume and gross profit were significantly below
1991's results for the same period. The decrease in earnings at True Temper
Hardware Company was attributable to reduced gross profit resulting from a
major emphasis on market share growth. Increases in earnings in the Juvenile
Products and Services for Retail segments were the result of increased sales
and cost reduction programs.
NET SALES
Net sales in 1992 were $703,345, a 3.6% increase over net sales of $678,936
in 1991. Net sales in the Recreation and Leisure Time Products segment
increased slightly as increased net sales at True Temper Hardware Company and
Huffy Sports Company offset decreased net sales at Huffy Bicycle Company. The
net sales decrease at Huffy Bicycle Company was primarily related to a shift in
market demand to lower specification, lower priced bicycles. The increase in
net sales at True Temper Hardware Company was the result of increased market
penetration. The increase at Huffy Sports Company resulted from new product
introductions and increased seasonal demand. The Juvenile Products and the
Services for Retail segments experienced increases in net sales, reflecting
increased demand for their products and services.
GROSS PROFIT
Consolidated gross profit for 1992 was $122,608, or 17.4% of net sales,
compared to $132,485, or 19.6% of net sales, reported for 1991. The gross
profit for the Recreation and Leisure Time Products segment in 1992 was
significantly lower than for 1991. Decreased profitability resulted from the
sale of a less profitable product mix at Huffy Bicycle Company, and from
competitive pricing and manufacturing inefficiencies at True Temper Hardware
Company. This decrease was offset by improved gross profit in both the
Services for Retail and the Juvenile Products segments. In the Services for
Retail segment, this improvement was generated by enhanced operating
efficiencies, while in the Juvenile Products segment the improved gross profit
resulted from increased volume, favorable product mix, and production
efficiencies.
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $95,163 in 1992, compared
to $92,499 in 1991. Expressed as a percentage of net sales, selling, general
and administrative expenses in 1992 were comparable to expenses for 1991 due to
cost containment programs implemented in the second quarter of 1992 which
partially offset the effect of inflation.
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NET INTEREST EXPENSE
Net interest expense for 1992 was $9,321 as compared to $8,047 in 1991.
The primary factor affecting the increase in net interest expense was
short-term debt incurred to finance higher inventory levels at Huffy Bicycle
Company during the first nine months of 1992. This build up in inventory was
done to improve the delivery service level to its customers. In addition,
inventory levels were up slightly during 1992 at other Huffy companies for
similar reasons.
LIQUIDITY AND CAPITAL RESOURCES
The Company's significant source of capital in 1993 was cash provided by
operations of $41,422. This capital was used to reduce outstanding short-term
debt and fund capital expenditures in 1993. On a continuing basis, the
Company's primary sources of capital are its net earnings, short-term lines of
credit, long-term borrowings, and the issuance of equity securities. The
Company has committed and uncommitted short-term lines of credit totaling
$125,000 of which $3,500 was outstanding at December 31, 1993. The net
decrease in long-term debt of $30,985 in 1993 was due to normal principal
reductions and the conversion of $29,995 7.25% Convertible Subordinated
Debentures into 1,973,305 shares of the Company's common stock. The Company
believes that its capital structure provides the financial flexibility to
obtain additional financing that may be necessary to fund future growth.
On December 10, 1993, the Company announced plans to establish an
additional bicycle manufacturing facility to expand capacity and enable Huffy
Bicycle Company to improve customer service. The new facility will require an
investment of $15,000-$20,000. Capital expenditures related to the new
facility are expected to be approximately $13,000 in 1994. The additional
facility is scheduled to begin production in late 1994.
In addition to the new bicycle manufacturing facility, the Company
anticipates capital spending of approximately $27,000, primarily for new
products, cost reductions, and increased capacity. The majority of the cash
required for 1994 capital expenditures will be provided by operations and
short-term borrowings.
INFLATION
Inflation has had a minimal effect on the Company during the three years
ended December 31, 1993. Although there was limited inflation in labor,
material, overhead, and administrative costs, it was essentially offset by
sales price increases, cost reduction programs, and increased operating
efficiency.
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COMMON STOCK
Huffy Corporation Common Stock is traded on the New York Stock Exchange.
Cash dividends declared and the quarterly high and low prices of Huffy Common
Stock during the years ended December 31, 1993 and 1992 were as follows:
Year ended December 31, 1993
COMMON STOCK DIVIDENDS
PRICE RANGE DECLARED
QUARTER HIGH LOW
First $ 16-7/8 $ 14-5/8 $.075
Second 16-3/8 14-3/4 $.075
Third 20-3/8 16 $.075
Fourth 19-7/8 16-3/4 $.085
-----
Total $.310
=====
Year ended December 31, 1992
COMMON STOCK DIVIDENDS
PRICE RANGE DECLARED
QUARTER HIGH LOW
First $ 24-3/8 $ 19-1/4 $.075
Second 19-7/8 12-1/4 $.075
Third 14-1/2 12-1/8 $.075
Fourth 16-1/4 12 $.075
-----
Total $.300
=====
As of December 31, 1993 there were 14,673,599 shares of Huffy Corporation
Common Stock outstanding and there were 3,760 shareholders of record.
Management estimates an additional 9,000 shareholders hold their stock in
nominee name. Trading volume of the Company's Common Stock during the twelve
months ended December 31, 1993 totaled 11,046,400 shares. The average number of
Common Stock and Common Stock equivalent shares outstanding during this period
on a primary basis was approximately 13,240,000 shares.
Huffy Corporation, Fiscal Year 1993
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held April 15, 1994 at 10:00 a.m.,
Eastern Daylight Time, at the Dayton Marriott Hotel, 1414 South Patterson
Boulevard, Dayton, Ohio. Shareholders are cordially invited to attend.
STOCK EXCHANGE
New York Stock Exchange, Symbol HUF
DAYTON CENTER
7701 Byers Road
Miamisburg, Ohio 45342
Telephone (513) 866-6251
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PRIMARY BUSINESS LOCATIONS
- - Anderson, South Carolina
- - Aurora, Ontario, Canada
- - Camp Hill, Pennsylvania
- - Celina, Ohio
- - Cork, Ireland
- - Thornton, Colorado
- - Miamisburg, Ohio
- - North Vernon, Indiana
- - Pine Valley, New York
- - San Diego, California
- - Suring, Wisconsin
- - Union City, Pennsylvania
- - Vancouver, British Columbia, Canada
- - Wallingford, Vermont
- - Waukesha, Wisconsin
TRANSFER AGENT AND REGISTRAR FOR
COMMON STOCK
Bank One, Indianapolis, NA
Bank One Center Tower
111 Monument Circle, Suite 1611
Indianapolis, IN 46277
Telephone (800) 753-7101
DIVIDENDS
Dividends are payable quarterly as declared by the Board of Directors. Huffy
has paid a dividend on its Common Stock each year since becoming publicly
traded on November 15, 1966.
DIVIDEND REINVESTMENT
A dividend reinvestment program is available to all holders of Huffy
Corporation Common Stock through Bank One, Indianapolis, NA, Indianapolis,
Indiana. Shareholders interested in participating should write for further
information to: Huffy Corporation, P.O. Box 1204, Dayton, Ohio 45401,
Attention: Vice President - Finance, Chief Financial Officer.
AUDITORS
KPMG Peat Marwick
FORM 10-K
Shareholders interested in obtaining Huffy Corporation's Annual Report on Form
10-K filed with the Securities and Exchange Commission may obtain a copy by
writing Huffy Corporation, P.O. Box 1204, Dayton, Ohio 45401, Attention:
Treasurer and Director of Investor Relations.
SHAREHOLDER COMMUNICATIONS
Communications concerning lost certificates, transfer requirements, address
changes, and Common Stock dividend checks should be sent to Bank One,
Indianapolis, NA, 111 Monument Circle, Suite 1611, Indianapolis, Indiana 46277.
Telephone (800) 753-7107.
The Management of Huffy Corporation welcomes comments and suggestions from
shareholders and investors. Call the Treasurer and Director of Investor
Relations, telephone (513) 866-6251.
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