1
EXHIBIT 13
INDEPENDENT AUDITORS' REPORT
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, 1994 and 1993, 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, 1994. 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 generally accepted auditing
standards. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Boards Statement
of Financial Accounting Standards No. 112, effective January 1, 1993 and
Statement Nos. 106 and 109, effective January 1, 1992.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
February 17, 1995
Cincinnati, Ohio
2
TEN-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
(Dollar amounts in thousands, except per share data)
1994 1993 1992
SUMMARY OF OPERATIONS
Net sales $719,485 $757,863 $703,345
Gross profit 128,607 138,288 122,608
Selling, general, and administrative expenses 96,696 102,493 95,163
Operating income [1] 32,845 7,040 27,445
Other (income) expense, net [2] (688) 1,379 (497)
Earnings before interest, taxes and
cumulative effect of accounting changes 33,533 5,661 27,942
Interest expense, net 5,897 8,739 9,321
Earnings (loss) before income taxes and
cumulative effect of accounting changes 27,636 (3,078) 18,621
Income taxes (benefit) 10,209 755 6,778
Earnings (loss) before cumulative effect of accounting changes 17,427 (3,833) 11,843
Cumulative effect of accounting changes, net of income taxes -- (1,084) (7,628)
Net earnings(loss) 17,427 (4,917) 4,215
- ---------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary 1.20 (.38) .33
Fully diluted [4] 1.20 (.38) .33
- ---------------------------------------------------------------------------------------------------------
Common dividends declared 4,861 4,175 3,809
Common dividends per share .34 .31 .30
Capital expenditures for plant and equipment 35,737 21,322 23,914
Average common and common equivalent shares outstanding:
Primary 14,519 13,240 12,903
Fully diluted 14,519 13,240 12,903
- ---------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 321,968 319,337 335,328
Working capital 90,325 93,595 91,308
Net investment in plant and equipment 89,600 73,647 80,020
Notes payable -- 3,500 18,975
Long-term obligations 58,611 43,211 74,918
Redeemable preferred stock -- -- --
Shareholders' equity 133,403 136,029 117,687
Equity per share 9.85 9.27 9.35
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS
Net cash provided by operating activities 43,009 41,422 11,417
Net cash used in investing activities (34,012) (21,182) (22,374)
Net cash provided by (used in) financing activities (11,533) (19,589) 5,984
Net change in cash and cash equivalents (2,536) 651 (4,973)
- ---------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin (before cumulative effect of accounting changes) 2.4% N/A 1.7%
Average working capital turnover 7.8 8.2 7.4
Return on net assets 8.9% N/A 4.1%
Return on beginning shareholders' equity 12.8% N/A 3.4%
Current ratio 1.9 1.9 1.8
Debt/total capital 32.4% 26.6% 40.5%
- ---------------------------------------------------------------------------------------------------------
Number of common shareholders 4,196 3,760 3,883
Number of employees [5] 7,912 8,100 6,339
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1991 1990 1989 1988 1987 1986 1985
SUMMARY OF OPERATIONS
Net sales $678,936 $516,744 $449,389 $335,713 $340,551 $294,698 $263,935
Gross profit 132,485 102,545 84,638 62,847 67,328 54,145 45,393
Selling, general, and administrative expenses 92,499 69,957 57,972 45,511 46,726 40,280 38,671
Operating income [1] 39,986 32,588 26,666 17,336 20,602 13,865 6,722
Other (income) expense, net [2] 482 (370) (605) 5,704 352 82 4,830
Earnings before interest, taxes and
cumulative effect of accounting changes 39,504 32,958 27,271 11,632 20,250 13,783 1,892
Interest expense, net 8,047 4,390 3,467 3,856 3,048 2,873 2,293
Earnings (loss) before income taxes and
cumulative effect of accounting changes 31,457 28,568 23,804 7,776 17,202 10,910 (401)
Income taxes (benefit) 11,630 10,561 8,811 3,240 7,111 5,003 (646)
Earnings (loss) before cumulative effect of accounting changes 19,827 18,007 14,993 4,536 10,091 5,907 245
Cumulative effect of accounting changes, net of income taxes -- -- -- -- -- -- --
Net earnings(loss) 19,827 18,007 14,993 4,536 10,091 5,907 245
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary 1.52 1.37 1.17 .36 .81 .49 .02
Fully diluted [4] 1.41 1.28 1.11 .36 .78 .48 .02
- -----------------------------------------------------------------------------------------------------------------------------------
Common dividends declared 3,740 3,461 3,071 2,613 2,333 2,148 2,137
Common dividends per share .29 .27 .24 .20 .19 .18 .18
Capital expenditures for plant and equipment 24,509 9,832 14,143 14,786 6,806 7,638 5,356
Average common and common equivalent shares outstanding:
Primary 13,056 13,157 12,882 12,641 12,441 12,074 12,095
Fully diluted 15,114 15,179 14,271 13,376 13,415 13,112 12,095
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 316,577 297,310 234,532 183,255 149,259 141,267 129,264
Working capital 99,110 87,558 80,189 45,884 61,649 54,161 50,034
Net investment in plant and equipment 72,226 65,423 45,659 41,360 27,895 27,495 26,679
Notes payable -- -- -- -- -- -- --
Long-term obligations 80,208 84,348 57,525 37,196 15,181 18,427 19,529
Redeemable preferred stock -- -- -- -- -- -- --
Shareholders' equity 124,997 106,747 95,645 80,776 78,914 68,848 64,678
Equity per share 9.68 8.39 7.43 6.50 6.35 5.68 5.38
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS
Net cash provided by operating activities 15,169 16,356 24,344 23,862 10,697 7,433 8,476
Net cash used in investing activities (21,784) (61,974) (12,642) (38,215) (6,428) (5,710) (965)
Net cash provided by (used in) financing activities (6,774) 15,596 24,819 16,869 (3,159) (2,861) (10,838)
Net change in cash and cash equivalents (13,389) (30,022) 36,521 2,516 1,110 (1,138) (3,327)
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin (before cumulative effect of accounting changes) 2.9% 3.5% 3.3% 1.4% 3.0% 2.0% 0.1%
Average working capital turnover 7.3 6.2 6.9 6.2 5.9 5.7 4.9
Return on net assets 11.5% 13.8% 13.7% 6.7% 12.5% 8.8% 1.8%
Return on beginning shareholders' equity 18.6% 18.8% 18.6% 5.7% 14.7% 9.1% 0.4%
Current ratio 2.0 2.0 2.1 1.8 2.2 2.1 2.2
Debt/total capital 40.3% 45.7% 40.5% 33.3% 17.3% 22.2% 24.3%
- ------------------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 3,016 2,410 2,473 2,180 2,173 2,615 3,019
Number of employees [5] 6,330 5,736 4,650 3,571 3,330 2,943 3,073
<FN>
[1] Operating income in 1993 includes a provision of $28,755 for restructuring the Company's lawn and garden tools 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.
[5] 1994 and 1993 numbers represent average annual full-time equivalent employees, while 1992 and prior employment numbers
represent year end employment levels.
N/A = Not Applicable.
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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, 1994 TO THE YEAR ENDED DECEMBER 31,
1993
The Company recorded net earnings of $17,427 in 1994, compared to a net
loss of $4,917 in 1993. 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 Standards (SFAS) No. 112.
Net earnings per share of common stock were $1.20 in 1994 compared to a
net loss per common share of $.38 in 1993. If net earnings (loss) were
adjusted to exclude the impact of the restructuring charge in 1993 and the
cumulative effect of a change in accounting resulting from the adoption of SFAS
No. 112, net earnings per common share on a fully diluted basis would have been
$1.20 in 1993.
NET SALES
Net sales in 1994 were $719,485, a 5.1% decrease from net sales of
$757,863 in 1993. The decrease in net sales occurred predominately in the
Recreation and Leisure Time Products segment. Huffy Bicycle Company net sales
were lower than last year due to a soft retail sales environment resulting from
1993 retail year end inventory carryover with some customers, a shift in
product mix to lower priced juvenile bicycles, and intense price competition.
The discontinuance of certain product lines at True Temper Hardware Company in
connection with the restructuring of the Company's lawn and garden tools
business also influenced year to year comparisons. Net sales for the Juvenile
Products segment decreased 2.4% due to a sluggish retail market. In the
Services for Retail segment, net sales were a record $139,637, up 15.1% over
1993. Washington Inventory Service continued to benefit from a market shift to
SKU (Stock Keeping Unit) inventories and cycle inventory counts, and a shift
from in-house inventory crews to outside service crews. Huffy Service First
sales increased due to market penetration in both the consumer product assembly
and in the supplier services businesses.
GROSS PROFIT
Consolidated gross profit for 1994 was $128,607, or 17.9% of net sales,
compared to $138,288, or 18.2% reported for 1993. The decrease in gross profit
occurred primarily in the Recreation and Leisure Time Products segment. Lower
unit volume sales and a shift in sales mix to lower margin juvenile bicycles,
coupled with strong competitive pricing pressure caused gross profit dollars
and percentages to decline at Huffy Bicycle Company. This decline was
partially offset by an increase in gross profit margin at True Temper Hardware
Company. Reductions in fixed manufacturing expenses and improvements in
manufacturing efficiency as a result of restructuring the lawn and garden tools
business were responsible for the improved gross profit margin at True Temper
Hardware Company. Gross profit in the Juvenile Products segment decreased
slightly due to increased expenses associated primarily with rework to improve
new product performance. Gross profit increases in the Services for Retail
segment were primarily a result of increased sales volume.
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
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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 1994 were $96,696, a
decrease of $5,797 or 5.7% from 1993. Reduced selling, general, and
administrative expenses in 1994 are primarily a result of successful cost
reduction efforts and volume related reductions in selling expenses at Huffy
Bicycle Company, coupled with fixed expense reductions made in connection with
the decision to restructure the business and exit certain unprofitable product
lines at True Temper Hardware Company.
NET INTEREST EXPENSE
Net interest expense decreased by 32.5% in 1994 due to the call for
redemption and subsequent conversion of the Company's 7.25% Convertible
Subordinated Debentures in October, 1993, and lower average short-term
borrowings in 1994.
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 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.
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 eliminating
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.
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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.
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses in 1993 were $102,493, or
13.5% of net sales, compared to $95,163, or 13.5% 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
borrowings in 1993 compared to 1992, and lower average short-term borrowings.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during 1994.
Company operations have historically provided a strong, positive cash flow
which, along with the credit facilities maintained, provides adequate liquidity
to meet the Company's operational needs. Cash provided by operations amounted
to $43,009 in 1994, compared to $41,422 in 1993 and $11,417 in 1992. Operating
cash flows in 1992 were adversely impacted by a significant inventory build-up
near the end of the year. The Company's current ratio (current assets over
current liabilities) was 1.9 at December 31, 1994 and 1993. Committed and
uncommitted short-term lines of credit total $130,000 of which there was no
outstanding balance at December 31, 1994. The Company believes that its
capital structure provides the financial flexibility to obtain additional
financing that may be necessary to fund future growth.
Funds expended for capital additions and improvements totaled $35,737
in 1994 compared to $21,322 in 1993 and $23,914 in 1992. The significant
increase in capital expenditures in 1994 is related to the acquisition and
construction of a new bicycle production facility in Farmington, Missouri. In
1995, capital expenditures are expected to be approximately $27,000 as the
Company completes its new bicycle production facility and continues to invest
in new product and technology.
The Company's debt to total capital ratio increased to 32% at December
31, 1994 compared to 27% at December 31, 1993. This increase was due
primarily to Huffy Bicycle Company's facility expansion which was financed with
$20,000 of Industrial Development Revenue Bonds coupled with a $20,000 stock
repurchase program.
OTHER MATTERS
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 entailed the shut-down of facilities in
Anderson, South Carolina and certain other locations; discontinuation of
certain unprofitable product lines; and other facilities consolidation. During
1994, the Company substantially completed its restructuring plan and recorded a
credit to the restructure provision of $934.
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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 Super
Fund site. Currently, the Company, along with other PRP's, the San Gabriel
Basin Water Quality Authority and numerous local water districts are working
with the EPA on a mutually satisfactory remedial plan.
During 1994, the Company accrued an additional $1,750 for potential
environmental expenditures. The total accrual for estimated environmental
remediation costs related to the Super Fund site and other potential
environmental liabilities is approximately $3,600 at December 31, 1994.
Management expects that the majority of expenditures relating to costs
currently accrued will be made over the next two to ten years. 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 predict the amount or timing of future costs of environmental
remediation requirements 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.
Dividends per share of common stock rose 10% in 1994, marking the 9th
consecutive year of increase.
During 1994, the Company purchased 1,326,346 shares of its common stock
at an average cost of approximately $15 per share, bringing the total common
shares outstanding to 13,550,033 at December 31, 1994. As of February 17,
1995, an additional 158,712 shares had been purchased at an average cost of
approximately $15 per share. In 1993, a total of 11,781 shares were purchased
at an average cost of approximately $17 per share. Treasury stock purchases
were made under plans authorized by the Company's Board of Directors.
INFLATION
Inflation has had a minimal effect on the Company during the three
years ended December 31, 1994. 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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CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
December 31, 1994 1993
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,604 $ 4,140
Receivables:
Trade 98,340 93,233
Taxes and other 9,245 2,417
-------- --------
107,585 95,650
Less allowance for doubtful accounts 1,783 2,382
-------- --------
Net receivables 105,802 93,268
Inventories 67,954 82,144
Deferred federal income taxes 8,450 12,444
Prepaid expenses 5,488 5,369
-------- --------
Total current assets 189,298 197,365
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and land improvements 1,610 1,657
Buildings and improvements 33,943 25,811
Machinery and equipment 121,445 109,581
Office furniture, fixtures, and equipment 26,156 23,456
Leasehold improvements 3,585 2,208
Construction in progress 6,117 8,006
-------- --------
192,856 170,719
Less accumulated depreciation and amortization 103,256 97,072
-------- --------
Net property, plant, and equipment 89,600 73,647
OTHER ASSETS:
Excess of cost over net assets acquired, net of
accumulated amortization of $5,563 in 1994
and $4,763 in 1993 25,755 26,555
Deferred federal income taxes 8,719 11,853
Other 8,596 9,917
-------- --------
$321,968 $319,337
======== ========
<FN>
See accompanying notes to consolidated financial statements.
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December 31, 1994 1993
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ -- $ 3,500
Current installments of long-term obligations 5,300 5,968
Accounts payable 43,853 43,713
Accrued expenses:
Salaries, wages, and other compensation 15,486 14,910
Insurance 11,379 10,581
Other 17,739 11,975
-------- ---------
Total accrued expenses 44,604 37,466
Restructuring reserve 2,033 9,296
Other current liabilities 3,183 3,827
-------- ---------
Total current liabilities 98,973 103,770
Long-term obligations, less current installments 58,611 43,211
Pension liability 8,780 12,688
Postretirement benefits other than pensions 15,482 15,010
Other liabilities 6,719 8,629
-------- ---------
Total liabilities 188,565 183,308
-------- ---------
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 16,166,026
shares in 1994 and 15,963,246 shares in 1993 16,166 15,963
Additional paid-in capital 60,155 58,059
Retained earnings 94,595 82,029
Minimum pension liability adjustment (2,859) (4,839)
Cumulative translation adjustment (647) (1,270)
--------- ---------
167,410 149,942
Less cost of 2,615,993 treasury shares
in 1994 and 1,289,647 in 1993 34,007 13,913
--------- ---------
133,403 136,029
--------- ---------
Total shareholders' equity $ 321,968 $ 319,337
========= =========
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
Years Ended December 31, 1994 1993 1992
----------- ----------- -----------
Net sales $ 719,485 $ 757,863 $ 703,345
Cost of Sales 590,878 619,575 580,737
----------- ----------- -----------
Gross profit 128,607 138,288 122,608
Selling, general, and administrative expenses 96,696 102,493 95,163
Restructuring costs (credits) (934) 28,755 --
----------- ----------- ----------
Operating income 32,845 7,040 27,445
Other expense (income)
Interest expense 6,425 8,830 9,590
Interest income (528) (91) (269)
Other (688) 1,379 (497)
----------- ----------- ----------
5,209 10,118 8,824
----------- ----------- ----------
Earnings (loss) before income taxes and cumulative
effect of accounting changes 27,636 (3,078) 18,621
Income taxes 10,209 755 6,778
----------- ---------- ----------
Earnings (loss) before cumulative effect
of accounting changes 17,427 (3,833) 11,843
Cumulative effect of accounting
changes, net of income taxes -- (1,084) (7,628)
----------- ---------- ---------
Net earnings (loss) $ 17,427 $ (4,917) $ 4,215
----------- ---------- ---------
EARNINGS (LOSS) PER COMMON SHARE:
Weighted average number of common shares 14,518,671 13,023,211 12,903,209
Earnings (loss) per common share before
cumulative effect of accounting changes $ 1.20 $ (.30) $ .92
Cumulative effect of accounting changes,
net of income taxes -- (.08) (.59)
----------- ---------- ---------
Net earnings (loss) per common share $ 1.20 $ (.38) $ .33
=========== ========== =========
<FN>
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
YEARS ENDED DECEMBER 31, 1994 1993 1992
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 17,427 $ (4,917) $ 4,215
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Restructuring costs (credits), net of payments (7,263) 28,755 --
Depreciation and amortization 20,222 20,260 17,965
Loss on sale of property, plant, and equipment 135 744 56
Deferred federal income tax expense (benefit) 6,062 (10,989) (387)
Increase (decrease) in cash resulting from changes in:
Receivables, net (12,534) 26,928 (24,040)
Inventories 14,190 (14,926) 6,110
Prepaid expenses (119) 170 (190)
Other assets (1,040) (401) (1,165)
Accounts payable 140 (11,650) 4,697
Accrued expenses 7,138 6,729 (1,982)
Other current liabilities (535) (938) (5,200)
Postretirement benefits other than pensions 472 820 14,190
Other long-term liabilities (1,910) 1,384 (2,202)
Other 624 (547) (650)
-------- -------- --------
Net cash provided by operating activities 43,009 41,422 11,417
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (35,737) (21,322) (23,914)
Proceeds from sale of property, plant and equipment 1,725 140 335
Reduction of notes receivable -- -- 1,205
-------- -------- --------
Net cash used in investing activities (34,012) (21,182) (22,374)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable to bank (3,500) (15,475) 18,975
Issuance of long-term obligations 20,666 3,967 76
Reduction of long-term obligations (5,934) (4,957) (4,356)
Issuance of common shares 2,299 952 568
Purchase of treasury shares (20,094) (204) (5,445)
Dividends paid (4,970) (3,872) (3,834)
-------- -------- --------
Net cash provided by (used in) financing activities (11,533) (19,589) 5,984
-------- -------- --------
Net change in cash and cash equivalents (2,536) 651 (4,973)
Cash and cash equivalents:
Beginning of year 4,140 3,489 8,462
-------- -------- --------
End of year $ 1,604 $ 4,140 $ 3,489
======== ======== ========
Cash paid during the year for:
Interest $ 6,368 $ 9,188 $ 8,734
Income taxes 11,050 5,612 8,003
<FN>
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 subordinated debentures.
See accompanying notes to consolidated financial statements.
29
12
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, 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)
Net earnings 17,427
Issuance of 202,717 shares in
connection with common stock
plans 203 2,096
Common dividends $.34 per share (4,861)
Purchase of 1,326,346 treasury shares (20,094)
Minimum pension liability
adjustment 1,980
Foreign currency
translation adjustment 623
-------- -------- -------- --------- --------- ------------
BALANCE AT DECEMBER 31, 1994 $ 16,166 $ 60,155 $ 94,595 $ (2,859) $ (647) $ (34,007)
======== ======== ======== ========= ======== ==========
30
13
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.
(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,
1994.
(d) Inventories -- Inventories are valued at cost (not in excess of
market) determined by the last-in, first-out (LIFO) method for all bicycle and
basketball inventories. Baby products and lawn and garden tools inventories are
valued on the first-in, first-out (FIFO) method. At December 31, 1994 and 1993,
48% and 53%, respectively, of the Company's inventories were valued using
the LIFO method.
(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 and
improvements 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 -- The excess of cost over net assets
acquired is amortized on a straight-line basis over forty years. The
carrying value of goodwill is reviewed at each balance sheet date to
determine whether goodwill has been impaired. If this review indicates that
goodwill will not be recoverable, as determined based on projected
undiscounted future cash flows of the entity acquired, the Company's carrying
value of goodwill would be reduced by the estimated impairment.
(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.
(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.
31
14
(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, 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 -- Net earnings (loss) per share
of common stock is based upon the weighted average number of shares of common
stock outstanding during the year. No effect has been given to options
outstanding under the Company's Stock Option Plans as no material dilutive
effect would result from the issuance of these shares.
During 1993 and 1992, if the 7.25% convertible subordinated debentures
had been converted, the inclusion of additional shares would have been
anti-dilutive.
(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 included the write-down or write-off of
impaired fixed assets, inventory and goodwill, consolidation of certain man-
ufacturing facilities, the discontinuation of certain unprofitable product
lines, and the related reduction in production and administrative personnel.
During 1994, the Company substantially completed its restructuring
plan and, as a result, reduced operating expenses by $934 due to a change in
accounting estimate for restructuring charges. The restructuring accomplished
during the year included the relocation of manufacturing and distribution
facilities in Anderson, South Carolina and Ontario, Canada to Camp Hill,
Pennsylvania. In addition, the assets related to the discontinued pruning and
spreader product lines were sold for an unanticipated gain of approximately
$1,300, which was reflected as a credit to the restructuring reserve.
Remaining estimated expenditures related to the restructuring plan include:
continuation of severance and insurance payments for terminated employees,
remaining lease and holding costs related to the Canadian distribution
facility, costs related to the restructure of operations in Cork, Ireland, and
final equipment relocation costs at domestic facilities. It is anticipated
that all of the above, with the exception of the Canadian facility holding
costs, will be completed during 1995.
The following is a reconciliation of the changes in the restructuring
reserve balance during 1994:
SEVERANCE FACILITIES ESTIMATED
AND RELATED CONSOLIDATION OPERATING
COSTS COSTS LOSSES TOTAL
Balance at December 31, 1993 $ 4,363 $ 2,792 $ 2,141 $ 9,296
Expenditures, net (2,510) (1,964) (1,855) (6,329)
Changes in estimates (1,243) 525 (216) (934)
-------- -------- -------- --------
Balance at December 31, 1994 $ 610 $ 1,353 $ 70 $ 2,033
======== ======= ======= =======
32
15
(3) INVENTORIES
The components of inventories are as follows:
1 9 9 4 1 9 9 3
Finished goods $ 24,456 $ 45,219
Work-in-process 12,480 12,817
Raw materials
and supplies 39,875 32,904
-------- --------
76,811 90,940
Excess of FIFO
cost over LIFO
inventory value (8,857) (8,796)
-------- --------
$ 67,954 $ 82,144
======== ========
(4) LINES OF CREDIT AND LONG-TERM OBLIGATIONS
During 1994, the Company had a short-term committed line of credit with
various banks in the form of a $50,000 revolving credit agreement, expiring
December 31, 1995. The Company also has $80,000 in uncommitted lines of
credit that exist on a no fee basis. There were no outstanding balances at
December 31, 1994 on either line of credit.
Short-term borrowings are summarized as follows:
1 9 9 4 1 9 9 3
Average borrowings $ 4,166 $ 12,742
Maximum at any
month end 27,250 31,200
Weighted
average rate 3.61% 3.46%
Long-term obligations are summarized as follows:
1 9 9 4 1 9 9 3
Unsecured notes payable:
9.62% due serially
through 2000 $ 24,000 $ 27,000
9.81% due serially
through 1998 14,200 16,000
8.23% Industrial
Development
Revenue Bonds 20,000 --
Other 5,711 6,179
-------- --------
63,911 49,179
Less current
installments 5,300 5,968
-------- --------
$ 58,611 $ 43,211
======== ========
Industrial Development Revenue Bonds were used to provide financing
for the acquisition, construction and installation of equipment and certain
industrial facilities in Farmington, Missouri. The bonds mature serially
from 2000 through 2014.
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.
Principal payments required on long-term obligations during each of the
years 1996 through 1999 are approximately $7,500, $7,300, $7,700, and $6,300,
respectively.
The estimated fair value of the Company's long-term obligations at
December 31, 1994 was approximately $67,600. 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 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.
The Company entered into a Right's Agreement with Bank One,
Indianapolis, N.A., 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
33
16
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 $.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.
(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 nonqualified 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
1984 Stock Option Plan, both incentive stock options and non-qualified stock
options were granted. Under this Plan, 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 1994 and 1993 for the Common Stock Option Plans was as
follows:
1 9 9 4 1 9 9 4 1 9 9 3 1 9 9 3
NUMBER OPTION PRICE NUMBER OPTION PRICE
OF SHARES PER SHARE OF SHARES PER SHARE
1988 AND 1984 PLANS
Outstanding at January 1 826,225 $ 4.83-20.00 829,088 $ 4.83-20.00
Granted 237,966 14.38-19.00 141,993 19.00
Cancelled (144,832) 5.44-20.00 (24,391) 4.83-20.00
Exercised (102,955) 4.83-11.33 (120,465) 4.83-11.33
------- ------------ ------- ------------
Outstanding at December 31 816,404 $ 4.83-20.00 826,225 $ 4.83-20.00
======= ============ ======= ============
Exercisable at December 31 334,590 $ 4.83-20.00 335,073 $ 4.83-15.50
======= ============ ======= ============
1987 DIRECTOR STOCK OPTION PLAN
Outstanding at January 1 113,142 $ .67-13.67 107,238 $ .67-13.67
Granted 66,585 1.00-17.63 5,904 1.00
Exercised --- --- ---
------- ------------ ------- ------------
Outstanding at December 31 179,727 $ .67-17.63 113,142 $ .67-13.67
======= ============ ======= ============
Exercisable at December 31 107,238 $ .67-13.67 98,856 $ .67-13.67
======= ============ ======= ============
34
17
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 1994 and 1993, 99,762 and 9,186 shares of Common Stock,
respectively, which had been granted under the 1989 Plan were issued at a
purchase or option price of $15.98 and $13.61 per share, respectively. At
December 31, 1994, rights to purchase 92,836 shares were outstanding under
this Plan at an exercise price of $15.98 per share and 553,987 additional
shares were available for issuance.
(7) COMMITMENTS AND CONTINGENCIES
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
$6,950, $4,900, and $5,175 in 1994, 1993, and 1992, respectively.
Future minimum rental commitments under non-cancellable operating
leases at December 31, 1994 are as follows:
Amount
1995 $ 6,417
1996 5,089
1997 3,562
1998 2,943
1999 2,822
Thereafter 17,811
--------
Total minimum payments $ 38,644
========
The Company is subject to a number of lawsuits, investigations and
claims arising out of the conduct of its business primarily related to
commerical 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.
(8) 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 Super Fund site. Currently, the Company, along with other PRP's, the
San Gabriel Basin Water Quality Authority and numerous local water districts
are working with the EPA on a mutually satisfactory remedial plan. 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 PRP's and governmental agencies and
information regarding the financial viability of other PRP's. Based upon
information currently available, the Company believes it is unlikely that it
will incur substantial additional costs as a result of failure by other PRP's
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. During 1994, the Company accrued $1,750 for potential
environmental expenditures. The total accrual for estimated environmental
remediation costs related to the Super Fund site and other potential
environmental liabilities is approximately $3,600 at December 31, 1994.
This accrual has not been discounted, and does not reflect any possible future
third party recoveries. Management expects that the majority of expenditures
relating to costs currently accrued will be made over the next two to ten
years.
35
18
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 predict the amount or timing of
future costs of environmental remediation requirements 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.
(9) 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, and investment grade corporate bonds and U.S. government
obligations.
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1994
and 1993:
1994 1994 1993 1993
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCULULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
ACTUARIAL PRESENT VALUE
OF BENEFIT OBLIGATIONS:
Vested benefit obligation $ 19,846 $ 27,587 $ 20,928 $ 28,762
======== ======== ======== ========
Accumulated benefit obligation 21,302 32,612 22,542 34,096
======== ======== ======== ========
Projected benefit obligation for
service rendered to date 25,360 34,278 27,713 35,505
Plan assets at fair value 26,324 22,477 27,025 22,100
-------- -------- -------- --------
Plan assets in excess of (less than)
projected benefit obligation 964 (11,801) (688) (13,405)
Unamortized transition asset (2,300) (597) (2,516) (768)
Unrecognized prior service cost (763) 6,044 (533) 6,391
Unrecognized net loss 3,331 4,941 5,129 8,104
Adjustment required to recognize
minimum liability -- (8,780) -- (12,688)
-------- -------- -------- --------
Pension costs prepaid (accrued)
at year end $ 1,232 $(10,193) $ 1,392 $(12,366)
======== ======== ======== ========
36
19
1994 1993 1992
NET PENSION COST INCLUDED
THE FOLLOWING COMPONENTS:
Service cost benefits earned during the period $ 3,256 $ 1,994 $ 1,997
Interest cost on projected benefit obligation 4,882 4,215 4,007
Actual return on plan assets 629 (4,812) (1,802)
Net amortization and deferral (4,759) 592 (2,170)
------- ------- -------
Net periodic pension cost $ 4,008 $ 1,989 $2,032
======= ======= ======
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate 8.5% 7.25% 8.5%
Rate of return on assets 9.5% 10.0% 10.0%
Rate of increase in compensation 5.0% 5.0% 6.0%
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability of $8,780 at December 31, 1994 and $12,688 at
December 31, 1993, 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. The change in the excess minimum
pension liability, net of income taxes, resulted in a credit to equity, of
$1,980 in 1994, and a charge to equity of $2,424 in 1993.
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 $920, $834, and $607 in 1994, 1993, and 1992,
respectively.
(10) 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
cumulative effect of adopting SFAS No. 106 was to decrease net earnings by
$7,475. The effect of the change in accounting principle reduced 1992 operating
income by $453.
37
20
The following table presents the plans' funded status reconciled with
amounts recognized in the Company's Consolidated Balance Sheet at December 31,
1994 and 1993 and the net periodic postretirement benefit cost recorded in the
Company's 1994 and 1993 Consolidated Statements of Operations:
HEALTH CARE AND DEFERRED
LIFE INSURANCE COMPENSATION
PLANS PLAN TOTAL
1994
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees $ 4,723 $ 1,912 $ 6,635
Fully eligible active plan participants 957 1,596 2,553
Other active plan participants 4,974 -- 4,974
--------- --------- ---------
10,654 3,508 14,162
UNRECOGNIZED NET GAIN 1,307 13 1,320
Postretirement benefits other than pensions --------- --------- ---------
accrued at year end $11,961 $ 3,521 $15,482
========= ========= =========
NET PERIODIC POSTRETIREMENT BENEFIT COST:
Service Cost $ 507 $ -- $ 507
Interest cost 830 275 1,105
Net amortization (3) -- (3)
--------- --------- ---------
Net periodic postretirement benefit cost $ 1,334 $ 275 $ 1,609
========= ========= =========
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate 8.50% 8.50%
Health care cost trend rate for expenses of
participants over age 65 12.00%
Health care cost trend rate for expense of
participants over age 65 10.00%
HEALTH CARE AND DEFERRED
LIFE INSURANCE COMPENSATION
PLANS PLAN TOTAL
1993
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%
38
21
For measurement purposes, in 1995, an 11.25% health care cost trend
rate was assumed for expenses of participants under age 65; this rate was
assumed to decrease gradually to 6.0% by the year 2002 and remain at that
level thereafter. In addition, for 1995, a 9.25% health care cost trend rate
was assumed for expenses of participants over age 65; this rate was assumed
to decrease gradually to 6.0% 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, 1994 by
$1,491 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year ended December 31, 1994 by
$228.
The Company adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1993. The cumulative effect of
adopting SFAS No. 112 amounted to $1,084 after tax. Ongoing operating expenses
increased marginally as a result of adopting SFAS No. 112.
(11) INCOME TAXES
The provisions for federal and state income taxes attributable to
income from continuing operations consist of:
1 9 9 4 1 9 9 3 1 9 9 2
Current tax
expense:
Federal $ 2,971 $ 9,458 $ 2,876
State 1,150 1,598 727
Foreign 26 105 322
-------- --------- ---------
4,147 11,161 3,925
Deferred tax
expense
(benefit) 6,062 (10,406) 2,853
-------- --------- ---------
Total tax
expense $ 10,209 $ 755 $ 6,778
======== ========= =========
39
22
Effective January 1, 1992, the Company adopted the provisions of 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. 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 as of that date. Such
amount has been reflected in the Consolidated Statement of Operations as a
cumulative effect of an accounting change.
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 1990.
The components of the net deferred tax asset as of December 31, 1994
and 1993 were as follows:
1 9 9 4 1 9 9 3
Deferred tax assets:
Allowance for
doubtful accounts $ 592 $ 984
Inventory
obsolescence reserve 911 2,160
Property, plant, and
equipment -- 243
Workers' compensation 1,567 1,728
Product liability 1,719 1,301
Deferred compensation 1,733 2,039
Accrued vacation 1,256 1,332
Restructuring reserves 791 3,254
Pension liability 1,724 2,317
Postretirement
benefits other
than pensions 5,413 5,254
Environmental reserves 1,268 652
Other liabilities
and reserves 3,768 4,505
------- -------
Total deferred
tax assets 20,742 25,769
------- -------
Deferred tax liabilities:
Property, plant, and
equipment 1,972 --
Other assets 1,601 1,472
------- -------
Total deferred
tax liabilities 3,573 1,472
------- -------
Net deferred
tax asset $17,169 $24,297
======= =======
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.
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23
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, 1994 1993 1992
Earnings (loss) before income taxes and
cumulative effect of accounting changes $ 27,636 $ (3,078) $18,621
======== ======== =======
Tax provision computed at statutory rate $ 9,673 $ (1,077) $ 6,331
Increase (reduction) in taxes due to:
Impact of foreign losses for which a current
tax benefit is not available 302 31 47
State income taxes (net of federal tax benefit) 748 1,039 480
Goodwill amortization 270 1,615 286
Foreign sales corporation (218) (67) --
Insurance proceeds (670) -- --
Meals and entertainment 274 107 99
Reduction in liability due to favorable
IRS settlement -- (900) --
Change in statutory tax rate -- (315) --
Intangible asset write-down -- 499 --
Miscellaneous (170) (177) (465)
-------- -------- -------
Actual tax provision $ 10,209 $ 755 $ 6,778
======== ======== =======
(12) 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.
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24
A summary of the Company's 1994, 1993, and 1992 operations by business
segment is as follows:
Earnings (Loss)
Before Income
Taxes and
Cumulative Effect Depreciation
of Accounting Identifiable and Capital
1994 Sales Changes Assets Amortization Expenditures
Recreation and Leisure
Time Products $459,951 $22,958 $208,747 $11,926 $28,772
Juvenile Products 121,300 6,356 53,410 3,904 3,161
Services for Retail 139,637 8,632 40,089 3,833 3,627
Eliminations (1,403)
Interest expense (6,425)
Interest income 528
General corporate (4,413) 19,722 559 177
-------- ------- -------- ------- -------
$719,485 $27,636 $321,968 $20,222 $35,737
======== ======= ======== ======= =======
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
======== ======= ======== ======= =======
<FN>
(1) Includes a $28,755 provision to restructure the Company's lawn and garden
tools business.
(2) Includes a charge of $858 associated with the disposition of previous
manufacturing facility and move to a 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.
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25
In 1994, three customers individually accounted for 12%, 13% and 10% of
total consolidated net sales. In 1993 and 1992, two customers individually
accounted for 13% and 14%, and 13% and 12% of total consolidated net sales,
respectively.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1994 and 1993 are as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total[3]
1994
Net sales $ 189,220 $ 214,898 $ 153,332 $ 162,035 $ 719,485
Gross profit 35,986 41,063 26,795 24,763 128,607
Net earnings[1] 4,845 7,961 2,602 2,019 17,427
EARNINGS PER COMMON SHARE $ .33 $ .53 $ .18 $ .14 $ 1.20
----------- ----------- ----------- ------------ -----------
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 changes[2] $ 4,909 $ 6,869 $ 2,308 $ (17,919) $ (3,833)
Cumulative effect of accounting
changes, 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:
PRIMARY
Earnings (loss) before cumulative
effect of accounting changes $ .38 $ .54 $ .18 $ (1.26) $ (.30)
Cumulative effect of accounting
changes, net of income taxes (.08) (.08)
----------- ----------- ----------- ------------ -----------
Net earnings (loss) $ .30 $ .54 $ .18 $ (1.26) $ (.38)
----------- ----------- ----------- ------------ -----------
FULLY DILUTED
Earnings (loss) before cumulative
effect of accounting changes $ .35 $ .48 $ .18 $ (1.26) $ (.30)
Cumulative effect of accounting
changes, net of income taxes (.07) (.08)
----------- ----------- ----------- ------------ -----------
Net earnings (loss) $ .28 $ .48 $ .18 $ (1.26) $ (.38)
----------- ----------- ----------- ------------ -----------
<FN>
[1] The fourth quarter of 1994 includes a credit to the restructure provision of $934.
[2] The fourth quarter of 1993 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.
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26
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, 1994 and 1993 were as
follows:
YEAR ENDED DECEMBER 31, 1994
COMMON STOCK DIVIDENDS
PRICE RANGE DECLARED
QUARTER HIGH LOW
First $ 19-1/2 $ 17-3/4 $ .085
Second 18-5/8 15-3/8 .085
Third 16-1/8 14 .085
Fourth 16 14 .085
---------
Total $ .340
=========
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
=========
As of December 31, 1994 there were 13,550,033 shares of Huffy
Corporation Common Stock outstanding and there were 4,196 shareholders of
record. Management estimates an additional 8,500 shareholders hold their stock
in nominee name. As of February 17, 1995, the Company has repurchased an
additional 158,712 shares of Common Stock. Trading volume of the Company's
Common Stock during the twelve months ended December 31, 1994 totaled 7,706,100
shares. The average number of common shares outstanding during this period was
approximately 14,518,671 shares.
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27
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held April 28, 1995 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
225 Byers Road
Miamisburg, Ohio 45342
Telephone (513) 866-6251
PRIMARY BUSINESS LOCATIONS
- - Camp Hill, Pennsylvania
- - Celina, Ohio
- - Cork, Ireland
- - Farmington, Missouri
- - Harrisburg, Pennsylvania
- - Miamisburg, Ohio
- - San Diego, California
- - Suring, Wisconsin
- - Thornton, Colorado
- - 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) 753-7107
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 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 LLP
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:
Vice President - Treasurer.
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 Vice President - Treasurer, telephone
(513) 866-6251.
45