1
EXHIBIT 13
TEN-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
(Dollar amounts in thousands, except per share data)
1995 1994 1993
SUMMARY OF OPERATIONS
Net sales $ 684,752 $ 719,485 $ 757,863
Gross profit 96,049 128,607 138,288
Selling, general, and administrative expenses 97,769 96,696 102,493
Operating income (loss) [1] (7,098) 32,845 7,040
Other (income) expense, net [2] 35 (688) 1,379
Earnings (loss) before interest, taxes, and
cumulative effect of accounting changes (7,133) 33,533 5,661
Interest expense, net 7,906 5,897 8,739
Earnings (loss) before income taxes and
cumulative effect of accounting changes (15,039) 27,636 (3,078)
Income tax expense (benefit) (4,582) 10,209 755
Earnings (loss) before cumulative effect of accounting changes (10,457) 17,427 (3,833)
Cumulative effect of accounting changes, net of income taxes -- -- (1,084)
Net earnings (loss) (10,457) 17,427 (4,917)
- -------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary (.78) 1.20 (.38)
Fully diluted [4] (.78) 1.20 (.38)
- -------------------------------------------------------------------------------------------------------------------------------
Common dividends declared 4,577 4,461 4,175
Common dividends per share .34 .34 .31
Capital expenditures for plant and equipment 24,365 35,737 21,322
Weighted average common shares outstanding:
Primary 13,424 14,519 13,023
Fully diluted 13,424 14,519 13,023
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 298,546 321,968 319,337
Working capital 63,089 90,325 93,595
Net investment in plant and equipment 93,091 89,600 73,647
Notes payable 5,750 -- 3,500
Long-term obligations 51,236 58,611 43,211
Redeemable preferred stock -- -- --
Shareholders' equity 116,104 133,403 136,029
Equity per share 8.64 9.85 9.27
- --------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS
Net cash provided by operating activities 31,008 43,009 41,422
Net cash used in investing activities (24,330) (34,012) (21,182)
Net cash provided by (used in) financing activities (5,724) (11,533) (19,589)
Net change in cash and cash equivalents 954 (2,536) 651
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin (before cumulative effect of accounting changes) N/A 2.4% N/A
Average working capital turnover 8.3 7.8 8.2
Return on net assets N/A 8.9% N/A
Return on beginning shareholders' equity N/A 12.8% N/A
Current ratio 1.6 1.9 1.9
Debt/total capital 33.7% 32.4% 26.6%
- --------------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 3,688 4,196 3,760
8
2
1992 1991 1990
Summary of Operations
Net sales $703,345 $678,936 $516,744
Gross profit 122,608 132,485 102,545
Selling, general, and administrative expenses 95,163 92,499 69,957
Operating income (loss) [1] 27,445 39,986 32,588
Other (income) expense, net [2] (497) 482 (370)
Earnings (loss) before interest, taxes, and
cumulative effect of accounting changes 27,942 39,504 32,958
Interest expense, net 9,321 8,047 4,390
Earnings (loss) before income taxes and
cumulative effect of accounting changes 18,621 31,457 28,568
Income tax expense (benefit) 6,778 11,630 10,561
Earnings (loss) before cumulative effect of accounting changes 11,843 19,827 18,007
Cumulative effect of accounting changes, net of income taxes (7,628) -- --
Net earnings (loss) 4,215 19,827 18,007
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary .33 1.52 1.37
Fully diluted [4] .33 1.41 1.28
- -----------------------------------------------------------------------------------------------------------------------------
Common dividends declared 3,809 3,740 3,461
Common dividends per share .30 .29 .27
Capital expenditures for plant and equipment 23,914 24,509 9,832
Weighted average common shares outstanding:
Primary 12,903 13,056 13,157
Fully diluted 12,903 15,114 15,179
- -----------------------------------------------------------------------------------------------------------------------------
Financial Position at Year End
Total assets 335,328 316,577 297,310
Working capital 91,308 99,110 87,558
Net investment in plant and equipment 80,020 72,226 65,423
Notes payable 18,975 -- --
Long-term obligations 74,918 80,208 84,348
Redeemable preferred stock -- -- --
Shareholders' equity 117,687 124,997 106,747
Equity per share 9.35 9.68 8.39
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows
Net cash provided by operating activities 11,417 15,169 16,356
Net cash used in investing activities (22,374) (21,784) (61,974)
Net cash provided by (used in) financing activities 5,984 (6,774) 15,596
Net change in cash and cash equivalents (4,973) (13,389) (30,022)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and Miscellaneous
Net profit margin (before cumulative effect of accounting changes) 1.7% 2.9% 3.5%
Average working capital turnover 7.4 7.3 6.2
Return on net assets 4.1% 11.5% 13.8%
Return on beginning shareholders' equity 3.4% 18.6% 18.8%
Current ratio 1.8 2.0 2.0
Debt/total capital 40.5% 40.3% 45.7%
- -----------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 3,883 3,016 2,410
1989 1988 1987 1986
SUMMARY OF OPERATIONS
Net sales $449,389 $335,713 $340,551 $294,698
Gross profit 84,638 62,847 67,328 54,145
Selling, general, and administrative expenses 57,972 45,511 46,726 40,280
Operating income (loss) [1] 26,666 17,336 20,602 13,865
Other (income) expense, net [2] (605) 5,704 352 82
Earnings (loss) before interest, taxes, and
cumulative effect of accounting changes 27,271 11,632 20,250 13,783
Interest expense, net 3,467 3,856 3,048 2,873
Earnings (loss) before income taxes and
cumulative effect of accounting changes 23,804 7,776 17,202 10,910
Income tax expense (benefit) 8,811 3,240 7,111 5,003
Earnings (loss) before cumulative effect of accounting changes 14,993 4,536 10,091 5,907
Cumulative effect of accounting changes, net of income taxes -- -- -- --
Net earnings (loss) 14,993 4,536 10,091 5,907
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:[3]
Primary 1.17 .36 .81 .49
Fully diluted [4] 1.11 .36 .78 .48
Common dividends declared 3,071 2,613 2,333 2,148
Common dividends per share .24 .20 .19 .18
Capital expenditures for plant and equipment 14,143 14,786 6,806 7,638
Weighted average common shares outstanding:
Primary 12,882 12,641 12,441 12,074
Fully diluted 14,271 13,376 13,415 13,112
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 234,532 183,255 149,259 141,267
Working capital 80,189 45,884 61,649 54,161
Net investment in plant and equipment 45,659 41,360 27,895 27,495
Notes payable -- -- -- --
Long-term obligations 57,525 37,196 15,181 18,427
Redeemable preferred stock -- -- -- --
Shareholders' equity 95,645 80,776 78,914 68,848
Equity per share 7.43 6.50 6.35 5.68
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS
Net cash provided by operating activities 24,344 23,862 10,697 7,433
Net cash used in investing activities (12,642) (38,215) (6,428) (5,710)
Net cash provided by (used in) financing activities 24,819 16,869 (3,159) (2,861)
Net change in cash and cash equivalents 36,521 2,516 1,110 (1,138)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin (before cumulative effect of accounting change 3.3% 1.4% 3.0% 2.0%
Average working capital turnover 6.9 6.2 5.9 5.7
Return on net assets 13.7% 6.7% 12.5% 8.8%
Return on beginning shareholders' equity 18.6% 5.7% 14.7% 9.1%
Current ratio 2.1 1.8 2.2 2.1
Debt/total capital 40.5% 33.3% 17.3% 22.2%
- -----------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 2,473 2,180 2,173 2,615
[1] Operating loss in 1995 includes a net restructure provision of $5,378
related to personnel reductions and the negotiation of a
concessionary labor contract. 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: 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.
9
3
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 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 Board's Statement
of Financial Accounting Standards No. 112, effective January 1, 1993.
KPMG PEAT MARWICK LLP
February 15, 1996
Cincinnati, Ohio
10
4
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, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
The Company recorded a net loss of $10,457 in 1995, compared to net earnings
of $17,427 reported in 1994. The 1995 net loss included an after-tax
restructure charge of $3,496 to reflect severance and related costs associated
with a reduction of the Company's corporate and Huffy Bicycle Company workforce
and other costs associated with a new concessionary labor contract at the
Company's Celina, Ohio bicycle manufacturing facility.
Net loss per share of common stock was $.78 in 1995. If the net loss were
adjusted to exclude the impact of the restructuring charge in 1995, net loss
per common share would have been $.52 in 1995 compared to net earnings per
common share of $1.20 in 1994.
NET SALES
Net sales in 1995 were $684,752, a 4.8% decrease over net sales of $719,485
in 1994. Net sales decreased in the Consumer Products segment due primarily to
the softness at retail, a continued shift to lower specification and
promotionally priced products, and intensified price and product competition.
The decrease in net sales in the Consumer Products segment occurred
primarily at the Huffy Bicycle Company, where sales were lower than last year
due to a soft retail environment, significant pricing competition at the retail
level, and continued dumping of bicycles by the People's Republic of China.
True Temper Hardware Company's and Gerry Baby Products Company's sales were
below last year primarily as a result of soft retail and a very competitive
market environment.
In the Services for Retail segment, Huffy Service First had record sales due
primarily to growth in its Assembly Services market segment.
GROSS PROFIT
Consolidated gross profit for 1995 was $96,049, or 14.0% of net sales,
compared to $128,607, or 17.9% of net sales reported for 1994.
The decrease in gross profit as a percentage of net sales occurred primarily
in the Consumer Products segment. Huffy Bicycle Company continued to
experience declining profit margins as a result of lower unit volume sales, an
intensely competitive retail environment, continued shifting of consumer
preference to promotionally priced product, and pricing pressure caused by the
continued dumping of bicycles in the United States by the People's Republic of
China. Gross margin as a percentage of net sales declined at Huffy Sports
Company and True Temper Hardware Company as a result of a shift in mix to lower
margin product and increased material costs. Intense competition and a strong
commitment to maintain market share caused the gross profit margin to decline
at Gerry Baby Products Company. In the Services for Retail segment, gross
margin as a percentage of net sales declined slightly from 1994 levels due
primarily to increased labor and transportation costs at Washington Inventory
Service.
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 1995 were $97,769, a 1.1%
increase over 1994. Volume related reductions in selling, general, and
administrative expenses and lower incentive compensation in 1995 were offset by
increased advertising expenditures and increased expenses related to the
addition of the Company's Farmington, Missouri bicycle manufacturing facility.
NET INTEREST EXPENSE
Net interest expense was $7,906, a $2,009 increase over net interest expense
for 1994. The increase in net interest expense was primarily caused by the
issuance of industrial development bonds used to finance the acquisition of
the Company's Farmington, Missouri bicycle facility in the third quarter of
1994.
11
5
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 in the Consumer Products segment.
Huffy Bicycle Company's 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 Gerry Baby Products Company were down slightly 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's sales increased due to
further market penetration in both the Assembly Services and 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 in the Consumer 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 at
Gerry Baby Products Company 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.
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 suc-
cessful 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.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during 1995. 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 $31,008
in 1995, compared to $43,009 in 1994 and $41,422 in 1993. The Company's
current ratio decreased from 1.9 at December 31, 1994 to 1.6 at December 31,
1995. The decrease was caused by a reduction in net accounts receivable which
occurred at December 31, 1995 as a result of reduced fourth quarter sales
volume at Huffy Bicycle Company and seasonal fluctuations of snow tool sales at
True Temper Hardware Company. Committed and uncommitted short-term lines of
credit total $135,000 of which $750 was outstanding at December 31, 1995. 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 $24,365 in
1995 compared to $35,737 in 1994 and $21,322 in 1993. 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 1996, capital
expenditures are expected to be approximately $21,000, reflecting continuing
investment in new products and technology.
The Company's debt to total capital ratio increased to 33.7% at December 31,
1995 compared to 32.4% at December 31, 1994 due to the impact of the current
year net loss as well as the repurchase of approximately 160,000 shares of the
Company's Common Stock.
12
6
RESTRUCTURING ACTIVITY
During 1995, the Company recorded a restructure charge of $5,378 ($3,496
after-tax). The restructure plan includes a charge of $715 related to a 30%
reduction in the Company's Corporate Staff, $1,280 related to a reduction in
administrative and hourly employment at the Huffy Bicycle Company, and a charge
of $3,883, which includes a pension curtailment expense of $3,226, related to
the negotiation of a concessionary labor contract at the Company's Celina, Ohio
bicycle manufacturing facility. The restructure charge is offset by a $500
restructure credit recorded to reflect revised cost estimates for certain items
in the 1993 restructure charge.
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.
OTHER MATTERS
The Company, along with others, has been designated as a potentially
responsible party (PRP) by the U.S. Environmental Protection Agency (the "EPA")
with respect to claims involving the discharge of hazardous substances into the
environment in the Baldwin Park operable unit of the San Gabriel Valley
Superfund site. Currently, the Company, along with other 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.
The total accrual for estimated environmental remediation costs related to
the Super Fund site and other potential environmental liabilities is
approximately $2,600 at December 31, 1995. 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 fully 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.
INFLATION
Inflation rates in the United States have not had a significant impact on
the Company's operating results for the three years ended December 31, 1995.
The impact on the Company is minimized as a result of rapid turnover of
inventories and partially offset by cost reduction programs and increased
operating efficiency.
13
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CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)
DECEMBER 31, 1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,558 $ 1,604
Receivables:
Trade 75,523 98,340
Taxes and other 7,508 9,245
--------- ---------
83,031 107,585
Less allowance for doubtful accounts 1,789 1,783
--------- ---------
Net receivables 81,242 105,802
Inventories 65,175 67,954
Deferred federal income taxes 8,901 8,450
Prepaid expenses 5,562 5,488
--------- ---------
Total current assets 163,438 189,298
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and land improvements 1,667 1,610
Buildings and improvements 38,049 33,943
Machinery and equipment 138,834 121,445
Office furniture, fixtures, and equipment 28,565 26,156
Leasehold improvements 4,179 3,585
Construction in progress 2,946 6,117
--------- ---------
214,240 192,856
Less accumulated depreciation and amortization 121,149 103,256
--------- ---------
Net property, plant, and equipment 93,091 89,600
OTHER ASSETS:
Excess of cost over net assets acquired, net of
accumulated amortization of $6,363 in 1995
and $5,563 in 1994 24,953 25,755
Deferred federal income taxes 9,166 8,719
Other 7,898 8,596
--------- ---------
$ 298,546 $ 321,968
========= =========
See accompanying notes to consolidated finanicial statements.
14
8
DECEMBER 31, 1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 5,750 $ --
Current installments of long-term obligations 7,685 5,300
Accounts payable 39,856 43,853
Accrued expenses:
Salaries, wages, and other compensation 16,526 15,486
Insurance 12,457 11,379
Other 13,732 17,739
--------- ----------
Total accrued expenses 42,715 44,604
Other current liabilities 4,343 5,216
---------- ----------
Total current liabilities
100,349 98,973
---------- ----------
Long-term obligations, less current installments
Pension liability
Postretirement benefits other than pensions 51,236 58,611
Other liabilities 7,922 8,780
16,216 15,482
Total liabilities 6,719 6,719
---------- ----------
SHAREHOLDERS' EQUITY: 182,442 188,565
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 16,213,065
shares in 1995 and 16,166,026 shares in 1994 -- --
Additional paid-in capital 16,213 16,166
Retained earnings 60,644 60,155
Minimum pension liability adjustment 79,561 94,595
Cumulative translation adjustment (3,247) (2,859)
(613) (647)
---------- ---------
Less cost of 2,775,096 treasury shares
in 1995 and 2,615,993 in 1994 152,558 167,410
36,454 34,007
----------- ---------
Total shareholders' equity
116,104 133,403
----------- ---------
$ 298,546 $ 321,968
=========== =========
15
9
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
YEARS ENDED DECEMBER 31, 1995 1994 1993
Net sales $ 684,752 $ 719,485 $ 757,863
Cost of sales 588,703 590,878 619,575
------------- ------------- -------------
Gross profit 96,049 128,607 138,288
Selling, general, and administrative expenses 97,769 96,696 102,493
Restructuring costs (credits) 5,378 (934) 28,755
------------- ------------- -------------
Operating income (loss) (7,098) 32,845 7,040
Other expense (income) 7,996 6,425 8,830
Interest expense (90) (528) (91)
Interest income 35 (688) 1,379
Other ------------- ------------- -------------
7,941 5,209 10,118
------------- ------------- -------------
Earnings (loss) before income taxes and cumulative
effect of accounting change (15,039) 27,636 (3,078)
Income tax expense (benefit) (4,582) 10,209 755
------------- ------------- -------------
Earnings (loss) before cumulative effect
of accounting change (10,457) $ 17,427 (3,833)
Cumulative effect of accounting
change, net of income taxes -- -- (1,084)
------------- ------------- -------------
Net earnings (loss) $ (10,457) $ 17,427 (4,917)
============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE:
Weighted average number of common shares 13,423,784 14,518,671 $ 13,023,211
Earnings (loss) per common share before
cumulative effect of accounting change $ (.78) $ 1.20 $ (.30)
Cumulative effect of accounting change,
net of income taxes -- -- (.08)
------------- ------------- -------------
Net earnings (loss) per common share $ (.78) $ 1.20 $ (.38)
============= ============= =============
See accompanying notes to consolidated financial statements.
16
10
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
YEARS ENDED DECEMBER 31, 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings (loss) $(10,457) $ 17,427 $ (4,917)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Restructuring costs (credits), net of payments (203) (7,263) 28,755
Depreciation and amortization 22,419 20,222 20,260
Loss on sale of property, plant, and equipment 443 135 744
Deferred federal income tax expense (benefit) (689) 6,062 (10,989)
Increase (decrease) in cash resulting from changes in:
Receivables, net 24,560 (12,534) 26,928
Inventories 2,779 14,190 (14,926)
Prepaid expenses (74) (119) 170
Other assets (1,978) (1,040) (401)
Accounts payable (3,997) 140 (11,650)
Accrued expenses (1,889) 7,138 6,729
Other current liabilities (674) (535) (938)
Postretirement benefits other than pensions 734 472 820
Other long-term liabilities -- (1,910) 1,384
Other 34 624 (547)
-------- -------- -------
Net cash provided by operating activities 31,008 43,009 41,422
-------- -------- -------
(24,365) (35,737) (21,322)
CASH FLOWS FROM INVESTING ACTIVITIES: 35 1,725 140
-------- -------- -------
Capital expenditures
Proceeds from sale of property, plant, and equipment (24,330) (34,012) (21,182)
-------- -------- -------
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES: 5,750 (3,500) (15,475)
Increase (decrease) in notes payable 150 20,666 3,967
Issuance of long-term obligations (5,140) (5,934) (4,957)
Reduction of long-term obligations 536 2,299 952
Issuance of common shares (2,447) (20,094) (204)
Purchase of treasury shares (4,573) (4,970) (3,872)
-------- -------- -------
Dividends paid (5,724) (11,533) (19,589)
-------- -------- -------
Net cash used in financing activities
954 (2,536) 651
Net change in cash and cash equivalents
Cash and cash equivalents: 1,604 4,140 3,489
-------- -------- -------
Beginning of year
$ 2,558 $ 1,604 $ 4,140
======== ======== =======
End of year
$ 8,655 $ 6,368 $ 9,188
Cash paid (refunded) during the year for: (2,415) 11,050 5,612
Interest
Income taxes
<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.
17
11
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, 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)
Net (loss) (10,457)
Issuance of 47,039 shares in
connection with common stock
plans 47 489
Common dividends $.34 per share (4,577)
Purchase of 159,103 treasury shares (2,447)
Minimum pension liability
adjustment (388)
Foreign currency
translation adjustment 34
--------- -------- ------- -------- ------- ---------
BALANCE AT DECEMBER 31, 1995 $ 16,213 $60,644 $79,561 $ (3,247) $ (613) $ (36,454)
========= ======== ======= ======== ======= =========
See accompanying notes to consolidated financial statements.
18
12
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, 1995.
(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, 1995 and 1994,
51% and 48%, 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 on the straight-line method.
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) 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.
(h) 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 the Company's
long-term debt obligations is disclosed in Note (4).
(i) 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.
If the 7.25% convertible subordinated debentures had been converted during
1993, the inclusion of additional shares would have been anti-dilutive.
(j) 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.
(k) Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(l) Reclassifications -- Certain reclassifications have been made to prior
year amounts to conform with the current year presentation.
(m) Newly Issued Accounting Standards -- In October, 1995, SFAS No. 123,
"Accounting for Stock-Based Compensation" was issued. Companies will have the
option of recognizing compensation expense in the financial statements for
virtually all stock-based compensation arrangements based upon the fair value
of the option at the grant date, or alternatively, continuing to recognize
compensation expense based on the intrinsic value of the option on the
measurement date in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25). This statement is
required to be adopted in 1996.
19
13
While the Company intends to continue to recognize compensation expense
using the method prescribed by APB No. 25, the Company has not adopted SFAS No.
123 in 1995 and has not determined the impact it may have on the Company's
financial statement disclosures in future years.
(2) RESTRUCTURING PROVISION
During 1995, the Company recorded a restructure charge of $5,378 ($3,496
after-tax). The restructure plan includes a charge of $715 related to a 30%
reduction in the Company's Corporate Staff, $1,280 related to a reduction in
administrative and hourly employment at the Huffy Bicycle Company, and a charge
of $3,883, which includes a pension curtailment expense of $3,226, related to
the negotiation of a concessionary labor contract at the Company's Celina, Ohio
bicycle manufacturing facility. The restructure charge is offset by a $500
restructure credit recorded to reflect revised cost estimates for certain items
in the 1993 restructure charge. The remaining restructure reserve which is
included with other current liabilities at December 31, 1995 includes $657 of
contract settlement charges and $1,173 of unpaid severance and related
expenditures. The Company anticipates that the remaining balance in the
restructure reserve will be expended during 1996.
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
manufacturing facilities, the discontinuation of certain unprofitable product
lines, and the related reduction in production and administrative personnel.
The restructure charge was comprised of $19,459 of non cash asset write-offs, a
charge of $2,792 for facilities consolidation costs, a charge of $4,363 for
severance and related costs, and a charge of $2,141 for estimated operating
losses of discontinued product lines.
During 1994, the Company substantially completed the restructuring of its
lawn and garden tools business. 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 and the
sale of assets related to the discontinued pruning and spreader product lines.
Restructure credits of $500 in 1995 and $934 in 1994 were recorded to reflect
the revised cost estimates for certain items included in the 1993 charge.
(3) INVENTORIES
The components of inventories are as follows:
1995 1994
Finished goods $ 31,715 $ 24,456
Work-in-process 10,587 12,480
Raw materials
and supplies 31,729 39,875
---------- ----------
74,031 76,811
Excess of FIFO
cost over LIFO
inventory value (8,856) (8,857)
---------- ----------
$ 65,175 $ 67,954
---------- ----------
(4) LINES OF CREDIT AND
LONG-TERM OBLIGATIONS
During 1995, 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, 1997. The Company also had $85,000 in uncommitted lines of credit
on a no fee basis, of which $750 was outstanding at December 31, 1995, and a
$5,000 non-interest bearing loan from the Missouri Department of Economic
Development and the City of Farmington, Missouri due on September 1, 1996.
Short-term borrowings are summarized as follows:
1995 1994
Unsecured notes payable:
Average borrowings $ 15,441 $ 4,166
Maximum at any
month end 45,580 27,250
Weighted
average rate 6.15% 3.61%
Long-term obligations are summarized as follows:
1995 1994
Unsecured notes payable:
9.62% due serially
through 2000 $ 21,000 $ 24,000
9.81% due serially
through 1998 12,400 14,200
8.23% Industrial
Development
Bonds 20,000 20,000
Other 5,521 5,711
-------- --------
58,921 63,911
Less current
installments 7,685 5,300
-------- --------
51,236 58,611
-------- --------
Industrial Development 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 1997 through 2000 are approximately $7,400, $7,700, $6,300, and $7,700,
respectively.
20
14
The estimated fair value of the Company's long-term obligations at December
31, 1995 and 1994 was approximately $64,500 and $67,600, respectively. 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, unissued shares of Cumulative Preferred Stock, $1.00 par value.
Subject to certain limitations, the Articles provide that the Board of
Directors may fix the conditions of each series of Preferred Stock.
The Company entered into a Right's Agreement with its transfer agent in
1988, as amended in 1991 and 1994, and the Board of Directors declared a
dividend of one Preferred Share Purchase Right for each outstanding share of
the Company's Common Stock. Upon the occurrence of certain events, Preferred
Share Purchase Rights entitle the holder to purchase, at a price of $60.00, one
one-hundredth of a share of Series C Cumulative Preferred Stock, subject to
adjustment. The Rights become exercisable only if a person or group acquires
15% or more of the Company's Common Stock or announces a tender offer for 15%
or more of the Common Stock. Under certain circumstances, all Rights holders,
except the person or group holding 15% or more of the Company's Common Stock,
will be entitled to purchase a number of shares of the Company's Common Stock
having a market value of twice the Right's current exercise price. Alternately,
if the Company is acquired in a merger or other business combination, after the
Rights become exercisable the Rights will entitle the holder to buy a number of
the acquiring company's common shares having a market value at that time of
twice each Right's current exercise price.
Further, after a person or group acquires 15% or more (but less than 50%) of
the Company's outstanding Common Stock, the Company's Board of Directors may
exchange part or all of the Rights (other than the Rights held by the acquiring
person or group) for shares of Common Stock. The Rights expire December 9, 2004
and may be redeemed by the Company for $.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 non-qualified stock options, incentive stock options and stock appreciation
rights, although no incentive stock options or stock appreciation rights have
been issued, and allows for the subscription of restricted shares of Common
Stock, also none of which have been issued. The total number of shares which
may be issued under this Plan shall not exceed 1,125,000 shares. 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, non-qualified stock 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 fee. 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 1995 and 1994 for the Common Stock Option Plans was as follows:
1995 1995 1994 1994
Number Option Price Number Option Price
1988 AND 1984 PLANS of Shares Per Share of Shares Per Share
Outstanding at January 1 816,404 $ 4.83-20.00 826,225 $ 4.83-20.00
Granted 336,080 10.38-11.13 237,966 14.38-19.00
Cancelled (156,719) 8.75-20.00 (144,832) 5.44-20.00
Exercised (38,609) 4.83-11.33 (102,955) 4.83-11.33
-------------- --------------- ------------ -------------
Outstanding at December 31 957,156 $ 5.44-20.00 816,404 $ 4.83-20.00
-------------- --------------- ------------ -------------
Exercisable at December 31 377,233 $ 5.44-20.00 334,590 $ 4.83-20.00
-------------- --------------- ------------ -------------
1987 DIRECTOR STOCK OPTION PLAN
Outstanding at January 1 179,727 $ .67-17.63 113,142 $ .67-13.67
Granted 6,293 1.00 66,585 1.00-17.63
Exercised (1,143) 1.00 -- --
-------------- --------------- ------------ -------------
Outstanding at December 31 184,877 $ .67-17.63 179,727 $ .67-17.63
-------------- --------------- ------------ -------------
Exercisable at December 31 111,999 $ .67-13.67 107,238 $ .67-13.67
-------------- --------------- ------------ -------------
21
15
The 1989 Employee Stock Purchase Plan, as amended, authorizes the offering
and sale to employees of up to 975,000 shares of the Company's Common Stock at
a price approximating 90% of the closing price of the Common Stock on the
offering date.
During 1995 and 1994, 7,350 and 99,762 shares of Common Stock, respectively,
for which options had been granted, were issued at an average purchase or
option price of $15.45 and $13.77 per share, respectively. At December 31,
1995, rights to purchase 73,800 shares were outstanding under this Plan at an
exercise price of $11.36 per share and 565,673 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 $7,450,
$6,950, and $4,900 in 1995, 1994, and 1993, respectively.
Future minimum rental commitments under non-cancellable operating leases at
December 31, 1995 are as follows:
Amount
1996 $ 6,360
1997 4,747
1998 4,041
1999 3,799
2000 3,474
Thereafter 15,572
-------------
Total minimum payments $ 37,993
=============
The Company is subject to a number of lawsuits, investigations, and claims
arising out of the conduct of its business primarily related to commercial
transactions and product liability. While it is not feasible to predict the
outcome of all pending suits and claims, management is of the opinion that
their ultimate disposition will not have a material adverse effect upon the
consolidated financial position, liquidity, or ongoing results of operations of
the Company.
(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
Superfund site ("Superfund"). 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 previously
unanticipated 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. The
total accrual for estimated environmental remediation costs related to the
Superfund site and other potential environmental liabilities is approximately
$2,600 at December 31, 1995. 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. As a result of factors such as the
continuing evolution of environmental laws and regulatory requirements, the
availability and application of technology, the identification of presently
unknown remediation sites, and the allocation of costs among potentially
responsible parties, estimated costs for future environmental compliance and
remediation are necessarily imprecise and it is not possible to fully predict
the amount or timing of future costs of environmental remediation requirements
which may subsequently be determined.
22
16
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,
investment grade corporate bonds, and U.S. government obligations.
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability of $7,922 at December 31, 1995 and $8,780 at December
31, 1994, 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 charge to equity of $388 in 1995 and a credit to
equity of $1,980 in 1994.
In connection with the negotiation of a concessionary labor contract at the
Company's Celina, Ohio bicycle manufacturing facility, future benefits were
suspended under one of the Company's defined benefit plans and a curtailment
charge of $3,226 was included in restructure costs. The suspended plan will be
replaced with participation in a multiemployer defined contribution plan.
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1995
and 1994:
1995 1995 1994 1994
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 $ 24,925 $ 38,466 19,846 $ 27,587
---------- ---------- ---------- ---------
Accumulated benefit obligation 26,688 42,954 21,302 32,612
---------- ---------- ---------- ---------
Projected benefit obligation for
service rendered to date 32,161 45,526 25,360 34,278
Plan assets at fair value 32,803 30,485 26,324 22,477
---------- ---------- ---------- ---------
Plan assets in excess of (less than)
projected benefit obligation 642 (15,041) 964 (11,801)
Unamortized transition asset (2,037) (557) (2,300) (597)
Unrecognized prior service cost (656) 3,595 (763) 6,044
Unrecognized net loss 3,704 7,378 3,331 4,941
Adjustment required to recognize
minimum liability -- (7,922) -- (8,780)
---------- ---------- ---------- ---------
Pension costs prepaid (accrued)
at year end $ 1,653 (12,547) $ 1,232 (10,193)
---------- ---------- ---------- ---------
23
17
Net pension cost included the following components:
1995 1994 1993
Service cost benefits earned during the period $ 2,506 $ 3,256 $ 1,994
Interest cost on projected benefit obligation 5,292 4,882 4,215
Actual return on plan assets (9,066) 629 (4,812)
Net amortization and deferral 4,907 (4,759) 592
----------- ---------- ---------
Net periodic pension cost $ 3,639 $ 4,008 $ 1,989
----------- ---------- ---------
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate 7.25% 8.5% 7.25%
Rate of return on assets 9.5% 9.5% 10.0%
Rate of increase in compensation 5.0% 5.0% 5.0%
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 $755, $920, and $834 in 1995, 1994, and 1993,
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.
For measurement purposes, in 1996, a 10.0% health care cost trend rate was
assumed for expenses of participants under age 65; this rate was assumed to
decrease gradually to 5.5% by the year 2002 and remain at that level
thereafter. In addition, for 1996 an 8.0% health care cost trend rate was
assumed for expenses of participants over age 65; this rate was assumed to
decrease gradually to 5.5% 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, 1995 by $1,849 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 by $240.
The following table presents the plans' funded status reconciled with
amounts recognized in the Company's Consolidated Balance Sheets at December 31,
1995 and 1994 and the net periodic postretirement benefit cost recorded in the
Company's 1995 and 1994 Consolidated Statements of Operations:
Health Care and Deferred
Life Insurance Compensation
Plans Plan Total
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees $ 5,290 $ 2,022 $ 7,312
Fully eligible active plan participants 1,081 1,601 2,682
Other active plan participants 6,927 -- 6,927
----------- ----------- ------------
13,298 3,623 16,921
(360) (345) (705)
UNRECOGNIZED NET LOSS ----------- ----------- ------------
Postretirement benefits other than pensions
accrued at year end $ 12,938 $ 3,278 $ 16,216
----------- ----------- ------------
NET PERIODIC POSTRETIREMENT BENEFIT COST:
Service cost $ 504 $ -- $ 504
Interest cost 979 262 1,241
Net amortization (3) -- (3)
----------- ----------- ------------
Net periodic postretirement benefit cost $ 1,480 $ 262 $ 1,742
----------- ----------- ------------
ACTUARIAL ASSUMPTIONS:
Weighted average discount rate used to
determine postretirement benefit obligation 7.25% 7.25%
Health care cost trend rate for expenses of
participants under age 65 10.75%
Health care cost trend rate for expenses of
participants over age 65 8.75%
24
18
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 used to determine
postretirement benefit obligation 8.50% 8.50%
Health care cost trend rate for expenses of
participants under age 65 12.00%
Health care cost trend rate for expenses of
participants over age 65 10.00%
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 $1,668 ($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 before cumulative effect of accounting change
consist of:
1995 1994 1993
Current tax
expense
(benefit):
Federal $ (4,399) $ 2,971 $ 9,458
State 498 1,150 1,598
Foreign 8 26 105
--------- --------- --------
(3,893) 4,147 11,161
Deferred tax
expense
(benefit) (689) 6,062 (10,406)
--------- --------- --------
Total tax
expense
(benefit) $ (4,582) $ 10,209 $ 755
========= ========= ========
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
1991.
The components of the net deferred tax asset as of December 31, 1995 and
1994 were as follows:
1995 1994
DEFERRED TAX ASSETS:
Allowance for
doubtful accounts $ 603 $ 592
Inventory
obsolescence reserve 795 911
Workers' compensation 1,585 1,567
Product liability 2,063 1,719
Deferred compensation 1,578 1,733
Accrued vacation 1,197 1,256
Restructuring reserves 284 791
Pension liability 2,866 1,724
Postretirement
benefits other
than pensions 5,679 5,413
Environmental reserves 902 1,268
Severance reserves 1,142 --
Other liabilities
and reserves 3,797 3,768
---------- ---------
Total deferred
tax assets 22,491 20,742
---------- ---------
DEFERRED TAX LIABILITIES:
Property, plant, and
equipment 2,416 1,972
Other assets 2,008 1,601
---------- ---------
Total deferred
tax liabilities 4,424 3,573
---------- ---------
Net deferred
tax asset $ 18,067 $ 17,169
========== =========
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.
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 change.
1995 1994 1993
Earnings (loss) before income taxes and $ (15,039) $ 27,636 $ (3,078)
cumulative effect of accounting change ----------- ------------ ---------
Tax provision computed at statutory rate
Increase (reduction) in taxes due to: $ (5,264) $ 9,673 $ (1,077)
Impact of foreign losses for which a current
tax benefit is not available
State income taxes (net of federal tax benefit)
Goodwill amortization 220 302 31
Foreign sales corporation 84 748 1,039
Insurance proceeds 270 270 1,615
Non-deductible meals and entertainment (202) (218) (67)
Reduction in liability due to favorable -- (670) --
IRS settlement 323 274 107
Change in statutory tax rate
Intangible asset write-down -- -- (900)
Miscellaneous -- -- (315)
-- -- 499
Actual tax provision (13) (170) (177)
----------- ------------ ---------
$ (4,582) $ 10,209 $ 755
----------- ------------ ---------
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(12) BUSINESS SEGMENTS
Huffy Corporation is a diversified manufacturer and supplier of bicycles,
basketball backboards, lawn and garden tools, juvenile products, and inventory,
assembly, and supplier services. Bicycles, basketball and juvenile products
are sold predominantly through national and regional high volume retailers in
the United States. Lawn and garden products are sold both directly and through
wholesale distributors to national and regional high volume retailers in the
United States. In-store assembly, repair, and display services are provided to
major retailers in fifty states, Puerto Rico, Canada and the Virgin Islands.
Merchandising services (product resets and periodic maintenance of displays)
are marketed to manufacturers who supply high volume retailers. Physical
inventory services are marketed on a nationwide basis to mass retailers, drug
stores, home centers, sporting goods stores, specialty stores, and grocery
stores.
As a result of the continued concentration of sales to high volume
retailers in the juvenile products industry, and the similarity and growing
importance of markets, marketing methods, and channels of distribution of all
of the Company's manufactured products, the Company has reclassified its
operations into the following business segments:
o CONSUMER PRODUCTS --juvenile products, bicycles, basketball backboards and
related products, and lawn and garden tools.
o SERVICES FOR RETAIL -- in-store assembly, repair, and display services as
well as inventory counting services.
A summary of the Company's 1995, 1994, and 1993 operations by business
segment is as follows:
Earnings (Loss)
Before Income
Taxes and
Cumulative Effect Depreciation
of Accounting Identifiable and Capital
Sales Change Assets Amortization Expenditures
1995
Consumer Products $ 541,630 $ (6,945)(1) $ 239,623 $ 18,125 $ 20,282
Services for Retail 143,587 4,819 37,060 3,766 3,997
Eliminations (465) (7,996)
Interest expense 90
Interest income (5,007)(1) 21,863 528 86
General corporate
------------- ----------- -------------- ------------ -----------
$ 684,752 $ (15,039) $ 298,546 $ 22,419 $ 24,365
------------- ----------- -------------- ------------ -----------
1994
Consumer Products $ 581,251 $ 29,314 $ 262,157 $ 15,830 $ 31,933
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
Consumer Products $ 637,913 $ 3,316(2) $ 256,592 $ 16,151 $ 17,754
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
------------- ----------- -------------- ------------ -----------
<FN>
(1) Includes a net restructure charge of $4,663 in the Consumer Products
segment related to personnel reductions and the related negotiation of a
concessionary labor contract and $715 in general corporate expenses related to
personnel reductions.
(2) Includes a $28,755 provision to restructure the Company's lawn and garden
tools business, 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.
In 1995, two customers individually accounted for 13% and 12% of total
consolidated net sales. In 1994 , three customers individually accounted for
12%, 13%, and 10% of total consolidated net sales. In 1993, two customers
individually accounted for 13% and 13% of total consolidated net sales.
26
20
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1995 and 1994 are as follows:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total(1)
1995
Net sales $ 200,653 $ 200,401 $ 148,894 $ 134,804 $ 684,752
Gross profit 36,426 29,856 17,402 12,365 96,049
Net earnings (loss)(2) 4,415 349 (4,491) (10,730) (10,457)
EARNINGS (LOSS) PER
COMMON SHARE $ .33 $ .03 $ (.33) $ (.80) $ (.78)
--------- ---------- --------- ----------- ----------
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(3) 4,845 7,961 2,602 2,019 17,427
EARNINGS PER COMMON SHARE $ .33 $ .53 $ .18 $ .14 $ 1.20
--------- ---------- --------- ----------- ----------
<FN>
(1) Quarterly per share amounts are computed independently for each quarter and the full year based upon the
respective weighted average number of common shares outstanding and may not equal the total for the year.
(2) Net earnings (loss) includes a restructure charge of $2,115 in the second quarter, a restructure credit of $275 in the
third quarter, and a net restructure charge of $3,538 in the fourth quarter.
(3) Net earnings include a fourth quarter credit to the restructure provision of $934.
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, 1995 and 1994 were as follows:
YEAR ENDED DECEMBER 31,1995
Common Stock Dividends
Price Range Declared
Quarter High Low
First $ 15-7/8 $ 15 $ .085
Second 15-3/8 12-1/2 .085
Third 13-1/4 11-1/8 .085
Fourth 11-5/8 10 .085
-------
Total $ .340
--------
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
--------
As of December 31, 1995 there were 13,437,969 shares of Huffy Corporation
Common Stock outstanding and there were 3,688 shareholders of record.
Management estimates an additional 8,000 shareholders hold their stock in
nominee name. Trading volume of the Company's Common Stock during the twelve
months ended December 31, 1995 totaled 7,238,800 shares. The average number of
common shares outstanding during this period was approximately 13,424,000
shares.
27
21
SHAREHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR FOR
ANNUAL MEETING COMMON STOCK
The annual Meeting of Shareholders Society National Bank
will be held April 26, 1996 at KeyCorp Shareholder Services, Inc.
10:00 a.m., Eastern Daylight Time, P.O. Box 6477
at the Huffy Service First, Inc. Cleveland, Ohio 44101
facility, 8521 Gander Creek (800) 542-7792
Drive, Miamisburg, Ohio. Share-
holders are cordially invited to DIVIDENDS
attend. Dividends are payable quarterly
as declared by the Board of
STOCK EXCHANGE Directors. Huffy has paid a
New York Stock Exchange, Symbol HUF dividend on its Common Stock
each year since becoming publicly
PRIMARY BUSINESS LOCATIONS traded on November 15, 1966.
Huffy Corporation
225 Byers Road DIVIDEND REINVESTMENT
Miamisburg, Ohio 45342 A dividend reinvestment program
(513) 866-6251 is available to holders of Huffy
Corporation Common Stock. Share-
Huffy Bicycle Company holders interested in partici-
410 Grand Lake Road pating should contact either the
Celina, Ohio 45822 transfer agent or Huffy Corpora-
(419) 586-5171 tion, P.O. Box 1204, Dayton,
Ohio 45401, Attention: Vice
Gerry Baby Products Company President-Treasurer.
1500 East 128th Avenue
Thornton, Colorado 80241 AUDITORS
(303) 457-0926 KPMG Peat Marwick LLP
True Temper Hardware Company FORM 10-K
465 Railroad Avenue Shareholders interested in obtain-
Camp Hill, Pennsylvania 17001 ing Huffy Corporation's Annual
(717) 737-1500 Report or Form 10-K filed with
the Securities and Exchange
Huffy Sports Company Commission may obtain a copy by
2021 MacArthur Road writing Huffy Corporation, P.O.
Waukesha, Wisconsin 53188 Box 1204, Dayton, Ohio 45401,
(414)548-0440 Attention: Vice President-
Treasurer.
Washington Inventory Service
9265 Sky Park Court, Ste. 100
San Diego, California 92123 SHAREHOLDER COMMUNICATIONS
(619) 565-8111 Communications concerning lost
certificates, transfer require-
Huffy Service First, Inc. ments, address changes, and
8521 Gander Creek Drive Common Stock dividend checks
Miamisburg, Ohio 45342 should be sent to Society National
(513) 438-3664 Bank, KeyCorp Shareholder Ser-
vices, Inc., P.O. Box 6477,
ADDITIONAL OPERATING LOCATIONS Cleveland, Ohio 44101, (800)
- -- Cork, Ireland 542-7792.
- -- Farmington, Missouri
- -- Harrisburg, Pennsylvania The Management of Huffy Corporation
- -- North Vernon, Indiana welcomes comments and suggestions
- -- Pine Valley, New York from shareholders and investors.
- -- Suring, Wisconsin Call the Vice President -
- -- Union City, Pennsylvania Treasurer, (513) 866-6251.
- -- Wallingford, Vermont
29