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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5325
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Huffy Corporation
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(Exact name of registrant as specified in its charter)
Ohio 31-0326270
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Byers Road, Miamisburg, Ohio 45342
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(Address of principal executive offices) (Zip Code)
(937) 866-6251
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding Shares: 10,237,135 as of April 27, 2001
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS COMPANY FOR WHICH REPORT IS FILED:
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar Amounts in Thousands, Except Per Share Data)
(unaudited)
Three Months
Ended March 31,
-----------------------------------
2001 2000
-----------------------------------
Net sales $ 81,243 $ 100,068
Cost of sales 69,608 85,306
------------ ------------
Gross profit 11,635 14,762
Selling, general and administrative expenses 10,043 12,895
Plant closure and manufacturing reconfiguration -- 1,718
------------ ------------
Operating income 1,592 149
Other expense (income)
Interest expense 568 1,941
Interest income (162) 28
Other (417) (12)
------------ ------------
Earnings (loss) before income taxes 1,603 (1,808)
Income tax expense (benefit) 609 (687)
------------ ------------
Earnings (loss) from continuing operations 994 (1,121)
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Discontinued operations:
Earnings from discontinued operations, net of income tax expense of $508 -- 829
Extraordinary gain (loss) from early extinguishment of debt,
net of income tax benefit of $519 -- (848)
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Net earnings (loss) $ 994 $ (1,140)
============ ============
Earnings per common share:
Basic:
Weighted average number of common shares 10,231,558 10,164,583
============ ============
Earnings (loss) from continuing operations $ 0.10 $ (0.11)
Earnings from discontinued operations -- 0.08
Extraordinary gain from early extinguishment of debt -- (0.08)
------------ ------------
Net earnings (loss) per common share $ 0.10 $ (0.11)
============ ============
Diluted:
Weighted average number of common shares 10,368,848 10,164,583
============ ============
Earnings (loss) from continuing operations $ 0.10 $ (0.11)
Earnings from discontinued operations -- 0.08
Extraordinary gain from early extinguishment of debt -- (0.08)
------------ ------------
Net earnings (loss) per common share $ 0.10 $ (0.19)
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HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
March 31, December 31,
2001 2000
(Unaudited)
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ASSETS
Current assets:
Cash and cash equivalents $ 19,679 $ 4,334
Accounts and notes receivable, net 53,716 79,811
Inventories 41,278 43,324
Prepaid expenses and federal income taxes 29,124 28,344
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Total current assets 143,797 155,813
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Property, plant and equipment, at cost 43,772 43,421
Less: Accumulated depreciation and amortization 31,864 30,741
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Net property, plant and equipment 11,908 12,680
Excess of cost over net assets acquired, net 8,583 8,764
Other assets 3,317 3,236
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$ 167,605 $ 180,493
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 17,656
Current portion of long-term obligations -- --
Accounts payable 37,858 28,015
Accrued expenses and other current liabilities 38,776 43,999
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Total current liabilities 76,634 89,670
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Long-term obligations less current portion -- --
Other long-term liabilities 16,830 17,692
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Total liabilities 93,464 107,362
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Shareholders' equity:
Common stock 16,706 16,704
Additional paid-in capital 66,218 66,204
Retained earnings 84,551 83,557
Accumulative comprehensive income (2,676) (2,676)
Less: cost of treasury shares 90,658 90,658
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Total shareholders' equity 74,141 73,131
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$ 167,605 $ 180,493
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HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
Three Months Ended
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March 31, 2001 April 1, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations $ 994 $ (1,121)
Adjustments to reconcile net earnings (loss) to net cash used
in operating activities:
Depreciation and amortization 1,306 1,292
Extraordinary charge for early extinguishment of debt -- (848)
Deferred federal income tax expense (benefit) -- --
Changes in assets and liabilities:
Accounts and notes receivable, net 26,095 (22,346)
Inventories 2,046 (3,454)
Prepaid expenses and federal income taxes (780) (1,148)
Other assets (81) (1,742)
Accounts payable 9,843 4,846
Accrued expenses and other current liabilities (5,333) (3,276)
Other long-term liabilities (752) (171)
Other -- --
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Net cash provided by (used in) continuing operating
activities 33,338 (27,968)
Discontinued operations:
Earnings from discontinued operations -- 829
Non-cash items from discontinued operation -- 1,017
Cash used in discontinued operations -- (10,013)
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Net cash used in discontinued operating activities -- (8,167)
Net cash provided by (used in) operating activities 33,338 (36,135)
================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (353) (381)
Acquisition of businesses -- --
Proceeds from sale of property, plant and equipment -- --
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Net cash provided by (used in) investing activities (353) (381)
================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (17,656) 23,024
Reduction of long-term debt -- (57,404)
Issuance of long-term debt -- 50,704
Issuance of common shares 16 2
Issuance (purchase) of treasury shares -- --
Dividends paid -- --
-------- --------
Net cash provided by (used in) financing activities (17,640) 16,326
================================================================================================================
Net change in cash and cash equivalents 15,345 (20,190)
Cash and cash equivalents:
Beginning of the year 4,334 20,190
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End of the year $ 19,679 $ --
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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands)
Note 1: Footnote disclosure, which would substantially duplicate the
disclosure contained in the Annual Report to Shareholders for the year
ended December 31, 2000, has not been included. The unaudited interim
consolidated financial statements reflect all adjustments, which, in
the opinion of management, are necessary to a fair statement of the
results for the periods presented and to present fairly the
consolidated financial position of Huffy Corporation as of March 31,
2001. All such adjustments are of a normal recurring nature.
Note 3: Inventories of Huffy Bicycle Company and Huffy Sports Company are at
cost (not in excess of market) determined by the FIFO method. The
components of inventories are as follows:
March 31, 2001 December 31, 2000
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Finished Goods $ 36,247 $ 39,284
Work-in-Progress 147 147
Raw Materials & Supplies 4,884 3,893
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$ 41,278 $ 43,324
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Note 4: During the fourth quarter of 1999, the Company closed its remaining
domestic bicycle manufacturing facilities in Farmington, Missouri and
Southaven, Mississippi and reconfigured its bicycle operations. During
the first quarter of 2000, the Company increased imports from a global
network of sourcing partners to offset this loss of production
capacity. Closing the plants eliminated the costs required to operate
the facilities and completed Huffy Bicycle Company's transformation
from a single brand manufacturer and marketer of bicycles, to a
multi-brand design, marketing and distribution company. During the
first quarter of 2000, reconfiguration charges included severance and
related benefits ($633); and facility shutdown costs and related gains
($1,085).
Note 5. The Company classifies its operations into a single integrated
business segment.
Note 6: The Company adopted SFAS 133 as of January 1, 2001, which did not
have a material impact on the Company's financial position or results
of operations. The Company does not actively use derivative financial
instruments of any significance.
Note 7: The components of comprehensive income are immaterial and are
therefore not disclosed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
COMPARED TO THE
THREE MONTHS ENDED APRIL 1, 2000
(Dollar Amounts in Thousands, Except Per Share Data)
NET EARNINGS
For the first quarter of 2001, Huffy Corporation ("Huffy" or "Company") had net
earnings from continuing operations of $994, or $.10 per common share versus a
loss of $1,121 or $0.11 for the same period last year. Earnings for the first
quarter of 2000 include a pretax charge of $1,718, or approximately $0.11 per
common share for the reconfiguration of the bicycle business and a pretax charge
of $854, or approximately $0.05 per common share for refinancing expenses. The
first quarter 2000 net earnings from discontinued operations were $829, or $0.08
per common share while the extraordinary loss related to early debt
extinguishment was $848, or $0.08 per common share.
NET SALES
Consolidated net sales for the quarter ended March 31, 2001 were $81,243, a
decrease of 18.8% over sales of $100,068 for the same quarter in 2000. This
sales decrease was the result of a weakened economy and significant inventory
reduction programs at the retail level. In addition, continued softness in the
sporting goods industry negatively impacted sales of the company's basketball
business.
GROSS PROFIT
Gross profit for the quarter ended March 31, 2001 was $11,635, or 14.3% of net
sales compared to $14,762, or 14.8% of net sales for the quarter ended April 1,
2000. Strong cost reduction and cost containment programs throughout all Huffy
companies and improved field efficiency in the assembly service business were
offset by unfavorable product mix shifts toward opening price point bicycles at
Huffy Bicycle Company and volume-driven margin declines at Huffy Sports Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $10,043 for the first quarter
of 2001, compared to $12,895 for the same period in 2000. As a percent of net
sales, selling, general and administrative expenses (SG&A) for the quarter ended
March 31, 2001 were 0.5 percentage points lower than the same period in the
prior year, 12.4% versus 12.9%, respectively. Steps taken in 2000 to align
expenses with the reconfigured structure at Huffy Bicycle Company and the
corporate offices resulted in the lower operating cost base.
NET INTEREST EXPENSE
Interest costs for the first quarter of 2001 dropped to $406 from $1,969 for the
same period last year. Proceeds from the sale of Washington Inventory Service,
in the fourth quarter of 2000, were used to significantly reduce debt levels.
During the first quarter of 2001, cash flow from operations were sufficient to
repay all outstanding debt, and to finish the quarter with a positive cash
balance of $19,679. In addition, the amended loan facility, put in place in
January 2001, reduced incremental borrowing rates.
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SALE OF WASHINGTON INVENTORY SERVICE
On November 3, 2000, the Company sold its Washington Inventory Service
subsidiary to WIS Acquisition Corp., a subsidiary of WIS Holdings Corp.,
pursuant to a previously announced Agreement and Plan of Reorganization dated
September 20, 2000, for $84,750 cash, subject to certain post-closing
adjustments. The results for Washington Inventory Service have been classified
as discontinued operations in the Consolidated Statement of Earnings. The
Company applied the proceeds from the sale, net of expenses, to repayment of all
of its senior notes and senior subordinated notes and a portion of its revolving
credit facility.
LIQUIDITY AND CAPITAL RESOURCES
On January 31, 2001, the Company entered into an Amended and Restated Loan and
Security Agreement. The $75 million revolving credit facility is secured by all
assets of the Company and its affiliates and will expire on December 31, 2002,
with a 12-month renewal option.
As of March 31, 2001, the Company had $63,860 available on its revolving credit
facility and had no outstanding balance. The Company expects existing cash, cash
flow from operations, and its revolving credit facility will be sufficient to
finance seasonal working capital needs and capital expenditures in the coming
year.
ENVIRONMENTAL
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 possible 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 PRPs, the Main San
Gabriel Basin Watermaster, 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 PRPs and
governmental agencies and information regarding the financial viability of other
PRPs. Based upon information currently available, the Company believes it is
unlikely that it will incur substantial previously unanticipated costs as a
result of failure by other PRPs to satisfy their responsibilities for
remediation costs.
The Company has recorded environmental accruals, based upon the information
available, that are adequate to satisfy known remediation requirements. The
total accrual for estimated environmental remediation costs related to the
Superfund site and other potential environmental liabilities was approximately
$8,050 at March 31, 2001. This accrual has not been discounted, and management
expects that the majority of expenditures relating to costs currently accrued
will be made over the next year. As a result of factors such as the continuing
evolution of environmental laws and regulatory requirements, the availability
and application of
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technology, the identification of presently unknown remediation sites, and the
allocation of costs among potentially responsible parties, estimated costs for
future environmental compliance and remediation are necessarily imprecise and it
is not possible to fully predict the amount or timing of future environmental
remediation costs which may subsequently be determined.
Based upon information presently available, such future costs are not expected
to have a material adverse effect on the Company's financial condition,
liquidity, or its ongoing results of operations. However, such costs could be
material to results of operations in a future period.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company along with numerous California water companies and other potentially
responsible parties ("PRPs") for the Baldwin Park Operable Unit of the San
Gabriel Valley Superfund (see Note 10 to the Company's financial statements in
Exhibit 13 of the Company's report on form 10K, dated March 6, 2001) have been
named in twelve civil lawsuits which allege claims related to the contaminated
groundwater in the Azusa, California area (collectively, the "San Gabriel
Cases").
As of January 2001, the cases have been stayed for a variety of reasons,
including a number of demurrers and writs taken in the Appellate Division,
relating primarily to the California Public Utilities Commission ("PUC")
investigation described below. The resulting Appellate Division decisions are
currently under review by the California Supreme Court, and thus a stay is still
technically in place over all of the aforementioned cases. The court had also
ordered that a stay of certain of the cases would remain in place until such
time as a coordination judge was formally assigned to those cases. The
Coordination Judge assignment took place in January 2001, and thus, the explicit
stay was lifted. However, the cases remain inactive as the California Supreme
Court continues its consideration of the demurrers and writs.
On March 12, 1998, the PUC commenced an investigation in response to the
allegations in the toxic tort actions that "drinking water delivered by the
water utilities caused death and personal injury to customers." The PUC's
inquiry addressed two broad issues central to these allegations: 1) "whether
current water quality regulation adequately protects the public health;" and 2)
"whether respondent utilities are (and for the past 25 years have been)
complying with existing drinking water regulation." On November 2, 2000, the PUC
issued its Final Opinion and Order Resolving Substantive Water Quality Issues.
Significantly, the Order finds, in pertinent part, that: 1) "existing maximum
contaminant level ("MCLs") and action level ("ALs") established by the DHS are
adequate to protect the public health;" 2) "there is a significant margin of
safety when MCLs are calculated so that the detection of carcinogenic
contaminants above MCLs that were reported in this investigation are unlikely to
pose a health risk;" 3) based upon its comprehensive review of 25 years of
utility compliance records, that for all periods when MCLs and ALs for specific
chemicals were in effect, the PUC regulated water companies complied with DHS
testing requirements and advisories, and the water served by the water utilities
was not harmful or dangerous to health; and 4) with regard to the period before
the adoption by DHS of MCLs and ALs, a further limited investigation by the PUC
Water Division will be conducted.
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The toxic tort cases are in their initial stages. Thus, it is impossible to
currently predict the outcome of any of the actions. Based upon information
presently available, such future costs are not expected to have a material
adverse effect on the Company's financial condition, liquidity, or its ongoing
results of operations. However, such costs could be material to results of
operations in a future period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held April 26, 2001. At
such meeting, the Shareholders of the Company elected as Directors Don R.
Graber, Linda B. Keene and Thomas C. Sullivan, each for a three-year term
expiring in 2004. Shares were voted as follows: FOR: Don R. Graber (9,215,779),
Linda B. Keene (9,214,951), and Thomas C. Sullivan (9,069,350); WITHHELD
(including broker non-votes): Don R. Graber (159,594), Linda B. Keene (160,422),
and Thomas C. Sullivan (306,023).
In addition, the Shareholders also ratified the appointment of KPMG LLP as the
Company's independent public accountants for calendar year 2001. In accordance
with such ratification, 9,230,687 shares were voted for ratification, 122,946
shares cast against, and 21,740 shares cast to abstain (including broker
non-votes).
The Shareholders voted to approve an amendment to the 1998 Key Employee Stock
Plan, the 1998 Director Stock Option Plan and the 1998 Restricted Share Plan
increasing the number of shares available for the grant options thereunder.
Shares were voted as follows: For approval: 7,384,435; Against approval:
1,923,470; and Abstain 67,468.
The Shareholders also voted on one shareholder proposal. The Shareholders voted
against the shareholder proposal which requested the Company to adopt a policy
of confidential voting at all meetings of the shareholders. Shares were voted as
follows: For the proposal: 2,509,094; Against the proposal: 3,300,318; Abstain
114,538; and Non-Vote: 3,451,423.
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - No Exhibits, as shown in the "Index of Exhibits", attached
hereto as page 12, are applicable to be filed as a part of this Report.
b. The Company filed two reports on Form 8-K, dated January 17, 2001, and
January 18, 2001, with the Securities and Exchange Commission regarding
the Chief Executive Officer's speech to the Cleveland Society Security
Analysts on January 17, 2001.
Please see the Company's meaningful cautionary statements regarding forward
looking statements contained in the Company's report on Form 10-K filed with the
Securities and Exchange Commission on March 6, 2001 which is hereby incorporated
herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUFFY CORPORATION, Registrant
April 27, 2001 /s/ Timothy G. Howard
--------------------------------- --------------------------------------
Date Timothy G. Howard
Vice President - Corporate Controller
(Principal Accounting Officer)
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INDEX OF EXHIBITS
Exhibit
No. Item
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(2) Not applicable
(3) Not applicable
(4) Not applicable
(10) Not applicable
(11) Not applicable
(15) Not applicable
(18) Not applicable
(19) Not applicable
(22) Not applicable
(23) Not applicable
(24) Not applicable
(99) Not applicable
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