<PAGE> 1
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 September 30, 1997
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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 01-5325
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Huffy Corporation
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(Exact name of registrant as specified in its charter)
Ohio 31-0326270
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Byers Road, Miamisburg, Ohio 45342
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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
--- ---
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
--- ---
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: 12,758,798 as of November 7, 1997
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"Index of Exhibits" is page 9 herein Page 1 of 10
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED). COMPANY FOR WHICH REPORT IS FILED:
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 149,996 $ 120,822 $ 535,024 $ 439,208
Cost of sales 126,531 101,164 446,680 360,188
------------ ------------ ------------ ------------
Gross profit 23,465 19,658 88,344 79,020
Selling, general and
administrative expenses 22,002 18,338 68,422 63,902
------------ ------------ ------------ ------------
Operating income 1,463 1,320 19,922 15,118
Other expense (income)
Interest expense 1,251 1,577 4,367 5,344
Interest income (97) (29) (173) (67)
Other (55) 164 1,337 18
------------ ------------ ------------ ------------
Earnings (loss) before
income taxes 364 (392) 14,391 9,823
Income tax expense (benefit) (633) (597) 4,220 3,096
------------ ------------ ------------ ------------
Earnings from continuing
operations 997 205 10,171 6,727
Discontinued operations:
Earnings (loss) from
discontinued operations, net
of income tax expense
(benefit) of $-0-, $(200),
$(458) and $231 - (463) (813) 533
Gain on disposal of
discontinued operations, net
of income tax expense of
$4,490 18 - 559 -
------------ ------------ ------------ ------------
Net earnings (loss) $ 1,015 $ (258) $ 9,917 $ 7,260
============ ============ ============ ============
Earnings per common share:
Weighted average
number of common shares 12,732,449 13,445,681 12,982,122 13,473,532
============ ============ ============ ============
Earnings from continuing
operations $ 0.08 $ 0.02 $ 0.78 $ 0.50
Earnings (loss) from
discontinued operations - ($ 0.04) ($ 0.02) $ 0.04
------------ ------------ ------------ ------------
Net earnings (loss) per $ 0.08 ($ 0.02) $ 0.76 $ 0.54
common share
============ ============ ============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 2 of 10
<PAGE> 3
HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,456 $ 2,048
Accounts and notes receivable, net 94,546 81,175
Inventories 74,129 54,233
Prepaid expenses and federal income taxes 18,558 14,393
Net assets of discontinued operations - 50,776
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Total current assets 204,689 202,625
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Property, plant and equipment, at cost 202,879 193,736
Less: accumulated depreciation and amortization 125,043 114,846
--------- ---------
Net property, plant and equipment 77,836 78,890
Excess of cost over net assets acquired, net 13,234 13,556
Deferred federal income taxes 8,810 8,085
Other assets 4,997 5,111
--------- ---------
$ 309,566 $ 308,267
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - 38,910
Current installments of long-term obligations 7,593 7,593
Accounts payable 61,082 24,917
Accrued expenses and other current liabilities 51,833 42,107
--------- ---------
Total current liabilities 120,508 113,527
--------- ---------
Long-term obligations, less current installments 39,586 43,897
Other long-term liabilities 35,870 34,871
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Total liabilities 195,964 192,295
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Shareholders' equity:
Preferred stock - -
Common stock 16,459 16,411
Additional paid-in capital 63,536 62,488
Retained earnings 82,959 76,845
Less: cost of treasury shares (49,352) (39,772)
--------- ---------
Total shareholders' equity 113,602 115,972
--------- ---------
$ 309,566 $ 308,267
========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 3 of 10
<PAGE> 4
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from continuing operations $ 10,171 $ 6,727
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 13,716 14,305
Loss on sale of property, plant and equipment 270 -
Deferred federal income tax expense (4,038) -
Changes in assets and liabilities:
Accounts and notes receivable, net (13,371) (9,927)
Inventories (19,896) (12,899)
Prepaid expenses and federal income taxes (852) (406)
Other assets (156) 272
Accounts payable 36,165 8,257
Accrued expenses and other current liabilities 9,726 4,819
Other long-term liabilities 999 2,642
Other (451) (5)
-------- --------
Net cash provided by continuing operating activities 32,283 13,785
Discontinued operations:
Gain on disposal of discontinued operations 559 -
Earnings (loss) from discontinued operations (813) 533
Items not affecting cash, net 1,516 3,507
Cash provided by (used in) discontinued operations 49,260 (12,320)
-------- --------
Net cash provided by (used in) discontinued operating
activities 50,522 (8,280)
Net cash provided by operating activities 82,805 5,505
======================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,409) (9,596)
Proceeds from sale of property, plant and equipment 69 16
-------- --------
Net cash used in investing activities (12,340) (9,580)
======================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (38,910) 11,780
Reduction of long-term debt (4,311) (4,407)
Issuance of common shares 1,096 719
Purchase of treasury shares (9,580) (1,741)
Dividends paid (3,352) (3,438)
-------- --------
Net cash provided by (used in) financing activities (55,057) 2,913
======================================================================================================
Net change in cash and cash equivalents
Cash and cash equivalents: 15,408 (1,162)
Beginning of the year 2,048 2,497
-------- --------
End of the nine month period 17,456 1,335
======================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 4 of 10
<PAGE> 5
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, 1996 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
September 30, 1997. All such adjustments are of a normal recurring
nature.
Note 2: Inventories of Huffy Bicycle Company and Huffy Sports Company are
valued using the dollar value LIFO method and, as a result, it is
impractical to separate inventory values between raw materials,
work-in-process and finished products on an interim basis.
Note 3: On April 21, 1997, Huffy Corporation sold the assets of its
Denver-based juvenile products business, Gerry Baby Products Company,
for $73 million to Evenflo Company, Inc. The results for Gerry Baby
Products Company have been classified as discontinued operations for
all periods presented in the Consolidated Statements of Earnings and
Consolidated Statements of Cash Flow. The assets and liabilities of
discontinued operations at December 31, 1996 have been classified in
the Consolidated Balance Sheets as "Net assets of discontinued
operations."
Summarized balance sheet data for discontinued operations is as
follows:
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands) December 31,
1996
-------
<S> <C>
Current assets $34,301
Property, plant & equipment, net 10,869
Other assets 13,364
-------
Total assets $58,534
Current liabilities 7,758
-------
Net assets $50,776
=======
</TABLE>
Page 5 of 10
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
-------------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(Dollar Amounts in Thousands, Except Per Share Data)
NET EARNINGS (LOSS)
- -------------------
Huffy Corporation ("Huffy" or "Company") had net earnings from continuing
operations of $997, or $0.08 per common share for the quarter ended September
30, 1997, compared to $205, or $0.02 per common share for the same period last
year. The improvement in net earnings is primarily due to increased volume. The
third quarter 1997 results were not impacted by the Company's juvenile products
business which was sold to Evenflo Company, Inc. in April, 1997. In the third
quarter of 1996, the juvenile products business reported net sales of $30,741
and a net loss of $463, or $0.04 per common share.
Net earnings from continuing operations for the nine months ended September 30,
1997 were $10,171, or $0.78 per common share compared to $6,727, or $0.50 per
common share for the same period last year. Improved volume and administrative
cost controls led to increased profitability in both segments. The net earnings
from continuing operations exclude operating results and gain from the sale of
the juvenile products business. The juvenile products business had net sales of
$37,180 and a net loss of $813, or $0.06 per common share compared to net sales
of $98,443 and net earnings of $533, or $0.04 per common share for the first
nine months of 1996. The gain on the sale of the juvenile products business was
$559, or $0.04 per common share.
NET SALES
- ---------
Net sales from continuing operations for the quarter ended September 30, 1997
were $149,996, up from $120,822 for the same quarter in 1996. Net sales for the
nine months ended September 30, 1997 were $535,024, a 22% increase from net
sales of $439,208 for the same period last year. During the third quarter and
for the nine months, net sales in the Consumer Products segment increased due to
strong demand and market share gains for bicycles and basketball backboard
systems, combined with increased market penetration and new customer
distribution in the
Page 6 of 10
<PAGE> 7
wheelbarrow portion of the lawn and garden business. In the Services for Retail
segment, net sales increased primarily due to increased market penetration in
the inventory service and product assembly and supplier services business.
GROSS PROFIT
- ------------
Gross profit for the quarter ended September 30, 1997 was $23,465, up from the
$19,658 achieved in the third quarter of 1996. Expressed as a percentage of net
sales, gross profit for the third quarter of 1997 was 15.6% compared to 16.3%
for the third quarter of 1996. The increase in gross profit dollars in the
Consumer Products segment and the Services for Retail segment was due to
significant sales increases. The gross profit as a percentage of sales was
negatively impacted in the Consumer Products segment by an increased mix of
promotionally priced products. In the Services for Retail segment, gross profit
as a percentage of sales rose slightly due to increased volume of the in-store
assembly and supplier services businesses.
Gross profit for the nine months ended September 30, 1997 was $88,344, or 16.5%
of net sales, versus $79,020, or 18.0% of net sales for the same period in 1996.
Volume increases in both the Consumer Products and Services for Retail segments
contributed to the increased gross profit dollars in the first nine months of
1997. This increase was primarily volume driven in both segments. Gross profit
expressed as a percent of net sales declined versus the prior year in the
Consumer Products segment due to continued intense competition and customer
demand for a less favorable mix of products, while the Services for Retail
segment was unfavorably impacted by a shift in the mix of product services
provided.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses were $22,002 for the third quarter
of 1997, compared to $18,338 for the same period in 1996. For the nine months
ended September 30, 1997, selling, general and administrative expenses were
$68,422 versus $63,902 for the same period in 1996. The increase in selling,
general and administrative expenses for the quarter and nine months is primarily
due to volume related commissions and customer service costs.
SALE OF JUVENILE PRODUCTS BUSINESS
- ----------------------------------
On April 21, 1997, the Company sold the assets of its juvenile products
business, Gerry Baby Products Company to Evenflo Company, Inc., for $73 million.
Page 7 of
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
There have been no other significant changes in the Company's liquidity and
capital resources as of September 30, 1997 from those discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. The Company's
balance sheet reflects fluctuations in both current assets and current
liabilities attributable to seasonal changes in the operations of its
businesses.
INTEREST EXPENSE
- ----------------
Interest expense for the third quarter of 1997 was $1,251 or $326 lower than
interest expense for the same quarter of 1996. Interest expense for the nine
months ended September 30, 1997 was $4,367 versus $5,344 for the same period of
1996. The decrease in interest expense is the result of the scheduled reductions
in long-term debt, and reduced levels of short-term borrowings made possible by
the Gerry Baby Products Company sale.
ENVIRONMENTAL
- -------------
As disclosed in the Company's Annual Report to Shareholders for the year ended
December 31, 1996, 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 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 PRPs and governmental agencies and information
regarding the financial viability of other PRPs. On May 15, 1997, the Company,
along with other PRPs, received special notice letters from the EPA requesting a
good faith offer of remediation for the Superfund. Such response is currently
due on February 15, 1998. 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.
Page 8 of 10
<PAGE> 9
PART II -- OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits - The Exhibits, as shown in the "Index of Exhibits",
attached hereto as page 10, are filed as a part of this Report.
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
November 11, 1997 /s/ Timothy G. Howard
- ---------------------------- -------------------------------------
Date Timothy G. Howard
Vice President - Corporate Controller
(Principal Accounting Officer)
Page 9 of 10
<PAGE> 10
INDEX OF EXHIBITS
Exhibit
No. Item
- ------------- -----------------------------------
(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
(27) Financial Data Schedule
(99) Not applicable
Page 10 of 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,456
<SECURITIES> 0
<RECEIVABLES> 97,273
<ALLOWANCES> (2,727)
<INVENTORY> 74,129
<CURRENT-ASSETS> 204,689
<PP&E> 202,879
<DEPRECIATION> 125,043
<TOTAL-ASSETS> 309,566
<CURRENT-LIABILITIES> 120,508
<BONDS> 39,586
0
0
<COMMON> 16,459
<OTHER-SE> 97,143
<TOTAL-LIABILITY-AND-EQUITY> 309,566
<SALES> 535,024
<TOTAL-REVENUES> 535,024
<CGS> 446,680
<TOTAL-COSTS> 515,102
<OTHER-EXPENSES> 1,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,367
<INCOME-PRETAX> 14,391
<INCOME-TAX> 4,220
<INCOME-CONTINUING> 10,171
<DISCONTINUED> (254)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,917
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
