<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 June 30,1998
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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
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Byers Road, Miamisburg, Ohio 45342-0761
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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: 12,191,303 as of August 10, 1998
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"Index of Exhibits" is page 10 herein Page 1 of 10
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<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 Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $220,310 $213,101 $402,615 $385,028
Cost of sales 175,789 175,644 325,627 320,149
-------- -------- -------- --------
Gross profit 44,521 37,457 76,988 64,879
Selling, general and
administrative expenses 29,418 26,441 53,573 46,420
Plant closure and manufacturing
reconfiguration 12,639 -- 12,639 --
-------- -------- -------- --------
Operating income 2,464 11,016 10,776 18,459
Other expense (income)
Interest expense 2,381 1,024 4,423 3,116
Interest income (31) (58) (84) (76)
Other 255 590 444 1,392
-------- -------- -------- --------
Earnings before income taxes (141) 9,460 5,993 14,027
Income tax expense (benefit) (115) 3,230 2,233 4,853
-------- -------- -------- --------
Earnings (loss) from continuing
operations (26) 6,230 3,760 9,174
Discontinued operations:
Loss from discontinued
operations, net of income tax benefit
of $0, $(707), $0 and $(458) -- (1,275) -- (813)
Gain on disposal of
discontinued operations, net of income
tax expense of $4,481 -- 541 -- 541
-------- -------- -------- --------
Net earnings (loss) $ (26) $ 5,496 $ 3,760 $ 8,902
Earnings per common share:
Basic:
Weighted average
number of common shares 12,251,566 12,784,914 12,389,646 13,043,088
========== ========== ========== ==========
Earnings from continuing operations $0.00 $ 0.49 $0.30 $ 0.70
Loss from discontinued operations -- $(0.06) -- $(0.02)
----- ------ ----- ------
Net earnings per common share $0.00 $ 0.43 $0.30 $ 0.68
===== ====== ===== ======
Diluted:
Weighted average
number of common shares 12,426,543 12,924,045 12,564,623 13,182,218
========== ========== ========== ==========
Earnings from continuing operations $0.00 $ 0.49 $0.30 $ 0.70
Loss from discontinued operations -- $(0.06) -- $(0.02)
----- ------ ----- ------
Net earnings per common share $0.00 $ 0.43 $0.00 $ 0.68
===== ====== ===== ======
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 2 of 10
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<PAGE> 3
HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,443 $ 2,142
Accounts and notes receivable, net 136,476 109,957
Inventories 95,472 81,692
Prepaid expenses and federal income taxes 17,786 19,065
-------- --------
Total current assets 253,177 212,856
-------- --------
Property, plant and equipment, at cost 215,523 206,724
Less: accumulated depreciation and amortization 134,837 127,258
-------- --------
Net property, plant and equipment 80,686 79,466
Excess of cost over net assets acquired, net 33,387 21,355
Deferred federal income taxes 4,773 4,773
Other assets 4,838 5,043
-------- --------
$376,861 $323,493
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable 79,994 43,000
Current installments of long-term obligations 7,782 7,786
Accounts payable 56,624 40,280
Accrued expenses and other current liabilities 63,108 49,424
-------- --------
Total current liabilities 207,508 140,490
-------- --------
Long-term obligations, less current installments 31,732 36,184
Other long-term liabilities 34,117 33,980
-------- --------
Total liabilities 273,357 210,654
-------- --------
Shareholders' equity:
Preferred stock -- --
Common stock 16,591 16,475
Additional paid-in capital 65,126 63,885
Retained earnings 83,891 82,302
Less: cost of treasury shares 62,104 49,823
-------- --------
Total shareholders' equity 103,504 112,839
-------- --------
$376,861 $323,493
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 3 of 10
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<PAGE> 4
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings from continuing operations $ 3,760 $ 9,174
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 9,313 9,173
Loss (gain) on sale of property, plant and equipment (1) 254
Deferred federal income tax benefit -- (4,038)
Changes in assets and liabilities:
Accounts and notes receivable, net (24,615) (48,082)
Inventories (13,067) (2,115)
Prepaid expenses and federal income taxes 1,486 2,125
Other assets (92) 2
Accounts payable 15,205 28,086
Accrued expenses and other current liabilities 13,713 26,599
Other long-term liabilities 137 1,771
Other (18) (212)
-------- --------
Net cash provided by continuing operating activities 5,821 22,737
Discontinued operations:
Gain on disposal of discontinued operations -- 541
Loss from discontinued operations -- (813)
Items not affecting cash, net -- 1,516
Cash provided by discontinued operations -- 49,260
-------- --------
Net cash provided by discontinued operating activities -- 50,504
Net cash provided by operating activities 5,821 73,241
====================================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,850) (8,804)
Proceeds from sale of property, plant and equipment 11 69
Acquisition of businesses (14,789) --
-------- --------
Net cash used in investing activities (22,628) (8,735)
====================================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 35,670 (38,910)
Reduction of long-term debt (4,456) (286)
Issuance of common shares 1,357 319
Purchase of treasury shares (12,281) (9,965)
Dividends paid (2,182) (2,269)
-------- --------
Net cash provided by (used in) financing activities 18,108 (51,111)
====================================================================================================================================
Net change in cash and cash equivalents
Cash and cash equivalents: 1,301 13,395
Beginning of the year 2,142 2,048
-------- --------
End of the six month period 3,443 15,443
====================================================================================================================================
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 4 of 10
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<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, 1997 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 June 30, 1998. 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: During the second quarter of 1998, the Company implemented a plan to
maximize operational efficiency by eliminating excess production
capacity and reducing annual operating expenses at the Huffy Bicycle
Company. The plan includes the closure of the Celina, Ohio manufacturing
facility to reduce capacity; the leasing of a parts fabrication facility
to support other plants; and the continuation of its import program for
opening price point bikes. In 1998 the Company estimates plant closure
and manufacturing reconfiguration charges of $20 million ($12,000 after
tax or $0.97 per share). Operating income for the second quarter of 1998
included charges of $12,639 ($7,836 after tax, or $0.63 per share).
These charges included severance and related benefits ($7,400); facility
shutdown and asset write-downs ($4,450); and new facility startup and
equipment, personnel, and inventory relocation ($789).
Note 4: In March 1997, Huffy Corporation reached an agreement with Evenflo
Company, Inc. to sell the assets of its Denver-based juvenile products
business, Gerry Baby Products Company, for $73 million. 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.
Note 5: The components of comprehensive income are immaterial for disclosure.
Page 5 of 10
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<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998
COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1997
(Dollar Amounts in Thousands, Except Per Share Data)
NET EARNINGS (LOSS)
- -------------------
Huffy Corporation ("Huffy" or "Company") had a net loss from continuing
operations of $(26), or $0 per common share for the quarter ended June 30, 1998,
compared to $6,230, or $0.49 per common share for the same period last year.
Earnings for the second quarter of 1998 included a pretax charge of $12,639
($7,838 after tax), or $0.63 per common share to reflect the implementation of a
plan to maximize operating efficiency by eliminating excess production capacity
and reducing annual operating expenses in the Huffy Bicycle Company. The plan
includes the closure of the Celina, Ohio manufacturing facility to reduce
capacity; the leasing of a parts fabrication facility to support other plants;
and the continuation of its import program for opening price point bikes. Net
income from continuing operations, excluding the Huffy Bicycle Company charge,
increased to $7.8 million, or $0.63 per common share, compared to $6.2 million,
or $0.49 per common share, for the second quarter of 1997. The improvement in
net earnings, excluding the Huffy Bicycle Company charge, is attributed to
innovative new products and services, brand development and channel expansion, a
company-wide focus on cost reduction, and complementary bolt-on acquisitions.
Net earnings from continuing operations for the six months ended June 30, 1998
were $3,760, or $0.30 per common share compared to $9,174, or $0.70 per common
share for the same period last year. The net earnings from continuing operations
excludes operating results and gain from the sale of the juvenile products
business.
NET SALES
- ---------
Net sales from continuing operations for the quarter ended June 30, 1998 were
$220,310, an increase from the sales level of $213,101 for the same quarter in
1997. Net sales for the six months ended June 30, 1998 were $402,615, a 4.6%
increase from net sales of $385,028 for the same period last year. For the three
and six months ended June 30, 1998, net sales in the Consumer Products segment
increased due to strong seasonal demand for bicycles and lawn and garden tools.
In the Services for Retail segment, net sales increased primarily due to strong
demand for inventory services.
GROSS PROFIT
- ------------
Gross profit for the quarter ended June 30, 1998 was $44,521, up from the
$37,457 achieved in the second quarter of 1997. Expressed as a percentage of net
sales, gross profit for the second quarter of 1998 was 20.2% compared to 17.6%
for the second quarter of 1997. Gross profit for the Consumer Products segment
increased primarily due to a higher margin product mix and the positive impact
of the Continuous Rapid Improvement (CRI) program to offset continued
unfavorable pricing pressures. In the Services for Retail segment gross margins
increased due to improved service delivery productivity enhancements.
Page 6 of 10
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<PAGE> 7
Gross profit for the six months ended June 30, 1998 was $76,988, or 19.1% of net
sales, versus $64,879, or 16.9% of net sales for the same period in 1997. Both
the Consumer Products and Services for Retail segments contributed to the
increase in gross profit for the first six months of 1998. This increase in
gross profit dollars was primarily volume driven in the Services for Retail
segment, while improved margin was the major factor in the Consumer Products
segment. Gross profit expressed as a percent of net sales increased primarily
due to improvements achieved through CRI initiatives.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses were $29,418 for the second quarter
of 1998, compared to $26,441 for the same period in 1997. Expressed as a
percentage of net sales, selling, general and administrative expenses for the
quarter ended June 30, 1998 were 13.4% compared to 12.4% for the second quarter
of 1997. For the six months ended June 30, 1998, selling, general and
administrative expenses were $53,573 versus $46,420 for the same period in 1997.
The increase in selling, general and administrative expenses for the quarter
ended June 30, 1998 is primarily due to volume related increases in commissions,
customer service, and distribution costs in both the Consumer Products and
Services for Retail segments. Selling, general and administrative costs for 1997
were favorably impacted by an insurance recovery.
PLANT CLOSURE AND MANUFACTURING RECONFIGURATION
- -----------------------------------------------
During the second quarter of 1998, the Company implemented a plan to maximize
operational efficiency by eliminating excess production capacity and reducing
annual operating expenses at the Huffy Bicycle Company. The plan includes the
closure of the Celina, Ohio manufacturing facility to reduce capacity; the
leasing of a parts fabrication facility to support other plants; and the
continuation of its import program for opening price point bikes. In 1998 the
Company estimates plant closure and manufacturing reconfiguration charges of $20
million ($12,000 after tax or $0.97 per share). Operating income for the second
quarter of 1998 included charges of $12,639 ($7,836 after tax, or $0.63 per
share). These charges included severance and related benefits ($7,400); facility
shutdown and asset write-downs ($4,450); and new facility startup and equipment,
personnel, and inventory relocation ($789).
ACQUISITIONS
- ------------
In June 1998, the Company purchased two bolt-on companies to strengthen its
market position. True Temper Hardware Company acquired Lantz Manufacturing
Corporation of Pettisville, Ohio. Lantz broadens the Company's position in lawn
and garden tools, with leaf rakes, snow shovels, lawn edging and splash blocks.
Washington Inventory Service acquired the business of Inventory Auditors, Inc.
This acquisition combines the second and third largest businesses in the
inventory taking services in the U.S., and allows expanded service coverage to
the nation's retailers.
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 10
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<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
There have been no other significant changes in the Company's liquidity and
capital resources as of June 30, 1998 from those discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. The Company's
balance sheet reflects fluctuations in both current assets and current
liabilities attributable to seasonal changes in the operation of its businesses.
ENVIRONMENTAL
- -------------
As disclosed in the Company's Annual Report to Shareholders for the year ended
December 31, 1997, 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. 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. 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 has currently been postponed until July 2,
1999. Based upon information currently 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.
Page 8 of 10
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<PAGE> 9
PART II -- OTHER INFORMATION
ITEM 5: OTHER INFORMATION
a. Please see the Company's meaningful cautionary statements
regarding forward looking statements contained in the Company's
report on Form 8-K filed with the Securities and Exchange
Commission on April 1, 1998 which is hereby incorporated herein by
reference.
b. The Securities and Exchange Commission has recently amended Rule
14a-4 to provide that with respect to a shareholder proposal to be
presented at an annual shareholders' meeting other than pursuant
to Rule 14a-8 (i.e., which is not be included in the registrant's
proxy statement), the registrant's management may exercise
discretionary voting authority under proxies solicited by it for
the meeting if it receives notice of the proposed non-Rule 14a-8
shareholder action less than 45 days prior to the calendar date
its proxy materials were mailed for the prior year's annual
meeting.
As this new provision applies to the Company, in the event notice
of a non-Rule 14a-8 shareholder proposal to be presented at the
Company's 1999 Annual Meeting of Shareholders is received by the
Company after January 19, 1999, the Company will be permitted to
exercise discretionary voting authority under proxies solicited by
it with respect to the 1999 Annual Meeting.
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
August 12, 1998 /s/ Timothy G. Howard
- ------------------------------------- --------------------------------------
Date Timothy G. Howard
Vice President - Corporate Controller
(Principal Accounting Officer)
Page 9 of 10
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<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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,443
<SECURITIES> 0
<RECEIVABLES> 136,476
<ALLOWANCES> (3,230)
<INVENTORY> 95,472
<CURRENT-ASSETS> 253,177
<PP&E> 215,523
<DEPRECIATION> (134,837)
<TOTAL-ASSETS> 376,861
<CURRENT-LIABILITIES> 207,508
<BONDS> 31,732
0
0
<COMMON> 16,591
<OTHER-SE> 86,913
<TOTAL-LIABILITY-AND-EQUITY> 376,861
<SALES> 402,615
<TOTAL-REVENUES> 402,615
<CGS> 325,627
<TOTAL-COSTS> 391,839
<OTHER-EXPENSES> 444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,423
<INCOME-PRETAX> 5,993
<INCOME-TAX> 2,233
<INCOME-CONTINUING> 3,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,760
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
