<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 March 31, 1998
---------------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -------------------------
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
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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
- --------------------------------------------------------------------------------
(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: 12,443,141 as of April 17, 1998
-------------------------- --------------------------
<PAGE> 2
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar Amounts in Thousands, Except Per Share Data)
Three Months Ended
March 31,
-------------------------------
1998 1997
----------- -----------
Net sales $ 182,305 $ 171,927
Cost of sales 149,838 144,505
----------- -----------
Gross profit 32,467 27,422
Selling, general and
administrative expenses 24,155 19,979
----------- -----------
Operating income 8,312 7,443
Other expense (income)
Interest expense 2,042 2,092
Interest income (53) (18)
Other 189 802
----------- -----------
Earnings before
income taxes 6,134 4,567
Income tax expense 2,348 1,623
----------- -----------
Earnings from continuing
operations 3,786 2,944
Discontinued operations:
Earnings from discontinued
operations, net of income
tax expense of $249 -- 462
----------- -----------
Net earnings $ 3,786 $ 3,406
=========== ===========
Earnings per common share:
Basic:
Weighted average
number of common shares 12,531,939 13,301,262
=========== ===========
Earnings from continuing
operations $ 0.30 $ 0.22
Discontinued operations -- $ 0.04
----------- -----------
Net earnings per
common share $ 0.30 $ 0.26
=========== ===========
Diluted:
Weighted average
number of common shares 12,714,461 13,454,135
=========== ===========
Earnings from continuing
operations $ 0.30 $ 0.22
Discontinued operations -- $ 0.03
----------- -----------
Net earnings per $ 0.30 $ 0.25
common share =========== ===========
See accompanying notes to interim consolidated financial statements.
Page 2 of 10
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<TABLE>
HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 243 $ 2,142
Accounts and notes receivable, net 144,825 109,957
Inventories 91,947 81,692
Prepaid expenses and federal income taxes 17,713 19,065
-------- --------
Total current assets 254,728 212,856
-------- --------
Property, plant and equipment, at cost 209,879 206,724
Less: accumulated depreciation and amortization 130,701 127,258
-------- --------
Net property, plant and equipment 79,178 79,466
Excess of cost over net assets acquired, net 21,153 21,355
Deferred federal income taxes 4,773 4,773
Other assets 4,455 5,043
-------- --------
$364,287 $323,493
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable 88,003 43,000
Current installments of long-term obligations 7,787 7,786
Accounts payable 42,385 40,280
Accrued expenses and other current liabilities 45,744 49,424
-------- --------
Total current liabilities 183,919 140,490
-------- --------
Long-term obligations, less current installments 36,160 36,184
Other long-term liabilities 34,781 33,980
-------- --------
Total liabilities 254,860 210,654
-------- --------
Shareholders' equity:
Preferred stock -- --
Common stock 16,491 16,475
Additional paid-in capital 64,097 63,885
Retained earnings 84,920 82,302
Less: cost of treasury shares 56,081 49,823
-------- --------
Total shareholders' equity 109,427 112,839
-------- --------
$364,287 $323,493
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
Page 3 of 10
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<TABLE>
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1998 1997
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from continuing operations $ 3,786 $ 2,944
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 4,681 4,569
Loss on sale of property, plant and equipment -- --
Changes in assets and liabilities:
Accounts and notes receivable, net (34,868) (50,174)
Inventories (10,255) (14,832)
Prepaid expenses and federal income taxes 1,352 539
Other assets 439 163
Accounts payable 2,105 38,187
Accrued expenses and other current liabilities (3,651) 2,147
Other long-term liabilities 801 1,129
Other (108) (166)
-------- --------
Net cash used in continuing operating activities (35,718) (15,494)
Discontinued operations:
Earnings from discontinued operations -- 462
Items not affecting cash, net -- 1,280
Cash used for discontinued operations -- (11,526)
-------- --------
Net cash used in discontinued operating activities -- (9,784)
Net cash used in operating activities (35,718) (25,278)
============================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,057) (4,837)
Proceeds from sale of property, plant and equipment 15 --
-------- --------
Net cash used in investing activities (4,042) (4,837)
============================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 45,003 31,610
Reduction of long-term debt (23) (261)
Issuance of common shares 228 270
Purchase of treasury shares (6,258) (1,797)
Dividends paid (1,089) (1,137)
-------- --------
Net cash provided by financing activities 37,861 28,685
============================================================================================================
Net change in cash and cash equivalents
Cash and cash equivalents: (1,899) (1,430)
Beginning of the year 2,142 2,048
-------- --------
End of the three month period 243 618
============================================================================================================
</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, 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
March 31, 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: 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.
Page 5 of 10
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997
(Dollar Amounts in Thousands, Except Per Share Data)
NET EARNINGS (LOSS)
- -------------------
Huffy Corporation ("Huffy" or "Company") had net earnings from continuing
operations of $3,786, or $0.30 per common share for the quarter ended March 31,
1998, compared to $2,944, or $0.22 per common share for the same period last
year. The improvement in net earnings 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. The first quarter 1998
results were not impacted by the Company's juvenile products business which was
sold to Evenflo Company, Inc. in April, 1997. In the first quarter of 1997, the
juvenile products business reported net sales of $32,821 and net earnings of
$462, or $0.03 per common share.
NET SALES
- ---------
Net sales from continuing operations for the quarter ended March 31, 1998 were
$182,305, an increase from the sales level of $171,927 for the same quarter in
1997. For the three months ended March 31, 1998, net sales in the Consumer
Products segment increased due to strong seasonal demand for bicycles and
basketball systems, and the continued diversification in the lawn and garden
tools business. In the Services for Retail segment, net sales increased
primarily in the inventory services business.
GROSS PROFIT
- ------------
Gross profit for the quarter ended March 31, 1998 was $32,467, up from the
$27,422 achieved in the first quarter of 1997. Expressed as a percentage of net
sales, gross profit for the first quarter of 1998 was 17.8% compared to 15.9%
for the first 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 program to offset continued unfavorable
pricing pressures. In the Services for Retail segment gross margins declined
slightly due to the tight labor market across the nation and continued
competitive pressures in the marketplace.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses were $24,155 for the first quarter
of 1998, compared to $19,979 for the same period in 1997. Expressed as a
percentage of net sales, selling, general and administrative expenses for the
quarter ended March 31, 1998 was 13.2% compared to 11.6% for the first quarter
of 1997. The increase in selling, general and administrative expenses for the
quarter ended March 31, 1998 is primarily due to increased commissions, customer
service, and distribution costs related to the increased sales in both the
Consumer Products and Services for Retail segments. Selling, general and
administrative costs for 1997 were favorably impacted by an environmental
insurance recovery.
Page 6 of 10
<PAGE> 7
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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
There have been no other significant changes in the Company's liquidity and
capital resources as of March 31, 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 operations 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. 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.
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.
PART II -- OTHER INFORMATION
ITEM 4. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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The Annual Meeting of Shareholders of the Company was held April 17, 1998. 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 2001. Shares were voted as follows: FOR: Don R. Graber (11,395,210),
Linda B. Keene (11,394,781), and Thomas C. Sullivan (11,396,444); WITHHELD
(including broker non-votes): Don R. Graber (101,112), Linda B. Keene (101,541),
and Thomas C. Sullivan (99,878).
Page 7 of 10
<PAGE> 8
The Shareholders also approved the 1998 Director Stock Option Plan, the 1998 Key
Employee Stock Plan, and the Restricted Share Plan. In connection with the
approval of the 1998 Director Stock Option Plan, there were 10,817,745 shares
voted for approval of the 1998 Director Stock Option Plan, 583,065 shares cast
against, and 95,512 shares cast to abstain (including broker non-votes). In
connection with the approval of the 1998 Key Employee Stock Plan, there were
10,690,942 shares voted for approval of the 1998 Key Employee Stock Plan,
728,525 shares cast against, and 76,855 shares cast to abstain (including broker
non-votes). In connection with the approval of the Restricted Share Plan, there
were 10,906,890 shares voted for approval of the Restricted Share Plan, 487,974
shares cast against, and 101,458 shares cast to abstain (including broker
non-votes).
In addition, the Shareholders also ratified the appointment of KPMG Peat Marwick
LLP as the Company's independent public accountants for calendar year 1998. In
connection with such ratification, 11,438,399 shares were voted for
ratification, 19,273 shares cast against, and 38,650 shares cast to abstain
(including broker non-votes).
The Shareholders also voted on two shareholder proposals. Shareholders voted to
approve Shareholder Proposal No. 1 to declassify the Board of Directors. In
connection with such proposal, there were 6,032,855 shares voted for the
proposal, 4,125,750 shares cast against, and 138,819 shares cast to abstain and
1,198,898 broker non-votes. The Shareholders voted against Shareholder Proposal
No. 2 to sell the Company. In connection with such proposal, there were
1,328,220 shares voted for the proposal, 8,822,741 shares cast against, and
146,464 shares cast to abstain, and 1,198,897 broker non-votes.
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.
b. The Company filed one report on Form 8-K, dated March 31, 1998,
which was filed with the Securities and Exchange Commission on
April 1, 1998 setting forth cautionary statements for purposes
of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
Page 8 of 10
<PAGE> 9
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 17, 1998 /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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 243
<SECURITIES> 0
<RECEIVABLES> 147,606
<ALLOWANCES> (2,781)
<INVENTORY> 91,947
<CURRENT-ASSETS> 254,728
<PP&E> 209,879
<DEPRECIATION> (130,701)
<TOTAL-ASSETS> 364,287
<CURRENT-LIABILITIES> 183,919
<BONDS> 36,160
0
0
<COMMON> 16,491
<OTHER-SE> 92,936
<TOTAL-LIABILITY-AND-EQUITY> 364,287
<SALES> 182,305
<TOTAL-REVENUES> 0
<CGS> 149,838
<TOTAL-COSTS> 173,993
<OTHER-EXPENSES> 189
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,042
<INCOME-PRETAX> 6,134
<INCOME-TAX> 2,348
<INCOME-CONTINUING> 3,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,746
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
