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Previous: LINCORP HOLDINGS INC, 10-Q, 1999-11-16 |
Next: COMDIAL CORP, 10-Q, 1999-11-16 |
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Fiscal Quarter Ended October 2, 1999
[ ] 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
Ohio 31-0326270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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.
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.
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding Shares: 10,159,910 as of November 11, 1999
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED). COMPANY FOR WHICH REPORT IS FILED:
| Three Months Ended | Nine Months Ended | ||||||
|
October 2, 1999 |
|
Sept. 26, 1998 |
|
October 2, 1999 |
|
Sept. 26, 1998 | |
| Net sales | $ 112,836 | $ 120,097 | $ 434,300 | $ 446,044 | |||
| Cost of sales | 107,274 | 99,982 | 378,198 | 363,214 | |||
| Gross profit | 5,562 | 20,115 | 56,102 | 82,830 | |||
| Selling, general and administrative expenses | 18,450 | 15,786 | 55,733 | 59,757 | |||
| Plant closure and manufacturing
reconfiguration |
30,739 | 2,332 | 33,447 | 14,971 | |||
| Operating income (loss) | (43,627) | 1,997 | (33,078) | 8,102 |
| Other expense (income) | |||||||
| Interest expense | 1,693 | 1,800 | 4,765 | 4,772 | |||
| Interest income | (219) | 4 | (337) | (48) | |||
| Other | (348) | 62 | (437) | 443 | |||
| Earnings (loss) before income taxes | (44,753) | 131 | (37,069) | 2,935 | |||
| Income tax expense (benefit) | (15,906) | 41 | (12,948) | 1,086 | |||
| Earnings (loss) from continuing
operations |
(28,847) | 90 | (24,121) | 1,849 |
| Discontinued operations: | |||||||
| Income (loss) from discontinued operations, net of income tax expense (benefit) of $(489), $(458) and $699 | -- | (809) | (312) | 1,192 | |||
| Gain on disposal of discontinued
operations, net of income tax expense of $1,740 and $4,078 |
3,232 | -- | 6,260 | -- | |||
| Net earnings (loss) | $ (25,615) | $ (719) | $ (18,173) | $ 3,041 |
| Earnings per common share: | |||||||
| BASIC: | |||||||
| Weighted average number of
common shares |
10,157,036 | 11,919,777 | 10,803,081 | 12,236,377 | |||
| Earnings (loss) from continuing
operations |
$(2.84) | $0.01 | $(2.23) | $ 0.15 | |||
| Earnings (loss) from discontinued
operations |
0.32 | $(0.07) | 0.55 | 0.10 | |||
| Net earnings (loss) per common share | $(2.52) | $(0.06) | $(1.68) | $ 0.25 | |||
| DILUTED: | |||||||
| Weighted average number of
common shares |
10,273,974 | 12,137,231 | 10,920,020 | 12,453,831 | |||
| Earnings (loss) from continuing
operations |
$(2.80) | $0.01 | $(2.20) | $ 0.15 | |||
| Earnings (loss) from discontinued operations | 0.31 | (0.07) | 0.54 | 0.09 | |||
| Net earnings (loss) per
common share |
$(2.49) | $(0.06) | $(1.66) | $ 0.24 |
| October 2,
1999 |
December 31,
1998 | ||
| ASSETS | |||
| Current assets: | |||
| Cash and cash equivalents | $ 18,343 | $ 17,834 | |
| Accounts and notes receivable, net | 70,852 | 70,149 | |
| Inventories | 56,346 | 46,442 | |
| Prepaid expenses and federal income taxes | 26,662 | 20,425 | |
| Net assets of discontinued operations | -- | 70,338 | |
| Total current assets | 172,203 | 225,188 | |
| Property, plant and equipment, at cost | 105,022 | 177,992 | |
| Less: accumulated depreciation and amortization | 73,147 | 114,260 | |
| Net property, plant and equipment | 31,875 | 63,732 | |
| Excess of cost over net assets acquired, net | 31,852 | 31,985 | |
| Deferred federal income taxes | 3,721 | 3,565 | |
| Other assets | 4,320 | 4,388 | |
| $ 243,971 | $ 328,858 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||
| Current liabilities: | |||
| Notes payable | $ 62,000 | $ 99,240 | |
| Current installments of long-term obligations | 20,332 | 6,411 | |
| Accounts payable | 39,218 | 32,603 | |
| Accrued expenses and other current liabilities | 39,611 | 36,641 | |
| Total current liabilities | 161,161 | 174,895 | |
| Long-term obligations, less current installments | 3,747 | 29,784 | |
| Other long-term liabilities | 29,563 | 31,028 | |
| Total liabilities | 194,471 | 235,707 | |
| Shareholders' equity: | |||
| Preferred stock | -- | -- | |
| Common stock | 16,662 | 16,633 | |
| Additional paid-in capital | 66,406 | 65,892 | |
| Retained earnings | 57,851 | 78,967 | |
| Less: cost of treasury shares | 91,419 | 68,341 | |
| Total shareholders' equity | 49,500 | 93,151 | |
| $ 243,971 | $ 328,858 |
| Nine Months Ended | |||
| October 2,
1999 |
September 26, 1998 | ||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||
| Net earnings (loss) from continuing operations | $ (24,121) | $ 1,849 | |
| Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|||
| Depreciation and amortization | 10,491 | 10,933 | |
| Loss on sale of property, plant and equipment | 1,208 | 19 | |
| Writedown of certain property, plant & equipment | 23,675 | -- | |
| Deferred federal income tax expense | (2,500) | (630) | |
| Changes in assets and liabilities: | |||
| Accounts and notes receivable, net | (703) | 21,030 | |
| Inventories | (9,658) | (21,048) | |
| Prepaid expenses and federal income taxes | (3,893) | 1,068 | |
| Other assets | (334) | (347) | |
| Accounts payable | 6,375 | 4,242 | |
| Accrued expenses and other current liabilities | 3,574 | (2,124) | |
| Other long-term liabilities | (1,993) | 303 | |
| Other | -- | 151 | |
| Net cash provided by continuing operating activities | 2,121 | 15,446 | |
| Discontinued operations: | |||
| Gain on disposal of discontinued operations | 6,260 | -- | |
| Income (loss) from discontinued operations | (312) | 1,192 | |
| Items not affecting cash, net | -- | 2,671 | |
| Cash provided by (used in) discontinued operations | 70,338 | (1,771) | |
| Net cash provided by discontinued
operating activities |
76,286 | 2,092 | |
| Net cash provided by operating activities | 78,407 | 17,538 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
| Capital expenditures | (8,024) | (25,028) | |
| Proceeds from sale of property, plant and equipment | 6,258 | 11 | |
| Acquisition of businesses | (1,248) | (12,958) | |
| Net cash used in investing activities | (3,014) | (37,975) | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||
| Net increase (decrease) in short-term borrowings | (37,240) | 59,500 | |
| Reduction of long-term debt | (12,116) | (4,479) | |
| Issuance of common shares | 543 | 1,743 | |
| Purchase of treasury shares | (23,078) | (17,837) | |
| Dividends paid | (2,993) | (3,280) | |
| Net cash provided by (used in) financing activities | (74,884) | 35,647 | |
| Net change in cash and cash equivalents | 509 | 15,210 | |
| Cash and cash equivalents: | |||
| Beginning of the year | 17,834 | 2,110 | |
| End of the nine month period | $ 18,343 | $ 17,320 | |
Note 1: Footnote disclosure which would substantially duplicate the disclosure contained in the Annual Report to Shareholders for the year ended December 31, 1998 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 October 2, 1999. 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 third quarter of 1999, the Company implemented the final transformation of its bicycle operations, including a plan to cease U.S. bicycle manufacturing. Huffy Bicycle Company plans to close its U.S. production facilities in Farmington, Missouri and Southaven, Mississippi and to increase imports from a global network of sourcing partners. Closing the plants will eliminate the costs required to operate the facilities and will complete Huffy Bicycle Company's transformation from a single brand manufacturer to a multi-brand design, marketing and distribution company. In 1999, these charges included severance and related benefits ($3,362); and facility shutdown and asset write-downs ($26,584).
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 included 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 1999, these charges included severance and related benefits ($1,923); facility shutdown and asset write-downs ($221); and new facility startup and equipment, personnel, and inventory relocation ($1,357).
Note 4: In March 1999, Huffy Corporation reached an agreement with U.S. Industries, Inc. to sell the assets of its Harrisburg, Pennsylvania based lawn and garden tools and wheelbarrows business, True Temper Hardware Company, for $100 million. The results for True Temper Hardware Company have been classified as discontinued operations in the Consolidated Statements of Earnings. The assets and liabilities of discontinued operations have been classified in the December 31, 1998 Consolidated Balance Sheet as "Net assets of discontinued operations."
Summarized balance sheet data for discontinued operations is as follows:
| December 31, 1998 | ||||||
| Current assets | $ 61,313 | |||||
| Property, plant & equipment, net | 20,639 | |||||
| Other assets | 2,271 | |||||
| Total assets | 84,223 | |||||
|
Current liabilities |
13,885 | |||||
| Net assets | $ 70,338 | |||||
Note 5. The Company has classified its operations into the following business segments:
Sporting Goods - bicycles, backboards and related products.
Service - in-store assembly, repair, and display services and inventory counting services.
| Sales | Earnings (loss) Before Income Taxes | ||
| Nine Months Ended
October 2, 1999 |
|||
| Sporting Goods | $ 254,041 | $ (40,498) | |
| Service | 180,851 | 11,256 | |
| Eliminations | (592) | -- | |
| Interest, net | (4,428) | ||
| General Corporate | (3,399) | ||
| $ 434,300 | $ (37,069) | ||
| Nine Months Ended
September 26, 1998 |
|||
| Sporting Goods | $ 291,546 | $ 1,438 | |
| Service | 155,337 | 10,936 | |
| Eliminations | (839) | -- | |
| Interest, net | (4,724) | ||
| General Corporate | (4,715) | ||
| $ 446,044 | $ 2,935 |
Note 6: The components of comprehensive income are immaterial for disclosure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED OCTOBER 2, 1999
COMPARED TO THE
THREE AND NINE MONTHS ENDED SEPTEMBER 26, 1998
(Dollar Amounts in Thousands, Except Per Share Data)
Net Earnings (Loss)
Huffy Corporation ("Huffy" or "Company") had a net loss from continuing operations prior to plant closure and manufacturing reconfiguration of $8,559 or $0.84 per common share for the quarter ended October 2, 1999 compared to earnings of $1,536, or $0.13 per common share for the same period last year. The 1999 and 1998 third quarter net loss/earnings from continuing operations are prior to after-tax reconfiguration charges incurred in the bicycle operation of $20,287 ($30,739 pre-tax) or $1.97 per share, and $1,446 ($2,332 pre-tax), or $0.12 per common share, respectively. The reconfiguration charges reflect the implementation of the next transformation of its bicycle operations, including a plan to cease all U.S. bicycle manufacturing. Net loss/earnings prior to reconfiguration charges were down from 1998 in the Sporting Goods segment due to the impact of import pricing pressures in the bicycle industry. In the Service segment, net earnings for the quarter were flat compared to 1998 as sales and productivity gains were offset by high labor costs resulting from the high national employment levels.
For the nine months ended October 2, 1999, net losses prior to plant closure and manufacturing reconfiguration were $2,046, or $0.19 per common share compared to net earnings of $11,131, or $0.89 per common share for the same period in 1998. For the nine months ended October 2, 1999 and September 26, 1998, the after-tax reconfiguration charges were $22,075 ($33,447 pre-tax),or $2.02 per common share, and $9,282 ($14,971 pre-tax), or $0.75 per common share, respectively.
Net Sales
Net sales from continuing operations for the quarter ended October 2, 1999 were $112,836, a decrease from sales of $120,097 for the same quarter in 1998. Net sales in the Sporting Goods segment decreased $10,043 from the same period in the prior year. Net sales decreased at Huffy Bicycle Company due to continued price deflation and at Huffy Sports Company due to soft demand for basketball systems coupled with a shift toward lower price point units. In the Services segment, net sales increased $2,782 primarily due to increased demand for inventory, assembly and merchandising services.
For the nine months ended October 2, 1999 net sales from continuing operations were $434,300 compared to $446,044 for the same period in 1998. In the Sporting Goods segment, net sales decreased $37,505 due to price deflation in the bicycle marketplace and an overall softness of the sporting goods market. In the Service segment, net sales increased $25,514 due to the positive impact of the 1998 Inventory Auditors acquisition along with increased demand for inventory, assembly and merchandising services.
Gross Profit
Gross profit for the quarter ended October 2, 1999 was $5,562, down from the $20,115 achieved in the third quarter of 1998. Gross profit for the third quarter of 1999 was 4.9% of net sales compared to 16.7% for the third quarter of 1998. Gross profit as a percent of net sales for the Sporting Goods segment decreased to (6.9%) compared to 14.8% for the third quarter of 1998, primarily due to a lower margin product mix, unfavorable pricing pressures, and inventory writedowns, primarily due to exiting U.S. bicycle manufacturing. In the Services for Retail segment, gross margins as a percent of net sales declined 1.9% primarily due to higher labor costs resulting from the high national employment levels.
For the nine months ended October 2, 1999 gross profit was $56,102 compared to $82,830 for the same period in 1998. As a percent of net sales gross profit for the nine months ended October 2, 1999 was 12.9% compared to 18.6% for the same period in 1998. For the Sporting Goods segment gross profit as a percent of net sales decreased 8.6% primarily due to product mix and worldwide bicycle industry competitiveness, particularly with imports from Asia. Gross profit as a percent of net sales for the Service segment decreased 2.0%, primarily as a result of growth related cost increases due to a tight labor force coupled with increased worker's compensation and medical charges.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $18,450 for the third quarter of 1999, compared to $15,786 for the same period in 1998. As a percent of net sales, selling, general and administrative expenses for the quarter ended October 2, 1999 were 16.4% compared to 13.1% for the third quarter of 1998. In the Sporting Goods segment the increase in selling, general and administrative expenses for the quarter ended October 2, 1999 is primarily the result of increased customer service costs. Selling, general and administrative expenses in the Service segment were relatively flat for the quarter.
For the nine months ended October 2, 1999, selling, general and administrative expenses were $55,733 compared to $59,757 for the same period in 1998. As a percent of net sales, selling, general and administrative expenses for the nine months ended October 2, 1999 were 12.8% compared to 13.4% in 1998. The decrease in selling, general and administrative expenses is primarily due to the continued emphasis on Continuous Rapid Improvement, volume related reductions in the Sporting Goods segment, and a one-time credit resulting from a pension plan benefit modification in the Service segment.
Plant Closure and Manufacturing Reconfiguration
During the third quarter of 1999, the Company implemented the final transformation of its bicycle operations, including a plan to cease U.S. bicycle manufacturing. Huffy Bicycle Company plans to close its U.S. production facilities in Farmington, Missouri and Southaven, Mississippi and to increase imports from a global network of sourcing partners. Closing the plants will eliminate the costs required to operate the facilities and will complete Huffy Bicycle Company's transformation from a single brand manufacturer to a multi-brand design, marketing and distribution company. In 1999, these closure charges included severance and related benefits ($3,362); and facility shutdown and asset write-downs ($26,584).
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 included 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 and expansion of its import program for opening price point bikes. In 1999, these charges included facility shutdown and asset write-downs $(221); new facility startup and equipment, personnel, and inventory relocation $(1,357); and severance and related benefits $(1,923).
Sale of True Temper Hardware
In March 1999, the Company sold the assets of its lawn and garden tools and wheelbarrow business, True Temper Hardware Company to U.S. Industries, Inc. The purchase price was $100 million cash and was subject to certain post-closing adjustments based on closing date financial statements.
The net earnings from continuing operations exclude results and gain from the Company's lawn and garden tools and wheelbarrow business. The lawn and garden tools and wheelbarrow business had net sales of $96,682 and net earnings of $1,192, or $0.09 per common share in the nine months ended October 2, 1998. For the third quarter of 1998, the lawn and garden tools and wheelbarrow business had net sales of $20,014 and net losses of $809, or $0.07 per common share. The 1999 gain on the sale of the lawn and garden tools and wheelbarrow business was $6,260, or $0.58 per common share.
Year 2000 Compliance
Many existing computer programs used globally use only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results after the century date changes on January 1, 2000. This Year 2000 issue is believed to affect virtually all companies, including Huffy.
Huffy relies on computer-based technology and uses a variety of third-party hardware and proprietary and third-party software. In addition to the information technology ("IT") systems, the Company's operations rely on various non-IT equipment and systems that contain embedded computer technology. During 1996, the Company began evaluating and assessing all of its internal date-sensitive systems and equipment for Year 2000 compliance. The assessment phase of the Year 2000 project is complete and included both information technology equipment and non-information technology equipment. Based on such assessment, the Company determined that it was necessary to modify or replace a portion of its information systems. For its major IT systems, as of October 2, 1999, the Company has completed the modification or replacement of its critical software and hardware. The Company has completed testing of approximately 99% of its remediated systems. Completion of the testing and implementation of all remediated systems is expected by year end 1999.
The Company has also communicated with significant suppliers and customers to determine their Year 2000 compliance and the extent to which the Company is vulnerable to any third-party Year 2000 issues. Essentially all significant suppliers and customers have replied to our inquiries in writing indicating that they expect to be Year 2000 compliant on a timely basis.
The Company is actively involved in the assessment and development of contingency plans and anticipates by December 31, 1999, contingency plans will be developed for mission critical systems. Based upon current information, management believes that the most likely worst case scenario would be isolated, short business interruptions, having minimal impact on the results of operations. The Company's Year 2000 compliance program is directed primarily towards ensuring that the Company will be able to continue to perform four critical functions: (1) produce and ship goods, (2) order and receive inventory, (3) pay its employees and vendors, and (4) schedule and perform service business. It is difficult, or impossible, to assess with any degree of accuracy, the impact on any of these four areas of the failure of one or more aspects of the Company's compliance program.
Because the Company began this process in a timely fashion, and because it regularly evaluates and upgrades its IT capabilities, the total estimated cost of the Year 2000 project alone is not material and has been funded by operating cash flows. The Company's remaining Year 2000 budget does not include material amounts for hardware and software replacement.
The novelty and complexity of the Year 2000 issues, the proposed solutions, and the Company's dependence on the technical skills of employees and independent contractors and on the representations and preparedness of third parties are among the factors that could cause the Company's efforts to be less than fully effective. Moreover, Year 2000 issues present a number of risks that are beyond the Company's reasonable control, such as the failure of utility companies to deliver electricity, the failure of telecommunications companies to provide voice and data services, the failure of financial institutions to process transactions and transfer funds, the failure of vendors to deliver merchandise or perform services required by the Company and the collateral effects on the Company of the effects of Year 2000 issues on the economy in general or on the Company's business partners and customers in particular. Although the Company believes that its Year 2000 compliance program is designed to appropriately identify and address those Year 2000 issues that are subject to the Company's reasonable control, there can be no assurance that the Company's efforts in this regard will be fully effective or that Year 2000 issues will not have a material adverse effect on the Company's business, financial condition or results of operations.
Liquidity and Capital Resources
The financial condition of the Company changed during the third quarter of 1999. The Company is in default of a $4 million dollar principal payment due October 22, 1999, under an unsecured loan agreement. A formal notice of acceleration has been received for this loan. The Corporation has also violated several negative financial covenants (current ratio, consolidated adjusted net worth, consolidated debt to total capital, EBITDA to interest coverage) under the existing credit arrangement with certain of its unsecured lending banks and under a guarantee of certain other indebtedness. To date, no acceleration of principal indebtedness has occurred as a result of these non-monetary defaults. As a result of the above, the Company's committed and uncommitted lines of credit have been capped at existing borrowing levels.
As of the date of this report the Company is in a positive cash position, and could pay the principal on the $4.0 million unsecured loan. Management is currently negotiating with all of its unsecured lenders to increase its credit line to provide adequate liquidity for the business during future peak borrowing periods. However, if negotiations were to fail and one or more of the parties were to accelerate the indebtedness, liquidity issues would arise.
On November 1, 1999, the Corporation delayed payment of a dividend payable on its shares of Common Stock in the aggregate amount of $855,779. The payment date of the dividend is being addressed and will be determined as part of the Corporation's financing negotiations.
Environmental
As disclosed in the Company's Annual Report to Shareholders for the year ended December 31, 1998, 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"). 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. A group of PRPs, including the Company, filed a good faith offer on September 9, 1999 for remediation of the Baldwin Park operable unit, and the offer was accepted. This acceptance committed the PRPs and the EPA to negotiate a final consent decree. The PRPs are scheduled to begin allocation mediation in December, 1999 to determine the allocation of remediation costs. At this time, the relative liabilities of the parties are uncertain. The Company's total accrual for estimated environmental remediation costs related to the Superfund site and other potential environmental liabilities is approximately $6,100 at October 2, 1999. Management believes the majority of expenditures relating to costs accrued could occur as early as 2000. 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. Based upon information currently available, such future costs are not expected to have a material adverse effect on the results of operations in future periods. However, such costs could materially impact liquidity and the Company's financial condition.
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 1. LEGAL PROCEEDINGS
The Company, along with numerous California water companies and other PRPs for the Baldwin Park Operable Unit of the San Gabriel Valley Superfund, has been named in eight civil lawsuits which allege claims related to the contaminated groundwater in the Azusa, California area. On March 12, 1998, the California Public Utilities Commission ("PUC") issued an Order Instituting Investigation ("OII"), stating that because the toxic tort lawsuits relate to water quality, public health and safety, and the operations and practices of the public utilities subject to the PUC's jurisdiction, the PUC intends to pursue its jurisdiction by investigating the operations and practices of the named defendant public utilities, their compliance with the PUC standards and policies regarding water quality, and whether those standards and policies regarding water quality continue to be adequate to protect the public health and safety. The PUC investigation and decision is expected to conclude in 1999. As a result of the PUC OII, a majority of the lawsuits were stayed pending the PUC determination. The plaintiffs appealed the decisions to stay. Following a hearing on the matter, the Court of Appeals took the matter under submission. In September 1999, the Court of Appeals found that one lower court ruled correctly in denying a stay, and the Court of Appeals issued preemptory writs of mandate and three other actions to vacate stays and to reconsider various motions, demurs and the stays in view of the Court of Appeals findings. Petitions for review have been filed before the California Supreme Court. To date, the matters are in their initial stage. It is impossible to currently predict the outcome of the litigation.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
(a) The Corporation has no defaults on interest payments owed to lenders. The Corporation is in default on a principal payment of $4 million due October 22, 1999 under an unsecured loan agreement. Interest on this loan has been paid to date; a late charge of five percent of all unpaid amounts has not been paid. A formal notice of acceleration has been received with respect to this loan. The Corporation is currently negotiating with all of its bank lenders a secured credit agreement which, among other things, would address the above principal payment issues and late charge.
The Corporation has also violated several negative financial covenants (current ratio, consolidated adjusted net worth, consolidated debt to total capital, EBITDA to interest coverage) under the existing credit arrangement with certain of its unsecured lending banks and under a guarantee of certain other indebtedness. To date, no acceleration of principal indebtedness has occurred as a result of these non-monetary defaults.
(b) On November 1, 1999, the Corporation delayed payment of a dividend payable on its shares of Common Stock on such date in the aggregate amount of $855,779. The payment date of the dividend is being addressed and will be determined as part of the Corporation's financing negotiations.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The Exhibits, as shown in the "Index of Exhibits", attached hereto as page 12, are filed as a part of this Report.
(b) There were no reports on Form 8-K filed for the period ending October 2, 1999.
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
/s/ Timothy G. Howard
Timothy G. Howard
Vice President-Corporate Controller
(Principal Accounting Officer)
November 16, 1999
Date
| Exhibit No. | ||||
| (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 | |||
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