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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
April 27, 2000
(Date of earliest event reported)
HUFFY CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 1-5325 31-0326270
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
225 Byers Road
Miamisburg, Ohio
(Address of principal executive offices)
45342-3657
(Zip Code)
(937) 866-6251
(Registrant's telephone number, including area code)
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Item 5. Other Events
On April 27, 2000, Huffy Corporation will hold its Annual
Meeting of Shareholders and Management will make a
presentation to Shareholders, the content of which is filed,
in substantially the form presented, as Exhibit 99.1 hereto.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Huffy Corporation
(the "Company") is filing cautionary statements as Exhibit
99.2 hereto, identifying important factors that could cause
the Company's actual results to differ materially from those
projected in forward looking statements of the Company made by
or on behalf of the Company.
Item 7. Financial Statements and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) The following exhibits are filed herewith:
Exhibit No. Description
99.1 Business Review and Outlook presented to Shareholders at Annual Meeting
of Shareholders on April 27, 2000.
99.2 Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, on its
behalf by the undersigned hereunto duly authorized.
HUFFY CORPORATION
By: /s/ Timothy G. Howard
Timothy G. Howard
Vice President and Corporate Controller
(Principal Financial and Accounting Officer)
Date: April 26, 2000
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Exhibit 99.1
During 1999, Huffy Corporation realized strong performances from Huffy Sports,
Huffy Service First and Washington Inventory Service. Unfortunately, the poor
results of the Huffy bicycle business and the public attention given to these
events overshadowed the strong performance by the other business units,
resulting in a difficult, challenging and, yes, disappointing year for Huffy
Corporation.
The rapidly deteriorating bicycle market required the acceleration of the final
steps in the transformation of the bicycle business, which had begun in 1998.
The transformation was a costly and difficult process, but absolutely necessary
given the dynamics in the bicycle industry. Let me comment further on the
bicycle business transformation.
As 1999 unfolded, the severe decline in U.S. retail bicycle prices, competition
in the market place from low cost imported bicycles, primarily from China, and
unprecedented pressure on operating margins contributed to rapidly deteriorating
earnings in the Huffy bicycle business. These events, coupled with the prospect
for continuing worldwide bicycle production over-capacity led to the difficult
and painful decision to close our last U.S. based manufacturing facilities in
Farmington, Missouri and Southaven, Mississippi. These closures resulted in an
after-tax charge to earnings of $22.7 million or $2.14 per share in 1999.
These closures complete a dramatic change from the bicycle business model that
existed only three years ago. In 1996, the Huffy Bicycle Company was a
single-brand U.S. based manufacturer. It entered the year 2000 as a multi-brand,
design, marketing and distribution company. In addition to the restructuring of
our U.S. based manufacturing mentioned earlier, key acquisitions, plus an
aggressive licensing program, have played a significant role in the bicycle
transformation.
In 1997, Huffy acquired the Royce Union Bicycle Company and the Royce Union
brand. In 1999, the Huffy Bicycle Company acquired American Sports Design and
the Airborne brand to serve another important emerging channel - the Internet.
These acquisitions broadened our product lines and marketing channels to reach
customers seeking higher-end, higher performance oriented bicycles.
The final steps in the transformation, allowing the Huffy Bicycle Company to
continue to provide consumers with high-quality, cost competitive products, were
essentially complete by the end of 1999. Today, the Huffy Bicycle Company
approaches the market place with a value-package that is focused on:
- Product design and engineering
- Brands and licenses
- Marketing and
- Distribution
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In the new business model, the development of a strong brand strategy plays a
key role. Today we have the Huffy brand, the most widely recognized brand in the
industry, positioned to serve the mass retail market. The Royce Union brand is
positioned as a step-up brand, designed to appeal to both the youth and adult
rider. The Airborne brand is targeted toward the serious rider and is available
through the Internet. Airborne allows the purchaser to custom design a bike to
his or her individual specifications and preferences.
Premier licenses - including X-Games, which was launched in early spring and is
showing very strong retail sales - and others such as Kawasaki, Ironman, Union
Flyer, Rugrats, Looney Tunes and Rebike, are positioned to reach a variety of
consumers.
With the successful development of a strong brand strategy, the Huffy, Royce
Union, X-Games, Buzz, Union Flyer, Rebike and Airborne brands, are currently
positioned from the lower end of the retail price range (primarily in Kids
bikes) to the upper end of the retail price range (primarily in adult custom
bikes) and are positioned against the brands with which they compete (Rand,
Kent, Roadmaster, Magna, Pacific, Mongoose, Raleigh, Trek, Cannondale, and
Schwinn). Huffy Bicycle Company, from a single brand strategy in 1996, now has
far and away the strongest brand portfolio in the bicycle industry, with bikes
that retail from a low of $49 to a high of almost $5,000.
I'd like to spend the next few minutes talking about the first quarter results -
which demonstrate that the restructuring of the bike business and the new
business model are achieving the desired results, complementing the solid
performance of our other three business units.
Net earnings from continuing operations, prior to reconfiguration charges and
costs related to refinancing, for first quarter 2000 were $1.3 million compared
to $800 thousand for the same period in 1999, an increase of 62.5%.
To briefly highlight performance by business unit - As a result of its new
business model, Huffy Bicycle Company had very, very strong earnings in the
first quarter. Washington Inventory Service also had stronger than expected
earnings, setting a new record for first quarter earnings. Despite excellent
cost control and maintaining its market share, Huffy Sports was effected by
softness in the sporting goods industry that adversely impacted sales and
earnings in the first quarter. Huffy Service First finished a challenging
quarter with record sales for March.
Earnings per share, from continuing operations, before restructuring charges and
costs related to refinancing, for first quarter 2000 were $.13 per share,
compared to $.06 a year ago. Business fundamentals are strong - during the first
quarter of 2000 earnings before restructuring included:
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- Interest expense resulting from the refinancing completed in
January was approximately $1.4 million higher than in 1999.
- Severance costs at Corporate and Huffy Service First were
approximately $500 thousand.
These expenses reduced reported EPS by approximately $.11 per share, further
demonstrating the strong operating earnings that flowed in the first quarter.
We are pleased that our first quarter operating results demonstrate the strength
of our business in both operating segments. Our outlook for the next three
months is very optimistic and we expect a strong second quarter, led by bikes,
Washington Inventory Service and Huffy Service First.
As I mentioned earlier, 1999 was a very difficult year, but it was not without
its successes. The final transformation of the bicycle business was both costly
and difficult, but the decisions made are consistent with the strategy for Huffy
Corporation that was put in place in 1998
To briefly review, Huffy continues to implement its strategic focus:
CAPITALIZE ON PRODUCT AND SERVICE INNOVATION FOR INTERNAL GROWTH
Washington Inventory Service introduced the latest release of its internally
developed, proprietary inventory recording software, and is now widely
recognized as the industry technology leader.
Huffy Sports introduced the Satellite(TM) backboard, followed by the
introduction of the "Twilight" lighted ball at the super show in Atlanta in
early spring.
The "Twilight" ball was nominated as one of the top 25 new products introduced
by sporting goods manufacturers, and has been selected as one of five finalists
for new product of the year. We'll know the final outcome in June.
DEVELOPING BRANDS AND EXPANDING CHANNELS OF DISTRIBUTION
Huffy Bicycle Company has developed the strongest brand and license portfolio in
the bicycle industry and its new line of bicycles is the strongest in the
industry.
Continuous rapid improvement made a substantial contribution in reducing
operational costs during 1999, with costs reductions, aside from the bicycle
restructuring, aggregating $ 3.9 million.
INGRAIN CONTINUOUS RAPID IMPROVEMENT THROUGHOUT THE HUFFY CULTURE
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Continuous Rapid Improvement made a substantial contribution in reducing
operational costs during 1999, with cost reductions of over $23.0 million driven
by the bicycle restructuring and other aggressive actions in all businesses.
This bodes well for the year 2000 results.
INTEGRATE ACQUISITIONS WHICH COMPLEMENT EXISTING BUSINESSES
Inventory Auditors, Royce Union, and American Sports Design have been fully
integrated into their respective organizations
CONTINUE TO INVEST IN THOSE BUSINESSES IN WHICH WE CAN BE MARKET LEADERS
Washington inventory service had its fourth consecutive year of record sales and
earnings.
Let me pause at this point to mention that we have a tradition of recognizing
"record" performance. We now continue that tradition by recognizing Washington
Inventory Service. Washington Inventory Service had another record year in 1999,
and for the fourth consecutive year achieved record sales and record earnings.
The recipient of the record earnings award for 1999 on behalf of Washington
Inventory Service - and its employees - is Mr. Ed Tonkon - President and General
Manager - Ed, please stand and be recognized.
Huffy Service First had record sales and its second best earnings year ever.
Huffy Sports Company was able, through excellent cost control and supply chain
management, to increase earnings by almost 10%, despite an overall softness in
the sporting goods industry that adversely impacted sales for the year.
Traditionally, each year, Huffy Corporation recognizes one of our companies for
outstanding achievement in financial performance. Criteria considered include
earnings, return on net assets and achievement of profit plan targets.
In 1999, two companies tied in their aggregate score, and we have co-recipients
of the Company of the Year award, Huffy Service First and Huffy Sports. The
recipients of the company of the year award for 1999 on behalf of Huffy Service
First and Huffy Sports - and their employees - are Mr. Paul D'Aloia and Mr.
Randy Schickert - Paul and Randy - please stand and be recognized.
Also, as a tradition, we recognize a manager of the year. Those eligible are
from the corporate and company staffs. There is one nominee from each company
and one from corporate. This is a very selective award. Nominees are selected by
their peers and the winner is chosen by a vote of all the corporate officers and
all the company presidents. For 1999, Huffy Corporation's manager of the year is
Stephen J. Pohlman, Vice President, Controller for Huffy Service First. Steve is
a valued member of the Huffy Service First team and his efforts have contributed
significantly to the ongoing success of Huffy Service First.
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Please join me in congratulating Steve on earning this very important
recognition. Steve please stand.
EVALUATE THE STRATEGIC MIX OF THE HUFFY CORPORATION PORTFOLIO
Obviously, we are highly dissatisfied with our current stock price. Management
and the board is totally dedicated to implementing additional operational and
strategic actions to enhance shareholder value over the coming months.
In September of last year, we announced that PaineWebber has been engaged by the
Board of Directors to evaluate the strategic mix of the Huffy Corporation
portfolio of companies and to explore alternatives for value creation. Since the
beginning of this year, the level of activity in this area has accelerated and
it is one of the Corporation's key priorities. To date, we are not at a point
where we can make further public announcements, but will certainly do so at the
appropriate time.
Last, but not least, we successfully refinanced the company in January of this
year, putting in place credit facilities and term loans totaling $175 million.
Let me briefly recap 1999 financial performance. In the Services for Retail
segment, net sales grew to a record $221 million, an increase of nearly 12%
versus net sales in the segment for 1998. Record sales achieved at both
Washington Inventory Service and Huffy Service First fueled sales growth. We
expect the strong sales growth in this segment to continue in 2000. Record
earnings were achieved in 1999, driven by Washington Inventory Service's fourth
consecutive year of record earnings and the second best earnings year in the
history of Huffy Service First. Strong earnings for 1999 reversed the slight
down turn realized in 1998 and continue this segment's earnings growth pattern.
We expect the earnings growth trend in the Services for Retail segment to
accelerate in 2000. The first quarter was a very strong start.
Huffy bicycles and Huffy Sports both maintained their #1 market position in
spite of weak sporting goods sales, in general, coupled with unprecedented price
deflation in the bicycle market place. Huffy Sports Company's strong performance
was offset by severe pricing pressure in the bicycle market. We have experienced
a substantial earnings turnaround in this segment in the first quarter of 2000.
We expect this positive trend to continue and accelerate as we move throughout
the year.
Consolidated net sales, for the total corporation, declined by 4% in 1999,
driven primarily by the Huffy Bicycle Company. In spite of the unfavorable sales
pressures in the bicycle business, each Huffy Company maintained or strengthened
its #1 or #2 industry position.
Earnings per share for 1999, prior to reconfiguration and refinancing charges,
for the total corporation, was very disappointing, as a result of the Huffy
Bicycle Company performance.
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Let's take a look at what's in store for 2000. Washington Inventory Service
continues to deliver sales and earnings growth for the corporation, and is on
track to achieve record sales and earnings in 2000 for the fifth consecutive
year. A number of key actions taken by management are contributing to their
enhanced performance:
- - The NexGen inventory software is increasing productivity by
reducing the time required to compile data from inventory takes,
- - A recently implemented retention program has increased the number
of experienced employees available to work on major accounts,
- - A focus on employee retention is bringing turn-over and training
costs down, adding to productivity increases,
- - and, finally, international sales which grew by nearly 400% in
1999, are expected to continue to grow in 2000.
Huffy Service First has continued to leverage its nationwide service
infrastructure to develop new services beyond its core in-store assembly
business. The merchandising business continues to grow as a separate line of
business and is rapidly approaching the critical mass necessary to deliver
profitable operating results. We expect merchandising to be solidly profitable
in 2000. The in-home assembly business has achieved significant growth and is
now well positioned to capitalize on the growing market created by the growth of
internet sales and the resultant opportunities for in-home assembly. Please
visit Huffy Assembly Solutions at its web site www.huffyassemblysolutions.com
Moving to our sporting goods companies, Huffy Sports Company, the industry's
recognized innovation leader, continues to introduce revolutionary new products
to the market place. The new Satellite(TM) line of battery powered lighted
backboards extends playing time into the evening hours. To complement the
Satellite(TM) backboard, Huffy Sports introduced the new Twilight(TM) line of
lighted balls at the super show in Atlanta in early spring.
The revolutionary technology of the lighted membrane and the counter weighting
system employed in the Twilight(TM) line of basketballs, footballs and soccer
balls allows play after dark without disturbing the handling and playability of
the balls. These new balls are available at retailers in early May.
Now let's take a look at what's in store in 2000 for the Huffy Bicycle Company.
Behind me on the screen is a slide showing one model of the new X-Games bikes.
The X-Games brand captures the culture, the attitude and the adrenaline rush
that speaks to both the doers and viewers of these aggressive sports.
The X-Games brand, launched in early spring, could be the hottest selling new
brand in the market place. Through March, sales to one retailer alone have
already exceeded the sales volume planned for the entire year. The brand will be
made
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available to other retailers later this year, and offers another opportunity to
build on the early success of the X-Games launch.
Time does not allow me to go through the entire brand portfolio in bicycles.
However, another example of how Huffy Bicycles is approaching the market place
in 2000 through its value package of design, brands and licenses is this
Kawasaki model. Targeted at teens and young adults who recognize and identify
with the high performance imagery of Kawasaki, the Kawasaki line brings the
cachet of the Kawasaki motorcycle to bicycling. In addition to X-Games and
Kawasaki let me briefly click through Huffy bicycles other brands Ironman, Union
Flyer, Rebike, Looney Tunes and Rugrats. [slides photos of bikes shown] Through
market positioning and the targeted brand portfolio developed, Huffy Bicycle
Company is off to a very strong start in 2000.
The Huffy companies are using the Internet and the world of e-commerce to reach
the consumer. You can buy Huffy bicycles and Huffy basketball systems on-line,
either at our own web sites or through links on web sites such as fogdog.com,
mvp.com, globalsports.com, cbssportsline.com.etc .
An exciting example of e-commerce is American Sports Design, which operates
almost exclusively through the Internet. The Airborne brand is targeted towards
the professional or competitive cyclist who is seeking the ultimate in cycling
equipment. On the airborne.net web site, the customer can select any number of
titanium frames and high end components to create a unique, custom designed
bicycle to their exact individual specifications.
In March, ASD announced the Airborne Affiliates Program, offering other internet
retailers the opportunity to create a free link to the airborne.net site and to
earn commissions on Airborne products sold through their sites.
Please take a moment to visit airborne at www.airborne.net
In summary, we will continue to pursue our strategic course, set over the past
several years, to move Huffy Corporation into the 21st century:
- - Capitalizing on product and service innovation for internal growth
- - Developing brands and expanding channels to improve profitability.
- - Ingraining continuous rapid improvement (cri) into the huffy culture.
- - Managing the organization to maximize earnings and cash generation.
- - Bring the process to evaluate strategic alternatives to a successful
conclusion
In closing the business review, I must say that we are not without our
challenges. Fierce competition, price deflation, softness in certain segments in
which we compete continue to exert pressure on our sales and earnings.
However, we believe that our progress in implementing the right strategies,
retaining the right people and creating the right culture has positioned Huffy
Corporation for success in 2000 and beyond.
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EXHIBIT 99.2
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), Huffy Corporation (the
"Company") is hereby filing cautionary statements identifying important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements of the Company made by or on behalf of
the Company, whether oral or written. The Company wishes to ensure that any
forward-looking statements are accompanied by meaningful cautionary statements
in order to maximize to the fullest extent possible the protections of the safe
harbor established in the Reform Act. Accordingly, any such statements are
qualified in their entirety by reference to, and are accompanied by, the
following important factors, among others, that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
of the Company made by or on behalf of the Company. The Company cautions that
the following important factors, among others (including but not limited to
factors mentioned from time to time in the Company's reports filed with the
Securities and Exchange Commission), could affect the Company's actual results
and could cause the Company's actual consolidated results to differ materially
from those expressed in any forward-looking statements of the Company made by or
on behalf of the Company:
o Risks inherent in new product introductions, particularly the
uncertainty of price-performance relative to products of competitors,
including competitors' responses to the introductions;
o Under utilization of the Company's operating facilities resulting in
production inefficiencies and higher costs;
o Changes in levels of competition from current competitors and potential
new competition from international manufacturers;
o Loss of a significant vendor, prolonged disruption of material supply
chain, or significant increase in the cost of raw materials, supplies,
fuel, utilities, and other related energy costs;
o Changes in the Federal income tax rules and regulations or
interpretation of existing legislation;
o Changes in the cost or availability of labor sufficient to support the
Company's operations or labor strikes, work stoppages or other
interruptions or difficulties in the employment of labor where the
Company purchases material, components and supplies for its products or
where its products and services are produced or provided;
o Existence of competitive pricing pressures in several of the product
categories of the Company, which has had and may in the future have an
adverse effect on the Company's revenues and earnings;
o The loss or bankruptcy of one or more key customers, or significant
changes in the structure and composition of retailing in the United
States;
o Changes in consumer demand for the Company's products resulting from
prolonged periods of unseasonable weather;
o Changes in customer preferences or behavior that change their demand
for the Company's products or services.
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related,
or criminal), settlements and investigations, claims, and changes in
those items; developments or assertions by or against the Company
relating to intellectual property rights and intellectual property
licenses; adoption of new, or changes in, accounting policies and
practices and the application of such policies and practices;
o Changes in the general economic conditions in the United States
including, but not limited to, the levels and availability of consumer
debt, the level of interest rates, and consumer sentiment about the
economy in general.
The factors included here are not exhaustive. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company will not undertake, and specifically declines, any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of anticipated or
unanticipated events. New factors emerge from time to time and it is not
possible for management to predict all of such factors, nor can it assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Therefore, forward-looking
statements should not be relied upon as a prediction of actual future results.
