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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, 2001
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Byers Road, Miamisburg, Ohio 45342
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(Address of principal executive offices) (Zip Code)
(937) 866-6251
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(Registrant's telephone number, including area code)
No Change
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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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: 10,294,725 as of August 13, 2001
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS COMPANY FOR WHICH REPORT IS FILED:
--------------------
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar Amounts in Thousands, Except Per Share Data)
(unaudited)
Three Months Ended Six Months Ended
--------------------------------- ------------------------------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
-------------- -------------- ---------------- ----------------
Net sales $ 86,864 $ 122,029 $ 168,107 $222,097
Cost of sales 74,787 104,965 144,395 $ 190,271
-------------- -------------- ---------------- ----------------
Gross profit 12,077 17,064 23,712 31,826
Selling, general and administrative expenses 11,089 11,601 21,132 24,496
Plant closure and manufacturing reconfiguration - 1,610 - 3,328
-------------- -------------- ---------------- ----------------
Operating income 988 3,853 2,580 4,002
Other expense (income)
Interest expense 348 2,614 916 4,555
Interest income (262) (76) (424) (48)
Other (337) (124) (754) (136)
-------------- -------------- ---------------- ----------------
Earnings (loss) before income taxes 1,239 1,439 2,842 (369)
Income tax expense 471 803 1,080 116
-------------- -------------- ---------------- ----------------
Earnings (loss) from continuing operations 768 636 1,762 (485)
-------------- -------------- ---------------- ----------------
Discontinued operations:
Earnings from discontinued operations, net of - 3,875 - 4,704
income tax expense of $1,962 and $2,470
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $519 - - - (848)
-------------- -------------- ---------------- ----------------
Net earnings $ 768 $ 4,511 $1,762 $ 3,371
============== ============== ================ ================
Earnings per common share:
Basic:
Weighted average number of common shares 10,255,057 10,171,570 10,243,307 10,168,012
============== ============== ================ ================
Earnings (loss) from continuing operations $ 0.07 $ 0.06 $0.17 $(0.05)
Earnings from discontinued operations - 0.38 - 0.46
Extraordinary loss from early
extinguishment of debt - - - (0.08)
-------------- -------------- ---------------- ----------------
Net earnings per common share $0.07 $0.44 $0.17 $0.33
============== ============== ================ ================
Diluted:
Weighted average number of
common shares 10,502,865 10,265,031 10,491,116 10,253,238
============== ============== ================ ================
Earnings (loss) from continuing operations $ 0.07 $ 0.06 $0.17 $(0.05)
Earnings from discontinued operations - 0.38 - 0.46
Extraordinary loss from early
extinguishment of debt - - - (0.08)
-------------- -------------- ---------------- ----------------
Net earnings (loss) per common share $ 0.07 $ 0.44 $0.17 $0.33
============== ============== ================ ================
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HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
June 30, December 31,
2001 2000
(Unaudited)
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ASSETS
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Current assets:
Cash and cash equivalents $ 16,948 $ 4,334
Accounts and notes receivable, net 47,273 79,811
Inventories 35,654 43,324
Prepaid expenses and federal income taxes 27,607 28,344
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Total current assets 127,482 155,813
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Property, plant and equipment, at cost 44,716 43,421
Less: Accumulated depreciation and amortization 32,870 30,741
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Net property, plant and equipment 11,846 12,680
Excess of cost over net assets acquired, net 8,401 8,764
Other assets 4,798 3,236
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$ 152,527 $ 180,493
==================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ - $ 17,656
Current installments of long-term obligations - -
Accounts payable 27,408 28,015
Accrued expenses and other current liabilities 33,127 43,999
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Total current liabilities 60,535 89,670
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Long-term obligations, less current installments - -
Other long-term liabilities 17,142 17,692
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Total liabilities 77,677 107,362
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Shareholders' equity:
Common stock 16,721 16,704
Additional paid-in capital 66,072 66,204
Retained earnings 84,661 83,557
Accumulative comprehensive income (2,347) (2,676)
Less: cost of treasury shares 90,257 90,658
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Total shareholders' equity 74,850 73,131
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$ 152,527 $ 180,493
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HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
Six Months Ended
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June 30, 2001 July 1, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations $ 1,762 $ (485)
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 2,600 2,673
Gain on sale of property, plant and equipment - (312)
Extraordinary charge for early extinguishment of debt - (848)
Deferred federal income tax expense 991 -
Changes in assets and liabilities:
Accounts and notes receivable, net 32,538 (21,286)
Inventories 7,670 (7,144)
Prepaid expenses and federal income taxes (254) (1,169)
Other assets (1,563) (1,928)
Accounts payable (607) 7,354
Accrued expenses and other current liabilities (10,872) (6,231)
Other long-term liabilities (879) 2,430
Other - 154
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Net cash provided by (used in) continuing operating activities 31,386 (26,792)
Discontinued operations:
Earnings from discontinued operations - 4,704
Items not affecting cash, net - 2,092
Cash used in discontinued operations - (9,868)
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Net cash used in discontinued operating activities - (3,072)
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Net cash provided by (used in) operating activities 31,386 (29,864)
============================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,402) (1,492)
Acquisition of businesses - -
Proceeds from sale of property, plant and equipment - 1,526
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Net cash provided by (used in) investing activities (1,402) 34
============================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (17,656) 21,839
Reduction of long-term debt - (60,229)
Issuance of long-term debt - 50,704
Issuance of common shares 286 69
Dividends paid - (856)
------------------- ------------------
Net cash provided by (used in) financing activities (17,370) 11,527
============================================================================================================================
Net change in cash and cash equivalents 12,614 (18,303)
Cash and cash equivalents:
Beginning of the year 4,334 20,190
------------------- ------------------
End of the six month period $ 16,948 $ 1,887
============================================================================================================================
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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, 2000, 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, 2001. All such adjustments are of a normal recurring nature.
Note 2: On July 16, 2001, the company executed a definitive agreement to
purchase the trademarks and selected cycling assets of Schwinn/GT
Corp. Under the terms of the agreement, Huffy will pay an amount
estimated to be in excess of $60.0 million for the brands and
trademarks of Schwinn/GT and for the inventory, accounts receivable
and certain other assets of the cycling business.
Schwinn/GT has commenced proceedings under Chapter 11 of the U.S.
Bankruptcy Code. In accordance with Section 363 of the Bankruptcy
Code, other companies will have an opportunity to submit bids through
a court supervised competitive bidding process.
On August 3, 2001, the United States Bankruptcy Court for the
District of Colorado issued an order accepting Huffy Corporation's
contract with Schwinn/GT as the baseline bid for certain cycling
assets of Schwinn/GT Corp. and approving the bidding protections and
breakup fee requested by Huffy Corporation. The accelerated waiting
period under the Hart-Scott-Rodino Act expired on August 2, 2001
without comment, allowing a sale to Huffy Corporation to proceed
without further Federal Trade Commission or Department of Justice
action or approval.
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and 142, Goodwill and Other Intangible Assets. SFAS 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 142
requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at
least annually in accordance with SFAS No. 142. SFAS No. 142 also
requires that intangible assets with estimable useful lives be
amortized over the respective estimable useful life to their
estimated residual values, and reviewed for impairment in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. As the potential
acquisition of the assets of Schwinn/GT Corp. is in the early stages,
the impact of SFAS No. 141 and 142 on the consolidated financial
statements is not yet determinable.
Note 3: Inventories of Huffy Bicycle Company and Huffy Sports Company are
at cost (not in excess of market) determined by the FIFO method. The
components of inventories are as follows:
June 30, December 31,
2001 2000
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Finished Goods $30,234 $39,284
Work-in-Progress 148 147
Raw Materials & Supplies 5,272 3,893
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$35,654 $43,324
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Note 4: During the fourth quarter of 1999, the Company closed its remaining
domestic bicycle manufacturing facilities in Farmington, Missouri and
Southaven, Mississippi and reconfigured its bicycle operations.
During the first quarter of 2000, the Company increased imports from
a global network of sourcing partners to offset this loss of
production capacity. Closing the plants eliminated the costs required
to operate the facilities and completed Huffy Bicycle Company's
transformation from a single brand manufacturer and marketer of
bicycles, to a multi-brand design, marketing and distribution
company. During the second quarter of 2000, reconfiguration charges
included severance and related benefits ($239); and facility shutdown
and related costs ($1,371). During the first half of 2000,
reconfiguration charges included severance and related benefits
($872); and facility shutdown and related costs ($2,456).
Note 5. The Company classifies its operations into a single integrated
business segment.
Note 6: The Company adopted SFAS 133 as of January 1, 2001, which did not
have a material impact on the Company's financial position or results
of operations. The Company's use of derivative financial instruments
is de minimis.
Note 7: The components of comprehensive income are immaterial and are
therefore not disclosed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2001
COMPARED TO THE
THREE AND SIX MONTHS ENDED JULY 1, 2000
(Dollar Amounts in Thousands, Except Per Share Data)
NET EARNINGS
------------
For the second quarter of 2001, Huffy Corporation ("Huffy" or "Company") had net
earnings from continuing operations of $768, or $0.07 per common share, versus
$636 or $0.06 for the same period last year. Earnings for the second quarter of
2000 include a pretax charge of $1,610, or approximately $0.10 per common share,
for the reconfiguration of the bicycle business. The second quarter 2000 net
earnings from discontinued operations were $3,875, or $0.38 per common share.
For the six months ended June 30, 2001, net earnings from continuing operations
were $1,762, or $0.17 per common share, compared to a loss of $485, or $0.05 per
common share, in the first half of 2000. The first half of 2000 included a
pretax charge of $3,328, or $0.21 per common share, for charges related to the
bicycle reconfiguration and a pretax charge of $541, or $0.03 per common share
for refinancing charges. An extraordinary loss of $848, or $0.08 per common
share, related to early debt extinguishments, was also recorded in the first six
months of 2000.
NET SALES
---------
Consolidated net sales for the quarter ended June 30, 2001 were $86,864, a
decrease of 28.8% over sales of $122,029 for the same quarter in 2000. This
sales decrease was the result of a weakened economy and significant inventory
reduction programs at the retail level. Although sales at the Huffy Bicycle
Company and Huffy Service First were below the prior year, the Huffy Sports
Company experienced improved sales during the second quarter of 2001 with sales
of 17.7% over the same period last year.
For the six months ended June 30, 2001, consolidated net sales were $168,107, a
decrease of 24.3% from $222,097 in the same period last year. Continuing
weakness in the overall economy and retail environment coupled with unfavorable
product mix shifts toward lower priced bicycles, and decreased demand for
scooters hampered sales in first half of 2001. Lower bicycle sales also created
weaker demand for assembly services during the first half of 2001.
GROSS PROFIT
------------
Gross profit for the quarter ended June 30, 2001 was $12,077, or 13.9% of net
sales, compared to $17,064, or 14.0% of net sales, for the quarter ended July 1,
2000. Huffy Sports Company provided a strong margin contribution during the
second quarter. That contribution, along with aggressive cost control throughout
the Company offset weaker margins at the Bicycle and Service companies.
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For the first six months of 2001, gross profit was $23,712, or 14.1% of net
sales, compared to $31,826, or 14.3% of net sales, last year. Although year to
date margins were unfavorably impacted by product mix and volume, they remained
nearly flat with last year due to ongoing cost reduction efforts and aggressive
foreign sourcing programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses were $11,089 for the second quarter
of 2001, compared to $11,601 for the same period in 2000. This result was driven
by lower volume related selling expenses and strong cost controls implemented
during the second half of 2000 and 2001.
Selling, general and administrative expenses for the first half of 2001 were
$21,132 versus $24,496 in the first six months of 2000. These lower current year
expenses are reflective of steps taken in 2000 to properly align SG&A expense
with the revised operating structure.
NET INTEREST EXPENSE
--------------------
Interest costs for the second quarter of 2001 dropped to $86 from $2,538 for
the same period last year. The Company has been in an investing position since
the first quarter and 2001 interest costs represent the amortization of
financing costs, letter of credit and non-usage revolver charges.
During the first half of 2001, cash flow from operations were sufficient to
repay all outstanding debt, and to generate a positive cash balance of $16,948
on June 30, 2001. In addition, the amended loan facility, put in place in
January 2001, reduced incremental borrowing rates.
SCHWINN/GT CORP. ACQUISITION
----------------------------
On July 16, 2001, the company executed a definitive agreement to purchase the
trademarks and selected cycling assets of Schwinn/GT Corp. Under the terms of
the agreement, Huffy will pay an amount estimated to be in excess of $60.0
million for the brands and trademarks of Schwinn/GT and for the inventory,
accounts receivable and certain other assets of the cycling business.
Schwinn/GT has commenced proceedings under Chapter 11 of the U.S. Bankruptcy
Code. In accordance with Section 363 of the Bankruptcy Code, other companies
will have an opportunity to submit bids through a court supervised competitive
bidding process.
On August 3, 2001, the United States Bankruptcy Court for the District of
Colorado issued an order accepting Huffy Corporation's contract with Schwinn/GT
as the baseline bid for certain cycling assets of Schwinn/GT Corp. and approving
the bidding protections and breakup fee requested by Huffy Corporation. The
accelerated waiting period under the Hart-Scott-Rodino Act expired on August 2,
2001 without comment, allowing a sale to Huffy Corporation to proceed without
further Federal Trade Commission or Department of Justice action or approval.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations, and 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually in accordance with SFAS No. 142. SFAS No. 142 also
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requires that intangible assets with estimable useful lives be amortized over
the respective estimable useful life to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. As
the potential acquisition of the assets of Schwinn/GT Corp. is in the early
stages, the impact of SFAS No. 141 and 142 on the consolidated financial
statements is not yet determinable.
SALE OF WASHINGTON INVENTORY SERVICE
------------------------------------
On November 3, 2000, the Company sold its Washington Inventory Service
subsidiary to WIS Acquisition Corp., a subsidiary of WIS Holdings Corp.,
pursuant to a previously announced Agreement and Plan of Reorganization dated
September 20, 2000, for $84,750 cash, subject to certain post-closing
adjustments. The results for Washington Inventory Service have been classified
as discontinued operations in the Consolidated Statement of Earnings. The
Company applied the proceeds from the sale, net of expenses, to repayment of all
of its senior notes and senior subordinated notes and a portion of its revolving
credit facility.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
On January 31, 2001, the Company entered into an Amended and Restated Loan and
Security Agreement. The $75 million revolving credit facility is secured by all
assets of the Company and its affiliates and will expire on December 31, 2002,
with a 12-month renewal option.
As of June 30, 2001, the Company had $52,471 available on its revolving credit
facility and had no outstanding balance. The Company expects existing cash, cash
flow from operations, and its revolving credit facility will be sufficient to
finance seasonal working capital needs and capital expenditures in the coming
year.
ENVIRONMENTAL
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Environmental expenditures that relate to current operations are expensed or
capitalized as appropriate. Remediation costs that relate to an existing
condition caused by past operations are accrued when it is possible that these
costs will be incurred and can be reasonably estimated.
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 Main San
Gabriel Basin Watermaster, 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. Based upon information currently available, the Company believes it is
unlikely that it will incur substantial previously unanticipated costs as a
result of failure by other PRPs to satisfy their responsibilities for
remediation costs.
The Company has recorded environmental accruals, based upon the information
available, that are adequate to satisfy known remediation requirements. The
total accrual for estimated environmental remediation costs related to the
Superfund site and other potential environmental liabilities was approximately
$7,865 at June
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30, 2001. This accrual has not been discounted, and management expects that the
majority of expenditures relating to costs currently accrued will be made over
the next year. As a result of factors such as the continuing evolution of
environmental laws and regulatory requirements, the availability and application
of technology, the identification of presently unknown remediation sites, and
the allocation of costs among potentially responsible parties, estimated costs
for future environmental compliance and remediation are necessarily imprecise
and it is not possible to fully predict the amount or timing of future
environmental remediation costs which may subsequently be determined.
Based upon information presently 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.
IMPACT ON RECENTLY ISSUED ACCOUNTING STANDARDS
In July, 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Tangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that all
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with FAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of.
The Company is required to adopt the provisions of Statement 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001, and
Statement 142 effective January 1, 2001. Furthermore, goodwill and intangible
assets determined to have an indefinite useful life acquired in a purchase
business combination completed after June 30, 2001, but before Statement 142 is
adopted in full, will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-Statement 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized and tested for
impairment in accordance with the appropriate pre-Statement 142 accounting
requirements prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired,
and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim
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period.
In connection with Statement 142's transitional goodwill impairment evaluation,
the Statement will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.
As of the date of adoption, the Company expects to have unamortized goodwill in
the amount of $8,038, which will be subject to the transition provisions of
Statements 141 and 142. Amortization expenses related to goodwill was $726 and
$362 for the year ended December 31, 2000 and the six months ended June 30,
2001, respectively. Because of the extensive effort needed to comply with
adopting Statement 141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the Company's financial statements at the
date of this report, including whether it will be required to recognize any
transitional impairment losses as the cumulative effect of a change in
accounting principle.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
The Company along with numerous California water companies and other potentially
responsible parties ("PRPs") for the Baldwin Park Operable Unit of the San
Gabriel Valley Superfund (see Note 10 to the Company's financial statements in
Exhibit 13 of the Company's report on form 10K, dated March 6, 2001) have been
named in thirteen civil lawsuits which allege claims related to the contaminated
groundwater in the Azusa, California area (collectively, the "San Gabriel
Cases").
As of January 2001, the cases have been stayed for a variety of reasons,
including a number of demurrers and writs taken in the Appellate Division,
relating primarily to the California Public Utilities Commission ("PUC")
investigation described below. The resulting Appellate Division decisions are
currently under review by the California Supreme Court, and thus a stay is still
technically in place over all of the aforementioned cases. The court had also
ordered that a stay of certain of the cases would remain in place until such
time as a coordination judge was formally assigned to those cases. The
Coordination Judge assignment took place in January 2001, and thus, the explicit
stay was lifted. However, the cases remain inactive as the California Supreme
Court continues its consideration of the demurrers and writs.
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On March 12, 1998, the PUC commenced an investigation in response to the
allegations in the toxic tort actions that "drinking water delivered by the
water utilities caused death and personal injury to customers." The PUC's
inquiry addressed two broad issues central to these allegations: 1) "whether
current water quality regulation adequately protects the public health;" and 2)
"whether respondent utilities are (and for the past 25 years have been)
complying with existing drinking water regulation." On November 2, 2000, the PUC
issued its Final Opinion and Order Resolving Substantive Water Quality Issues.
Significantly, the Order finds, in pertinent part, that: 1) "existing maximum
contaminant level ("MCLs") and action level ("ALs") established by the DHS are
adequate to protect the public health;" 2) "there is a significant margin of
safety when MCLs are calculated so that the detection of carcinogenic
contaminants above MCLs that were reported in this investigation are unlikely to
pose a health risk;" 3) based upon its comprehensive review of 25 years of
utility compliance records, that for all periods when MCLs and ALs for specific
chemicals were in effect, the PUC regulated water companies complied with DHS
testing requirements and advisories, and the water served by the water utilities
was not harmful or dangerous to health; and 4) with regard to the period before
the adoption by DHS of MCLs and ALs, a further limited investigation by the PUC
Water Division will be conducted.
The toxic tort cases are in their initial stages. Thus, it is impossible to
currently predict the outcome of any of the actions. Based upon information
presently 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.
ITEM 5: OTHER INFORMATION
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits - The exhibits, as shown in the "Index of Exhibits" attached
hereto, are to be filed as a part of this report
b. The Company filed three reports on Form 8-K dated July 2, 2001, July 16,
2001, and July 17, 2001 with the Securities and Exchange Commission
regarding a work stoppage at its Huffy Sports, Sussex, WI facility; the
offer to purchase the Schwinn/GT assets; and earnings for the second
quarter, 2001, respectively.
Please see the Company's meaningful cautionary statements regarding forward
looking statements contained in the Company's report on Form 10-K filed with the
Securities and Exchange Commission on March 6, 2001 which is hereby incorporated
herein by reference.
13
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 13, 2001 /s/ Timothy G. Howard
-------------------------- ---------------------------------
Date Timothy G. Howard
Vice President - Corporate Controller
(Principal Accounting Officer)
14
INDEX OF EXHIBITS
Exhibit
No. Item
------- --------------------------------------------------------------
(2) Incorporated by reference to Form 8-K, dated July 16, 2001
(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
(99) Not applicable