Huffy Corporation announced a net loss of $11.8 million or $0.74 per common share for the fourth quarter of 2003 compared to a loss of $4.2 million or $0.29 per common share reported in the fourth quarter of 2002. The loss from continuing operations was $10.7 million or $0.67 per common share compared to earnings from continuing operations of $0.8 million or $0.05 per common share reported for the same period last year.
During the fourth quarter, the Company recorded an after-tax loss from discontinued operations totaling $1.1 million or $0.07 per common share, consisting of both an operating loss and a loss on disposal related to the sale of the Volant ski assets. The Company recorded an after-tax charge to earnings for discontinued operations in the fourth quarter of 2002 of $5.0 million or $0.34 per common share. Included in this charge is net income of $0.2 million, net of tax, related to the 2002 operating results of the Volant ski business, for the period post- acquisition, which has been reclassified to discontinued operations in order to conform to the 2003 presentation.
For the year ended December 31, 2003, the Company posted a net loss of $7.5 million, or $0.49 per common share compared to a net loss for the year ended December 31, 2002 of $1.4 million or $0.12 per common share, which included an after-tax charge to earnings from discontinued operations of $5.7 million or $0.48 per common share. The loss from continuing operations for the period ended December 31, 2003 was $7.5 million or $0.49 per common share, compared to earnings from continuing operations of $4.3 million or $0.36 per common share for the prior year.
Net sales for the fourth quarter were $121.0 million compared to sales of $123.0 million reported for the fourth quarter of 2002, a decrease of approximately 2%. For the full year 2003, net sales were $437.7 million, compared to net sales of $369.8 reported for the previous year, an increase of approximately 18%. Consolidated gross margins for the fourth quarter of 2003 were 11.0% compared to gross margins of 16.7% for the same period in 2002. For the full year, consolidated gross margins were virtually unchanged at 17.9% compared to the gross margin of 17.7% reported for the previous year.
Commenting on results, Paul R. D'Aloia, President and CEO said, “Fourth quarter sales came in within the range we anticipated. However, the sales decline compared to fourth quarter last year and the net loss for the quarter and the year are unacceptable. Before I detail significant changes being implemented to address 2003, let me note the positive accomplishments during the year. The service to retail segment finished the year with sales up by 4.1 percent over 2002, and earnings before interest and taxes of $3.7 million, a substantial improvement over the results posted in 2002. The bicycle, snowboard and golf product lines all finished the year with solid earnings and in the case of golf and snowboards, strong revenue growth. Conversely, the basketball backboards, in-line skates, and action sports product lines saw significant declines in both sales and margins when compared to last year, along with overall selling and administrative expenses well above acceptable levels.”
D'Aloia continued, “Since I moved into the COO role in August, the management team and I have been evaluating alternatives designed to transition the Company to a more profitable operating platform. Although the Company began consolidating its finance and human resource functions into a shared service group in 2002, it now intends to further consolidate its management, sales, marketing, procurement, logistics and customer service functions. After consideration of various alternatives, we believe that Huffy will be better positioned to serve its customers through further consolidation of its sporting goods business. The sporting goods division will continue to include all of the existing product lines, but will be rationalized further along functional lines with senior management responsible for product design and development, sales, marketing, procurement, distribution, finance and administrative functions headquartered in the Dayton area. The services to retail division will continue to operate as an independent business under its current management.”
D'Aloia concluded, “As we move through this process we will continue to evaluate the strategic fit of our businesses and products. We anticipate that over the next six to nine months, we will reduce the existing work force by approximately twenty percent or slightly more than a hundred people, with the majority of the workforce reduction at Gen-X. Although it is early and the figures are preliminary, we estimate that the costs associated with reconfiguring the business platform will be in the range of $4.0 to $6.0 million, with the bulk of these costs occurring during the second quarter of 2004. We expect the plan to be fully implemented by the end of the third quarter, resulting in a reduction of annual operating costs in the range of $7.0 to $9.0 million.”
Robert W. Lafferty, Vice President and Chief Financial Officer commented, “Earlier this year we indicated that certain financial covenants had been amended to reflect lower sales and earnings projections. As these covenants are based on twelve-month cumulative results, we initiated discussions with Congress Financial to insure that the sizable shortfall in 2003 earnings would not precipitate an event of default under the reset covenants going forward. Congress and the lender group have agreed to enter into and are finalizing an amendment which excludes certain charges from the cumulative twelve-month calculation for December 2003. Based on preliminary January results, we do not anticipate difficulty in remaining in compliance with the reset covenants. Management believes that the loan facility provides adequate liquidity to fund the Company's operations.
For the year 2004, the Company expects sales will be in the range of $450 million to $460 million, with earnings per common share, including the impact of costs related to restructuring, in the range of $0.22 to $0.27 per common share.
HUFFY CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share data) Quarter Ended Twelve Months Ended December 31, December 31, 2003 2002 2003 2002 Net sales $120,986 $122,958 $437,676 $369,784 Gross profit 13,351 20,586 78,258 65,573 % to net sales 11.0% 16.7% 17.9% 17.7% Selling, general and administrative expenses 22,337 20,173 79,872 57,374 Operating income (loss) (8,986) 413 (1,614) 8,199 Other expense Interest expense, net 1,780 780 5,627 1,688 Other (440) 251 (730) 1,636 1,340 1,031 4,897 3,324 Earnings (loss) before income taxes (10,326) (618) (6,511) 4,875 Income tax expense (benefit) 327 (1,385) 966 540 Net earnings(loss) from continuing operations (10,653) 767 (7,477) 4,335 Discontinued operations: Income (loss) from discontinued operations, net of income tax expense (benefit). (1,139) (4,990) 22 (5,713) Net loss ($11,792) ($4,223) ($7,455) ($1,378) DILUTED: Earnings (loss) from continuing operations (0.67) 0.05 (0.49) 0.36 Earnings (loss) from discontinued operations (0.07) (0.34) 0.00 (0.48) Net loss per common share (0.74) (0.29) (0.49) (0.12)