FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to __________
Commission file number 1-5325
HUFFY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 31-0326270
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Byers Road, Miamisburg, Ohio 45342
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (937) 866-6251
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Common Stock, $1.00
Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by
non-affiliates of the registrant, as of February 1, 1999, was
$162,616,472.
The number of shares outstanding of each of the registrant's
classes of Common Stock, as of February 1, 1999, was 11,798,584.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
ITEM 1. BUSINESS
Huffy Corporation, an Ohio corporation, and its subsidiaries
(collectively called "Huffy" or the "Company") are engaged in the
design, manufacture and sale of Consumer Products and the
furnishing of Services for Retail. The Company's executive offices
are located in Miamisburg, Ohio and its principal business
offices and/or manufacturing facilities are located in San Diego,
California, Farmington, Missouri, Southaven, Mississippi,
Miamisburg, Ohio, Camp Hill and Harrisburg, Pennsylvania, Sussex,
Wisconsin, and Whites Cross, Cork, Ireland.
The general development of business within each business
segment (Consumer Products and Services for Retail) is discussed
in more detail below. See also Note 15 to the Company's financial
statements (included in Exhibit 13 to the Company's Form 10-K,
filed February 11, 1999 for financial information relating to each
such business segment.
CONSUMER PRODUCTS
Huffy Bicycle Company, Huffy Sports Company, Royce Union
Bicycle Company, and True Temper Hardware Company comprise
the Consumer Products segment of the Company. Principal
products within this business segment include bicycles,
basketball backboards and related products, and lawn and
garden tools. Sales of bicycles represented 42.7 percent,
44.4 percent, and 43.2 percent of consolidated revenues of
the Company for the years ended December 31, 1998, 1997,
and 1996. Sales of basketball backboards, poles, goals and
related products represented 12.1 percent, 13.2 percent,
and 12.7 percent of consolidated revenues of the Company
for the years ended December 31, 1998, 1997, and 1996.
Sales of lawn and garden tools represented 17.4 percent,
16.4 percent, and 17.6 percent of consolidated revenues of
the Company for the years ended December 31, 1998, 1997,
and 1996. Although to date the export business is not
significant, the companies in the Consumer Products
segment participate in various foreign markets and are
actively involved in expanding export volume. On April 21,
1997, Huffy sold the assets of Gerry Baby Products Company
and Gerry Wood Products Company to Evenflo Company, Inc.
a. PRODUCTS, MARKETING AND DISTRIBUTION
Huffy Bicycle Company: The Huffy(R) bicycle brand
is the largest selling brand of bicycles sold in
the United States. Huffy(R) bicycles are both
produced by Huffy Bicycle Company, a division of
the Company, whose manufacturing facilities are
located in Southaven, Mississippi and Farmington,
Missouri, and imported from Mexico, Taiwan and
China. While imports account for a substantial
quantity of Huffy(R) bicycles, Huffy Bicycle
Company remains the largest U.S. manufacturer of
bicycles. Included in the Huffy(R) bicycle line
are adult all purpose bicycles; adult all terrain
bicycles; a series of innovative boys' and girls'
20" bicycles; a series of popular children's 12"
and 16" sidewalk bicycles; and tricycles. In
addition, in 1996, the Company purchased the
Rebike business which produces a line of
recumbent style bicycles and in December, 1997,
the Company acquired the assets of Royce Union
Bicycle Company, Inc. which holds a leading
market position in the growing sporting goods
distribution channel. Huffy(R) bicycles
are extensively advertised and are sold
predominantly through national and regional high
volume retailers, a distribution network
accounting for approximately 75 percent of all
bicycles sold in the United States. Approximately
90 percent of Huffy Bicycle Company's bicycles
are sold under the Huffy(R) brand name with the
balance being sold under private label brands.
Huffy Sports Company: Huffy Sports Company, a
division of the Company located in Sussex,
Wisconsin, is a leading supplier of basketball
backboards, poles, goals, and related products
and juvenile indoor portable basketball units for
use at home. In 1997, the Company purchased the
business and assets of Sure Shot(TM)/Hydra-Rib
(TM) which produces basketball units for
institutional and in-arena use. Huffy Sports
Company products, many of which bear the
logo of the National Basketball Association
("NBA") as well as the Huffy Sports(R) trademark,
are sold predominately through national and
regional high volume retailers in the United
States.
True Temper Hardware Company: True Temper
Hardware Company, a wholly-owned subsidiary of
the Company, is headquartered in Camp Hill,
Pennsylvania. True Temper Hardware Company is a
leading supplier of non-powered lawn and garden
tools and snow tools; products include
long-handled shovels, hoes, forks, wheelbarrows,
snow shovels, and rakes for use in the home and
in agricultural, industrial and commercial
businesses. In 1994, True Temper Hardware Company
discontinued manufacturing spreaders and pruning
tools and sold the assets used to produce such
products, including its Anderson, South Carolina
manufacturing facility. Manufacturing facilities
are located in Camp Hill and Harrisburg,
Pennsylvania and Pettisville, Ohio. True Temper
Hardware Company also owns four sawmill
facilities located in Indiana, New York,
Pennsylvania, and Vermont. In addition, True
Temper Limited, an Irish Corporation and a
wholly-owned subsidiary of the Company, has
offices and a manufacturing facility in Whites
Cross, Cork, Ireland. True Temper Hardware
products are sold both directly, and through
wholesale distributors, to national and regional
high volume retailers and hardware stores. Over
88 percent of True Temper Hardware's products are
sold under the True Temper(R) and Jackson(R)
names; the remainder are sold under other names
or under private labels. In 1998, True Temper
Hardware Company acquired the stock of Lantz
Manufacturing Company which manufactures consumer
leaf rakes, snow shovels, lawn edging and splash
blocks. In 1996, True Temper acquired the Meaford
wheelbarrow product line, solidifying True Temper
Hardware Company's position as the manufacturer
of the largest selling brand of wheelbarrows in
North America. During 1994 and 1995, the Company
substantially completed a plan to restructure the
True Temper lawn and garden tool business to
address inefficiencies in the manufacturing
process and to improve future profitability of
True Temper Hardware Company.
b. SUPPLIERS
Basic materials such as raw steel, steel and
aluminum tubing, plastic, wood, fabric, resins,
ash timber, and welding materials used in the
manufacturing operations are purchased primarily
from domestic sources. Alternate sources are
available for all critical products and
components, but the sudden loss of any major
supplier could cause a temporary material
negative effect on the segment's operations.
c. PATENTS, TRADEMARKS AND LICENSES
The patents, trademarks (including the registered
trademarks "Huffy", "Huffy Sports", "Royce
Union", "True Temper" and "Jackson"), licenses
(including the license to use the NBA
logo) and other proprietary rights of the
companies in this segment are deemed important to
the Company. Generally, the NBA license has five
year terms which are renegotiated upon
termination. The loss by the Company of its
rights under any individual patent, trademark
(other than "Huffy" or "True Temper"),license or
other proprietary right used by this segment
would not have a material adverse effect on the
Company or the segment. The Company's patents, by
law, have a limited life, and patent rights
expire periodically. The loss of the registered
trademark "Huffy" or "True Temper" could have a
material adverse effect on the Company and this
segment. The Company has no reason to believe
that anyone has rights to either the "Huffy" or
"True Temper" trademarks for the products for
which the Company uses such trademarks.
d. SEASONALITY AND INVENTORY
Due to the relatively short lapse of time between
placement of orders for products and shipments,
the Company normally does not consider its
backlog of orders as significant to this
business segment. Because of rapid delivery
requirements of their customers, the companies in
this segment maintain significant quantities of
inventories of finished goods to meet their
customers' requirements. Sales of bicycles are
seasonal in that sales tend to be higher in the
Spring and Fall of each year. Basketball products
tend to have varying degrees of seasonality, none
of which are significant to the operations of the
Company. Sales of lawn and garden products
and snow tools tend to be higher in the Spring
and Winter of each year, respectively.
e. COMPETITION AND CUSTOMERS
In the high volume retailer bicycle business,
Huffy Bicycle Company has numerous competitors in
the United States market, one of which is a major
competitor. Although importers in the aggregate
provide significant competition, currently, two
importers are major competitors. Even though
competition among domestic manufacturers and
importers of bicycles is intense, Huffy Bicycle
Company believes it is cost competitive in the
high volume retailer bicycle market and maintains
its position through continued efforts to improve
manufacturing efficiency and product value. Huffy
Bicycle Company's ability to provide its
customers with low cost, innovative new products
has enabled it to maintain its market position
despite the marketing efforts of domestic
competitors and competitors from Taiwan, China,
and other nations. Huffy Sports Company has
several competitors, one of which is currently a
major competitor. Huffy Sports Company maintains
its competitive position by offering its
customers high quality, innovative products at
competitive prices and by supporting its products
with outstanding customer service. True Temper
Hardware Company has numerous competitors in the
United States and Canada, two of which are
currently major competitors. True Temper Hardware
Company believes it remains competitive by
offering its customers in the residential,
agricultural, industrial, and commercial markets
competitively priced, high quality, innovative
products. The loss by the Consumer Products
segment of either of its two largest customers
could result in a material adverse effect on the
segment.
SERVICES FOR RETAIL
Huffy Service First, Inc. ("HSF") and Washington
Inventory Service ("WIS") each provide certain services
to retailers. Inventory, assembly, repair and
merchandising services provided by WIS and HSF to their
customers represented 27.8 percent, 26.0 percent, and
26.5 percent, of consolidated revenues of the Company for
the years ended December 31, 1998, 1997, and 1996.
a. PRODUCTS, MARKETING AND DISTRIBUTION
Huffy Service First: HSF, a wholly-owned
subsidiary of the Company, headquartered in
Miamisburg, Ohio, serves the needs of major
retailers in 50 states, Puerto Rico and the
Virgin Islands by providing in-store and in-home
assembly and repair, and in-store display
services for a variety of products, including,
among other things, bicycles, barbeque grills,
physical fitness equipment, lawnmowers, and
furniture. HSF is the only assembly service
business of this kind available to high volume
retailers on a nationwide basis. HSF also offers
merchandising services (product resets and
periodic maintenance of displays) to
manufacturers who supply high volume retailers.
Washington Inventory Service: WIS, a wholly-owned
subsidiary of the Company, headquartered in San
Diego, California, provides physical inventory
services on a nationwide basis to meet the
financial reporting and inventory control
requirements of high volume retailers, drug
stores, home centers, sporting goods stores,
specialty stores and grocery stores. In 1998, WIS
began providing its inventory services to
retailers in Brazil. Also in 1998, WIS acquired
the assets of Inventory Auditors, Inc. to provide
expanded service coverage to national retailers.
b. SEASONALITY
The demand for services provided by this business
segment is seasonal in that assembly service
demand is generally strongest in Spring and at
the Winter holiday season, and inventory service
demand is generally strongest in the first
three calendar quarters of the year.
c. COMPETITION AND CUSTOMERS
Although WIS has numerous competitors in the
United States market, only one is a major
competitor. HSF has numerous competitors in the
United States market, none of which is a
major national competitor in the in-store and
in-home assembly service business and six of
which are major competitors in the
merchandising services business. WIS and HSF
believe they remain competitive due to their
nationwide network of operations, competitive
pricing and full service. The loss by the
Services for Retail Segment of either of its two
largest customers could result in a material
adverse effect on the segment.
Sales to two customers, Wal-Mart and K-Mart, aggregated over
ten percent or more of the Company's consolidated revenues from
each such customer for the year ended December 31, 1998, and the
loss of either one of these customers could have a material
adverse effect on the Company and its subsidiaries as a whole.
The number of persons employed full-time by the Company (excluding
seasonal employees in the Services for Retail Segment) as of
December 31, 1998, was 3,702 (1,623 employed by the Consumer
Products Segment and 2,051 employed by the Services for Retail
Segment).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The market information and other related security holder
matters pertaining to the Common Stock of the Company set forth in
Exhibit 13 under the caption entitled "Common Stock" contained in
the Company's Annual Report to Shareholders for the year ended
December 31, 1998, and are hereby incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share data)
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED
DECEMBER 31, 1997
The Company recorded a net loss from continuing operations of
$665 or $.05 per common share in 1998 compared to $10,429 or $.80
per common share for 1997. Earnings for 1998 included a pretax
charge of $21,320 ($13,112 after tax) or $1.07 per common share
for plant closure and manufacturing reconfiguration at the Huffy
Bicycle Company. The plan includes actions such as the closure of
the Celina, Ohio manufacturing facility; leasing a new parts
fabrication facility; and expansion of its import program for
bicycles. Net earnings from continuing operations, excluding the
Huffy Bicycle Company plant closure and reconfiguration charges
were $12,447, or $1.02 per common share for 1998. Increased net
earnings before the above mentioned charges were the result of
innovative new products and services, brand development and
channel expansion, a company wide focus on cost reduction, and
bolt-on acquisitions. The 1997 net earnings from continuing
operations excludes operating results and gain from the sale of
the Company's juvenile products business which was sold to Evenflo
Company, Inc. in April, 1997. In 1997, the juvenile products
business had net sales of $37,180 and a net loss of $813, or $.06
per common share. The gain on the sale of the juvenile products
business was $559, or $.04 per common share.
Net Sales
Net sales in 1998 were $707,556, a 1.9% increase over net
sales of $694,490 in 1997. Net sales in the Consumer Products
segment decreased 0.7% over 1997. Net sales in this segment
declined due to cautious retail orders and store level inventory
reductions, primarily in the sporting goods category.
In the Services for Retail segment, net sales increased by
9.0% over 1997, primarily due to strong demand for inventory
services.
Gross Profit
Consolidated gross profit for 1998 was $122,996, or 17.4% of
net sales, compared to $112,841, or 16.2% of net sales reported
for 1997.
Both the Consumer Products and Services for Retail segments
contributed to the increase in gross profit for 1998. Gross
profit increased in the Consumer Products segment by $8,479 or
10.5%, and in the Services for Retail segment by $1,676 or 5.2%.
This increase in gross profit dollars was primarily volume driven
in the Services for Retail segment, while improved margin was the
major factor in the Consumer Products segment. Gross profit
expressed as a percent of net sales increased primarily due to
improvements achieved through cost reduction ("CRI") initiatives.
Consolidated gross profit in total and as a percentage of
sales varies by quarter due to normal seasonal fluctuations in
both segments. In the Consumer Products segment, True Temper
Hardware Company typically experiences lower sales in the third
quarter due to the seasonal nature of its products. Lower gross
profit percentages in the fourth quarter are typically caused by
seasonal fluctuations at Huffy Bicycle Company and Washington
Inventory Service. Huffy Bicycle Company typically stops
production for a period during December to prevent inventory
build-up. The fixed costs associated with this shutdown reduce
fourth quarter profitability. In the Services for Retail segment,
Washington Inventory Service also experiences a significant
unfavorable seasonal impact during the fourth quarter as retailers
typically do not conduct inventories during the Christmas season,
causing low fourth quarter sales volume and reduced gross profit.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses in 1998 were
$93,994, a 2.3% increase over 1997. In the Consumer Products
segment selling, general and administrative expenses increased
$1,318 or 2.1%. The increase in selling, general and
administrative costs in the Consumer Products segment is primarily
due to the addition of Royce Union ($2,786). In the Services for
Retail segment selling, general and administrative expenses
increased by $1,789 or 7.6%. This increase was primarily due to
increased selling, general and administrative costs of $1,676
related to the Inventory Auditors acquisition. This increase in
selling, general and administrative expenses was partially offset
by a reduction of employee benefits of $1,015. Selling, general
and administrative expenses for 1997 were favorably impacted by an
insurance recovery of $2,110.
Net Interest Expense
Net interest expense was $8,981, a $3,467 increase over net
interest expense for 1997. The increase in interest expense is
due primarily to high levels of short-term borrowings in the
Consumer Products segment, caused by temporary working capital
increases related to the restructuring of the business. These
increased costs were partially offset by principal reduction in
long-term debt.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED
DECEMBER 31, 1996
The Company recorded net earnings from continuing operations
of $10,429 or $.80 per common share in 1997, compared to $6,924,
or $.51 per common share for 1996. Improved volume led to
increased profitability in both segments. The net earnings from
continuing operations exclude operating results and gain from the
sale of the Company's juvenile products business which was sold to
Evenflo Company, Inc. in April, 1997. In 1997, the juvenile
products business had net sales of $37,180 and a net loss of $813,
or $.06 per common share compared to net sales of $122,209 and a
net loss of $467, or $.03 per common share in 1996. The gain on
the sale of the juvenile products business was $559, or $.04 per
common share.
Net Sales
Net sales in 1997 were $694,490, a 19.8% increase over net
sales of $579,670 in 1996. Net sales in the Consumer Products
segment increased by 20.7% over 1996. Net sales in the Consumer
Products segment increased due to strong demand and market share
gains for bicycles and basketball backboard systems, combined with
increased market penetration and new customer distribution in the
wheelbarrow portion of the lawn and garden business.
In the Services for Retail segment, net sales increased by
17.9% over 1996, primarily as a result of continued market
penetration in the inventory services and product assembly and
merchandising services business.
Gross Profit
Consolidated gross profit for 1997 was $112,841, or 16.2% of
net sales, compared to $94,888, or 16.4% reported for 1996.
Volume increases in both the Consumer Products and Services
for Retail segments contributed to the increased gross profit
dollars of $13,507 and $4,406, respectively. Gross profit
expressed as a percent of net sales declined versus the prior year
in the Consumer Products segment by 0.1% due to continued intense
competition and customer demand for increased mix of promotionally
priced products, while gross profit expressed as a percent of net
sales in the Services for Retail segment was unfavorably impacted
by 0.6% due to a shift in the mix of product services provided.
Consolidated gross profit in total and as a percentage of
sales varies by quarter due to normal seasonal fluctuations at
several Huffy Companies. True Temper Hardware Company typically
experiences lower sales in the third quarter due to the seasonal
nature of its products. Lower gross profit percentages in the
fourth quarter are typically caused by seasonal fluctuations at
Huffy Bicycle Company and Washington Inventory Service. Huffy
Bicycle Company typically stops production for a period during
December to prevent inventory build-up. The fixed costs
associated with this shutdown reduce fourth quarter profitability.
Washington Inventory Service also experiences a significant
unfavorable seasonal impact during the fourth quarter as retailers
typically do not conduct inventories during the Christmas season,
causing low fourth quarter sales volume and reduced gross profit.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses in 1997 were
$91,838, a 14.7% increase over 1996. The increase of $8,635 in
the Consumer Products segment in selling, general, and
administrative expenses is primarily due to volume related
commissions, customer service costs, and distribution costs. The
increase in selling, general and administrative expenses of $2,409
in the Services for Retail segment is primarily related to
technology development and volume related customer service costs.
Net Interest Expense
Net interest expense was $5,514, a $277 decrease over net
interest expense for 1996. The decrease in interest expense is
due primarily to principal reduction in long-term debt, and
reduced levels of short-term borrowings made possible by the Gerry
Baby Product Company sale.
LIQUIDITY AND CAPITAL RESOURCES
The financial condition of the Company remained strong during
1998. Company operations have historically provided a positive
cash flow which, along with the credit facilities maintained,
provides adequate liquidity to meet the Company's operational
needs. Cash provided by continuing operations amounted to $26,554
in 1998, compared to $1,216 in 1997 and $2,784 in 1996. The
increase in cash provided by continuing operations in 1998 was the
result of a stronger emphasis on asset management which reduced
receivables and maintained inventory levels.
Investing activities consumed $38,761 in cash during 1998,
compared to $35,188 during 1997 and $14,665 during 1996. In 1998,
as in 1997, the Company continued to expend cash on acquisitions,
re-emphasizing its strategy to grow through bolt-on acquisitions.
Funds expended for capital additions and improvements totaled
$22,977 in 1998 compared to $17,493 in 1997 and $14,684 in 1996.
In 1999, capital expenditures are expected to be approximately
$18,900, reflecting continuing investment in new products and
technology.
The Company provided $27,954 and $19,872 from financing
activities in 1998 and 1996, respectively, while $16,456 was used
in 1997. Committed and uncommitted short-term lines of credit
total $130,000 of which $99,240 was outstanding at December 31,
1998. The Company believes that its capital structure provides
the financial flexibility to obtain additional financing that may
be necessary to fund future growth. The Company violated certain
debt covenants during 1998. Temporary bank waivers were received
which covered the violation period. There were no modifications
made to the original loan documents. As part of the Company's
authorized stock repurchase program, the Company has repurchased
shares totaling $18,518, $10,051, and $3,318 in 1998, 1997, and
1996, respectively.
The Company's debt to total capital ratio of 28.0% at
December 31, 1998 was unchanged from the 28.0% at December 31,
1997.
PLANT CLOSURE AND MANUFACTURING RECONFIGURATION
During 1998, the Company implemented a plan to maximize
operational efficiency by eliminating excess production capability
and reducing annual operating expenses at the Huffy Bicycle
Company. The plan includes 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 1998, the
Company incurred plant closure and manufacturing reconfiguration
charges of $21,320 ($13,112 after tax or $1.07 per share). These
charges included severance and related benefits ($6,548); facility
shutdown and asset write-downs ($8,218); and new facility startup
and equipment, personnel and inventory relocation ($6,554). The
plant closure and manufacturing reconfiguration was substantially
completed during 1998.
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 businesses, including the
Company.
The Company 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 its internal
date-sensitive systems and equipment for Year 2000 compliance.
The assessment phase of the Year 2000 project is substantially
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 December 31, 1998, the Company is approximately 95% complete
in the modification or replacement of its critical software and
hardware and expects all such modifications and replacements to be
completed by the Spring of 1999. After completion of this phase,
the Company plans to test and implement its IT systems. As of
December 31, 1998, the Company has completed testing of
approximately 80% of its remediated systems. Completion of the
testing and implementation of all remediated systems is expected
by June 30, 1999.
The Company has also communicated with material 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 material 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 of 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
representatives 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.
OTHER MATTERS
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. Currently, the Company, along with other PRPs, the San
Gabriel Basin Water Quality Authority and numerous local water
districts are working with the EPA on a mutually satisfactory
remedial plan.
The total accrual for estimated environmental remediation
costs related to the Superfund site and other potential
environmental liabilities is approximately $6,100 at December 31,
1998. Management expects that the majority of expenditures
relating to costs currently accrued will be made over the next two
to ten years.
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 PRPs,
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 costs of
environmental remediation requirements which may substantially 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.
INFLATION
Inflation rates in the United States have not had a
significant impact on the Company's operating results for the
three years ended December 31, 1998. The impact on the Company is
minimized as a result of rapid turnover of inventories and
partially offset by cost reduction programs and increased
operating efficiency.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE COMPANY
The name, age and background information for each of the Company's
Directors is set forth in the section entitled ELECTION OF
DIRECTORS and the table therein contained in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders, and is
hereby incorporated herein by reference.
EXECUTIVE OFFICERS OF THE COMPANY
The Executive Officers are elected annually to their respective
positions, effective at the April meeting of the Board of
Directors. The Executive Officers of the Company at February 1,
1999, were as follows:
NAME AGE POSITION OFFICER SINCE
- ----- --- -------- -------------
Stanley H. Davis 51 Vice President - Human July, 1997
Resources and Organization
Development
Thomas A. Frederick 44 Vice President - Finance December, 1994
Chief Financial Officer
and Treasurer
Don R. Graber 55 Chairman of the Board, July, 1996
President and Chief
Executive Officer
Timothy G. Howard 52 Vice President-Controller September, 1978
Nancy A. Michaud 52 Vice President - General February, 1993
Counsel and Secretary
Prior to assuming his present position with the Company as
Vice President-Human Resources and Organization Development in
July, 1997, Mr. Davis was Vice President-Human Resources and
Organization Development of Triangle Wire and Cable, Inc. (a
manufacturer of wire and cable products), from July, 1991 to
December, 1996. From January, 1997 to July, 1997 he was the Vice
President-Administration of Triangle Wire and Cable's successor,
Ocean View Capital, Inc., the principal business of which was
winding up the business of Triangle Wire and Cable after the sale
of substantially all of its assets.
Mr. Frederick has been employed by the Company in a number of
positions for over 12 years. He has served as Vice President-
Finance and Chief Financial Officer since 1994. In 1998 he was
elected to the additional position of Treasurer.
Mr. Graber served as the Company's President and Chief
Operating Officer from July, 1996 to December, 1997, when he
assumed his present position as Chairman of the Board, President
and Chief Executive Officer. Prior to joining the Company in
1996, Mr. Graber was President of the Worldwide Household Products
Group of The Black and Decker Corporation (engaged in the
marketing and manufacture of products used in and around the home
and for commercial applications) and was also Group Vice President
of The Black and Decker Corporation itself, from 1994 to 1996.
Ms. Michaud has been employed by the Company for over 12
years. She has served as Vice President-General Counsel for 5
years and as Secretary since July, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Don R. Graber
--------------------------- Date: May 18, 1999
Don R. Graber
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
and Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
/s/ Thomas A. Frederick
- - ------------------------------- Date: May 18, 1999
Thomas A. Frederick
Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Timothy G. Howard
- - ------------------------------- Date: May 18, 1999
Timothy G. Howard
Vice President - Controller
(Principal Accounting Officer)
/s/ William A. Huffman
- - ------------------------------- Date: May 18, 1999
William A. Huffman, Director
/s/ Linda B. Keene
- - ------------------------------- Date: May 18, 1999
Linda B. Keene, Director
/s/ Jack D. Michaels
- - ------------------------------- Date: May 18, 1999
Jack D. Michaels, Director
/s/ Donald K. Miller
- - ------------------------------- Date: May 18, 1999
Donald K. Miller, Director
/s/ James F. Robeson
- - ------------------------------- Date: May 18, 1999
James F. Robeson, Director
/s/ Patrick W. Rooney
- - ------------------------------- Date: May 18, 1999
Patrick W. Rooney, Director
/s/ Thomas C. Sullivan
- - ------------------------------- Date: May 18, 1999
Thomas C. Sullivan, Director
/s/ Joseph P. Viviano
- - ------------------------------- Date: May 18, 1999
Joseph P. Viviano, Director
