<PAGE> 1
FORM 10-K
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.
"Index of Exhibits" at page 14 of this Report
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DOCUMENTS INCORPORATED BY REFERENCE
1. The Huffy Corporation Annual Report to Shareholders for the year ended
December 31, 1998. Only such portions of the Annual Report as are
specifically incorporated by reference under Parts I, II and IV of this
Report shall be deemed filed as part of this Report.
2. The Huffy Corporation Proxy Statement for its Annual Meeting of
Shareholders on April 22, 1999. Only such portions of the Proxy
Statement as are specifically incorporated by reference under Part III
of this Report shall be deemed filed as part of this Report.
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
Part IV herein 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
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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 the 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, on a temporary basis,
cause a 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
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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
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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 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).
ITEM 2. PROPERTIES: Location and general character of the principal
plants and other materially important physical properties of
the Company as of January 1, 1999.
<TABLE>
<CAPTION>
OWNED OR
EXPIRATION
BUILDING AREA DATE
LOCATION DESCRIPTION (SQ. FT.) OF LEASE
- -------- ----------- --------- --------
<S> <C> <C> <C>
San Diego, California Offices (Services for Retail) 30,000 2004(1)
Southaven, Mississippi Offices and manufacturing 106,000 2008
facility (Consumer Products)
</TABLE>
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<TABLE>
<CAPTION>
OWNED OR
EXPIRATION
BUILDING AREA DATE
LOCATION DESCRIPTION (SQ. FT.) OF LEASE
- -------- ----------- --------- --------
<S> <C> <C> <C>
Farmington, Missouri Offices, manufacturing and 412,052 2014(2)
warehouse facility
(Consumer Products)
Miamisburg, Ohio Offices and display 47,000 2003(3)
facility (Corporate
and Consumer Products)
Miamisburg, Ohio Offices and warehouse 42,682 2001(4)
facility (Services for
Retail)
Camp Hill, Pennsylvania Offices, manufacturing 391,690 2012(5)
and distribution facility
(Consumer Products)
Harrisburg, Pennsylvania Offices and manufacturing 254,329 Owned
facility (Consumer Products)
Sussex, Wisconsin Offices and manufacturing 192,000 2004(6)
facility (Consumer Products)
Whites Cross, Cork, Offices and manufacturing 70,000 Owned
Ireland facility (Consumer Products)
</TABLE>
(1) Subject to two consecutive options to renew for additional terms of
five years each.
(2) The City of Farmington, Missouri financed the acquisition of the
premises through the issuance of Industrial Development Revenue Bonds
(Huffy Corporation Project) Series 1994 in the aggregate principal
amount of $20,000,000 and leased the premises to the Company. The
Company has an option to purchase during the term or at expiration of
the lease.
(3) Subject to an option to purchase during the term of or at the
expiration of the lease, and if the option is not exercised at the
expiration of the lease, the Company automatically receives an
extension of the term for up to 12 months or until the property is
sold, whichever time period is shorter.
(4) Subject to one option to renew for an additional term of five years.
(5) Subject to one option to renew for an additional term of five years and
an option to purchase.
(6) Subject to an option to purchase during the term of or at the
expiration of the lease.
There are no encumbrances on the Harrisburg, Pennsylvania, and Whites Cross,
Cork, Ireland properties which are owned. All of the Company's facilities are in
good condition and are considered suitable for the purposes for which they are
used. The Camp Hill, Pennsylvania manufacturing facility normally operates on a
two full shift basis, with third shift operations scheduled as needed to meet
seasonal production requirements. The Southaven, Mississippi, Farmington,
Missouri, and Harrisburg, Pennsylvania manufacturing facilities normally operate
on a two full shift basis. The Whites Cross, Cork, Ireland and Sussex, Wisconsin
manufacturing facilities normally operate on a one full shift basis, with second
shift operations scheduled as needed at the Sussex, Wisconsin facility.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party, nor is its property subject, to any material pending
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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 (i) the captions
entitled Common Stock and Shareholder Information, and (ii) notes 7 and 8
(Preferred Stock, and Common Stock and Common Stock Plans) to the consolidated
financial statements, are contained in the Company's Annual Report to
Shareholders for the year ended December 31, 1998, and are hereby incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected unaudited financial data for each of the last five calendar years set
forth in Exhibit 13 under the caption entitled Five-Year Financial and Operating
Review (Unaudited) is contained in the Company's Annual Report to Shareholders
for the fiscal year ended December 31, 1998, and is hereby incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Discussion and analysis of financial condition and results of operations set
forth in Exhibit 13 under the caption entitled Management's Discussion and
Analysis of Financial Conditions and Results of Operations and note 6 (Lines of
Credit and Long-Term Obligations) to the consolidated financial statements, are
contained in the Company's Annual Report to Shareholders for the year ended
December 31, 1998, and are hereby incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information set forth in Exhibit 13 under the captions entitled
Independent Auditor's Report and Consolidated Balance Sheets, Consolidated
Statements of Operation, Consolidated Statements of Cash Flows, Consolidated
Statements of Shareholders' Equity, and Notes to Consolidated Financial
Statements, is contained in the Company's Annual Report to Shareholders for the
year ended December 31, 1998, and is hereby incorporated herein by reference.
See also the information contained in Item 14 of Part IV of this Report.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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:
<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
<S> <C> <C> <C>
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
</TABLE>
Prior to being elected Vice President-Human Resources and Organization
Development, Mr. Davis was Vice President-Human Resources and Organization
Development of Triangle Wire and Cable, Inc. and Vice President Administration
of Ocean View Capital, Inc. Prior to being elected Vice President - Finance,
Chief Financial Officer and Treasurer in 1998, Mr. Frederick was Vice President
- - Finance and Chief Financial Officer. Prior to being elected Chairman,
President and Chief Executive Officer in 1997, Mr. Graber was President and
Chief Operating Officer since 1996; prior thereto, Mr. Graber was President of
Worldwide Household Products Group and Group Vice President of The Black and
Decker Corporation from 1994. Prior to being elected Vice President - General
Counsel and Secretary in 1994, Ms. Michaud was Vice President - General Counsel
and Assistant Secretary of the Company.
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation set forth in the section entitled
EXECUTIVE COMPENSATION and the tables therein, is contained in the Company's
Proxy Statement for its 1999 Annual Meeting of Shareholders, and is hereby
incorporated herein by reference. Notwithstanding anything to the contrary set
forth herein or in any of the Company's previous filings under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
that might incorporate future filings, including this Form 10-K, the section
entitled REPORT OF COMPENSATION COMMITTEE and the
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Performance Graphs which are set forth in the Company's Proxy Statement for its
1999 Annual Meeting of Shareholders are not deemed to be incorporated by
reference in this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The number of shares of Common Stock of the Company beneficially owned by each
Director and by all Directors and Officers as a group as of January 2, 1999, set
forth in the section entitled SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT, and the table therein, is contained in the Company's Proxy
Statement for its 1999 Annual Meeting of Shareholders, and is hereby
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain transactions with management set forth in the section
entitled CERTAIN RELATIONSHIPS AND OTHER RELATED TRANSACTIONS is contained in
the Company's Proxy Statement for its 1999 Annual Meeting of Shareholders, and
is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS
(1) The following Consolidated Financial Statements of the Company
included in the Company's Annual Report to Shareholders are
incorporated by reference as part of this Report at Item 8
hereof:
Consolidated Balance Sheets as of December 31, 1998,
and 1997.
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997, and 1996.
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997, and 1996.
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1998, 1997, and 1996.
Notes to Consolidated Financial Statements.
The Annual Report to Shareholders for the year ended December
31, 1998, is not deemed to be filed as part of this Report,
with the exception of the items incorporated by reference in
Items 1, 5, 6, 7 and 8 of this Report and those financial
statements and notes thereto listed above.
(2) The Accountants' Report on Consolidated Financial Statements
and the following Financial Statement Schedule of the Company
is included as part of this Report at Item 8 hereof:
Schedule II. Valuation and Qualifying Accounts - years ended
December 31, 1998, 1997, and 1996.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been
omitted.
(3) The exhibits shown in "Index to Exhibits" are filed as a part
of this Report.
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(b) REPORTS ON FORM 8-K
During the fiscal quarter ended December 31, 1998, the Company filed no report
on Form 8-K.
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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
---------------------------------
Don R. Graber Date: February 11, 1999
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: February 11, 1999
Thomas A. Frederick
Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Timothy G. Howard
- --------------------------------- Date: February 11, 1999
Timothy G. Howard
Vice President - Controller
(Principal Accounting Officer)
/s/ William A. Huffman
- --------------------------------- Date: February 11, 1999
William A. Huffman, Director
/s/ Linda B. Keene
- --------------------------------- Date: February 11, 1999
Linda B. Keene, Director
/s/ Jack D. Michaels
- --------------------------------- Date: February 11, 1999
Jack D. Michaels, Director
/s/ Donald K. Miller
- --------------------------------- Date: February 11, 1999
Donald K. Miller, Director
/s/ James F. Robeson
- --------------------------------- Date: February 11, 1999
James F. Robeson, Director
- ---------------------------------
Patrick W. Rooney, Director
/s/ Thomas C. Sullivan
- --------------------------------- Date: February 11, 1999
Thomas C. Sullivan, Director
/s/ Joseph P. Viviano
- --------------------------------- Date: February 11, 1999
Joseph P. Viviano, Director
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INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors,
Huffy Corporation:
Under date of February 4, 1999, we reported on the consolidated balance sheets
of Huffy Corporation and subsidiaries as of December 31, 1998, and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998, as
contained in the 1998 Annual Report to Shareholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
Annual Report on Form 10-K for the year 1998. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedule as listed in Part IV, Item
14(a)(2) of Form 10-K. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
Cincinnati, Ohio /s/ KPMG LLP
February 4, 1999 ---------------------------
KPMG LLP
INDEPENDENT AUDITORS' CONSENT
The Board of Directors,
Huffy Corporation:
We consent to the incorporation by reference in the Registration Statements, and
the Prospectuses constituting part thereof, of (i) the Form S-8 Registration
Statement (No. 333-62903) pertaining to the Master Deferred Compensation Plan;
(ii) the Form S-8 Registration Statement (No. 333-52095) pertaining to the 1998
Director Stock Option Plan, the 1998 Key Employee Stock Plan, and the 1998
Restricted Share Plan; (iii) the Form S-8 Registration Statement (No. 333-52077)
pertaining to the 1998 Key Employee Non-Qualified Stock Plan (iv) the Form S-8
Registration Statement (No. 33-25487) pertaining to the 1988 Stock Option Plan
and Restricted Share Plan; (v) the Form S-8 Registration Statement (No.
33-25143) pertaining to the 1987 Director Stock Option Plan; (vi) the Form S-8
Registration Statement (Nos. 33-28811 and 33-42724) pertaining to the 1989
Employee Stock Purchase Plan; (vii) the Form S-8 Registration Statement (No.
33-44571) pertaining to five company savings plans and (viii) the Form S-8
Registration Statement (No. 33-60900) pertaining to the W.I.S. Savings Plan of
our report dated February 4, 1999, relating to the consolidated balance sheets
of Huffy Corporation and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report appears in the 1998 Annual Report to Shareholders, which is
incorporated by reference in the Company's 1998 Annual Report on Form 10-K and
our report dated February 4, 1999, relating to the financial statement schedule
for each of the years in the three-year period ended December 31, 1998, which
report appears in the Company's 1998 Annual Report on Form 10-K.
Cincinnati, Ohio /s/ KPMG LLP
February 4, 1999 ---------------------------
KPMG LLP
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HUFFY CORPORATION
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS AT END
OF PERIOD EXPENSES (NOTE) OF PERIOD
--------- -------- ------ ---------
<S> <C> <C> <C> <C>
Reserves deducted from assets to which they apply:
Allowance for doubtful accounts:
Year ended December 31, 1998 $2,462 373 (411) 2,424
Year ended December 31, 1997 $1,437 2,085 (1,060) 2,462
Year ended December 31, 1996 $1,449 1,197 (1,209) 1,437
Inventory obsolescence:
Year ended December 31, 1998 $2,775 938 (757) 2,956
Year ended December 31, 1997 $2,181 2,541 (1,947) 2,775
Year ended December 31, 1996 $1,891 3,059 (2,769) 2,181
Reserves which support the balance sheet caption,
Reserves Restructuring
Reserve:
Year ended December 31, 1998 - - - -
Year ended December 31, 1997 - - - -
Year ended December 31, 1996 $1,830 - (1,830) -
</TABLE>
Note: Represents accounts written off, less recoveries for allowance for
doubtful accounts. Represents inventory written off, less scrap value
for inventory obsolescence.
[1] Represents net restructure charge for personnel reductions and the
negotiation of a concessionary labor contract.
-13-
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT FORM 10-K
NO. EXHIBITS
--- --------
<S> <C> <C>
3.a Amended Articles of Incorporation, dated June 16, 1995, incorporated by
reference to Exhibit (3)(i) to Form 10-Q for the quarter ended June 30, 1995 *
3.b Code of Regulations, as amended, dated April 28, 1995, incorporated by reference
to Exhibit (3)(ii) to Form 10-Q for the quarter ended June 30, 1995 *
4.a Specimen Common Stock Certificate of Huffy Corporation, incorporated by
reference to Exhibit 4(a) to Form 10-K for the year ended December 31, 1997 *
4.b Note Purchase Agreement, dated June 24, 1988, among Huffy Corporation, The
Prudential Insurance Company of America and Pruco Life Insurance Company,
incorporated by reference to Exhibit (4) to Form 10-Q for the fiscal quarter
ended June 30, 1988 *
4.c Amendment, dated as of December 20, 1993, to Note Purchase Agreement, dated June
24, 1988, among Huffy Corporation, The Prudential Insurance Company of America
and Pruco Life Insurance Company, incorporated by reference to Exhibit (4)(c) to
Form 10-K for the fiscal year ended December 31, 1993 *
4.d Second Amendment, dated as of December 30, 1997, to Note Purchase Agreement,
dated June 24, 1988, among Huffy Corporation, The Prudential Insurance Company
of America and Pruco Life Insurance Company, incorporated by reference to
Exhibit 4(d) to Form 10-K for the fiscal year ended December 31, 1997 *
4.e Rights Agreement, dated as of December 16, 1988, between Huffy Corporation and
Bank One, Indianapolis, National Association, incorporated by reference to
Exhibit (4)(n) to Form 10-K for the fiscal year ended December 31, 1988 *
4.f Amendment, dated as of August 23, 1991, to Rights Agreement, dated as of
December 16, 1988, between Huffy Corporation and Bank One, Indianapolis,
National Association, incorporated by reference to Form 8-K, dated August 23,
1991 *
4.g Amendment, dated as of December 9, 1994, to Rights Agreement, dated as of
December 16, 1988, as amended August 23, 1991, between Huffy Corporation and
Bank One, Indianapolis, National Association, incorporated by reference to Form
8-K, dated December 22, 1994 *
</TABLE>
* Indicates that the exhibit is incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report on
Form 10-K for the year ended December 31, 1998.
-14-
<PAGE> 15
<TABLE>
<S> <C> <C>
4.h Note Agreement, dated as of December 1, 1990, among Huffy Corporation and
Nationwide Life Insurance Company, Employees Life Insurance Company of Wausaw
and Financial Horizons Life Insurance Company in connection with the issuance
and sale of $30,000,000 Huffy Corporation 9.62% Senior Notes, Series A, due
December 1, 2000, incorporated by reference to Exhibit (4)(j) to Form 10-K for
the fiscal year ended December 31, 1990 *
4.i Amendment, dated as of December 30, 1997, to Note Agreement, dated as of
December 1, 1990, among Huffy Corporation and Nationwide Life Insurance Company,
Employees Life Insurance Company of Wausaw and Financial Horizons Life Insurance
Company in connection with the issuance and sale of $30,000,000 Huffy
Corporation 9.62% Senior Notes, Series A, due December 1, 2000, incorporated by
reference to Exhibit 4.i to Form 10-K for the fiscal year ended December 31,
1997 *
4.j Credit Agreement, dated as of April 21, 1992, among Huffy Corporation, Bank One,
Dayton, N.A., NBD Bank, N.A., Security Pacific National Bank, and Society
National Bank, individually and as agent, in connection with revolving loans up
to an aggregate amount of $50,000,000 to Huffy Corporation, incorporated by
reference to Exhibit (4)(g) to Form 10-K for the fiscal year ended December 31,
1992 *
10.a Lease, effective as of December 29, 1993, between SELCO Service Corporation and
Huffy Corporation, incorporated by reference to Exhibit (10)(c) to Form 10-K for
the fiscal year ended December 31, 1993 *
10.b Special Deferred Compensation Agreements, as amended, between Huffy Corporation
and certain of its officers and key employees, in substantially the forms
incorporated by reference to Exhibit (ix) to Form 10-K for the fiscal year ended
June 24, 1977, to Exhibit (2) to Form 10-Q for the fiscal quarter ended
September 23, 1983, and to Exhibit (19)(c) to Form 10-Q for the fiscal quarter
ended September 30, 1986 *
10.c Deferred Compensation Agreements, as amended, between Huffy Corporation and
certain of its officers and key employees, in substantially the forms
incorporated by reference to Exhibit (vi) to Form 10-K for the fiscal year ended
June 29, 1979, and to Exhibit (3) to Form 10-Q for the fiscal quarter ended
September 23, 1983 *
10.d Master Deferred Compensation Plan, incorporated by reference to Exhibit 4 to
Form S-8, dated August 28, 1998 *
10.e. Form of Severance Pay Agreements, as revised and restated, between Huffy
Corporation and its Officers, incorporated by reference to Exhibit 10.e to Form
10-K for the fiscal year ended December 31, 1997 *
</TABLE>
* Indicates that the exhibit is incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report on
Form 10-K for the year ended December 31, 1998.
-15-
<PAGE> 16
<TABLE>
<S> <C> <C>
10.f. Description of Executive Medical Reimbursement Plan between Huffy Corporation
and certain executive officers and key employees, incorporated by reference to
Exhibit (10)(n) to Form 10-K for the fiscal year ended December 31, 1989 *
10.g Long Term Incentive Compensation Program, incorporated by reference to Exhibit
10.g to Form 10-K for the fiscal year ended December 31, 1997 *
10.h Huffy Corporation Capital Accumulation Plan Participation Agreement, between Huffy
Corporation and certain of its officers, in substantially the forms incorporated
by reference to Exhibit (19)(a) to Form 10-Q for the fiscal quarter ended
September 30, 1985, and to Exhibit 19(b) to Form 10-Q for the fiscal quarter ended
September 30, 1986 *
10.i Huffy Corporation Capital Accumulation Program Participation Agreement, between
Huffy Corporation and certain of its directors, in substantially the forms
incorporated by reference to Exhibit (19)(b) to Form 10-Q for the fiscal
quarter ended September 30, 1985, and to Exhibit 19(b) to Form 10-Q for the
fiscal quarter ended June 30, 1986 *
10.j Description of supplemental group life insurance arrangement between Huffy
Corporation and certain officers and key employees, incorporated by reference
to Exhibit (10)(aa) to Form 10-K for the fiscal year ended December 31, 1991 *
10.k Description of financial planning and tax preparation services between Huffy
Corporation and certain officers and key employees, incorporated by reference
to Exhibit (10)(dd) to Form 10-K for the fiscal year ended December 31, 1993 *
10.l Performance Incentive Plan of Huffy Corporation incorporated by reference to
Exhibit 10.1 to Form 10-K for the fiscal year ended December 31, 1997 *
10.m Supplemental Benefit Agreement, dated as of June 21, 1996, between Huffy
Corporation and Don R. Graber, incorporated by reference to Exhibit 10.u to
Form 10-K for the fiscal year ended December 31, 1996 *
10.n Supplemental/Excess Benefit Plan, dated as of January 1, 1988, incorporated by
reference to Exhibit (10)(aa) to Form 10-K for the fiscal year ended December
31, 1987 *
10.o First Amendment to Huffy Corporation Supplemental/Excess Benefit Plan,
effective as of January 1, 1988, incorporated by reference to Exhibit (10)(ee)
to Form 10-K for the fiscal year ended December 31, 1990 *
10.p Second Amendment to Huffy Corporation Supplemental/Excess Benefit Plan, dated
as of June 30, 1991, incorporated by reference to Exhibit (10)(y) to Form 10-K
for the fiscal year ended December 31, 1994 *
</TABLE>
* Indicates that the exhibit is incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report on
Form 10-K for the year ended December 31, 1998.
-16-
<PAGE> 17
<TABLE>
<S> <C> <C>
10.q Third Amendment to Huffy Corporation Supplemental/Excess Benefit Plan, dated as
of June 27, 1994, incorporated by reference to Exhibit (10)(2) to Form 10-K for
the fiscal year ended December 31, 1994 *
10.r Fourth Amendment to Huffy Corporation Supplemental/Excess Benefit Plan dated as
of May 26, 1995, incorporated by reference to Exhibit 10.s to Form 10-K for the
fiscal year ended December 31, 1997 *
10.s Fifth Amendment to Huffy Corporation Supplemental/Excess Benefit Plan,
effective as of July 15, 1996, incorporated by reference to Exhibit 10.z to
Form 10-K for the fiscal year ended December 31, 1996 *
10.t Sixth Amendment to Huffy Corporation Supplemental/Excess Benefit Plan,
effective as of June 15, 1997, incorporated by reference to Exhibit 10.u to
Form 10-K for the fiscal year ended December 31, 1997 *
10.u Seventh Amendment to Huffy Corporation Supplemental/Excess Benefit Plan,
effective as of December 22, 1997, incorporated by reference to Exhibit 10.v to
Form 10-K for the fiscal year ended December 31, 1997 *
10.v Huffy Corporation 1998 Restricted Share Plan, effective April 17, 1998,
incorporated by reference to Exhibit 3 to the Company's Proxy Statement dated
March 5, 1998 for the Annual Meeting of Shareholders held April 17, 1998 *
10.w Form of Restricted Share Agreements between Huffy Corporation and its Officers,
incorporated by reference to Exhibit 10.w to Form 10-K for the fiscal year
ended December 31, 1997 *
10.x Huffy Corporation Master Benefit Trust Agreement as Restated, dated June 9,
1995, incorporated by reference to Exhibit 10.aa for Form 10-K for the fiscal
year ended December 31, 1995 *
10.y First Amendment to Huffy Corporation Master Benefit Trust Agreement as
Restated, effective as of July 25, 1996, incorporated by reference to Exhibit
10.bb to Form 10-K for the fiscal year ended December 31, 1996 *
10.z Amendment No. 2 to Huffy Corporation Master Benefit Trust Agreement, dated
January 2, 1998 ***
10.aa Third Amendment to Huffy Corporation Master Benefit Trust Agreement, as
Restated, effective August 20, 1998 ***
10.bb Huffy Corporation 1987 Director Stock Option Plan, incorporated by reference to
Exhibit 19(a) to Form 10-Q for the fiscal quarter ended June 30, 1988 *
</TABLE>
* Indicates that the exhibit is incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report on
Form 10-K for the year ended December 31, 1998.
-17-
<PAGE> 18
<TABLE>
<S> <C> <C>
10.cc First Amendment to Huffy Corporation 1987 Director Stock Option Plan, effective
as of April 30, 1991, incorporated by reference to Exhibit (10)(nn) to Form
10-K for the fiscal year ended December 31, 1991 *
10.dd Second Amendment to Huffy Corporation 1987 Director Stock Option Plan,
effective as of December 15, 1991, incorporated by reference to Exhibit
(10)(oo) to Form 10-K for the fiscal year ended December 31, 1991 *
10.ee Third Amendment to Huffy Corporation 1987 Director Stock Option Plan, effective
as of February 15, 1996, incorporated by reference to Exhibit 10.ff to Form
10-K for the fiscal year ended December 31, 1996 *
10.ff Huffy Corporation 1998 Director Stock Option Plan, effective April 17, 1998,
incorporated by reference to Exhibit 1 to the Company's Proxy Statement dated
March 5, 1998 for the Annual Meeting of Shareholders held April 17, 1998 *
10.gg Huffy Corporation 1988 Stock Option Plan and Restricted Share Plan, as amended,
incorporated by reference to Exhibit 19(b) to Form 10-Q for the fiscal quarter
ended June 30, 1988; to Exhibit A to the Company's Proxy Statement dated March
13, 1992 for the Annual Meeting of Shareholders held April 24, 1992; and to
Annex I to the Company's Proxy Statement dated March 7, 1996 for the Annual
Meeting of Shareholders held April 26, 1996 *
10.hh Third Amendment to Huffy Corporation 1988 Stock Option Plan and Restricted
Share Plan, effective October 22, 1998 ***
10.ii Huffy Corporation 1998 Key Employee Stock Plan, effective April 17, 1998,
incorporated by reference to Exhibit 2 to the Company's Proxy Statement dated
March 5, 1998 for the Annual Meeting of Shareholders held April 17, 1998 *
10.jj First Amendment to Huffy Corporation 1998 Key Employee Stock Plan, effective
October 22, 1998 ***
10.kk Form of Subscription Agreement between Huffy Corporation and Don R. Graber,
incorporated by reference to Exhibit 10.ee to Form 10-K for the fiscal year
ended December 31, 1997 *
10.ll Huffy Corporation 1990 Directors' Retirement Plan incorporated by reference to
Exhibit (10)(qq) to Form 10-K for the fiscal year ended December 31, 1991 *
10.mm First Amendment to Huffy Corporation 1990 Directors' Retirement Plan, effective
as of February 15, 1996, incorporated by reference to Exhibit 10.ii to Form
10-K for the fiscal year ended December 31, 1996 *
10.nn Second Amendment to Huffy Corporation 1990 Directors' Retirement Plan,
effective as of February 15, 1996, incorporated by reference to Exhibit 10.jj
to Form 10-K for the fiscal year ended December 31, 1996 *
</TABLE>
* Indicates that the exhibit is incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report on
Form 10-K for the year ended December 31, 1998.
-18-
<PAGE> 19
<TABLE>
<S> <C> <C>
10.oo Description of Huffy Corporation Executive Automobile Policy incorporated by
reference to Exhibit 10(ii) to Form 10-K for the fiscal year ended December 31,
1994 *
OTHER FILINGS
13. Certain sections of the Annual Report to Shareholders for fiscal year ended
December 31, 1998 ***
19. Schedule of certain documents substantially identical to filed documents with
parties thereto and other material differing details ***
22. List of all direct and indirect Subsidiaries of the registrant:
Jurisdiction in
Name of Subsidiary which Incorporated
- ------------------ ------------------
Hufco Company Colorado
Hufco - Delaware Company Delaware
Huffy FSC, Inc. Virgin Islands
Huffy International Finance, N.V. Netherland Antilles
Huffy Risk Management, Inc. Ohio
Huffy Service First, Inc. Ohio
Huffy Sports, Inc. Wisconsin
Royce Union Bicycle Company Ohio
True Temper Hardware Company Ohio
True Temper Limited Whites Cross, Cork,
Ireland
Washington Inventory Service California
27. Financial Data Schedules ***
</TABLE>
* Indicates that the exhibit is incorporated by reference into this Annual
Report on Form 10-K from a previous filing with the Commission.
*** Indicates that the exhibit is included as part of this Annual Report on
Form 10-K for the year ended December 31, 1998.
-19-
<PAGE> 1
Exhibit 10.Z
AMENDMENT NO. 2 TO THE HUFFY CORPORATION
MASTER BENEFIT TRUST AGREEMENT
WHEREAS, Huffy Corporation (the "Company"), as grantor, has established
the Huffy Corporation Master Benefit Trust Agreement (the "Trust"), as amended
and restated effective June 9, 1995; and
WHEREAS, Bank One Trust Company, N.A., (the "Trustee") has agreed to
serve as trustee of the Trust; and
WHEREAS, Section 13.2 of the Trust permits amendment of the Trust
Agreement in certain circumstances;
NOW, THEREFORE, the Trust Agreement shall be amended as follows:
I. Article III of the Trust shall be amended in its entirety to read as
follows:
ARTICLE III
-----------
PAYMENTS TO EXECUTIVES PURSUANT TO THE PLANS
--------------------------------------------
3.1 USE OF SUB-TRUSTS AND ACCOUNTS. The Trustee shall, except as
otherwise provided in Section 6.2 of the Trust, use the funds in the
Sub-trust of a Participating Employer to make the payments required to
be made to Executives and SERP Executives (hereinafter defined) of such
Participating Employer pursuant to the Supplemental/Excess Benefit
Plan, as amended ("SERP"), or pursuant to the Plans upon a Change of
Control in accordance with the Payment Schedules delivered to the
Trustee by such Participating Employer pursuant to Sections 4.1 and
4.2. SERP Executives for purposes of payment under the SERP are defined
on Schedule C, attached hereto ("SERP Executives"). Payments to the
Trust and Sub-trusts for SERP Executives shall be those payments
contemplated to be made to the SERP Executives annually in accordance
with the SERP. Within each Sub-trust, the Trustee shall, to the extent
instructed by a Participating Employer, pursuant to Section 5.2,
establish Account(s) or, upon request of the Company, separate trusts,
within a Sub-trust for a particular Executive or SERP Executive or
class of Executives or SERP Executives. Each Participating Employer
shall continue to be liable to make payments to Executives and SERP
Executives to the extent such payments have not been made out of the
Sub-trust of such Participating Employer. Any payment made from a
Sub-trust to an Executive or SERP Executive shall, to the extent of
such payment, be applied to reduce the Participating Employer's
obligation to the Executive or SERP Executive under the Plans or SERP,
as the case may be, in respect of which the payment was made.
3.2 RESTRICTIONS ON SUB-TRUSTS. In no event shall the funds held in
the Sub-trust of one Participating Employer be used to pay the
obligations of another Participating Employer. In no event shall the
funds held in a Sub-trust or Account or separate trust within such
Sub-trust established for a particular Executive or SERP Executive or
class of Executives or SERP Executives under Section 5.2 be used to
pay the obligations of a Participating Employer with respect to any
other Executive or SERP
<PAGE> 2
Executive or class of Executives or SERP Executives. Although the
assets of the Sub-trusts are subject to the creditors of the Company,
the assets are otherwise not to be returned to the Company.
Notwithstanding the foregoing provision of this Section 3.2, in the
event that the funds held in an Account or a Sub-trust exceed the
obligations of a Participating Employer pursuant to the SERP or to the
Plans, with respect to the Executive or SERP Executive or class of
Executives or SERP Executives for whom the Account or Sub-trust was
established, funds may be transferred within such Sub-trusts from such
Accounts or separate trusts to another Account or separate trust or, if
all Accounts or separate trusts are funded such as to equal or exceed
the obligations of Participating Employers, then the funds in excess of
the obligations may be returned to the Participating Employer, all as
directed by the Corporate Benefits Advisory Committee, SO LONG AS no
Potential Change of Control has occurred, or if a Potential Change of
Control has occurred, then in accordance with Section 5.4.
II. Section 4.1 of the Trust shall be amended by adding the following
language at the end of the Section:
"Upon the occurrence of supplemental funding of the Trust
under Section 5.2(b) by a Participating Employer, the Participating
Employer shall deliver to the Trustee the schedule of SERP Executives
and other information as reasonably needed by the Trustee pertaining to
the SERP described in this Section 4.1; provided, however, that the
delivery of Payment Schedules for all Plans shall occur upon the
occurrence of a Potential Change of Control, as described above."
III. Section 5.2 of the Trust shall be amended and restated in its entirety
to read as follows:
5.2 INITIAL FUNDING OF TRUST.
(a) Concurrently with the execution of this Trust, the
Company is delivering to the Trustee the sum of Ten
Dollars to be held in the Sub-trust established
hereunder by the Company and known as the "Huffy
Corporation Sub-trust." The Sub-trust of a Subsidiary
shall be initially established hereunder at the time
the Subsidiary delivers an executed copy of its
Adoption Agreement to the Trustee indicating that
such Subsidiary has become a Participating Employer
hereunder.
(b) The Company or any Subsidiary which has become a
Participating Employer hereunder may from time to
time contribute to the Trust such additional amounts
as it determines in its discretion. The Company or
such Subsidiary may instruct the Trustee to create
an Account or Accounts or separate trusts within the
Participating Employer's Sub-trust and shall
designate the Executives or class of Executives to
whom such funding and Account(s) shall apply. Any
amount contributed by a Participating Employer shall
be allocated to the Sub-trust maintained for the
Participating Employer. Any such
2
<PAGE> 3
amount contributed by a Participating Employer which
has been designated as applicable to a particular
Executive or SERP Executive or class of Executives or
SERP Executives shall be deemed to be held in a
separate Account within the Participating Employer's
Sub-trust for the benefit of such Executives or SERP
Executives or class of Executives or SERP Executives.
Such Account shall be held pursuant to the terms of
this Agreement generally applicable to a Sub-trust.
Subject to the provisions of Section 3.2 and subject
to the rights of the general creditors of a
Participating Employer as described in Article VI of
this Agreement, which apply in the event that a
Participating Employer establishing the Account
becomes Insolvent, the assets of the Account shall be
held for the exclusive benefit of the Executives or
SERP Executives or class of Executives or SERP
Executives for whom it has been established.
(c) Upon the occurrence of a Potential Change of
Control, each Participating Employer shall promptly
contribute to the Trust, in cash or other property,
the excess of (i) the amount determined under
accepted actuarial principles to be necessary to
fund the amounts payable to the Executives and SERP
Executives of the Participating Employer under the
Plans and the SERP, respectively, in accordance with
such plans' terms and the Payment Schedules for the
Executives and SERP Executives delivered to the
Trustee pursuant to Section 4.1 and 4.2, over (ii)
the balance in the Account or Accounts within the
Sub-trust (or Sub-trusts) maintained for Executives
and SERP Executives employed by that Participating
Employer.
IV. Section 5.3 of the Trust shall be amended by deleting the words "the
last sentence of" from the second and third lines of such Section.
V. Section 5.4 of the Trust shall be amended by changing each reference to
"Section 5.2" to read "Section 5.2(c)" and by adding the following
sentence at the end of Section 5.4: "Notwithstanding the foregoing, the
SERP funds may only be returned to the Participating Employer in
accordance with Section 3.2."
VI. Section 14.6 of the Trust shall be amended in its entirety to read as
follows:
"14.6 TRUST BENEFICIARIES. Each Executive is an intended
beneficiary under the Sub-trust and the Account or separate Account, if
any, established for his benefit by his Participating Employer, and
shall be entitled to enforce all applicable terms and provisions hereof
with the same force and effect as if such person had been a party
hereto."
VII. Schedule B shall be amended to include the following plan: Deferred
Compensation Plan II, effective January 1, 1996.
3
<PAGE> 4
VIII. Except as set forth in this Amendment, the Trust shall remain unchanged
and in full force and effect. This Amendment supersedes and replaces
Amendments dated June 9, 1995 and November 21, 1997.
Executed as of this 2nd day of January, 1998.
HUFFY CORPORATION BANK ONE TRUST COMPANY, N.A.
By: /s/ Nancy A. Michaud By: /s/ Louis W. Feldmann, III
--------------------------- -----------------------------
LOUIS W. FELDMANN, III
Title: Vice President Title: Vice President
------------------------ --------------------------
4
<PAGE> 1
Exhibit 10.aa
THIRD AMENDMENT TO
HUFFY CORPORATION MASTER BENEFIT TRUST
AGREEMENT AS RESTATED
--------------------------------------
WHEREAS, Huffy Corporation (the "Company") and Bank One Trust Company, N.A. (the
"Trustee") entered into a Master Benefit Trust Agreement as Restated, effective
June 9, 1995 (the "Agreement");
WHEREAS, the Company and the Trustee desire to amend the Agreement;
NOW, THEREFORE, the Company and the Trustee adopt the following Amendment to the
Agreement, effective August 20, 1998:
1. SCHEDULE B. Schedule B is hereby amended to include the following plan:
Master Deferred Compensation Plan, effective August 20, 1998.
2. AFFIRMATION. Except as set forth in this Amendment and as amended
effective June 2, 1998, the Agreement remains unchanged and in full force
and effect.
IN WITNESS WHEREOF, the Company and the Trustee have caused this Amendment to be
executed as of the date first written above.
HUFFY CORPORATION
By: /s/ Nancy A. Michaud
--------------------------------------
Its: Vice President
-------------------------------------
BANK ONE TRUST COMPANY, N.A.
By: /s/ Louis W. Feldmann III
--------------------------------------
Its: Vice President
-------------------------------------
<PAGE> 1
Exhibit 10.hh
THIRD AMENDMENT TO HUFFY CORPORATION
1988 STOCK OPTION PLAN AND RESTRICTED SHARE PLAN
This Third Amendment is made and effective as of October 22, 1998 to the 1988
Stock Option Plan and Restricted Share Plan (the "Plan"), approved and adopted
on April 15, 1988 by the Shareholders of Huffy Corporation (the "Company") and
amended April 24, 1992 and April 26, 1996, under the following circumstances:
A. The Company desires to amend the Plan (and the Plan so permits
such amendment without shareholder approval) to permit option
transfers to certain family members; and
B. On October 22, 1998, the Board of Directors approved amending the
Plan, in accordance with the terms set forth below.
NOW, THEEFORE, the Plan shall be amended as follows:
1. DEFINITIONS. All capitalized terms herein, unless specifically defined in
this Amendment, shall have the meanings given to them in the Plan.
2. AMENDMENT. Section 19 of the Plan is hereby amended in its entirety to read
as set forth below:
"19. ASSIGNABILITY
(a) An option or stock appreciation right granted under the
Plan may not be transferred by the employee to whom
granted except as follows:
(i) An option or stock appreciation right may be
transferred by the employee to a spouse, parent,
child, or grandchild (collectively, "Family Members")
or to a trust for the benefit of the optionee or his
or her spouse or children, to a family limited
partnership, or to any other legitimate estate
planning mechanism, but only in accordance with state
and federal tax and securities laws.
(ii) An option or stock appreciation right may be
transferred upon the death of the holder thereof by
will or as prescribed by the applicable laws of
descent and distribution.
(b) During the lifetime of the employee to whom an option or
stock appreciation right is granted, such option or stock
appreciation right may be exercised only by such employee
or a permitted transferee as provided above, or by the
guardian or legal representative thereof."
<PAGE> 2
3. EFFECTIVE DATE AND AFFIRMATION. This Amendment shall be effective as of
October 22, 1998. Except as amended hereby and the amendments contained in
the First Amendment and Second Amendment to the Plan, dated April 24, 1992
and April 26, 1996, respectively, the Plan remains unchanged and in full
force and effect.
IN WITNESS WHEREOF, this Amendment has been executed as of October 22, 1998.
HUFFY CORPORATION
/s/ Nancy A. Michaud
-----------------------
Nancy A. Michaud
<PAGE> 1
Exhibit 10.jj
FIRST AMENDMENT TO HUFFY CORPORATION
1998 KEY EMPLOYEE STOCK PLAN
This First Amendment is made and effective as of October 22, 1998 to the 1998
Key Employee Stock Plan (the "Plan"), adopted on April 17, 1998 by the
Shareholders of Huffy Corporation (the "Company"), under the following
circumstances:
A. The Company desires to amend the Plan (and the Plan so permits such
amendment without shareholder approval) to permit option transfers to
certain family members; and
B. On October 22, 1998, the Board of Directors approved amending the Plan, in
accordance with the terms set forth below.
NOW, THEREFORE, the Plan shall be amended as follows:
1. DEFINITIONS. All capitalized terms herein, unless specifically defined in
this Amendment, shall have the meanings given to them in the Plan.
2. AMENDMENT. Section 19(a) of the Plan is hereby amended in its entirety to
read as set forth below:
"(a) by the employee to a spouse, parent, child or grandchild
(collectively, "Family Members") or to a trust for the benefit of the
optionee or his or her spouse or children, to a family limited
partnership, or to any other legitimate estate planning mechanism."
3. EFFECTIVE DATE AND AFFIRMATION. This Amendment shall be effective as of
October 22, 1998. Except as amended hereby, the Plan remains unchanged and
in full force and effect.
IN WITNESS WHEREOF, this first Amendment has been executed as of October 22,
1998.
HUFFY CORPORATION
/s/ Nancy A. Michaud
------------------------------
Nancy A. Michaud
<PAGE> 1
Exhibit 13
Huffy Corporation
FIVE-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data) 1998
<S> <C>
SUMMARY OF OPERATIONS
Net sales $707,556
Gross profit 122,996
Selling, general, and administrative expenses 93,994
Operating income (loss) [1] 7,682
Other (income) expense, net (192)
Interest expense, net 8,981
Earnings (loss) before income taxes (1,107)
Income tax expense (benefit) (442)
Earnings (loss) from continuing operations (665)
Discontinued operations --
Net earnings (loss) (665)
- -------------------------------------------------------------------------
Earnings (loss) per common share:
Basic (.05)
Diluted (.05)
- -------------------------------------------------------------------------
Common dividends declared 4,092
Common dividends per share .34
Capital expenditures for plant and equipment 22,977
Weighted average common shares outstanding:
Basic 12,122
Diluted 12,280
- -------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 343,744
Working capital 27,894
Net investment in plant and equipment 84,371
Notes payable 99,240
Long-term obligations 29,784
Shareholders' equity 93,151
Equity per share 7.91
- -------------------------------------------------------------------------
CASH FLOWS
Net cash provided by (used in) operating activities 26,554
Net cash used in investing activities (38,761)
Net cash provided by (used in) financing activities 27,954
Net change in cash and cash equivalents 15,747
- -------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin on earnings from continuing operations N/A
Average working capital turnover 14.8
Return on net assets N/A
Return on beginning shareholders' equity N/A
Current ratio 1.1
Debt/total capital 28.0%
- -------------------------------------------------------------------------
Number of common shareholders 3,454
</TABLE>
[1] Operating income in 1998 includes a charge of $21,320 related to the Celina
plant closure and manufacturing reconfiguration. Operating loss in 1995
includes a net restructure provision of $5,378 related to personnel
reductions and the negotiation of a concessionary labor contract. Operating
income in 1994 includes a restructuring credit of $934 related to a 1993
charge. Operating income in 1993 includes a provision of $28,755 for
restructuring the Company's lawn and garden tools business.
N/A - Not Applicable.
12
<PAGE> 2
Huffy Corporation
FIVE-YEAR FINANCIAL AND OPERATING REVIEW (UNAUDITED)
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data) 1997 1996 1995 1994
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales $694,490 $579,670 $572,454 $598,185
Gross profit 112,841 94,888 74,853 99,849
Selling, general, and administrative expenses 91,838 80,058 76,722 75,172
Operating income (loss) [1] 21,003 14,830 (7,247) 25,611
Other (income) expense, net 994 (481) 102 (714)
Interest expense, net 5,514 5,791 6,525 5,831
Earnings (loss) before income taxes 14,495 9,520 (13,874) 20,494
Income tax expense (benefit) 4,066 2,596 (4,359) 7,352
Earnings (loss) from continuing operations 10,429 6,924 (9,515) 13,142
Discontinued operations (254) (467) (942) 4,285
Net earnings (loss) 10,175 6,457 (10,457) 17,427
- -----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share:
Basic .79 .48 (.78) 1.21
Diluted .78 .48 (.77) 1.19
- -----------------------------------------------------------------------------------------------------------------------------
Common dividends declared 4,365 4,582 4,577 4,861
Common dividends per share .34 .34 .34 .34
Capital expenditures for plant and equipment 17,493 14,684 21,232 32,586
Weighted average common shares outstanding:
Basic 12,895 13,449 13,422 14,458
Diluted 13,062 13,578 13,533 14,601
- -----------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION AT YEAR END
Total assets 323,493 308,267 289,038 313,052
Working capital 72,366 89,098 87,152 73,726
Net investment in plant and equipment 79,466 78,890 81,648 77,790
Notes payable 43,000 38,910 5,750 --
Long-term obligations 36,184 43,897 51,236 58,611
Shareholders' equity 112,839 115,972 116,104 133,403
Equity per share 8.87 8.67 8.64 9.85
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS
Net cash provided by (used in) operating activities 51,738 (5,656) 27,898 31,199
Net cash used in investing activities (35,188) (14,665) (21,201) (22,202)
Net cash provided by (used in) financing activities (16,456) 19,872 (5,724) (11,533)
Net change in cash and cash equivalents 94 (449) 973 (2,536)
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS AND MISCELLANEOUS
Net profit margin on earnings from continuing operations 1.5% 1.2% N/A 2.2%
Average working capital turnover 8.1 10.1 8.3 7.8
Return on net assets 6.8% 5.1% N/A 8.9%
Return on beginning shareholders' equity 8.8% 5.6% N/A 12.8%
Current ratio 1.5 1.5 1.6 1.9
Debt/total capital 28.0% 30.7% 33.7% 32.4%
- -----------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 3,127 3,570 3,688 4,196
</TABLE>
[1] Operating income in 1998 includes a charge of $21,320 related to the Celina
plant closure and manufacturing reconfiguration. Operating loss in 1995
includes a net restructure provision of $5,378 related to personnel
reductions and the negotiation of a concessionary labor contract. Operating
income in 1994 includes a restructuring credit of $934 related to a 1993
charge. Operating income in 1993 includes a provision of $28,755 for
restructuring the Company's lawn and garden tools business.
N/A - Not Applicable.
13
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS,
HUFFY CORPORATION:
We have audited the accompanying consolidated balance sheets of Huffy
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Huffy
Corporation and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG LLP
February 4, 1999
Cincinnati, Ohio
14
<PAGE> 4
Huffy Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 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 was $12,447, or $1.02 per common share for 1998.
Increased net earnings before the above mentioned charges is 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 slightly 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. 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 both segments, the increase in selling, general, and
administrative expenses is primarily due to volume related commissions, customer
service costs, and distribution costs which was partially offset by reduction in
employee benefit costs. Selling, general and administrative expenses for 1997
were favorably impacted by an insurance recovery.
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 which was 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.
15
<PAGE> 5
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 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, Gross profit
expressed as a percent of net sales declined versus the prior year in the
Consumer Products segment due to continued intense competition and customer
demand for increased mix of promotionally priced products, while the Services
for Retail segment was unfavorably impacted by 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 in selling, general, and administrative
expenses is primarily due to volume related commissions and 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 Products 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.
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.
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's debt to total capital ratio decreased to 28.0% at December 31,
1998 compared to 28.0% at December 31, 1997 due to the scheduled repayment of
long-term obligations.
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 companies, including Huffy
Corporation.
Huffy Corporation 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
16
<PAGE> 6
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 its 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 key 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. Most key suppliers and customers
who have replied to our inquiries indicated that they expect to be Year 2000
compliant on a timely basis. There can be no assurance that there will not be an
adverse effect on the Company if third parties do not make the necessary
modifications to their systems in a timely manner. However, management believes
that ongoing communications with and assessment of these third parties will
minimize these risks.
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.
The Company's Year 2000 compliance program is directed primarily towards
ensuring that the Company will be able to continue to perform four critical
functions: (1) produce and ship goods, (2) order and receive inventory, (3) pay
its employees and vendors, and (4) schedule and perform service business. It is
difficult, or impossible, to assess with any degree of accuracy, the impact on
any of these four areas of the failure of one or more aspects of the Company's
compliance program.
Because the Company began this process in a timely fashion, and because it
regularly evaluates and upgrades its IT capabilities, the total estimated cost
of the Year 2000 project alone is not material and has been funded by operating
cash flows. The Company's remaining Year 2000 budget does not include material
amounts for hardware and software replacement.
The novelty and complexity of the Year 2000 issues, the proposed solutions,
and the Company's dependence on the technical skills of employees and
independent contractors and on the 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 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.
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.
17
<PAGE> 7
Huffy Corporation
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
December 31, 1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,889 $ 2,142
Receivables:
Trade 96,685 107,269
Taxes and other 1,586 5,150
-------- --------
98,271 112,419
Less allowance for doubtful accounts 2,424 2,462
-------- --------
Net receivables 95,847 109,957
Inventories 82,467 81,692
Deferred federal income taxes 15,045 13,576
Prepaid expenses 5,916 5,489
-------- --------
Total current assets 217,164 212,856
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, AT COST:
Land and land improvements 1,547 1,502
Buildings and improvements 14,955 14,822
Machinery and equipment 140,650 133,276
Office furniture, fixtures, and equipment 30,782 24,585
Leasehold improvements 28,267 25,006
Construction in progress 4,990 7,533
-------- --------
221,191 206,724
Less accumulated depreciation and amortization 136,820 127,258
-------- --------
Net property, plant, and equipment 84,371 79,466
OTHER ASSETS:
Excess of cost over net assets acquired, net of
accumulated amortization of $5,318 in 1998
and $3,921 in 1997 33,122 21,355
Deferred federal income taxes 3,565 4,773
Other 5,522 5,043
-------- --------
$343,744 $323,493
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements
18
<PAGE> 8
HUFFY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
December 31, 1998 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 99,240 $ 43,000
Current installments of long-term obligations 6,411 7,786
Accounts payable 41,154 40,280
Accrued expenses:
Salaries, wages, and other compensation 9,001 14,849
Insurance 10,235 11,216
Other 14,751 15,299
--------- ---------
Total accrued expenses 33,987 41,364
Other current liabilities 8,478 8,060
--------- ---------
Total current liabilities 189,270 140,490
--------- ---------
Long-term obligations, less current installments 29,784 36,184
Pension liability 5,109 6,791
Postretirement benefits other than pensions 15,403 17,300
Other liabilities 11,027 9,889
--------- ---------
Total liabilities 250,593 210,654
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $1 per share
Authorized 1,000,000 shares -- --
Common stock, par value $1 per share
Authorized 60,000,000 shares; issued 16,632,676
shares in 1998 and 16,475,114 shares in 1997 16,633 16,475
Additional paid-in capital 65,892 63,885
Retained earnings 82,489 87,246
Accumulated comprehensive income (3,522) (4,944)
--------- ---------
161,492 162,662
--------- ---------
Less cost of 4,907,987 treasury shares in 1998
and 3,757,408 in 1997 68,341 49,823
--------- ---------
Total shareholders' equity 93,151 112,839
--------- ---------
$ 343,744 $ 323,493
--------- ---------
</TABLE>
19
<PAGE> 9
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Net sales $707,556 $694,490 $579,670
Cost of sales 584,560 581,649 484,782
-------- -------- --------
Gross profit 122,996 112,841 94,888
Selling, general, and administrative expenses 93,994 91,838 80,058
Plant closure and manufacturing reconfiguration 21,320 -- --
-------- -------- --------
Operating income 7,682 21,003 14,830
Other expense (income)
Interest expense 9,125 5,725 5,873
Interest income (144) (211) (82)
Other (192) 994 (481)
-------- -------- --------
8,789 6,508 5,310
-------- -------- --------
Earnings (loss) before income taxes (1,107) 14,495 9,520
Income tax expense (benefit) (442) 4,066 2,596
-------- -------- --------
Earnings (loss) from continuing operations (665) 10,429 6,924
-------- -------- --------
Discontinued operations:
Loss from discontinued operations, net of
income tax benefit of $458 in 1997
and $202 in 1996 -- (813) (467)
Gain on disposal of discontinued operations,
net of income tax of $4,490 in 1997 -- 559 --
-------- -------- --------
Net earnings (loss) $ (665) $ 10,175 $ 6,457
-------- -------- --------
EARNINGS (LOSS) PER COMMON SHARE:
Basic
Weighted average number of common shares 12,122,278 12,894,600 13,449,143
Earnings (loss) from continuing operations $ (.05) $ 0.81 $ 0.51
Loss from discontinued operations -- (.02) (.03)
-------- -------- --------
Net earnings (loss) per common share $ (.05) $ 0.79 $ 0.48
-------- -------- --------
Diluted
Weighted average number of common shares
and common stock equivalents 12,279,833 13,062,174 13,577,862
Earnings (loss) from continuing operations $ (.05) $ 0.80 $ 0.51
Loss from discontinued operations -- (.02) (.03)
-------- -------- --------
Net earnings (loss) per common share $ (.05) $ 0.78 $ 0.48
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 10
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
Years Ended December 31, 1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) from continuing operations $ (665) $ 10,429 $ 6,924
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 18,080 17,666 18,417
Loss on sale of property, plant, and equipment 675 246 14
Write-down of certain fixed assets 3,000 -- --
Deferred federal income tax expense (benefit) (954) (1,671) 1,736
Increase (decrease) in cash resulting from changes in:
Receivables, net 16,248 (20,699) (16,492)
Inventories (62) (26,524) 114
Prepaid expenses (290) 435 (965)
Other assets (731) (2,098) 283
Accounts payable (1,090) 15,363 (7,832)
Accrued expenses (7,552) 1,975 (854)
Other current liabilities 484 5,413 (1,697)
Postretirement benefits other than pensions (1,897) 474 610
Other long-term liabilities 1,138 694 2,476
Other 170 (487) 50
-------- -------- --------
Net cash provided by continuing operating activities 26,554 1,216 2,784
-------- -------- --------
Discontinued operations:
Gain on disposal of discontinued operations -- 559 --
Loss from discontinued operations -- (813) (467)
Items from discontinued operations -- 1,516 4,501
Cash provided by (used in) discontinued operations -- 49,260 (12,474)
-------- -------- --------
Net cash provided by (used in) discontinued
operating activities -- 50,522 (8,440)
-------- -------- --------
Net cash provided by (used in) operating activities 26,554 51,738 (5,656)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,977) (17,493) (14,684)
Proceeds from sale of property, plant, and equipment 46 294 19
Acquisitions of businesses (15,830) (17,989) --
-------- -------- --------
Net cash used in investing activities (38,761) (35,188) (14,665)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 56,240 4,090 33,160
Issuance of long-term obligations -- 96 94
Reduction of long-term obligations (7,775) (7,616) (7,525)
Issuance of common shares 2,165 1,461 2,042
Purchase of treasury shares (18,518) (10,051) (3,318)
Dividends paid (4,158) (4,436) (4,581)
-------- -------- --------
Net cash provided by (used in) financing activities 27,954 (16,456) 19,872
-------- -------- --------
Net change in cash and cash equivalents 15,747 94 (449)
Cash and cash equivalents:
Beginning of year 2,142 2,048 2,497
-------- -------- --------
End of year $ 17,889 $ 2,142 $ 2,048
-------- -------- --------
Cash paid (refunded) during the year for:
Interest $ 9,218 $ 6,744 $ 7,385
Income taxes (3,191) 6,042 (3,131)
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 11
HUFFY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollar amounts in thousands, except per share data)
Additional Accumulated
Common Paid-In Retained Comprehensive Treasury
Total Stock Capital Earnings Income Stock
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $116,104 $16,213 $60,644 $ 79,561 $(3,860) $(36,454)
Net earnings 6,457 6,457
Comprehensive income
Minimum pension liability
adjustment, net of income tax
benefit of $420 (781) (781)
Foreign currency
translation adjustment 50 50
--------
Total comprehensive income 5,726
Issuance of 198,278 shares in
connection with common
stock plans 2,042 198 1,844
Common dividends $.34
per share (4,582) (4,582)
Purchase of 263,300
treasury shares (3,318) (3,318)
----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $115,972 $16,411 $62,488 $81,436 $(4,591) $(39,772)
Net earnings 10,175 10,175
Comprehensive income
Minimum pension liability
adjustment, net of income tax
benefit of $73 134 134
Foreign currency
translation adjustment (487) (487)
--------
Total comprehensive income 9,822
Issuance of 63,771 shares in
connection with common
stock plans 1,461 64 1,397
Common dividends $.34
per share (4,365) (4,365)
Purchase of 783,500
treasury shares (10,051) (10,051)
----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $112,839 $16,475 $63,885 $87,246 $(4,944) $(49,823)
Net loss (665) (665)
Comprehensive income, net of tax
Minimum pension liability
adjustment, net of income tax
benefit of $693 1,286 1,286
Foreign currency
translation adjustment 136 136
--------
Total comprehensive income 757
Issuance of 157,325 shares in
connection with common
stock plans 2,165 158 2,007
Common dividends $.34
per share (4,092) (4,092)
Purchase of 1,211,800
treasury shares (18,518) (18,518)
----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $93,151 $16,633 $65,892 $82,489 $(3,522) $(68,341)
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 12
HUFFY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[a] Consolidation -- The consolidated financial statements include the
accounts of Huffy Corporation and its subsidiaries. All intercompany
transactions and balances have been eliminated.
[b] Reclassification -- Certain 1997 and 1996 balances have been reclassified
to conform with the 1998 presentation.
[c] Cash and Cash Equivalents -- Cash equivalents consist principally of
short-term money market instruments with original maturities of three months or
less.
[d] Concentrations of Credit Risk -- Financial instruments which potentially
expose the Company to concentrations of credit risk, as defined by Statement of
Financial Accounting Standards (SFAS) No. 105, consist primarily of trade
accounts receivable. In the normal course of business, Huffy extends credit to
various companies in the retail industry where certain concentrations of credit
risk exist. These concentrations of credit risk may be similarly affected by
changes in economic or other conditions and may, accordingly, impact Huffy's
overall credit risk. However, management believes that consolidated accounts
receivable are well diversified, thereby reducing potential material credit
risk, and that the allowance for doubtful accounts is adequate to absorb
estimated losses as of December 31, 1998.
[e] Inventories -- Inventories are valued at cost (not in excess of market)
determined by the last-in, first-out (LIFO) method for all bicycle and
basketball inventories. Lawn and garden tools inventories are valued on the
first-in, first-out (FIFO) method. At December 31, 1998 and 1997, 57% and 60%,
respectively, of the Company's inventories were valued using the LIFO method.
[f] Property, Plant, and Equipment -- Depreciation and amortization of plant
and equipment is provided on the straight-line method.
Annual depreciation and amortization rates are as follows:
Land improvements 5 -- 10%
Buildings and improvements 2-1/2 -- 10%
Machinery and equipment 5 -- 33-1/3%
Office furniture, fixtures, and
equipment 10 -- 33-1/3%
Leasehold improvements 4-1/2 -- 33-1/3%
[g] Amortization of Intangibles -- The excess of cost over net assets
acquired is amortized on a straight-line basis over fifteen to forty years. The
carrying value of goodwill is reviewed at each balance sheet date to determine
whether goodwill has been impaired. If this review indicates that goodwill will
not be recoverable, as determined based on projected undiscounted future cash
flows of the entity acquired, the Company's carrying value of goodwill would be
reduced by the estimated impairment.
[h] Disclosures About the Fair Value of Financial Instruments -- The carrying
amount of cash and cash equivalents, trade receivables, trade accounts payable,
notes payable, and accrued expenses approximates fair value due to the short
maturity of these instruments. The fair value of the Company's long-term debt
obligations is disclosed in Note (6).
[i] Earnings (Loss) Per Common Share -- Effective December 31, 1997, the
Company adopted SFAS No. 128 "Earnings Per Share" which simplifies the standards
for computing earnings per share. Quarterly earnings per share for 1997 have
been restated to reflect the adoption, however, there was no material impact on
the Company's previously reported earnings per share. Earnings (loss) per share
of common stock is based upon the weighted average number of shares of common
stock outstanding during the year. Diluted earnings (loss) per share is computed
based on the weighted average number of shares of common stock and common stock
equivalents outstanding.
[j] Foreign Currency Translation -- The functional currency of the Company's
non-U.S. subsidiaries is the local currency. Adjustments resulting from the
translation of financial statements are reflected as a component of
comprehensive income.
[k] Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
[l] Stock Option Plans -- Prior to January 1, 1996, the Company accounted for
its stock option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
[2] ACQUISITIONS
In 1998 and 1997, the Company made several acquisitions to add product lines
to current businesses. In June, 1998, the Company acquired the assets of
Inventory Auditors, Inc. This acquisition combines the second and third largest
businesses in the inventory taking services industry in the U.S., and allows
expanded service coverage to the nation's retailers. Also in June 1998, the
Company acquired Lantz Manufacturing Corporation. Lantz broadens the Company's
position in lawn and garden tools, with leaf rakes, snow shovels, lawn edging
and splash blocks.
23
<PAGE> 13
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. In July, 1997, the Company purchased the business
and assets of Sure Shot International, Inc. and Hydra-Rib, Inc. which produce
basketball units for institutional and in-arena use. The financial position and
earnings for these companies were immaterial to the Company's consolidated
financial statements.
[3] DISCONTINUED OPERATIONS
On April 21, 1997, the Company sold the assets of its Denver-based juvenile
products business, Gerry Baby Products Company, for $73 million to Evenflo
Company, Inc. The results of Gerry Baby Products Company have been classified as
discontinued operations for all periods presented in the Consolidated Statements
of Operations and Consolidated Statements of Cash Flows.
[4] PLANT CLOSURE AND MANUFACTURING RECONFIGURATION
During 1998, the Company implemented a plan to maximize operational
efficiency by eliminating excess production capacity and reducing annual
operating expenses at the Huffy Bicycle Company. The plan 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. The plan included the termination
of 935 hourly and salaried employees. 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
remaining plant closure and manufacturing reconfiguration reserve which is
included in other accrued expenses at December 31, 1998 includes $401 of unpaid
severance and $1,399 of environmental costs. The company anticipates the
remaining balance to be expended in 1999.
[5] INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Finished goods $51,758 $43,518
Work-in-process 10,985 13,699
Raw materials and supplies 23,336 30,505
------- -------
86,079 87,722
Excess of FIFO cost over
LIFO inventory value (3,612) (6,030)
------- -------
$82,467 $81,692
======= =======
</TABLE>
[6] LINES OF CREDIT AND LONG-TERM OBLIGATIONS
During 1998, the Company had a short-term committed line of credit with
various banks in the form of a $50,000 revolving credit agreement of which the
entire document was outstanding at December 31, 1998. This agreement expires
December 31, 1999. The Company also had $80,000 in uncommitted lines of credit
on a no fee basis, of which $49,240 was outstanding at December 31, 1998.
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unsecured notes payable:
Average borrowings $ 82,498 $16,152
Maximum at any month end 102,500 70,520
Weighted average rate 5.87% 5.99%
</TABLE>
Long-term obligations are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unsecured notes payable:
9.62% due serially through 2000 $12,000 $15,000
9.81% due serially through 1998 -- 4,400
8.23% Industrial Development Bonds
due serially from 2000 through 2014 20,000 20,000
Other 4,195 4,570
------- -------
36,195 43,970
Less current installments 6,411 7,786
------- -------
$29,784 $36,184
======= =======
</TABLE>
Certain of the loan agreements contain covenants which, among other things,
require the Company to maintain current assets equal to 150% of current
liabilities, limit the percentage of capitalization from funded debt, and
require that certain levels of net worth be maintained. The Company was in
compliance or had obtained bank waivers for all debt covenants as of
December 31, 1998.
Principal payments required on long-term obligations during each of the years
2000 through 2003 are approximately $7,683, $1,678, $1,697, and $1,717,
respectively.
The estimated fair value of the Company's long-term obligations at
December 31, 1998 and 1997 was approximately $38,745 and $47,225, respectively.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. Fair value
estimates were based on the amount of future cash flows discounted using the
Company's current borrowing rate for loans of comparable maturity. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
[7] PREFERRED STOCK
Under the Company's Amended Articles of Incorporation, there are 1,000,000
authorized, unissued shares of Cumulative Preferred Stock, $1.00 par value.
Subject to certain limitations, the Articles provide that the Board of Directors
may fix the conditions of each series of Preferred Stock.
The Company entered into a Rights Agreement with its transfer agent in 1988,
as amended in 1991 and 1994, and the Board of Directors declared a dividend of
one Preferred Share Purchase Right for each outstanding share of the Company's
Common Stock. Upon the occurrence of certain events, Preferred Share Purchase
Rights entitle the holder to purchase, at a price of $60.00, one one-hundredth
of a share of Series C Cumulative Preferred Stock, subject to adjustment. The
Rights become exercisable only if a person or group acquires 15% or more of the
24
<PAGE> 14
Company's Common Stock or announces a tender offer for 15% or more of the Common
Stock. Under certain circumstances, all Rights holders, except the person or
group holding 15% or more of the Company's Common Stock, will be entitled to
purchase a number of shares of the Company's Common Stock having a market value
of twice the Right's current exercise price. Alternately, if the Company is
acquired in a merger or other business combination, after the Rights become
exercisable the Rights will entitle the holder to buy a number of the acquiring
company's common shares having a market value at that time of twice each Right's
current exercise price.
Further, after a person or group acquires 15% or more (but less than 50%) of
the Company's outstanding Common Stock, the Company's Board of Directors may
exchange part or all of the Rights (other than the Rights held by the acquiring
person or group) for shares of Common Stock. The Rights expire December 9, 2004
and may be redeemed by the Company for $.01 per Right at any time prior to the
acquisition by a person or group of 15% or more of the Company's Common Stock.
[8] COMMON STOCK AND COMMON STOCK PLANS
At December 31, 1998, the Company has stock-based compensation plans which
are described below. The Company applies APB Opinion No. 25 and related
Interpretations in Accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans and its stock purchase plan
except for options issued below fair market value. The compensation cost that
has been charged against income for options issued below fair market value was
$202, $432, and $246 for 1998, 1997, and 1996, respectively. Had compensation
cost for the Company's stock-based compensation plans been determined consistent
with FASB Statement No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net earnings (loss)
As Reported $ (665) $10,175 $6,457
Pro Forma (1,279) 9,741 6,228
Net earnings (loss)
per common share
As Reported $ (.05) $ 0.78 $ 0.48
Pro Forma (.10) 0.75 0.46
</TABLE>
Due to the phase-in period for applying the disclosure requirements of SFAS
No. 123, the pro forma information provided above is not likely to be
representative of the effects on reported net earnings for future years.
The Company has fixed option plans, which include the 1998 Qualified Plans,
the 1998 Non-Qualified Plan, the 1988 Stock Option Plan and Restricted Share
Plan and the 1987 Director Stock Option Plan. The 1998 Qualified Plans consist
of the 1998 Director Stock Option Plan, the 1998 Key Employee Stock Plan, and
the 1998 Restricted Share Plan.
The 1998 Non-Qualified Plan, the 1998 Key Employee Stock Plan, and the 1988
Stock Option Plan and Restricted Share Plan authorize the issuance of
non-qualified stock options, restricted shares, incentive stock options, and
stock appreciation rights, although no incentive stock options or stock
appreciation rights have been issued. Under the plan, the exercise price of each
non-qualified stock option equals the market price of the Company's stock on the
date of the grant, and such option's maximum term is ten years. Options vest at
the end of the first through fifth years.
The 1998 Director Stock Option Plan and 1987 Director Stock Option Plan
authorizes the automatic issuance of non-qualified stock options to members of
the Board of Directors who are not
<TABLE>
<CAPTION>
1998 1998 1997 1997 1996 1996
NUMBER WEIGHTED-AVERAGE Number Weighted-Average Number Weighted-Average
OF SHARES EXERCISE PRICE of Shares Exercise Price of Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
1998 NON-QUALIFIED PLAN
Outstanding at January 1 -- --
Granted at fair value 245,700 $15.73
Granted below fair value -- --
Forfeited (750) 15.94
EXERCISED -- --
------- ------
Outstanding at December 31 244,950 $15.73
------- ------
Exercisable at December 31 -- --
------- ------
WEIGHTED-AVERAGE fair value of
options granted during the year;
issued at fair value on grant date $ 4.58
issued below fair value on grant date --
1998 QUALIFIED PLANS
Outstanding at January 1 -- --
Granted at fair value 231,958 $16.57
Granted below fair value -- --
Forfeited -- --
Exercised -- --
------- ------
OUTSTANDING AT DECEMBER 31 231,958 $16.57
------- ------
Exercisable at December 31 16,000 $16.25
------- ------
Weighted-average fair value of
Issued at fair value on grant date $ 5.08
Issued below fair value on grant date --
</TABLE>
25
<PAGE> 15
<TABLE>
<CAPTION>
1998 1998 1997 1997 1996 1996
NUMBER WEIGHTED-AVERAGE Number Weighted-Average Number Weighted-Average
OF SHARES EXERCISE PRICE of Shares Exercise Price of Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
1988 PLAN
Outstanding at January 1 1,327,315 $12.75 1,278,647 $12.42 957,156 $12.67
Granted at fair value 15,000 14.75 272,399 14.34 433,409 13.11
Granted below fair value -- -- -- -- 90,000 1.00
Forfeited (136,834) 13.94 (168,510) 13.66 (44,503) 13.99
Exercised (73,718) 12.05 (55,221) 9.76 (157,415) 8.82
--------- ------ --------- ------ --------- ------
Outstanding at December 31 1,131,763 $12.73 1,327,315 $12.75 1,278,647 $12.42
--------- ------ --------- ------ --------- ------
Exercisable at December 31 632,399 -- 422,962 $13.51 302,695 $14.32
--------- ------ --------- ------ --------- ------
Weighted-average fair value
of options granted during
the year;
Issued at fair value
on grant date $ 4.29 $ 4.42 $ 4.21
Issued below fair value
on grant date -- -- $ 9.02
1987 DIRECTOR STOCK OPTION PLAN
Outstanding at January 1 243,818 $12.35 188,882 $12.44 184,877 $12.42
Granted at fair value -- -- 50,625 13.00 -- --
Granted below fair value -- -- 4,728 1.00 7,241 1.00
Forfeited (5,625) 11.66 -- -- -- --
Exercised (42,115) 9.55 (417) 1.00 (3,236) 0.80
--------- ------ --------- ------ --------- ------
Outstanding at December 31 196,078 $12.98 243,818 $12.35 188,882 $12.44
--------- ------ --------- ------ --------- ------
Exercisable at December 31 140,725 -- 181,224 $12.92 175,348 $13.32
--------- ------ --------- ------ --------- ------
Weighted-average fair value of
options granted during the year -- -- $10.56
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/98 Life Price at 12/31/98 Price
<S> <C> <C> <C> <C> <C> <C>
1998 Non -Qualified Plan
13 to 17 175,200 10.0 Years $15.08
18 to 20 69,750 9.6 Years 17.38
-------- -------- ---------- -----
13 to 20 244,950 9.9 Years 15.73
1998 Qualified Plan
0 to 1 11,458 9.4 Years $ 1.00 -- --
13 to 17 65,500 9.8 Years 15.31 16,000 $16.25
18 to 20 155,000 9.5 Years 18.25 -- --
-------- ------- --------- ----- ------- -----
0 to 20 231,958 9.6 Years $16.57 16,000 $16.25
1988 Plan
0 to 1 90,000 7.6 Years $ 1.00 60,000 $ 1.00
10 to 12 296,960 6.6 Years 11.03 184,256 11.02
13 to 17 648,588 7.7 Years 14.16 291,928 14.27
17 to 20 96,215 4.2 Years 19.38 96,215 19.38
-------- ---------- --------- ----- -------- ------
0 to 20 1,131,763 7.1 Years $12.73 632,399 $12.84
1987 Director Stock Option Plan
0 to 1 27,328 5.7 Years $ .98 22,600 $ .98
11 to 18 168,750 5.2 Years 14.92 118,125 15.74
-------- ------- --------- ----- ------- ------
0 to 18 196,078 5.3 Years $12.98 140,725 $13.37
</TABLE>
employees of the Company. Directors can elect to receive discounted stock
options in lieu of all or part of the annual retainer fee. Such shares cannot
include stock appreciation rights. Under the 1998 Director Stock Option Plan,
options vest at the end of six months and at the end of two years. Under the
1987 Director Stock Option Plan, options vest at the end of the third, fourth,
and fifth years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield
of 2.4% for all years; expected volatility of 30.0% for all years; risk-free
interest rates from 5.5% to 6.8% for all plans and years; and expected lives of
5.8 years for all plans.
The 1989 Employee Stock Purchase Plan, as amended, authorizes the offering
and sale to employees of up to 975,000 shares of the Company's common stock at a
price approximately 90% of the closing price of the common stock on the offering
date. Under the plan, the Company sold 40,729 shares, 8,133 shares, and 37,627
shares to employees in 1998, 1997, and 1996, respectively. At December 31, 1998,
rights to purchase 65,205 shares were outstanding under this plan at an exercise
price of $11.531 per share and 472,884 additional shares were available for
issuance.
26
<PAGE> 16
Under FASB Statement No. 123, compensation cost is recognized for the fair
value of the employee's purchase rights, which was estimated using the
Black-Scholes model with the following assumptions for 1998, 1997, and 1996,
respectively: dividend yield of 2.4% for all years; an expected life of one year
for all years; a risk-free interest rate of 4.8% for 1998 grants, 5.7% for 1997
grants and 6.2% for 1996 grants, and expected volatility of 30.0% for all years.
The weighted-average fair value of those purchase rights granted in 1998, 1997,
and 1996 were $0.57, $1.85, and $2.41, respectively.
[9] Earnings Per Share
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
1998
BASIC EPS
Net earnings available to
common shareholders $(665) 12,122,278 $(.05)
-----
EFFECT OF DILUTIVE SECURITIES
Stock options -- 157,555
DILUTED EPS
Earnings available to common
shareholders and assumed
conversions $(665) 12,279,833 $(.05)
----- ---------- -----
</TABLE>
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
1997
BASIC EPS
Net earnings available to
common shareholders $10,175 12,894,600 $.79
----
EFFECT OF DILUTIVE SECURITIES
Stock options -- 167,574
DILUTED EPS
Earnings available to common
shareholders and assumed
conversions $10,175 13,062,174 $.78
------- ---------- ----
</TABLE>
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
1996
BASIC EPS
Net loss available to
common shareholders $6,457 13,449,143 $.48
----
EFFECT OF DILUTIVE SECURITIES
Stock options -- 128,719
DILUTED EPS
Earnings available to common
shareholders and assumed
conversions $6,457 13,577,862 $.48
------ ---------- ----
</TABLE>
Options to purchase 385,340, 224,785, and 812,222 shares of common stock were
outstanding in 1998, 1997, and 1996, respectively, but were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares.
[10] COMMITMENTS AND CONTINGENCIES
The Company leases certain manufacturing and warehouse facilities, office
space, machinery, and vehicles under cancellable and non-cancellable operating
leases, most of which expire within ten years and may be renewed by the Company.
Rent expense under such arrangements totaled approximately $9,308, $7,523, and
$6,308 in 1998, 1997, and 1996, respectively.
Future minimum rental commitments under non-cancellable operating leases at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Amount
<S> <C>
1999 $ 6,931
2000 6,091
2001 4,913
2002 3,666
2003 3,105
Thereafter 13,042
-------
Total minimum payments $37,748
=======
</TABLE>
The Company is subject to a number of lawsuits, investigations, and claims
arising out of the conduct of its business primarily related to commercial
transactions and product liability. While it is not feasible to predict the
outcome of all pending suits and claims, management is of the opinion that their
ultimate disposition will not have a material adverse effect upon the
consolidated financial position, liquidity, or ongoing results of operations of
the Company.
[11] ENVIRONMENTAL EXPENDITURES
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 probable 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
San Gabriel Basin Water Quality Authority 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 is approximately
$6,100 and $5,100 for 1998 and 1997, respectively. This accrual has not
27
<PAGE> 17
been discounted, and 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 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 costs of environmental
remediation requirements 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.
[12] BENEFIT PLANS
The Company sponsors defined benefit pension plans covering certain salaried
and hourly employees. Benefits to salaried employees are based upon the highest
three consecutive years of earnings out of their last ten years of service;
benefits to hourly workers are based upon their years of credited service.
Contributions to the plans reflect benefits attributed to employees' service to
date and also to services expected to be provided in the future. Plan assets
consist primarily of common and preferred stocks, common stock index funds,
investment grade corporate bonds, and U.S. government obligations.
In addition to the Company's defined benefit pension plans, the Company
sponsors several defined benefit health care and life insurance plans that
provide postretirement medical, dental, and life insurance benefits to full-time
employees who meet minimum age and service requirements. The plans are
contributory, with retiree contributions adjusted annually, and contain other
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
Health Care & Health Care & Deferred Deferred
PENSION PENSION Life Insurance Life Insurance Compensation Compensation
PLANS PLANS Plans Plans Plan Plan
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligations:
Benefit obligation at beginning
of year $93,802 $87,374 $13,194 $12,200 $6,498 $6,394
Service cost 2,787 $2,593 402 469 -- --
Interest cost 6,654 6,138 727 932 458 333
Amendments 525 (1,581) -- -- -- --
Actuarial (gain) loss 5,955 3,829 (2,439) 638 -- --
Disbursements (6,314) (3,279) (430) (536) (159) (229)
Curtailments (1,007) (1,272) (1,734) (509) -- --
------- ------- ------- ------- ------ ------
Benefit obligation at end of year 102,402 93,802 9,720 13,194 6,797 6,498
------- ------- ------- ------- ------ ------
Change in plan assets:
Fair value of plan assets at
beginning of year 85,456 73,569 -- -- -- --
Actual return on plan assets 14,271 12,217 -- -- -- --
Employer contribution 4,626 2,949 430 536 159 229
Disbursements (6,315) (3,279) (430) (536) (159) (229)
------- ------- ------- ------- ------ ------
Fair value of plan assets at
end of year 98,038 85,456 -- -- --
------- ------- ------- ------- ------ ------
Funded status (4,364) (8,346) (9,720) (13,194) (6,797) (6,498)
Unrecognized net actuarial
(gain) loss 8,318 9,532 (1,961) (663) 3,117 3,117
Unrecognized prior service cost 1,603 1,284 (42) (45) -- --
Unrecognized initial net
(asset) obligation (1,511) (1,846) -- -- --
------- ------- ------- ------- ------ ------
Net amount recognized 4,046 624 (11,723) (13,902) (3,680) (3,381)
------- ------- ------- ------- ------ ------
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost 4,815 2,368 -- -- -- --
Accrued benefit liability (5,873) (8,506) (11,723) (13,902) (3,680) (3,381)
Intangible asset 1,104 806 N/A N/A N/A N/A
Accumulated other comprehensive
income 4,000 5,956 N/A N/A N/A N/A
------- ------- ------- ------- ------ ------
Net amount recognized 4,046 624 (11,723) (13,902) (3,680) (3,381)
------- ------- ------- ------- ------ ------
Weighted-average assumptions
as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25% 7.25% 7.25%
Expected return on plan assets 9.50% 9.50% N/A N/A N/A N/A
Rate of compensation increase Age-graded Age-graded N/A N/A N/A N/A
</TABLE>
28
<PAGE> 18
The following table sets forth the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheets at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
Health Care & Health Care & Deferred Deferred
PENSION PENSION Life Insurance Life Insurance Compensation Compensation
PLANS PLANS Plans Plans Plan Plan
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Components of
net periodic benefit cost:
Service cost $2,787 $2,593 $402 $ 469 -- --
Interest cost 6,654 6,138 727 932 458 333
Expected return on plan assets (8,207) (7,037) -- -- -- --
Amortization of prior service cost 163 168 (3) (3) -- --
Amortization of initial net
(asset) obligation (336) (334) -- --
Recognized net actuarial
(gain) loss 100 381 (150) -- -- --
Curtailment gain 44 (851) (2,725) -- -- --
------ ------ ------ ----- --- ---
Net periodic benefit cost 1,205 1,058 (1,749) 1,398 458 333
------ ------ ------ ----- --- ---
</TABLE>
cost-sharing features such as deductibles and coinsurance. The Company's policy
is to fund the cost of medical benefits in amounts determined at the discretion
of management.
In connection with the Celina plant closure, future benefits were terminated
for its employees under the postretirement medical and dental plans and a
curtailment gain of $2,725 was included in the plant closure and manufacturing
reconfiguration.
The Company also sponsors a deferred compensation plan for the benefit of
highly compensated management employees. The eligible employees make
contributions to the plan and receive postretirement benefits based upon a
stated rate of return on those contributions. The Company's policy is to fund
the cost of the benefits in amounts determined at the discretion of management.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $10,892, $10,777, and $4,906, respectively, as
December 31, 1998, and $54,619, $51,929, and $43,740, respectively, as December
31, 1997.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ONE-PERCENTAGE-POINT INCREASE
Actuarial value of benefit obligations:
Vested benefit obligation $ 168 $ 205
Accumulated benefit obligation 1,287 1,736
ONE-PERCENTAGE-POINT DECREASE
Actuarial value of benefit obligations:
Vested benefit obligation $ (145) N/C
Accumulated benefit obligation (1,136) N/C
</TABLE>
Prior to closure, the Celina, Ohio facility participated in a multiemployer
defined benefit plan. Contributions to the multiemployer plan totaled $489 in
1998 and $1,025 in 1997.
The Company maintains defined contribution retirement plans covering its
eligible employees under Section 401(k) of the Internal Revenue Code. The
purpose of these defined contribution plans is generally to provide additional
financial security during retirement by providing employees with an incentive to
make regular savings. The Company's contributions to the plans are based on
employee contributions and were $599, $807, and $843 in 1998, 1997, and 1996,
respectively.
[13] INCOME TAXES
The provisions for federal and state income taxes attributable to income from
continuing operations consist of:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $ 551 $ 5,047 $2,050
State (210) 102 (141)
Foreign 170 23 45
----- ------- ------
511 5,172 1,954
Deferred tax expense (benefit) (953) (1,106) 642
----- ------- ------
Total tax expense (benefit) $(442) $ 4,066 $2,596
----- ------- ------
</TABLE>
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited or settled through the year
1993.
Management expects that the Company's future levels of taxable income will be
sufficient to fully utilize the net deferred tax asset. Therefore, a valuation
allowance has not been established.
The components of the net deferred tax asset as of December 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for doubtful accounts $ 838 $ 842
Inventory obsolescence reserve 994 909
Workers' compensation 1,954 1,946
Product liability 839 1,624
Deferred compensation 2,174 1,622
Accrued vacation 535 1,055
Pension liability 1,768 2,626
Postretirement benefits other
than pensions 5,404 6,055
Environmental reserves 2,622 1,797
Severance reserves 1,855 624
Promotional allowances 1,435 772
Other liabilities and reserves 2,660 2,304
------- -------
Total deferred tax assets 23,078 22,176
------- -------
Deferred tax liabilities:
Property, plant, and equipment 3,529 2,977
Other assets 940 850
------- -------
Total deferred tax liabilities 4,469 3,827
------- -------
Net deferred tax asset $18,609 $18,349
------- -------
</TABLE>
29
<PAGE> 19
The following table accounts for the difference between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal income
tax rate to the earnings (loss) before income taxes attributable to continuing
operations.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Earnings (loss) before income
taxes from continuing
operations $(1,107) $14,495 $9,520
------- ------- ------
Tax provision (benefit) computed
at statutory rate $ (387) $ 4,928 $3,237
Increase (reduction) in taxes
due to:
Impact of foreign losses for
which a current tax benefit
is not available (31) (237) (54)
State income taxes (net of
federal tax benefit) (136) 67 (48)
Goodwill amortization 140 136 136
Foreign sales corporation (137) (182) (210)
Insurance proceeds -- (320) --
Non-deductible meals and
entertainment 480 385 353
Tax credits (206) (138) (132)
Refunds of prior year
income taxes (86) (531) (545)
Miscellaneous (79) (42) (141)
------- ------- ------
Actual tax provision (benefit) $ (442) $ 4,066 $2,596
------- ------- ------
</TABLE>
[15] BUSINESS SEGMENTS
Huffy Corporation is a diversified manufacturer and supplier of bicycles,
basketball backboards, lawn and garden tools, and inventory, assembly, and
supplier services. Bicycles and basketball backboards are sold predominantly
through national and regional high volume retailers in the United States. Lawn
and garden products are sold both directly and through wholesale distributors to
national and regional high volume retailers in the United States. In-store and
in-home assembly and repair, and in-store display services are provided to major
retailers in fifty states, Puerto Rico, and the Virgin Islands. Merchandising
services (product resets and periodic maintenance of displays) are marketed to
manufacturers who supply high volume retailers. Physical inventory services are
marketed on a nationwide basis to mass retailers, drug stores, home centers,
sporting goods stores, specialty stores, and grocery stores. The Company has
classified its operations into the following business segments:
o CONSUMER PRODUCTS -- bicycles, basketball back boards and related
products, and lawn and garden tools.
o SERVICES FOR RETAIL -- in-store assembly, repair, and display services
as well as inventory counting services.
In 1998, two customers individually accounted for 23% and 14% of total
consolidated net sales. In 1997, two customers individually accounted for 27%
and 11% of total consolidated net sales. In 1996, two customers individually
accounted for 16% and 13% of total consolidated net sales.
A summary of the Company's 1998, 1997, and 1996 operations by business
segment is as follows:
<TABLE>
<CAPTION>
Earnings (Loss) Depreciation
Before Income Identifiable and Capital
Sales Taxes Assets Amortization Expenditures
<S> <C> <C> <C> <C> <C>
1998
Consumer Products $510,768 $2,304 $250,860 $12,477 $17,131
Services for Retail 197,901 9,051 55,442 5,280 5,575
Eliminations (1,113)
Interest expense (9,125)
Interest income 144
General corporate -- (3,481) 40,442 323 271
-------- ------- -------- ------- -------
$707,556 $(1,107) $346,744 $18,080 $22,977
-------- ------- -------- ------- -------
1997
Consumer Products $514,286 $16,239 $253,727 $13,333 $13,149
Services for Retail 181,556 9,101 44,257 3,924 4,265
Eliminations (1,352)
Interest expense (5,725)
Interest income 211
General corporate -- (5,331) 25,509 409 79
-------- ------- -------- ------- -------
$694,490 $14,495 $323,493 $17,666 $17,493
-------- ------- -------- ------- -------
1996
Consumer Products $425,994 $13,409 $194,270 $13,859 $10,829
Services for Retail 153,933 7,251 39,775 4,132 3,725
Eliminations (257)
Interest expense (5,873)
Interest income 82
General corporate -- (5,349) 23,446 426 130
-------- ------- -------- ------- -------
$579,670 $ 9,520 $257,491 $18,417 $14,684
-------- ------- -------- ------- -------
</TABLE>
30
<PAGE> 20
[16] QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL[1]
<S> <C> <C> <C> <C> <C>
1998
Net Sales $182,305 $220,310 $140,111 $164,830 $707,556
Gross profit 32,467 44,521 23,080 22,928 122,996
-------- -------- ------- -------
Net earnings (loss) 3,786 (26) (719) (3,706) (665)
EARNINGS PER COMMON SHARE:
Basic
Net earnings (loss) per common share $ .30 $ .00 $ (.06) $ (.31) $ (.05)
Diluted
Net earnings (loss) per common share $ .30 $ .00 $ (.06) $ (.31) $ (.05)
1997
Net sales $171,927 $213,101 $149,996 $159,466 $694,490
Gross profit 27,422 37,457 23,465 24,497 112,841
-------- -------- -------- -------- -------
Net earnings 3,406 5,496 1,015 258 10,175
EARNINGS PER COMMON SHARE:
Basic
Earnings from continuing operations $ .22 $ .49 $ .08 $ .02 $ .81
Discontinued operations .04 (.06) -- -- (.02)
------ ------ ----- ----- ------
Net earnings per common share $ .26 $ .43 $ .08 $ .02 $ .79
Diluted
Earnings from continuing operations $ .22 $ .49 $ .08 $ .02 $ .80
Discontinued operations .03 (.06) -- -- $ (.02)
------ ------ ----- ----- ------
Net earnings per common share $ .25 $ .43 $ .08 $ .02 $ .78
</TABLE>
[1] QUARTERLY PER SHARE AMOUNTS ARE COMPUTED INDEPENDENTLY FOR EACH QUARTER AND
THE FULL YEAR BASED UPON THE RESPECTIVE WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING AND MAY NOT EQUAL THE TOTAL FOR THE YEAR.
COMMON STOCK
Huffy Corporation Common Stock is traded on the New York Stock Exchange. Cash
dividends declared and the quarterly high and low prices of Huffy Corporation
Common Stock during the years ended December 31, 1998 and 1997 were as follows:
Year ended December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK DIVIDENDS
PRICE RANGE DECLARED
QUARTER HIGH LOW
<S> <C> <C> <C>
FIRST $16-1/2 $12-5/16 $.085
SECOND 19-1/8 14-7/8 .085
THIRD 16-1/2 14-1/8 .085
FOURTH 16-1/2 11-1/16 .085
-----
Total $.340
-----
</TABLE>
Year ended December 31, 1997
<TABLE>
<CAPTION>
Common Stock Dividends
Price Range Declared
Quarter High Low
<S> <C> <C> <C>
First $14-7/8 $12-3/4 $.085
Second 14-3/4 12-3/4 .085
Third 16-1/2 14-1/8 .085
Fourth 16-15/16 13-1/16 .085
-----
Total $.340
-----
</TABLE>
As of December 31, 1998 there were 11,783,689 shares of Huffy Corporation
Common Stock outstanding and there were 3,454 shareholders of record. Management
estimates an additional 8,500 shareholders hold their stock in nominee name.
Trading volume of the Company's Common Stock during the twelve months ended
December 31, 1998 totaled 10,469,990 shares. The average number of common shares
outstanding during this period was approximately 12,122,278 shares.
31
<PAGE> 21
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Don R. Graber
Chairman of the Board, President and
Chief Executive Officer
W. Anthony Huffman
President of Huffman Travel Limited
Linda B. Keene
Vice President - Market Development of
American Express Financial Advisors
Jack D. Michaels
Chairman, President and Chief Executive
Officer of HON INDUSTRIES Inc.
Donald K. Miller
President of Presbar Corporation
James F. Robeson
Consultant to various distribution companies
Patrick W. Rooney
Chairman of the Board, President and
Chief Executive Officer of Cooper Tire &
Rubber Company
Thomas C. Sullivan
Chairman and Chief Executive Officer of
RPM, Inc.
Joseph P. Viviano
Vice Chairman of Hershey Foods Corporation
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee:
James F. Robeson (Chairman), Linda B. Keene,
and Donald K. Miller
Compensation Committee:
Thomas C. Sullivan (Chairman), Patrick W.
Rooney, and Joseph P. Viviano
Nominating and Governance Committee:
Jack D. Michaels (Chairman), W. Anthony
Huffman, and Linda B. Keene
CORPORATE OFFICERS
Don R. Graber
Chairman of the Board, President and
Chief Executive Officer
Stanley H. Davis
Vice President - Human Resources and
Organization Development
Thomas A. Frederick
Vice President - Finance, Chief
Financial Officer and Treasurer
Timothy G. Howard
Vice President - Controller
Nancy A. Michaud
Vice President - General Counsel and
Secretary
COMPANY PRESIDENTS
Paul R. D'Aloia
Huffy Sports Company
Carol A. Gebhart
Washington Inventory Service
Christopher W. Snyder
Huffy Bicycle Company
John M. Stoner, Jr.
True Temper Hardware Company
I. Edward Tonkon II
Huffy Service First, Inc.
32
<PAGE> 22
SHAREHOLDER INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held April 22, 1999 at 10:00 a.m.,
Eastern Daylight Time, at Sinclair Community College in the Frederick C. Smith
Auditorium, 444 West Third Street, Dayton, Ohio.
Shareholders are cordially invited to attend.
PRIMARY BUSINESS LOCATIONS
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
(937) 866-6251
Huffy Bicycle Company
225 Byers Road
Miamisburg, Ohio 45342
(937) 866-6251
True Temper Hardware Company
465 Railroad Avenue
Camp Hill, Pennsylvania 17011
(717) 737-1500
Huffy Sports Company
N53 W24700 S. Corporate Circle
Sussex, Wisconsin 53089
(414) 820-3440
Washington Inventory Service
9265 Sky Park Court, Ste. 100
San Diego, California 92123
(619) 565-8111
Huffy Service First, Inc.
8521 Gander Creek Drive
Miamisburg, Ohio 45342
(937) 438-3664
Additional Operating Locations
- Cork, Ireland
- Farmington, Missouri
- Fuquay-Varina, North Carolina
- Harrisburg, Pennsylvania
- Hauppauge, New York
- Laredo, Texas
- North Vernon, Indiana
- Nuevo Laredo, Mexico
- Pine Valley, New York
- Southaven, Mississippi
- Union City, Pennsylvania
- Wallingford, Vermont
STOCK EXCHANGE
New York Stock Exchange, Symbol HUF
TRANSFER AGENT AND REGISTRAR FOR COMMON STOCK
Harris Trust and Savings Bank
Shareholder Services
311 West Monroe Street
Chicago, Illinois 60690-3504
(800) 942-5909
DIVIDENDS
Dividends are payable quarterly as declared by the Board of Directors. Huffy
has paid a dividend on its Common Stock each year since becoming publicly traded
on November 15, 1966.
DIVIDEND REINVESTMENT
A dividend reinvestment program is available to holders of Huffy Corporation
Common Stock. Shareholders interested in participating should contact either the
transfer agent or Huffy Corporation, 225 Byers Road, Miamisburg, Ohio 45342,
Attention: Vice President - Treasurer.
AUDITORS
KPMG LLP
FORM 10-K
Shareholders interested in obtaining Huffy Corporation's Annual Report or
Form 10-K filed with the Securities and Exchange Commission may obtain a copy by
writing Huffy Corporation, 225 Byers Road, Miamisburg, Ohio 45342, Attention:
Vice President - Treasurer.
SHAREHOLDER COMMUNICATIONS
Communications concerning lost certificates, transfer requirements, address
changes, and Common Stock dividend checks should be sent to Harris Trust and
Savings Bank, Shareholder Services, 311 West Monroe Street, Chicago, Illinois
60690-3504, (800) 942-5909.
The Management of Huffy Corporation welcomes comments and suggestions from
shareholders and investors. Call Investor Relations, (937) 866-6251.
* LICENSING INFORMATION
Kawasaki(R) is a registered trademark of Kawasaki Motors Corp., USA (Huffy
Bicycle Company acts as the exclusivE U.S. distributor for Kawasaki-branded
bicycles); Ironman(R) is a registered trademark of the World Triathlon
Corporation; Looney Tunes(R) is a registered trademark of Warner Bros.; Mickey
For Kids(R) is a registered trademaRK of Disney Enterprises, Inc.; NBA(R) and
WNBA(R) are registered trademarks of NBA Properties, Inc.; and NCAA(R) is A
registered trademark of the National Collegiate Athletic Association.
[RECYCLED LOGO] This annual report has been produced on recycled paper.
33
<PAGE> 1
Exhibit 19
Schedule of certain documents substantially
identical to filed documents with parties thereto
and other material differing details
19.a Parties to Restricted Share Agreement in substantially the form set
forth in Exhibit 10.w to Form-K for the fiscal year ended December 31,
1997:
Paul R. D'Aloia
Thomas A. Frederick
Carol A. Gebhart
Don R. Graber
Timothy G. Howard
Nancy A. Michaud
Christopher W. Snyder
John M. Stoner
I. Edward Tonkon II
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 17,889
<SECURITIES> 0
<RECEIVABLES> 95,847
<ALLOWANCES> (2,424)
<INVENTORY> 82,467
<CURRENT-ASSETS> 217,164
<PP&E> 221,191
<DEPRECIATION> 136,820
<TOTAL-ASSETS> 343,744
<CURRENT-LIABILITIES> 189,270
<BONDS> 29,784
0
0
<COMMON> 16,633
<OTHER-SE> 76,518
<TOTAL-LIABILITY-AND-EQUITY> 343,744
<SALES> 707,556
<TOTAL-REVENUES> 707,556
<CGS> 584,560
<TOTAL-COSTS> 699,874
<OTHER-EXPENSES> (192)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,125
<INCOME-PRETAX> (1,107)
<INCOME-TAX> (442)
<INCOME-CONTINUING> (665)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (665)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
