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