SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGEACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 1-7117
GENERAL HOUSEWARES CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 41-0919772
incorporation or organization) (I.R.S. Employer
Identification No.)
1536 Beech Street 47804
Terre Haute, Indiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (812) 232-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.33 1/3 par value New York Stock Exchange
Preferred Share Purchase Rights 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 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)
-1-
On March 13, 1995, 3,743,414 shares of the registrant's Common Stock, $.33-1/3
par value, were outstanding. The aggregate market value of the Common Stock
(based upon the closing price of the Common Stock on the New York Stock Exchange
Composite Transactions) held by non-affiliates of the registrant at March 13,
1995 was $52,407,796.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1995 Annual
Meeting of Stockholders, which will be filed
on or prior to March 31, 1995, to the extent
stated in this report. Part III
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PART I
Item 1. Business
General Housewares Corp. (hereinafter referred to as the "Company") manufactures
and markets consumer durable goods. The Company limits itself to product
categories in which, through market share, product innovation or brand image it
is considered a leader. Through the acquisition and/or development of products
that "delight and excite" the consumer, i.e., deliver unexpected value, simplify
and enhance a task or redefine a task, the Company believes that it is able to
establish such a leadership position. The Company currently enjoys such a
position in the following product categories: cookware, cutlery, kitchen tools
and precision cutting tools.
Approximately 70% of the products sold by the Company during 1994 were produced
domestically, primarily in factories owned and operated by the Company. The
remaining products are obtained from foreign sources primarily located in the
Far East.
COOKWARE: The Company is one of the country's largest manufacturers and
marketers of cookware, distributing its products throughout the United States,
Canada and selected European markets. The Company's collection of leading,
brand-name cookware products enables it to deliver, to both retailers and
consumers, products which satisfy a complete range of functional, aesthetic and
value requirements. The Company competes in four main cookware product
categories, covering a broad range of materials, designs, colors and prices. The
Company's cookware product categories are:
Cast Aluminum - Through its premium priced polished and black anodized aluminum
cookware products sold under the Magnalite(R) and Magnalite Professional(R)
brand names, respectively, the Company is a major manufacturer of cast aluminum
products. In 1993, the Company introduced a line of non-stick cast aluminum
cookware called Magnalite Professional(R) with Eclipse(TM) and in 1994 added the
Eclipse(TM) coating to certain products in its Magnalite(R) line. The products
are sold by mass merchants, department stores, and specialty cookware shops and
have been favorably received by the consumer because of their excellent cooking
performance and styling.
Enamelware - The Company is the only domestic manufacturer of this type of
product and has developed a leading market share. Ceramic On Steel(TM) cookware
products produced by the Company are sold under the Columbian and Graniteware
brand names. As of September 1, 1994 the Company acquired the Normandy line of
enamelware from National Housewares Corp. Normandy enamelware products, which
are similar to the Company's Ceramic On Steel(TM) cookware products, are
manufactured in Mexico. Enamelware is in demand because of its easy cleanup and
popular price. It is particularly popular for roasting and specialty
top-of-stove uses (e.g., spaghetti cookers and vegetable steamers). Products in
this category are primarily sold in discount stores, mass merchandise outlets
and warehouse clubs.
Cast Iron - These medium priced cookware products are sold nationally to all
retail channels under the Wagner's(TM) 1891 Original Cast Iron brand. The
Company is one of two major domestic manufacturers in this product category.
Wagner(TM) cast iron is purchased by consumers for its even heating, natural
non-stick surface and durability. It is particularly useful for skillet and
regional style cooking.
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Stamped and Spun Aluminum - These heavy gauge, large capacity products are
marketed under the brand name Leyse Professional(TM) and distributed through
department stores, mass merchants and specialty shops. Leyse products are
purchased from a domestic manufacturer.
During 1993, the Company sold its stainless steel cookware operations. In
conjunction with the sale, the Company entered into a licensing and royalty
agreement pursuant to which the purchaser may continue to use the Magnalite(R)
and Magnalite Professional(R) brand names on stainless steel cookware. The
Company believes that the sale will not have a material impact on its ongoing
cookware operations.
The total United States market for cookware, defined as metal pots and pans used
for top-of-stove and oven cooking, is estimated by the Cookware Manufacturers
Association at approximately $1.6 billion in terms of annual sales. Domestic
industry unit sales have remained relatively flat during the past five years
and, as a result, domestic manufacturers have lost market share to imports,
which the Association estimates have grown from 42% of the market in 1990 to 45%
in 1994. Imported merchandise, principally from Korea, Taiwan, Mexico and the
Peoples Republic of China, has been successful in penetrating the market through
comparable quality products at lower prices.
Through market research and a better understanding of the American consumer, the
Company believes it has successfully repositioned its product lines to
differentiate them from competing imports.
The cookware industry is highly competitive and fragmented. In addition, it is
characterized by little product differentiation. The Company believes that known
brand names, price-value relationships, product design, quality and creative
merchandising programs, as well as responsive, superior customer service, are
key factors contributing to success. While there are a number of manufacturers
and marketers of cookware, only a few are larger in the marketplace, or have
greater financial resources than the Company.
CUTLERY: The Company is a manufacturer and marketer of quality kitchen cutlery
with the leading domestic brand name (Chicago Cutlery(R)) and market share in
its industry. The Company markets, under the Chicago Cutlery(R) brand umbrella,
three complete lines of kitchen knives for consumers, sharpening tools, storage
units and cutting boards. Its most popular household cutlery line is The Walnut
Tradition(R), which features a solid American walnut handle with a Taper
Grind(R) edge on the blade. The Company manufactures and sells a popular priced
knife under the Cherrywood(TM) brand name. For the consumer that prefers a
synthetic handled knife, the Company manufactures and sells the Metropolitan(TM)
product line which features a durable high-impact plastic handle and a Taper
Grind(R) edge.
All Chicago Cutlery(R) blades are made from high carbon stainless steel that
resists rusting, pitting and staining. The Taper Grind(R) edge provides a
uniform and smooth taper, thereby facilitating the blade's movement through the
object being cut.
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During 1992, the Company repositioned its cutlery products that had been sold
under the Mendix name as a promotional cutlery category under the banner
"Designed and Marketed by Chicago Cutlery(R)". These products compete in both
the fine edge and "never-needs-sharpening" segment of the cutlery industry and
are purchased from suppliers in the Far East. Promotional cutlery "Designed and
Marketed by Chicago Cutlery(R)" consists of thirteen separate cutlery brands,
seven of which are sold exclusively through department stores, and the remaining
lines are distributed through department stores, mass merchandisers and catalog
showrooms.
While the overall market for kitchen cutlery in the United States has remained
relatively unchanged in recent years, foreign products have made significant
inroads. The Company believes that imports in 1994 accounted for more than half
of domestic sales in dollars and 75% of domestic sales in units. In general,
foreign competition has been concentrated at the lower end and the very high end
of the retail price range. As a result of its widely recognized brand name and
reputation for high quality at a good price, Chicago Cutlery(R) has gained
market share even as the rest of the domestic industry has lost ground.
The Company also manufactures a full line of knives for the commercial poultry
processing market. These molded handle knives are designed to meet the special
needs of professionals and have specialized blade shapes for specific cutting
jobs. The handles are textured to be slip-resistant and feature a finger guard
for safety, and in some cases ergonomic handles.
KITCHEN TOOLS: Effective October 1, 1992, the Company purchased all of the
partnership interests in OXO International L.P. ("OXO"), a New York limited
partnership, marketing a broad line of kitchen tools under the Good Grips(R),
Prima(TM) Plus(TM) and Basics(TM) brand names. The products are primarily made
by manufacturers located in the Far East according to OXO's designs and
specifications. The kitchen tools sold by OXO generally utilize a proprietary
handle which is covered by patents owned by the Company. OXO(R) kitchen tools
are distributed primarily in the United States through department stores,
gourmet and specialty outlets and mass merchandisers.
OXO also sells a line of garden tools, under the Sierra Club(TM) name, that
utilizes its proprietary handle. Garden tools are primarily distributed through
specialty outlets.
CUTTING BOARDS: The Company, under the Idaho Woodworks name, manufactures and
markets cutting boards made of wood, polyethylene, and combinations of wood and
acrylic, marble or polyethylene.
PRECISION CUTTING TOOLS: Effective October 1, 1994, the Company purchased
certain assets of Walter Absil Company Limited and Olfa Products Corp.,
(collective referred to as the "Olfa Products Group"). The Olfa Products Group
is the exclusive distributor, in the United States and Canada, of precision
cutting tools and accessories manufactured by Olfa Corporation of Osaka, Japan.
Products of the Olfa Products Group are sold both to distributors and direct to
hobby, craft, hardware and fabric stores.
The North American hobby and craft market is both large and diverse with sales
exceeding $10 billion. Products distributed through the Olfa Products Group
compete in small selected segments in this market. Typically, these products
compete on the basis of performance and value.
-5-
Cookware and cutlery products are sold by the Company to most major retail and
wholesale distribution organizations in the United States and Canada through its
direct sales force and, to a limited degree, through independent commissioned
sales representatives. The OXO(R) kitchen tools and Idaho Woodworks(TM) cutting
boards are sold primarily through independent commissioned sales
representatives. The Olfa Products Group utilizes a combination of a direct
sales force and independent commissioned sales representatives. In addition the
Company sells products through a chain of manufacturers' retail outlet stores
operating under the name "Chicago Cutlery etc., Inc."
MAJOR CUSTOMERS
During 1994, the ten largest customers of the Company accounted for 42% of the
Company's net sales. Sales to the Company's largest customer, Wal-Mart Stores,
Inc., were $12.1 million or approximately 13% of total net sales. The Company
has had good long-term relationships with its major customers.
CUSTOMER SERVICE
The Company believes it has a unique advantage as a supplier of primarily
American-made products which are shipped to its customers typically within five
days of order, as contrasted to direct retailer imports which typically require
a three to six month lead time.
EMPLOYEES
The Company employs approximately 725 persons, of whom about 575 are involved in
manufacturing with the balance serving in sales, general and administrative
capacities. The Company believes that its relations with employees are good.
Approximately 352 employees are represented by three different labor
organizations, which have contracts expiring in February, March and July of
1996.
EXPORT SALES
Exports account for less than 7% of the Company's total sales.
RAW MATERIALS
The principal raw materials used in manufacturing the Company's products are
steel, aluminum ingot, ceramic compounds, plastic compounds and hardwood
products. All of these materials are generally available from numerous suppliers
and the Company believes that the loss of any one supplier would not have a
significant impact on its operations.
SEASONALITY
Shipments are higher in the second half of the year and highest in the fourth
quarter due to the seasonality of housewares retail sales.
Item 2. Properties
The following table sets forth the location and size of the Company's principal
properties.
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OPERATING FACILITIES
Property Owned:
APPROXIMATE
FLOOR AREA
LOCATION NATURE OF USE OF PROPERTY (Square Feet)
Terre Haute, Manufacturing, distribution and 469,000
Indiana administrative (Ceramic on Steel(TM)
cookware and distribution of
cutlery products)
Sidney, Ohio Manufacturing (cast iron, cast 186,500
aluminum cookware)
Wauconda, Manufacturing (cutlery) 65,000
Illinois
Property Leased:
APPROXIMATE EXPIRATION
NATURE OF FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
Sidney, OH Warehouse 32,000 July 31, 1995
Terre Haute, IN Warehouse 86,400 Apr. 30, 1995
New York, NY Administrative 1,330 Sep. 30, 1995
Stamford, CT Administrative 5,000 May 7, 1995
Sandpoint, ID Manufacturing 22,000 Oct. 6, 1995
St. Laurent, Quebec Administrative
Canada and Warehouse 16,230 Nov. 30, 1997
Plattsburgh, NY Warehouse 27,700 Oct 1, 1997
In addition, the Company leases an average of 2,700 square feet of retail space
in 28 factory outlet malls with initial lease terms ranging from 3 to 7 years.
In the opinion of the Company's management, the properties and plants described
above are in good condition and repair and are adequate for the particular
operations for which they are used.
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NON-OPERATING FACILITIES
Property Owned: (Reported as "other assets" in the financial statements
in this Report).
APPROXIMATE
FLOOR AREA
LOCATION NATURE OF USE OF PROPERTY (Square Feet)
New Hope, Manufacturing/
Minnesota Distribution facility
(leased to third parties) 65,280
New Hope, Manufacturing/
Minnesota Distribution facility
(leased to third party) 21,500
Hyannis, Candle manufacturing facility
Massachusetts (leased to third party) 74,600
Antrim, Manufacturing facility
New Hampshire 55,400
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Item 3. Legal Proceedings
The Company and its wholly owned subsidiary, Chicago Cutlery, Inc., instituted
an action on February 2, 1995 against the personal representatives of the Estate
of Ronald J. Gangelhoff in the United States District Court for the District of
Minnesota, Fourth Division. The action was instituted in February in order to
comply with Minnesota probate practices for settling claims against estates. The
action seeks indemnity and/or contribution for all losses and expenses suffered
and incurred, and to be suffered and incurred, by the plaintiffs arising from
the New Hampshire Department of Environmental Services mandated clean-up of
hazardous substances generated at the Antrim, New Hampshire manufacturing site
owned by Chicago Cutlery, Inc. and arising from the remediation of the site and
the landfill at which some of the substances were disposed. The action also
seeks a declaratory judgement that the defendants are liable to the Company. The
action is brought on the basis of the breach of representations and warranties
in the 1988 Stock Purchase Agreement pursuant to which the Company purchased the
stock of Chicago Cutlery, Inc. from Ronald J. Gangelhoff. It is also brought
under the provisions of the Comprehensive Environmental Response, Compensation,
and Liability Act, the provisions of the New Hampshire Hazardous Waste Clean-up
and Contribution statutes and under common law causes of action.
Before the death of Mr. Gangelhoff, Chicago Cutlery, Inc. had instituted an
action on October 8, 1993 against David D. Hurlin in the United States District
Court for the District of New Hampshire seeking damages and a declaratory
judgement that Mr. Hurlin is liable to plaintiff for losses and expenses
suffered and incurred, and to be suffered and incurred, arising from the
mandated clean-up of hazardous substances generated at the Antrim, New Hampshire
manufacturing site during the period it was owned by Goodell Company and arising
from remediation of the site. The basis of the action against Mr. Hurlin is that
as chief executive officer, a director and substantial stockholder of the
Goodell Company he was in control of, or in a position to control and direct,
hazardous substances handling and disposal practices at the site when hazardous
substances were improperly released to the environment. The action is brought
under the provisions of the Comprehensive Environmental Response, Compensation,
and Liability Act, the provisions of the New Hampshire Hazardous Waste Clean-up
and Contribution statutes and under common law causes of action. To the extent
that recovery is made against David D. Hurlin, the amount of the Company's claim
against the assets of the late Ronald J. Gangelhoff will be reduced.
For information concerning various environmental matters with which the Company
is involved, see Note to Consolidated Financial Statements on page 22 of this
Report.
In connection with the examination of the Company's 1991 tax return, the
Internal Revenue Service has proposed an adjustment with regard to the
deductions related to a covenant not to compete applying to tax years 1991
through 1993. While the ultimate resolution of this matter can not be assessed
at this time, the Company believes that it has adequate support for its position
and that the final resolution will not have a material adverse effect on the
Company's financial position, results of operations or cash flow.
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Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company, each of whom
will serve in the capacities indicated until May 2, 1995, or until the election
and qualification of a successor.
Name Position with Company Age
Paul A. Saxton Chairman of the Board, President, 56
and Chief Executive Officer
Gordon R. Erickson Secretary and General Counsel 66
Stephen M. Evans Controller 53
Robert L. Gray Vice President, Finance and 44
Treasurer
Messrs. Saxton and Erickson have been executive officers of the Company for more
than five years. Mr. Evans has been an executive officer of the Company since
July 1, 1990. Prior thereto Mr. Evans held various administrative and managerial
positions in the Company's cookware group. Mr. Gray has been employed by the
Company since April, 1990 and an executive officer since July 1, 1990. Prior
thereto he was Treasurer of Helene Curtis Industries, Inc.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters
The market on which the Company's Common Stock is traded is the New York Stock
Exchange, Inc. The high and low sales prices of the Company's Common Stock and
the cash dividends declared for each quarterly period during the last two fiscal
years appear on page 11 of this Report.
The approximate number of holders of Common Stock as of March 15, 1995,
including beneficial owners of shares held in nominee accounts of whom the
Company is aware, was 1,000.
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Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands except for per share amounts)
Year Ended December 31, 1994 1993 1992 1991 1990
Net sales $96,515 $87,452 $79,382 $74,028 $68,967
Operating income 6,637 6,415 8,342 8,379 9,513
Interest expense, net 1,699 1,299 1,319 1,590 2,622
Income from continuing
operations before
income taxes $ 4,938 $ 5,116 $ 7,023 $ 6,789 $ 6,891
Income taxes $ 2,188 $ 2,080 $ 2,599 $ 2,919 $ 3,027
Income from continuing
operations $ 2,750 $ 3,036 $ 4,424 $ 3,870 $ 3,864
Average number of
common shares
outstanding including
common stock
equivalents 3,440 3,340 3,295 3,217 2,949
Income from continuing
operations per common
share $ 0.80 $ 0.91 $ 1.34 $ 1.20 $ 1.31
Income from continuing
operations per common
share assuming full
dilution $ 0.80 $ 0.91 $ 1.34 $ 1.20 $ 1.25
Dividends per common
share $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.24
Financial Summary:
Total assets $98,358 $72,017 $72,001 $61,832 $57,315
Total debt 34,313 17,000 20,053 14,824 12,847
Net worth 50,255 43,929 41,696 37,252 33,371
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Continuing Operations
The operating results described below reflect the results of the cutlery,
cookware, kitchen tool (acquired in October of 1992), precision cutting tool
(acquired in October of 1994) and retail outlet store operations.
Year Ended December 31, 1994 versus 1993
Net sales for 1994 were $96,515,000, an increase of 10% when compared to net
sales of $87,452,000 for 1993. Sales increased as a result of growth in the
Company's kitchen tool and retail outlet store businesses and as a result of
acquisitions. While the dollar amount of gross profit increased modestly, gross
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profit margins declined reflecting competitive pricing pressures and increased
raw material costs. Selling, general and administrative expense increased
slightly. Increased costs related to the higher sales volume and a partial
year's amortization of goodwill (related to the purchases of the assets of
Walter Absil Company Limited, Olfa Products Corp. and National Housewares, Inc.)
were offset by reduced general and administrative costs. Included in operating
expense were additions of $391,000 to bad debt reserves to cover customer
bankruptcies during the year and $153,000 (exclusive of amounts for which
recovery from unaffiliated third parties is expected) to the reserve provisions
for environmental remediation.
Net income was $2,750,000 or $0.80 per share in 1994 compared to $3,036,000 or
$0.91 per share in 1993. The effective tax rate applied to pre-tax income
increased to 44% in 1994, compared to 41% in 1993. The effective tax rate
increased to provide for potential assessments with regard to ongoing review by
the Internal Revenue Service of years 1991-1993.
Year Ended December 31, 1993 versus 1992
Net sales for 1993 were $87,452,000, an increase of 10% when compared to net
sales of $79,382,000 for 1992. Sales increased primarily as a result of growth
in the Company's kitchen tool and retail outlet store businesses. Despite the
increase in sales and benefit from the decrease of the cost of goods sold
($285,000) resulting from the reduction of the LIFO Reserve, operating income
decreased from $8,342,000 to $6,415,000. The decline in operating income was
largely attributable to a combination of pricing issues, incremental costs and
one-time charges. Competitive pressures prevented the Company from realizing
price increases on cookware lines sufficient to cover increases in costs.
Further, in response to these pressures, the Company reduced prices on its key
Magnalite Professional cookware line by more than 10%. In addition, closeout
sales on slow moving inventories at low margins resulted in below average profit
realizations. Operating expenses for the year included incremental expenses
(versus 1992) of $2,372,000 related to the full year operation of the kitchen
tool business (acquired in October of 1992), $470,000 added to the provision for
environmental remediation costs and $420,000 of costs related to the
streamlining of operations.
Net income was $3,036,000 or $0.91 per share in 1993 compared to $4,424,000 or
$1.34 per share ($4,642,000 or $1.40 per share after the favorable adjustment
for the cumulative effect of a change in accounting for income taxes in
accordance with FAS No. 109) in 1992. The effective income tax rate in 1993 was
40.7% compared to 37.0% in 1992. The tax rate in 1992 was abnormally low due to
the availability of certain state tax benefits.
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Seasonality
Sales are higher in the second half of the year and highest in the fourth
quarter due to the seasonality of housewares retail sales.
Capital Resources and Liquidity
On November 30, 1994, the Company completed a financing package consisting of a
$30,000,000 three year bank loan agreement ($3,000,000 outstanding at December
31, 1994) and the private placement of $20,000,000 of 8.41% Senior Notes.
Proceeds from the new financing package were used to refinance existing bank
loans incurred to support working capital requirements and for acquisitions. As
a result of the new financing, the Company believes that it has sufficient
liquidity to fund existing operations and to continue to make acquisitions.
Substantially all of the expenditures made by the Company to comply with
environmental regulations are for the remediation of previously contaminated
sites. The Company has established a reserve to cover such expenses (see Note 9
to the Consolidated Financial Statements). In addition to the amounts provided
for in the reserve, the Company may be required to make certain additional
capital expenditures which, in aggregate, are not expected to be material.
Subsequent to the completion of the remediation contemplated in setting the
reserve, the Company believes that the ongoing costs of compliance with
environmental regulation, including the cost of monitoring, pollution abatement
and disposal of hazardous materials, will not be material.
Effect of Inflation
For the year ended December 31, 1994, price increases in certain commodities
used by the Company (e.g., aluminum ingot (47%), steel (6%) and packaging
materials (10%)) had an adverse effect on the operations of the Company. There
was no such effect in the years ended December 31, 1993 or 1992.
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Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Page
Financial Statements:
Report of Independent Accountants 14
Consolidated Statement of Income for the three years ended
December 31, 1994 15
Consolidated Balance Sheet at December 31, 1994 and 1993 17-18
Consolidated Statement of Cash Flows for the three years ended
December 31, 1994 19-20
Consolidated Statement of Changes in Stockholders' Equity
for the three years ended December 31, 1994 16-17
Notes to Consolidated Financial Statements 21-33
Financial Statement Schedule:
For the five years ended December 31, 1994
II - Valuation and Qualifying Accounts 11
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of General Housewares Corp.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
General Housewares Corp., and its subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
in 1992.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
January 30, 1995
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CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1994 1993 1992
(in thousands except for per share amounts)
Net sales $96,515 $87,452 $79,382
Cost of goods sold 61,505 52,798 48,095
Gross profit . 35,010 34,654 31,287
Selling, general and administrative
expenses 28,373 28,239 22,945
Operating income 6,637 6,415 8,342
Interest expense, net 1,699 1,299 1,319
Income before income taxes 4,938 5,116 7,023
Income taxes 2,188 2,080 2,599
Income before cumulative effect
of accounting change 2,750 3,306 4,424
Cumulative effect of change
in accounting for income taxes - - 218
Net income $ 2,750 $ 3,036 $ 4,642
Earnings per common share, primary
and fully diluted:
Income before cumulative effect
of accounting change $ 0.80 $ 0.91 $ 1.34
Cumulative effect of change in
accounting for income taxes - - 0.06
Earnings per share $ 0.80 $ 0.91 $ 1.40
See notes to consolidated financial statements.
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Consolidated Statement of Stockholders' Equity
Common Common Capital in Cumulative Cost of Minimum
Stock Stock Excess of Translation Retained Treasury Pension
Shares Amount Par Value Adjustments Earnings Shares Liability Total
(in thousands)
Balances,
December 31,
1991 3,444 $1,148 $16,553 - $22,766 $(3,215) - $37,252
Restricted stock
activity - - 95 - - - - 95
Shares issued upon
exercise of
options 84 28 672 - - - - 700
Shares issued for
employee
stock purchase
plan 3 1 37 - - - - 38
Dividends - - - - (1,031) - - (1,031)
Net income - - - - 4,642 - - 4,642
Balances,
December 31,
1992 3,531 1,177 17,357 - 26,377 (3,215) - 41,696
Restricted stock
activity - - 49 - - (1) - 48
Shares issued upon
exercise of
options 30 10 254 - - - - 264
Shares issued for
employee
stock purchase
plan 6 2 91 - - - - 93
Tax benefit from
exercise of stock
options - - 283 - - - - 283
Minimum pension
liability - - - - - - (446) (446)
Dividends - - - - (1,045) - - (1,045)
Net income - - - - 3,036 - - 3,036
Balances
December 31, 1993 3,567 1,189 18,034 - 28,368 (3,216) (446) 43,929
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Restricted stock
activity (23) (5) 82 - - - - 77
Shares issued upon
exercise of
options 16 5 141 - - - - 146
Shares issued for
employee
stock purchase
plan 7 2 70 - - - - 72
Tax benefit from
exercise of stock
options - - 14 - - - - 14
Shares issued for
acquisition 400 133 4,367 - - - - 4,500
Translation
adjustments - - - (215) - - - (215)
Minimum pension
liability - - - - - - 71 71
Dividends - - - - (1,089) - - (1,089)
Net income - - - - 2,750 - - 2,750
Balances December
31, 1994 3,967 $1,324 $22,708 $(215) $30,029 $(3,216) $(375) $50,255
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
December 31, 1994 1993
(in thousands except per share amounts)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,993 $ 785
Accounts receivable, less
allowances of $5,312
($3,379 in 1993) 16,854 11,656
Inventories 20,841 11,765
Deferred tax asset 2,184 1,601
Other current assets 905 1,410
Total current assets 43,777 27,217
Property, Plant & Equipment, Net 13,001 12,620
Other Assets 7,455 7,213
Patents and Other Intangible Assets 4,294 4,757
Cost in Excess of Net Assets
Acquired 29,831 20,210
------- -------
$98,358 $72,017
-17-
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt $ 1,122 $-
Deferred payment obligation 2,382 -
Accounts payable 3,544 1,959
Salaries, wages and related
benefits 2,525 2,399
Property taxes 420 402
Accrued liabilities 2,309 1,727
Income taxes payable 1,141 733
Total current liabilities 13,443 7,220
Long-Term Debt 30,809 17,000
Deferred Liabilities 3,851 3,868
Commitments and Contingent Liabilities
(Note 9)
Stockholders' Equity:
Preferred stock - $1.00 par value:
Authorized - 1,000,000 shares
Common stock - $.33-1/3 par value:
Authorized - 10,000,000 shares
Outstanding - 1994 - 3,966,705
and 1993 - 3,567,383 shares 1,324 1,189
Capital in excess of par value 22,708 18,034
Treasury stock at cost - 1994
and 1993 - 243,760
shares (3,216) (3,216)
Retained earnings 30,029 28,368
Cumulative translation
adjustment (215) -
Minimum pension liability (375) (446)
Total stockholders' equity 50,255 43,929
------- -------
$98,358 $72,017
See notes to consolidated financial statements.
-18-
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1994 1993 1992
(in thousands)
Cash flows from operating activities:
Net income $2,750 $3,036 $4,642
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation and amortization 3,623 3,240 2,567
Foreign exchange gain (95) - -
Compensation related to stock awards 76 48 95
(Increase) decrease in deferred
tax assets (546) (333) 400
(Increase) decrease in operating assets:
Accounts receivable (2,636) 1,177 (1,073)
Inventory (2,761) 755 (2,728)
Other assets (482) (719) (838)
Increase (decrease) in operating liabilities:
Accounts payable 1,585 (993) 194
Salaries, wages & related benefits,
property taxes and accrued
liabilities 109 1,687 (687)
Income taxes payable 408 187 473
------ ------- -------
Net cash provided by
operating activities 2,031 8,085 3,045
Cash flows used for investing
activities:
Additions to property, plant and
equipment, net (2,545) (2,823) (3,122)
Payment for acquisitions (8,643) (609) (5,269)
Net cash used for investing ------- -------- --------
activities (11,188) (3,432) (8,391)
-19-
Cash flows from financing activities:
Collection of notes receivable 1,018 242 -
Long-term debt (repayment) borrowings (8,783) (3,488) 3,284
Issuance of senior notes 20,000 - -
Proceeds from stock options and employee
stock purchases 219 357 739
Dividends paid (1,089) (1,045) (1,031)
Net cash provided by (used for) ------ ------ ------
financing activities 11,365 (3,934) 2,992
Net increase (decrease) in cash and ====== ====== ======
cash equivalents 2,208 719 (2,354)
Cash and cash equivalents at
beginning of year 785 66 2,420
Cash and cash equivalents at ======= ======= =======
end of year $2,993 $785 $66
See notes to consolidated financial statements.
-20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except for per share amounts)
1. Accounting Policies
Principles of Consolidation - The Consolidated Financial Statements include the
accounts of General Housewares Corp. and its subsidiaries, all of which are
wholly owned.
Inventories - Inventories are stated at the lower of cost or market and at
December 31 were comprised of the following:
1994 1993
Raw Materials $ 4,293 $ 2,630
Work in Process 2,292 1,885
Finished Goods 16,064 8,827
------- -------
$22,649 $13,342
LIFO Reserve ( 1,808) ( 1,577)
======= =======
$20,841 $11,765
Cost at December 31, 1994, is determined on a last-in, first-out (LIFO) basis
for approximately 80% of the Company's inventories. The remaining inventories
are determined on a first-in, first-out (FIFO) basis. During 1993, inventory
quantities were reduced. This reduction resulted in a liquidation of LIFO
inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of 1993 purchases, the effect of which decreased cost of
goods sold by approximately $285 and increased net income by approximately $170.
There were no such liquidations in 1994.
Property, Plant and Equipment - Property, plant and equipment is recorded at
cost and depreciated over estimated useful lives using the straight-line method.
Property, Plant and Equipment is as follows:
1994 1993
Land $ 674 $ 642
Buildings 4,245 4,381
Machinery and Equipment 28,129 26,905
------- -------
33,048 31,928
Less Depreciation 20,047 19,308
======= =======
$13,001 $12,620
Other Current Assets - Included in other current assets is a receivable arising
from the sale of stainless steel tooling and inventories of $153 ($922 in 1993),
as well as a receivable related to an anticipated recovery of $400 of estimated
environmental costs and other miscellaneous receivables and prepaid expenses.
-21-
Other Assets - Included in other assets are three manufacturing facilities (Land
and Buildings - cost of $5,866 with accumulated depreciation of $1,416) that the
Company no longer operates. All of the facilities are currently being leased to
unaffiliated third parties under non-cancelable leases. Income generated by
these leases is not significant to the consolidated operations of the Company.
Each of these facilities is being depreciated over its estimated useful life
using the straight-line method. Other assets also include prepaid pension
expense.
Intangible Assets - The cost in excess of net assets acquired is amortized using
the straight-line method over periods ranging from 10 to 40 years. Other
intangible assets arising from acquisitions are included in patents and other
intangible assets and are amortized using the straight-line method over periods
of 5 to 15 years. Amortization of intangible assets was approximately $1,179 in
1994 ($1,008 in 1993 and $646 in 1992) and accumulated amortization was $4,768
and $3,589 at December 31, 1994 and 1993, respectively. In addition, at December
31, 1994 and 1993 the Company recognized an intangible asset related to the
recording of a minimum pension liability in accordance with Statement of
Financial Accounting Standards No. 87.
Income Taxes - Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109).
The adoption of FAS 109 increased net income in 1992 by $218.
Deferred Liabilities - Deferred liabilities include a minimum pension liability,
deferred federal income taxes and deferred compensation.
Earnings per Share - Earnings per share are computed using the weighted average
number of shares of common stock and common stock equivalents outstanding during
the year.
Sales to a Significant Customer - During 1994 and 1993, the Company had net
sales to a single customer of $12,100 and $12,000, respectively, which
represented approximately 13% and 14% of total net sales for 1994 and 1993,
respectively.
Accounts Receivable - Substantially all accounts receivable are uncollateralized
and arise from sales to the retail industry. Accounts receivable allowances
include reserves for doubtful accounts, returns, adjustments and co-op
advertising allowances to customers.
Reclassification - Certain 1993 and 1992 amounts have been reclassified to
conform with the 1994 presentation.
Cash Equivalents - The Company considers all highly liquid temporary cash
investments with low interest rate risk to be cash equivalents. Temporary cash
investments are stated at cost, which approximates market value.
Currency Translation - The net assets of foreign operations are translated into
U.S. dollars using current exchange rates. Revenue, costs and expenses are
translated at average exchange rates during the reporting period.
-22-
2. Acquisitions
Effective October 1, 1994, the Company purchased the assets of Walter Absil
Company Limited and Olfa Products Corp. (collectively referred to as "Olfa
Products Group"). The Olfa Products Group is the exclusive North American
distributor of precision cutting tools and accessories manufactured by Olfa
Corporation of Osaka, Japan. Assets acquired include accounts receivable,
inventories and equipment.
The purchase price was $13,576 and consisted of a cash payment of $6,843,
Subordinated Promissory Notes in the principal amount of $2,233 bearing interest
at 6% per annum and 400,000 restricted shares (valued at $4,500) of the
Company's common stock. The common stock issued in connection with this
acquisition is restricted as to both sale and voting rights. All such
restrictions will expire no later than September 30, 1999.
The acquisition has been accounted for as a purchase and the net assets and
results of operations are included in the Company's Consolidated Financial
Statements beginning October 1, 1994. The purchase price has been allocated to
the assets acquired and liabilities assumed of the Olfa Products Group based on
their estimated respective fair values. Cost in excess of net assets acquired
was $6,349 and is being amortized over 20 years.
In connection with the issuance of restricted common stock related to the
acquisition of Olfa Products Group, the Company has agreed, under certain
circumstances, to make payments of up to $600 to the former owners upon sale of
the restricted common stock. In addition, the Company has agreed to make
payments of up to approximately $3,565 to the management of the Olfa Products
Group based upon the achievement of a specific aggregate financial target for
the three year period ending December 31, 1997.
Effective September 1, 1994, the Company purchased the assets of the Normandy,
enamel on steel cookware, business of National Housewares, Inc. for a cash
consideration of $1,800 and deferred payments equal to $3,767 plus an incentive
payment of $382 based upon operational performance for the remainder of 1994.
The cash payment was equivalent to the fair market value of the inventories
acquired. Cost in excess of net assets acquired is $4,149 and is being amortized
over 10 years.
The following unaudited pro forma information combines the consolidated results
of operations of the Company, the Olfa Products Group and Normandy as if the
acquisitions had occurred at the beginning of 1994 and 1993. The pro forma
information is not necessarily indicative of the results of operations which
would have actually occurred during such periods.
-23-
(Unaudited) 1994 1993
Net sales $114,184 $110,057
Income before taxes 5,831 6,971
Net income 3,277 4,137
Earnings per average
common share $ 0.88 $ 1.11
On August 19, 1993, the Company purchased the assets of Idaho Woodworks, Inc., a
manufacturer of cutting boards. Receivables, inventories and equipment were
purchased at book value for $609.
Effective October 1, 1992, the Company purchased all of the partnership
interests in OXO International L.P. ("OXO"), a New York limited partnership
marketing a broad line of kitchen tools. Kitchen tools sold by OXO utilize a
proprietary handle which is subject to a patent owned by the Company. The assets
acquired consisted primarily of inventory, accounts receivable and patents, and
include tooling used to manufacture the OXO products.
The purchase price was $6,250 and consisted of a cash payment of $5,500 and
Subordinated Promissory Note in the principal amount of $750 bearing interest at
8% per annum.
The acquisition has been accounted for as a purchase and the net assets and
results of operations are included in the Company's Consolidated Financial
Statements beginning October 1, 1992. The purchase price has been allocated to
the assets acquired (including amounts assigned to patents of $4,100 and
covenants not to compete of $650) and liabilities assumed of OXO based on their
estimated respective fair values. Cost in excess of net assets acquired was $463
and is being amortized over 40 years.
The following unaudited pro forma information combines the consolidated results
of operations of the Company and OXO as if the acquisition had occurred at the
beginning of 1992. The pro forma information is not necessarily indicative of
the results of operations which would have actually occurred during such
periods.
(Unaudited)
1992
Net sales $82,655
Income before taxes 6,871
Net income 4,540
Earnings per average
common share $ 1.38
-24-
3. Debt
Long-term debt includes the following:
December 31, 1994 1993
Bank Credit Agreement $ 3,000 $12,000
8.41% senior notes
payable in equal annual
installments commencing
1998 through 2004 20,000 -
12% subordinated note
payable in equal annual
installments commencing
1996 through 2000 5,000 5,000
Deferred payment obligation
due in quarterly installments
of $125,000 from January, 1995
through September, 1998
(discounted at 6%) 1,793 -
6% subordinated notes
payable in equal annual
installments in Canadian dollars
commencing 1995 through 1997 2,138 -
------- -------
31,931 17,000
Less current portion 1,122 -
======= =======
Long-term debt $30,809 $17,000
-25-
At December 31, 1994 and 1993, all of the Company's debt outstanding was
unsecured.
The bank debt outstanding at December 31, 1994, relates to a Credit Agreement
with two banks with an aggregate commitment of $30,000 of which $5,000 is
reserved for letters of credit at December 31, 1994. The commitment will expire
on November 30, 1997, and may be renewed, under certain circumstances, for two
additional one year periods. Drawings under the Credit Agreement are priced
based on Prime or LIBOR with spreads calculated on an incentive formula. At
December 31, 1994, the Company could borrow under the Credit Agreement at Prime
or LIBOR + 1%. The interest rate on outstanding amounts on December 31, 1994,
was 7.125%. The agreement replaced a $20,000 Revolving Credit Agreement with the
same banks. In addition during 1994 the Company sold $20,000 of 8.41% Senior
Notes payable to a group of institutional investors.
Terms of the Credit Agreement and the Senior Notes require among other things
that the Company maintain certain minimum financial ratios. In addition the
agreements provide for limits on dividends and certain investments.
The deferred payment obligation was incurred in connection with the acquisition
of assets of the Normandy, enamel on steel cookware, business of National
Housewares, Inc. In addition to the obligation listed in the above table, the
Company has additional obligations related to the transaction of $2,382,000 all
of which were payable January 1995.
Terms of the Deferred Payment Obligation and all of the Subordinated Notes
provide for the right of offset upon the occurrence of certain events.
Aggregate principal payments for the five years subsequent to December 31, 1994,
are as follows:
1995 $1,122
1996 2,147
1997 5,174
1998 4,345
1999 and thereafter 19,143
Cash paid during 1994 for interest, net of cash received, was $1,614 (1993 -
$1,361; 1992 - $1,258).
4. Common Stock and Rights
Common stock reserved at December 31, 1994, included 231,404 shares reserved for
outstanding stock options.
In February 1989, the Company effected a dividend distribution of one Right for
each outstanding share of common stock. Under certain circumstances, each Right
may be exercised to purchase 1/100th of a share of Series A Junior Participating
Preferred Stock, at a purchase price of $25, subject to adjustment to prevent
dilution. Each preferred share fraction is designed to be equivalent in voting
and dividend rights to one share of common stock. The Rights may only be
exercised after a person acquires, or has the right to acquire, 21% or more of
the common stock or makes an offer for 30% or more of the common stock. The
Rights, which do not have voting rights and do not entitle the holder to
dividends, expire on February 27, 1999, and may be redeemed by the Company prior
to their being exercisable at a price of $.01 per Right.
-26-
5. Stock Plans
The Company maintains a stock plan for key employees which provides for the
granting of options or awards of restricted stock until January 31, 2003. A
summary of transactions under the plan follows:
Restricted Stock
Stock Options
Outstanding December 31, 1991 53,300 267,601
Granted during 1992 2,219 37,000
Canceled during 1992 (4,900) (4,233)
Released or exercised
during 1992 (5,219) (83,699)
Outstanding December 31, 1992 45,400 216,669
Granted during 1993 - 68,000
Canceled during 1993 (3,400) (1,335)
Released or exercised
during 1993 (4,000) (29,596)
Outstanding December 31, 1993 38,000 253,738
Granted during 1994 10,500 5,000
Canceled during 1994 (34,000) (11,035)
Released or exercised
during 1994 (4,000) (16,299)
Outstanding December 31, 1994 10,500 231,404
Options granted under the plan provide for the issuance of common stock at not
less than 100% of the fair market value on the date of grant. When options are
exercised, proceeds received are credited to common stock and capital in excess
of par value. Stock options were exercised at prices ranging from $7.125 to
$13.375 in 1994. Options outstanding at December 31, 1994, were granted at
prices ranging from $7.125 to $13.75 per share. Options for 170,567 shares were
exercisable at December 31, 1994.
Restricted stock granted under the plan is subject to restrictions relating to
earnings targets of the Company and/or continuous employment or other
relationships.
-27-
On July 1, 1992, the Company introduced its Employee Stock Purchase Plan. The
plan, administered by a Committee appointed by the Board of Directors, is
intended to qualify as an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code. The Employee Stock Purchase Plan
provides that shares of the Company's Common Stock will be purchased at the end
of each calendar quarter with funds deducted from the payroll of eligible
employees. Employees receive a bargain purchase price equivalent to 90% of the
lower of the opening or closing stock price of each calendar quarter. Dividends
paid to the Employee Stock Purchase Plan fund are reinvested in the fund to buy
additional shares. At December 31, 1994, the balance in the plan consisted of
13,072 shares of General Housewares Corp. Common Stock (8,700 shares in 1993).
6. Employee Benefit Plans
The Company sponsors four defined benefit pension plans which cover
substantially all salaried and hourly employees. Pension benefit formulas are
related to final average pay or fixed amount per year of service. It is the
Company's policy to fund at least the minimum amounts required by applicable
regulations.
Net periodic pension cost included the following components:
1994 1993 1992
Service cost-benefits
earned during the period $ 458 $ 410 $ 375
Interest cost on projected
benefit obligation 1,166 1,079 1,044
Actual return on plan assets (34) (1,180) (865)
Net amortization and deferral (919) 168 (58)
------ ------ ------
Net periodic pension cost $ 671 $ 477 $ 496
-28-
The funded status of the plans as of December 31 was as follows:
1994 1993
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
Accumulated benefit
obligation
- vested $12,315 $2,233 $12,405 $2,289
- non vested 220 47 224 45
12,535 2,280 12,629 2,334
Effect of projected salary
increases 953 - 1,002 -
Projected benefits
obligation 13,488 2,280 13,631 2,334
Plan assets at fair
value 13,090 2,172 12,898 1,895
Plan assets less than
projected benefits
obligation (398) (108) (733) (439)
Unrecognized net transition
(asset) liability (960) 111 (1,097) 126
Unrecognized net loss from
experience differences 2,131 672 2,282 675
Unrecognized prior service
cost 920 336 1,036 361
Adjustment to recognize
minimum liability - (1,119) - (1,162)
Prepaid (accrued) pension cost
recognized in balance
sheet $ 1,693 $ (108) $ 1,488 $ (439)
-29-
In accordance with the provisions of Statement of Financial Accounting Standards
No. 87 - Employers' Accounting for Pensions, the Company has recorded an
additional minimum liability at December 31, 1994 and 1993, representing the
excess of the accumulated benefit obligation over the fair value of plan assets
and prepaid pension asset. The minimum liability for plans with accumulated
benefits in excess of assets of $ 1,119 at December 31, 1994, has been included
in the Company's consolidated balance sheet as a deferred liability with an
offset in other intangible assets and equity. In addition, a deferred tax asset
of $298 has been recognized for the minimum liability charge to equity.
The actuarial present value of the projected benefit obligation at December 31,
1994 and 1993, was determined using a weighted average discount rate of 8.0% and
7.5%, respectively, and a rate of increase in future compensation levels of 4%.
The weighted average expected long-term rate of return on assets was 9% at
December 31, 1994 and 1993. As of December 31, 1994, approximately 59% (1993 -
33%) of the plan's assets were invested in fixed income funds.
In addition to the defined benefit plans described above, the Company also
sponsors a 401 (K) plan for all full-time employees. The Company matches a
portion of each employee contribution. The Company's contribution expense was
$302 in 1994 ($335 in 1993 and $306 in 1992).
The Company maintains a non-qualified, unfunded deferred compensation plan for
certain key executives providing payments upon retirement. The present value of
the deferred compensation is included in deferred liabilities and the annual
charge to earnings is not significant.
-30-
7. Income Taxes
The components of the provision for income taxes were as follows:
1994 1993 1992
Current income tax expense:
Federal $2,382 $2,043 $1,987
State 352 370 212
Total current income tax ------ ------ ------
expense 2,734 2,413 2,199
Deferred federal income tax
expense (benefit) (546) (333) 400
====== ====== ======
Total income tax expense: $2,188 $2,080 $2,599
The Company did not have a significant source of foreign income in each of the
years ended December 31, 1994, 1993 and 1992.
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
Percent of pretax income
1994 1993 1992
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of federal income tax
benefit 4.7 4.8 2.0
Amortization of excess
purchase price 4.0 3.9 2.8
Prior years accrual
adjustment 1.4 (2.5) -
Miscellaneous items .2 .5 (1.6)
---- ---- ----
44.3% 40.7% 37.2%
-31-
Federal income tax returns for all years prior to 1991 are closed. The Internal
Revenue Service is currently conducting a review of the Company's tax returns
for the years 1991-1993. The Company believes that it has made adequate
provision for income taxes that may become payable with respect to the years
under review.
Deferred tax assets (liabilities) are comprised of the following at December 31:
1994 1993
Gross deferred tax assets:
Accounts receivable
allowances $849 $404
Vacation 210 200
Self-insurance 119 300
Pension 509 388
Environmental reserve 539 338
Other, miscellaneous 355 351
------ ------
Gross deferred tax assets $2,581 $1,981
Gross deferred tax liabilities:
Property, plant and equipment ($1,296) ($1,646)
Pension (912) (746)
Other current receivables (136) -
Other, miscellaneous (264) (230)
-------- --------
Gross deferred tax liabilities ($2,608) ($2,622)
======== ========
Net deferred tax
liabilities ($ 27) ($ 641)
Cash paid for income taxes during 1994 was $1,659 (1993 - $1,939; 1992 - $1,988)
-32-
8. Operating Leases
The Company principally leases warehouses, administrative offices, computer
equipment and retail outlet store space. Certain of the retail store leases
provide for contingent rental payments, generally based on the sales volume of
the applicable retail unit. All of these leases are classified as operating
leases.
Future minimum annual lease payments under these operating leases, the majority
of which have initial or remaining non-cancelable lease terms in excess of one
year, were as follows at December 31, 1994:
1995 $1,395
1996 1,127
1997 1,042
1998 732
1999 417
Later Years 343
Certain leases require payments of real estate taxes, insurance, repairs and
other charges. Total rental expense was $1,455 in 1994 (1993 - $1,106; 1992 -
$840).
9. Commitments and Contingent Liabilities
The Company is currently involved in the review and evaluation, or remediation,
of seven sites posing potential or identified environmental contamination
problems. Based on information currently available, management's best estimate
of probable remediation costs, recorded as a liability, is $1,549 at December
31, 1994 ($994 at December 31, 1993) -- which aggregate amount management
believes will be paid out during the course of the next five years. The Company
expects that it will recover approximately $400 from unaffiliated sources.
Within a range of reasonably possible environmental cleanup liabilities
established on the basis of current information, the recorded liability
represents approximately 90% of the currently estimable maximum loss that has
been identified by the Company and its environmental advisors. While neither the
timing nor the amount of the ultimate costs associated with environmental
matters can be accurately determined, management does not expect that these
matters will have a material effect on the Company's consolidated financial
position, results of operations or cash flow.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the Company's independent
accountants on accounting and financial disclosure.
-33-
PART III
The information required by Part III, Items 10, 11, 12 and 13 with respect
to the directors and executive officers of the Company has been omitted because
this information appears on pages 1 to 9 of the Company's definitive proxy
statement which the Company expects to file with the Securities and Exchange
Commission on or prior to March 31, 1995, and which is incorporated herein by
reference, except with respect to the identification and business experience of
executive officers required by Item 10, which is set forth under the caption
"Executive Officers of the Company" in Part I of this Report. The Report of the
Compensation Committee and the Performance Graph, which begin on page 9 and on
page 12, respectively, of the Company's definitive proxy statement, are not
incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements - See item 8 - index to financial
statements.
(a) 2. Financial Statement Schedule - See item 8 - index to
financial statements.
(a) 3. Exhibits
3.(i) Restated Certificate of Incorporation, filed May 7, 1987
(filed as Exhibit 3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1988, and incorporated
herein by reference).
(ii) By-laws as amended February 7, 1995.
5. Rights Agreement dated as of February 22, 1989 (filed with
the Securities and Exchange Commission as an Exhibit to a
Registration Statement on Form 8-A, and incorporated herein
by reference).
10. Material Contracts
10.1 Note Purchase Agreement, dated November 30, 1994 among
the Company and certain institutional investors.
10.2 Credit Agreement, dated November 30, 1994, between the
Company and Harris Trust and Savings Bank as agent, and
The First National Bank of Chicago.
*10b. Employment and Consulting Agreement, dated July 1,
1990, between the Company and John H. Muller, Jr.
(filed as Exhibit 10b to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference).
-34-
*10c. Compensation Agreement, dated August 7, 1987, between
the Company and Paul A. Saxton relating to retirement
and termination arrangements (filed as Exhibit 10c to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated herein by
reference).
*10e. Employment Agreement, dated April 12, 1990, between the
Company and Robert L. Gray, relating, among other
matters, to termination arrangements (filed as Exhibit
10e to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein
by reference).
*10f. The Company's Severance Compensation Plan, as amended
and restated August 6, 1985, in which all of the named
executive officers participate, and form of designation
of participation.
11a. Computation of primary earnings per share.
21. Subsidiaries of the registrant.
23. Consent of Price Waterhouse, independent accountants,
to the incorporation by reference constituting part of
Registration Statements on Form S-8 (Nos. 33-33328,
2-77798 and 33-48336) of their report dated January 30,
1995.
99. Audited financial statements of the Company's Employee
Stock Purchase Plan.
* Represents a contract, plan or arrangement pursuant to which
compensation or benefits are provided to certain Executive Officers or
Directors of the Company.
(b) Reports on Form 8-K
Form 8-K was filed during the last quarter of 1994 documenting the
acquisition of the assets of Walter Absil Company Limited and Olfa Products
Corp. and is incorporated herein by reference.
-35-
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.
GENERAL HOUSEWARES CORP.
By /s/ Robert L. Gray
Robert L. Gray 3/28/94
Vice President, Finance and Treasurer Date
Principal Financial Officer
By /s/ Stephen M. Evans 3/28/94
Stephen M. Evans Date
Corporate Controller
Principal Accounting Officer
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/ Paul A. Saxton 3/28/94
Paul A. Saxton Date
Chairman of the Board
President and Chief Executive Officer
/s/ Charles E. Bradley 3/28/94
Charles E. Bradley - Director Date
/s/ John S. Crowley 3/28/94
John S. Crowley - Director Date
/s/ Thomas L. Francis 3/28/94
Thomas L. Francis - Director Date
/s/ Joseph Hinsey IV 3/28/94
Joseph Hinsey IV - Director Date
/s/ Ann Manix 3/28/94
Ann Manix - Director Date
/s/ John H. Muller, Jr. 3/28/94
John H. Muller, Jr. - Director Date
/s/ Phillip A. Ranney 3/28/94
Phillip A. Ranney - Director Date
-37-
INDEX TO EXHIBITS
Exhibit No.
3(ii) Amended By-Laws
10.1 Note Purchase Agreement
10.2 Corporate Credit Agreement
11a Computation of primary earnings per share
21 Subsidiaries of the registrant
23 Consent of Price Waterhouse
27 Financial Data Schedule
99 Financial statements of the Company's Employee
Stock Purchase Plan