SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-7117
General Housewares Corp.
(Exact name of Registrant as specified in its Charter)
Delaware 41-0919772
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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
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
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the
Registrant's classes of Common Stock as of the latest practicable
date.
Class of Common Stock Outstanding at August 14, 1996
$.33-1/3 Par Value 4,050,040
PART I FINANCIAL INFORMATION
GENERAL HOUSEWARES CORP. & SUBSIDIARIES
(Dollars in thousands except per share amounts)
Consolidated Condensed Statement of Income and Retained Earnings
(Unaudited)
For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
Net Sales $21,613 $25,084 $46,215 $52,074
Cost of goods sold 15,038 16,186 32,001 33,483
------- ------- ------- -------
Gross profit 6,575 8,898 14,214 18,591
Selling, general and
administrative
expenses 8,986 7,947 19,733 16,624
------- ------- ------- -------
Operating income
(loss) (2,411) 951 (5,519) 1,967
Interest Expense,
net 686 728 1,358 1,384
------- ------- ------- -------
Income (loss) from
operations before
income taxes (3,097) 223 (6,877) 583
Income taxes (923) 96 (2,474) 244
------- ------- ------- -------
Net income (loss) for
the period (2,174) 127 (4,403) 339
Retained earnings,
beginning
of period 28,590 29,942 31,119 30,029
Less: Dividends
($.08 per common
share in 1996
and 1995) 301 299 601 598
-------- ------- ------- -------
Retained earnings,
end of period $26,115 $29,770 $26,115 $29,770
------- ------- ------- -------
------- ------- ------- -------
Earnings per common share:
Net income (loss) ($0.57) $ 0.03 ($1.17) $ 0.09
------- ------ ------- ------
------- ------ ------- ------
See notes to consolidated condensed financial statement.
CONSOLIDATED CONDENSED BALANCE SHEET
As of
June 30, December 31,
1996 1995
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash $ 77 $ 3,414
Accounts receivable, less allowances of
$3,301 ($4,029 in 1995) 11,311 16,152
Inventories 21,207 26,867
Deferred tax asset 2,705 2,743
Other current assets 283 661
Income taxes refundable 2,429 -
----------- ----------
Total current assets 38,012 49,837
Property, plant and equipment, net 13,346 14,613
Other assets 5,861 7,565
Assets held for sale 4,566 -
Patents and other intangible
assets 3,618 3,830
Cost in excess of net assets
acquired 28,080 28,765
----------- ----------
$ 93,483 $104,610
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term debt and notes payable $ 4,000 $ 12,000
Current maturities of
long term debt 2,180 2,163
Accounts payable 4,293 3,579
Salaries, wages and related
benefits 3,092 2,487
Accrued liabilities 3,968 1,957
Income taxes payable - 1,312
----------- ----------
Total current liabilities 17,533 23,498
Long term debt 24,582 25,038
Deferred liabilities 4,358 4,226
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 - 1996 - 4,045,188
and 1995 - 4,036,334 shares. 1,443 1,347
Capital in excess of par value 23,627 23,528
Treasury stock at cost - 1996 and
1995 - 277,760 shares (3,649) (3,649)
Retained earnings 26,115 31,119
Cumulative translation adjustment (68) (39)
Minimum pension liability (458) (458)
----------- ----------
Total stockholders' equity 47,010 51,848
----------- ----------
$ 93,483 $104,610
=========== ==========
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the six months
ended June 30,
1996 1995
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 4,403) $ 339
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities -
Depreciation and amortization 2,658 2,397
Foreign exchange loss (2) 40
Compensation related to stock awards 54 30
Increase in deferred taxes 40 -
Decrease (increase) in operating assets:
Accounts receivable 4,838 2,444
Inventory 2,747 (9,848)
Other assets 813 ( 11)
Increase (decrease) in operating liabilities:
Accounts payable 717 ( 438)
Salaries, wages and related benefits,
accrued and deferred liabilities 2,773 799
Income taxes payable (refundable) (3,739) ( 910)
-------- --------
Net cash provided by (used for)
operating activities: 6,497 (5,158)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (2,137) (1,731)
Proceeds from sale of assets 1,205 -
-------- --------
Net cash used for
investing activities (932) (1,731)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred obligation - (2,382)
(Decrease) increase in notes payable (12,000) 900
Debt borrowing 3,563 5,760
Proceeds from stock options and
employee purchases 141 246
Dividends paid ( 601) ( 598)
-------- --------
Net cash (used for) provided by
financing activities (8,897) 3,926
-------- --------
Net decrease in cash and
cash equivalents (3,332) (2,963)
Cash and cash equivalents at
beginning of period 3,414 2,993
Effect of exchange rate on cash (5) 7
-------- --------
Cash and cash equivalents at end
of period $ 77 $ 37
======== ========
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - GENERAL
The accompanying interim Consolidated Condensed Financial
Statements have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations.
However, in the opinion of management, the financial statements
included herein reflect all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the
financial information for the periods presented. The
Consolidated Condensed Financial Statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's 1995 Annual Report on Form
10-K.
NOTE 2 - INVENTORIES
June 30, December 31,
1996 1995
Raw materials $ 4,163 $ 4,635
Work in process 1,228 2,884
Finished goods 17,010 21,417
------- -------
22,401 28,936
LIFO Reserve (1,194) (2,069)
------- -------
Total, net $21,207 $26,867
======= =======
NOTE 3 - PROPERTIES
June 30, December 31,
1996 1995
--------- ------------
Land $ 641 $ 684
Buildings 3,659 4,378
Equipment 25,948 30,795
--------- ------------
Total 30,248 35,857
Depreciation (16,902) (21,244)
--------- ------------
Total, net $13,346 $14,613
========= ============
NOTE 4 - RESTRUCTURING AND OTHER SPECIAL CHARGES
During the first quarter of 1996, management decided to divest
the Company's cast iron and cast aluminum cookware businesses
(Sidney Division) as well as proceed with other restructuring
efforts. Provisions for the restructuring were made in the first
quarter of 1996 based on facts available at that time. Total
first quarter provisions for restructuring and other pre-tax
charges were $1,188. On May 2, 1996, the Company reached an
agreement in principle to sell the assets of its Sidney Division.
The agreement was nullified due to the unexpected death of the
principal member of the purchasing management team. As a result,
the business was not sold in the second quarter of 1996.
Subsequently, a purchase agreement to sell the Sidney Division,
subject to certain conditions, was signed with another party as
of August 1, 1996. As a result of this agreement, certain terms
related to the sale changed. Accordingly, during the second
quarter of 1996, the Company was required to record an additional
charge against pre-tax earnings of $1,500. Other restructuring
plans in the first quarter of 1996 included the closure of three
under-performing manufacturer's retail outlet stores and
provision for lease settlements related to these closures. In
the second quarter of 1996, two of the leases were settled on a
basis more favorable than that anticipated and settlement of the
third lease is not expected to be material. As a result, $300
(before income taxes) related to the reserve for retail store
closings was released. The net of the restructuring cost
adjustments during the period resulted in additional second
quarter 1996 charges to income of $1,200 ($768 after-tax
charges). Cash payments related to these restructuring charges
were not significant.
Revenue generated by the Sidney Division was $1,442 for the three
months ended June 30, 1996 as compared to $3,680 for the same
period in 1995. For the six month period ended June 30, 1996,
revenues were $3,999 as compared to $7,970 for the six months
ended June 30, 1995. Net operating losses (including
advertising, warehousing and direct marketing expenses but prior
to restructuring charges and the allocation of corporate
overhead) were $535 for the three month period ended June 30,
1996 as compared to $179 for the same period in 1995. Operating
losses for the first six months of 1996 were $1,186 as compared
to operating income of $117 for the first six months of 1995.
Revenues and operating losses related to the three retail store
closures were not significant to the overall operations of the
Company.
NOTE 5 - LOAN COVENANTS
Terms of the Company's Bank Credit Agreement and Senior Notes
Agreement require that the Company maintain certain minimum
financial ratios. The Company was not in compliance with a fixed
charge coverage ratio relative to both agreements as of June 30,
1996. The non-compliance, in each case, has been waived as of
the balance sheet date. The next measurement date for this
financial covenant is September 30, 1996. The lenders
associated with the Bank Credit Agreement have amended the
agreement such that the Company expects to be in compliance with
this financial covenant in the future. Management anticipates a
similar amendment from the holders of the Senior Notes during the
third quarter of 1996. Emerging Issues Task Force 86-30,
"Classification of Obligations When a Violation is Waived by the
Creditor" requires, in those circumstances where a waiver has
been obtained as of the balance sheet date and where no waiver or
amendment has been obtained for future periods, that long-term
debt be classified as current; however, the Company has
classified the Senior Notes as long-term because of sufficient
availability under its long-term Bank Credit Agreement. The Bank
Credit Agreement does not expire until November 30, 1997;
however, amounts outstanding under the Bank Credit Agreement have
been classified as a current liability as of June 30, 1996
because the Company intends to repay such outstanding amounts
from current working capital and the proceeds from the sale of
assets disclosed in Note 4.
NOTE 6 - INCOME TAXES
Due to the Company's actual financial results for the six
months ended June 30, 1996 and the Company's significant amount
of book expenses that are not deductible for income tax purposes,
an estimate of the full year effective tax rate for 1996 is not
practical. Accordingly, the effective tax rate for the three
months ended June 30, 1996 includes an adjustment to reflect an
income tax provision for the first six months of 1996 that is
based on actual year-to-date results. The effective tax rates
for the three months and six months ended June 30, 1995 were
based on an estimated income tax provision for the year ended
December 31, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands)
Referring to the Company's financial condition as of June 30,
1996 as contrasted with December 31, 1995, inventories, accounts
receivable, other assets and current liabilities all decreased.
Despite first and second quarter sales below prior year and
planned levels, inventories decreased due to successful inventory
reduction initiatives resulting from the Company's continued
emphasis on supply chain management. These initiatives include
the development of timely and accurate sales forecasts which
enable more sophisticated management of production and purchasing
schedules as well as the proactive identification and liquidation
of excess and obsolete inventory. The decrease in accounts
receivable is reflective of the Company's seasonality. Other
assets were reduced by the first quarter 1996 sale of a
non-operating facility that the Company retained as part of the
sale of its giftware division in 1989. During the first six
months of 1996, the Company was able to reduce short-term debt by
$8,000. The repayments were funded primarily by a reduction in
inventories, accounts receivable and other assets.
Net sales for the three-month period ended June 30, 1996 were
$21,613, a decrease of 13.8% as compared to net sales of $25,084
for the same period in 1995. Net sales for the six-month
period ended June 30, 1996 were $46,215, a decrease of 11.3% as
compared to net sales of $52,074 for the same period in 1995.
Contributing to the 1996 sales slowdown in first half was
weakness in the Sidney Division product lines due to scaled down
emphasis by major customers as well as some reduction related to
uncertainty surrounding the future of the product lines. In
addition, sales across most other product lines were down due to
lower than anticipated sell-through at the retail level in the
fourth quarter of 1995 and the first quarter of 1996. Second
quarter 1996 gross profit decreased $2,323 or 26.1% from the
second quarter of 1995. Gross profit for the first six months of
1996 decreased $4,377 or 23.5% from the 1995 comparable period.
Of the second quarter decrease, $1,403 was attributable to the
decreased sales volume; similarly, $2,333 of the decrease from
the first six months of 1995 was attributable to sales volume.
As a result of the Company's emphasis on supply chain management
as well as the reduction in sales activity, unfavorable
manufacturing variances contributed to the reduction in gross
margin dollars in the first and second quarters of 1996 ($780 and
$1,403 in excess of comparable prior year periods). Gross margins
were also negatively impacted (by $415) as the result of first
quarter liquidation of excess and obsolete inventory at reduced
margins. First quarter unfavorable manufacturing variances were
partially offset by a favorable reversal of LIFO reserves
resulting from the Company's decision to exit the Sidney
Division.
Selling, general and administrative expenses for the three-month
period ended June 30, 1996 were $8,986 as compared to $7,947 for
the same period in 1995. While variable selling and cooperative
advertising costs decreased due to the reduction in sales volume,
certain marketing costs, related to the introduction of an
enhanced cutlery product line packaging initiative planned for
the second half of 1996, were incurred. In addition, general and
administrative costs increased due to $1,200 of additional
restructuring costs--a result of increased reserves established
for the sale of the Sidney Division offset by a reduction in
reserves necessary for manufacturer's retail store closings--and
an increase in employee benefit costs due in large part to the
change at December 31, 1995 in discount rates used to calculate
1996 pension expense. For the six-month period ended June 30,
1996, selling general and administrative costs increased from
$16,624 in 1995 to $19,733. The second quarter increase
discussed above was added to first quarter increases related to
the sale of the Sidney Division as well as first quarter 1996
strategic initiatives that included a realignment of staff and
manufacturer's retail outlet store closings.
The operating loss for the three-month period ended June 30, 1996
was $2,411 as compared to operating income of $951 for the same
period in 1995. The operating loss for the first six months of
1996 was $5,519 as compared to operating income of $1,967 for the
first six months of 1995. Interest expense for the second
quarter of 1996 was $686 as compared to $728 for the same period
in 1995 while interest expense for the first six months of 1996
was $1,358 as compared to $1,384 for the comparable 1995 period.
The income tax benefit for the second quarter of 1996 was
recorded at a lower effective rate than that recorded for the
related expense in the same period of 1995. This is due to the
Company's actual financial results for the six months ended June
30, 1996 and the significant amount of book expenses that are not
deductible for income tax purposes which made the ability to
estimate the full year effective tax rate in 1996 not practical.
The net loss of $2,174 in the second quarter of 1996 and $4,403
for the first six months of 1996 compare to net income of $127
and $339 for the same periods in 1995. Related quarterly and
year-to-date earnings (loss) per share dropped from $0.03 and
$0.09 in 1995 to ($.57) and ($1.17) in 1996, respectively.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual meeting of Stockholders of General Housewares
Corp. was held on May 14, 1996.
(b) Proxies were solicited by the directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended. There was no solicitation in opposition to management's
nominees as listed in the proxy statement, and all of such
nominees were elected pursuant to the vote of the stockholders.
Item 6. Exhibits and Reports on Form 8-K
11a. Primary Earnings Per Share
Reports on Form 8-K - There were no reports on Form 8-K
filed for the three months ended March 31, 1996.
SIGNATURES
Pursuant to the requirements 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.
Dated: ________, 1996 By /s/ Robert L. Gray
Robert L. Gray
Vice President Finance
and Treasurer
By /s/ Mark S. Scales
Mark S. Scales
Corporate Controller
Chief Accounting Officer