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 September 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 November 14, 1996
$.33-1/3 Par Value 4,054,610
PART I FINANCIAL INFORMATION
GENERAL HOUSEWARES CORP. & SUBSIDIARIES
(Dollars in thousands except per share amounts)
Consolidated Condensed Statement of Operations and Retained Earnings
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
1996 1995 1996 1995
Net Sales $26,406 $30,529 $72,621 $83,383
Cost of goods sold 16,708 20,013 48,709 54,276
------- ------- ------- -------
Gross profit 9,698 10,516 23,912 29,107
Selling, general and
administrative
expenses 8,729 8,649 28,462 25,273
------- ------- ------- -------
Operating income
(loss) 969 1,867 (4,550) 3,834
Interest Expense,
net 692 842 2,050 2,226
------- ------- ------- -------
Income (loss) from
operations before
income taxes 277 1,025 (6,600) 1,608
Income taxes 217 420 (2,257) 664
------- ------- ------- -------
Net income (loss) for
the period 60 605 (4,343) 944
Retained earnings,
beginning
of period 26,115 29,770 31,119 30,029
Less: Dividends
($.08 quarterly
per common
share in 1996
and 1995) 302 299 903 897
-------- ------- ------- -------
Retained earnings,
end of period $25,873 $30,076 $25,873 $30,076
------- ------- ------- -------
------- ------- ------- -------
Earnings per common share:
Net income (loss) $0.02 $ 0.16 ($1.15) $ 0.25
------- ------ ------- ------
------- ------ ------- ------
See notes to consolidated condensed financial statement.
CONSOLIDATED CONDENSED BALANCE SHEET
As of
September 30, December 31,
1996 1995
(Unaudited)
----------- -----------
ASSETS
Current assets:
Cash $ 619 $ 3,414
Accounts receivable, less
allowances of $3,543
($4,029 in 1995) 14,231 16,152
Inventories 23,053 26,867
Deferred tax asset 2,705 2,743
Other current assets 1,432 661
Income taxes refundable 2,289 -
----------- ----------
Total current assets 44,329 49,837
Note receivable 3,000 -
Property, plant and equipment, net 13,849 14,613
Other assets 6,033 7,565
Patents and other intangible
assets 3,513 3,830
Cost in excess of net assets
acquired 27,750 28,765
----------- ----------
$ 98,474 $104,610
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term debt and notes payable $ 10,000 $ 12,000
Current maturities of
long term debt 2,072 2,163
Accounts payable 3,946 3,579
Salaries, wages and related
benefits 2,553 2,487
Accrued liabilities 5,024 1,957
Income taxes payable - 1,312
----------- ----------
Total current liabilities 23,595 23,498
Long term debt 23,574 25,038
Deferred liabilities 4,423 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 - 4,055,881
and 1995 - 4,036,334 shares. 1,446 1,347
Capital in excess of par value 23,728 23,528
Treasury stock at cost - 1996 and
1995 - 277,760 shares (3,649) (3,649)
Retained earnings 25,873 31,119
Cumulative translation adjustment (58) (39)
Minimum pension liability (458) (458)
----------- ----------
Total stockholders' equity 46,882 51,848
----------- ----------
$ 98,474 $104,610
=========== ==========
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the nine months
ended September 30,
1996 1995
---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 4,343) $ 944
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities -
Depreciation and amortization 3,903 3,168
Loss on sale of assets 2,292 -
Foreign exchange loss (7) 97
Compensation related to stock awards 81 95
Increase in deferred taxes 40 -
Decrease (increase) in operating assets:
Accounts receivable 1,919 (3,059)
Inventory 741 (13,054)
Other assets (161) 540
Increase (decrease) in operating liabilities:
Accounts payable 370 655
Salaries, wages and related benefits,
accrued and deferred liabilities 2,209 2,042
Income taxes payable (refundable) (3,600) (893)
-------- --------
Net cash provided by (used for)
operating activities: 3,444 (9,465)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant
and equipment (3,421) (2,654)
Proceeds from sale of asset 1,785 -
-------- --------
Net cash used for
investing activities (1,636) (2,654)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of deferred obligation - (2,811)
Increase in notes payable - 900
Issuance of note receivable (370) -
Debt borrowing (repayment) (3,554) 11,707
Proceeds from stock options and
employee purchases 218 262
Dividends paid ( 903) ( 896)
-------- --------
Net cash (used for) provided by
financing activities (4,609) 9,162
-------- --------
Net decrease in cash and
cash equivalents (2,801) (2,957)
Cash and cash equivalents at
beginning of period 3,414 2,993
Effect of exchange rate on cash 6 17
-------- --------
Cash and cash equivalents at end
of period $ 619 $ 53
======== ========
See notes to consolidated condensed financial statements.
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.
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
September 30, December 31,
1996 1995
Raw materials $ 3,705 $ 4,635
Work in process 1,938 2,884
Finished goods 18,436 21,417
------- -------
24,076 28,936
LIFO Reserve (1,026) (2,069)
------- -------
Total, net $23,050 $26,867
======= =======
NOTE 3 - PROPERTIES
September 30, December 31,
1996 1995
--------- ------------
Land $ 641 $ 684
Buildings 3,659 4,378
Equipment 27,198 30,795
--------- ------------
Total 31,498 35,857
Accumulated depreciation (17,649) (21,244)
--------- ------------
Total, net $13,849 $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. A purchase agreement to sell the Sidney Division, subject to
certain conditions, was signed as of August 1, 1996. As a result of this
agreement, the Company was required to record an additional charge against
pre-tax earnings of $1,500 in the second quarter of 1996. An additional $150
charge against pre-tax earnings was required in the third quarter of 1996
based on the resolution of estimates made in the second quarter. In accordance
with the terms of the agreement, the Company received a cash payment of $450
and a long-term note receivable of $3,000 in exchange for the assets of the
Sidney division as well as associated brand names and trademarks.
Approximately $1,100 of the amount charged against income in the first three
quarters of 1996 covers future pension and warranty payments and remains as a
component of accrued liabilities.
Revenue generated by the Sidney Division was $317 for the three months ended
September 30, 1996 as compared to $3,255 for the same period in 1995. For the
nine-month period ended September 30, 1996, revenues were $4,128 as compared
to $10,451 for the nine months ended September 30, 1995. Net operating losses
(including advertising, warehousing and direct marketing expenses but prior to
restructuring charges and the allocation of corporate overhead) were $462 for
the three month period ended September 30, 1996 as compared to net operating
income of $371 for the same period in 1995. Operating losses for the first
nine months of 1996 were $1,471 as compared to operating income of $216 for
the first nine months of 1995. In addition to the foregoing, the Company has
closed three retail stores in 1996. The Company recorded a charge of $150
related to the closure of these stores in 1996. Revenues and operating losses
related to the three retail store closures were not significant to the overall
operations of the Company.
NOTE 5 - DEBT
Effective November 13, 1996, the Company entered into a new unsecured
financing agreement with three banks. Under the terms of the agreement, which
expires December 31, 1999 and may be renewed under certain circumstances for
two additional one year periods, the Company has a $45,000 unsecured revolving
loan commitment. Proceeds from the financing are available for general
corporate purposes. Related interest charges will be based on Prime or LIBOR
with spreads calculated on an incentive formula. The agreement contains
several financial covenants and provides limits on dividends and capital
expenditures. The agreement replaced a $30,000 revolving credit agreement
held with two of the three banks entering into the new unsecured agreement.
The agreement allows the Company to pre-pay $10,000 of Senior Notes
outstanding with institutional investors. The Company plans to make such
pre-payments in the fourth quarter of 1996 and will incur related penalties
and charges of approximately $800. These Senior Notes have been classified as
non-current as of September 30, 1996 as they will be refinanced by the new
unsecured financing agreement. The remaining Senior Notes totaling $10,000
will not be pre-paid. Terms of these Notes require that the Company maintain
certain minimum financial ratios. The Company was not in compliance with a
fixed charge coverage ratio and a restricted payment limitation as of
September 30, 1996. As a result the amount has been classified as current.
NOTE 6 - INCOME TAXES
Due to the Company's financial results for the first nine months of 1996, an
estimate of the full year effective tax benefit rate suggested a tax benefit
of approximately 35% should be recorded for the nine months ended September
30, 1996. This compares to a 1995 full year effective tax expense rate of
approximately 41%. An adjustment was made in the third quarter of 1996
lowering the year-to-date income tax benefit in accordance with the revised
estimate.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands)
Nine Months Ended September 30, 1996 versus 1995
Referring to the Company's financial condition as of September 30, 1996 as
contrasted with December 31, 1995, inventories, accounts receivable, other
assets and current liabilities all decreased. Despite 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 as well as the divestiture of the Company's Sidney
division. Inventory reduction 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 and divestiture of
Sidney Division operations. 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.
Net sales for the three-month period ended September 30, 1996 were $26,406, a
decrease of 13.5% as compared to net sales of $30,529 for the same period in
1995. Net sales for the nine-month period ended September 30, 1996 were
$72,621, a decrease of 12.9% as compared to net sales of $83,383 for the same
period in 1995. Contributing to the reduction in sales in the first nine
months of 1996 was weakness in the Sidney Division product lines due to
de-emphasis by major customers as well as some reduction related to
uncertainty surrounding the future of the product lines. The Sidney Division
was divested in the third quarter of 1996 resulting in a $2,938 reduction in
third quarter net sales. In addition, sales across most other product lines
were down in the first six months of 1996 due to lower than anticipated
sell-through at the retail level in the fourth quarter of 1995 (resulting in
higher than required inventory levels at retail) and the first quarter of
1996. Third quarter 1996 order levels in non-Sidney product lines exceeded
1995; however, renovation of the Company's warehouse and distribution facility
and related systems delayed shipments significantly in the third quarter of
1996 causing $3,500 of sales scheduled for September shipment to be delayed
until the fourth quarter (or, in a few, canceled). Third quarter 1996 gross
profit decreased $818 or 7.8% from the third quarter of 1995. Gross profit
for the first nine months of 1996 decreased $5,195 or 17.8% from the 1995
comparable period. Of the third quarter decrease, the entire amount was
attributable to the decreased sales volume; similarly, $3,226 of the decrease
from the first nine 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 (approximately $2.5 million) in the
first nine months of 1996. Gross margin percentage for the first nine months
was also negatively impacted by the first quarter sale of excess and obsolete
inventory at little or no margin. Gross margin for the first nine months was
favorably impacted by a reversal of LIFO reserves resulting from the Company's
decision to dispose of the Sidney Division.
Selling, general and administrative expenses for the three-month period ended
September 30, 1996 were $8,729 as compared to $8,649 for the same period in
1995. While variable selling and cooperative advertising costs decreased due
to the reduction in sales volume, warehousing costs increased due to
additional labor required by the warehouse/distribution renovation. In
addition, general and administrative costs increased as a result of the
ultimate settlement of the Sidney divestiture. For the nine-month period
ended September 30, 1996, selling general and administrative costs increased
from $25,273 in 1995 to $28,462. The increase is primarily a result of 1996
strategic initiatives that have included a realignment of staff,
manufacturer's retail outlet store closings and divestiture of the Sidney
division.
Operating income for the three-month period ended September 30, 1996 was $969
as compared to operating income of $1,867 for the same period in 1995. The
operating loss for the first nine months of 1996 was $4,550 as compared to
operating income of $3,834 for the first nine months of 1995. Interest
expense for the third quarter of 1996 was $692 as compared to $842 for the
same period in 1995 while interest expense for the first nine months of 1996
was $2,050 as compared to $2,226 for the comparable 1995 period. An estimate
of the full year financial results and related effective tax benefit rate
resulted in a third quarter adjustment to reflect an effective tax benefit
rate of approximately 35%. This compares to a 1995 effective tax expense rate
of approximately 41%. An adjustment was made in the third quarter of 1996
lowering the year-to-date income tax benefit in accordance with the estimate.
Net income of $60 in the third quarter of 1996 and the net loss of $4,343 for
the first nine months of 1996 compare to net income of $605 and $944 for the
same periods in 1995. Related quarterly and year-to-date earnings (loss) per
share dropped from $0.16 and $0.25 in 1995 to $.02 and ($1.15) in 1996,
respectively.
During the third quarter of 1996, the Company disposed of the Leyse division
which sold a line of commercial quality cookware and also sold the remaining
Sidney related inventory which was distributed in Europe. These transactions
had little impact on the results of operations for the third quarter and will
not significantly impact future operational results.
Capital Resources and Liquidity
On November 13, 1996, the Company entered into a $45 million three year
revolving loan agreement to replace a $30 million revolving loan agreement
that would have expired on November 30, 1997. Proceeds from the new agreement
will be used to pre-pay $10 million of Senior Notes, replace $9 million
outstanding on the existing revolving agreement and provide funds for expected
working capital needs.
PART II - OTHER INFORMATION
Item 5. Other Information
The Company entered into a $45 million three year revolving loan agreement on
November 13, 1996. A report on Form 8-k containing the agreement will be
filed on or before November 27, 1996.
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 September 30, 1996.
EXHIBITS
EX-11 Computation of Primary Earnings Per Share
EX-27 Financial Data Schedule
EX-99 Asset Purchase Agreement between General Housewares Corp. and
Wagnerware Corporation
EX-3.(ii) Amended By-Laws
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: November 14, 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