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, 1997 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' 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 --, 1997 $.33-1/3 Par Value ---------- PART I FINANCIAL INFORMATION GENERAL HOUSEARES 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, 1997 1996 1997 1996 Net sales $29,215 $26,406 $73,505 $72,621 Cost of goods sold 16,519 16,708 43,637 48,709 ------- ------- ------- ------- Gross profit 12,696 9,698 29,868 23,912 Selling, general and administrative expenses 10,180 8,729 27,946 28,462 ------- ------- ------- ------- Operating income 2,516 969 1,922 (4,550) Interest expense, net 721 692 1,967 2,050 ------- ------- ------- ------- Income (loss)from operations before income taxes 1,795 277 (45) (6,600) Income taxes 863 217 208 (2,257) ------- ------- ------- ------- Net income (loss) for the period 932 60 (253) (4,343) Retained earnings, beginning of period 25,485 26,115 27,279 31,119 Less: Dividends ($.08 per common share in 1997 and 1996) 305 302 914 903 ------- ------- ------- ------- Retained earnings, end of period $26,112 $25,873 $26,112 $25,873 ------- ------- ------- ------- ------- ------- ------- ------- Earnings per common share: Net income (loss) $0.24 $0.02 ($0.07) ($1.15) ------- ------- ------- ------- ------- ------- ------- ------- See notes to consolidated condensed financial statements CONSOLIDATED CONDENSED BALANCE SHEET As of September 30, December 31, 1997 1996 (Unaudited) ------------ ------------ ASSETS Current assets: Cash $ 1,201 $ 1,981 Accounts receivable, less allowances of $2,579 ($3,575 in 1996) 16,745 15,823 Inventories 25,778 18,513 Deferred tax asset 3,866 3,831 Other current assets 1,002 932 Income taxes refundable 100 - -------- -------- Total current assets 48,692 41,080 Notes receivable 2,527 2,707 Property, plant & equipment, net 12,708 13,420 Other assets 5,643 6,479 Patents and other intangible assets 3,877 4,195 Cost in excess of net assets acquired 27,267 27,398 -------- -------- $100,714 $ 95,279 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 1,482 $ 2,190 Notes payable - - Accounts payable 3,710 3,932 Salaries, wages and related benefits 1,641 1,671 Accrued liabilities 3,741 3,288 Income taxes payable - 379 -------- -------- Total current liabilities 10,574 11,460 Long-term debt 38,190 30,575 Deferred liabilities 4,511 4,754 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 - 1997 - 4,092,860 and 1996 - 4,080,736 shares 1,364 1,361 Capital in excess of par value 24,119 23,976 Treasury stock at cost - 1997 and 1996 - 277,760 shares (3,649) (3,649) Retained earnings 26,112 27,279 Cumulative translation adjustment (125) (95) Minimum pension liability (382) (382) -------- -------- Total stockholders' equity 47,439 48,490 -------- -------- $100,714 $ 95,279 -------- -------- -------- -------- See notes to consolidated condensed financial statements. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Unaudited) For the nine months ended September 30, 1997 1996 ----------------------- OPERATING ACTIVITIES: Net loss ($ 253) ($ 4,343) Adjustments to reconcile net loss to net cash (used for) provided by operating activities - Depreciation and amortization 4,452 3,903 Loss on sale of assets - 2,292 Foreign exchange loss (5) (7) Compensation related to stock awards 52 81 (Increase) decrease in deferred taxes (371) 40 (Increase) decrease in operating assets: Accounts receivable (909) 1,919 Inventory (7,193) 741 Other assets (3) (161) (Decrease) increase in operating liabilities: Accounts payable (219) 370 Salaries, wages and related benefits, accrued and deferred liabilities 487 2,209 Income taxes payable (refundable) (448) (3,600) -------- -------- Net cash (used for) provided by operating activities: (4,410) 3,444 -------- -------- INVESTING ACTIVITIES: Additions to property, plant and equipment, net (2,015) (3,421) Proceeds from sale of asset - 1,785 Payments for acquisitions (991) - -------- -------- Net cash used for investing activities (3,006) (1,636) -------- -------- FINANCING ACTIVITIES: (Increase) decrease in notes receivable 550 (370) Long-term debt borrowing (repayment) 6,912 (3,554) Proceeds from stock options and employee purchases 94 218 Dividends paid (914) (903) -------- -------- Net cash provided by (used for) financing activities 6,642 (4,609) -------- -------- Net decrease in cash and cash equivalents (774) (2,801) Cash and cash equivalents at beginning of period 1,981 3,414 Effect of exchange rate on cash (6) 6 Cash and cash equivalents at end -------- -------- of period $ 1,201 $ 619 -------- -------- -------- -------- See notes to consolidated condensed financial statements. NOTES TO CONSOLIDATED CONSENSED 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 1996 Annual Report on Form 10-K. NOTE 2 - INVENTORIES September 30, December 31, 1997 1996 Raw materials $ 4,060 $ 2,873 Work in process 937 953 Finished goods 21,430 15,629 -------- -------- 26,427 19,455 LIFO Reserve (649) (942) -------- -------- Total, net $ 25,778 $ 18,513 -------- -------- -------- -------- NOTE 3 - PROPERTIES September 30, December 31, 1997 1996 ---------- ----------- Land $ 648 $ 648 Buildings 6,480 6,890 Equipment 24,881 23,519 -------- -------- Total 32,009 31,057 Accumulated depreciation (19,301) (17,637) -------- -------- Total, net $ 12,708 $ 13,420 -------- -------- -------- -------- NOTE 4 - LOAN COVENANTS Terms of the Company's Bank Credit Agreement and Senior Note Agreement require that the Company maintain certain minimum financial ratios. The Bank Credit Agreement was amended effective September 30, 1997. The Company was in compliance with all of the financial covenants included in the amended Bank Credit Agreement. Had the amendments to the Bank Credit Agreement not been effective as of September 30, 1997, the Company would not have complied with the previous fixed charges coverage ratio and leverage ratio. Management expects to comply with the amended Bank Credit Agreement financial covenants in the future. As of September 30, 1997, the Company was in compliance with all Senior Note Agreement covenants. The Company anticipates that it will not be in compliance with the fixed charges coverage ratio and permitted dividend payments limitation provided for in the Senior Note Agreement as of the next measurement date. The Company expects that it will be able to obtain waivers for non-compliance with those provisions. NOTE 5 - SUBSEQUENT EVENT The Company will incur approximately $500 of severance related wages and benefits in the fourth quarter of 1997 as a result of two significant cost reduction activities initiated in October 1997. One activity consisted of the elimination of 18 positions which had supported a variety of selling, general and administrative functions, and the other anticipates reduction in headcount associated with the planned first quarter 1998 relocation of the Company's primary distribution activities from Terre Haute to Indianapolis, Indiana. Substantially all of the payments related to this fourth quarter charge will be completed by March 31, 1998. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) FINANCIAL CONDITION Referring to the Company's financial condition as of September 30, 1997 as contrasted with December 31, 1996, inventories, accounts receivable and borrowings increased. The increases are consistent with the seasonality of the Company's business which spurs inventory build and provides increased sales (and related increases in accounts receivable) in the third and fourth quarters. RESULTS OF OPERATIONS The Company sold the assets of its cast iron and cast aluminum cookware division (Sidney Division) effective August 1, 1996. The following discussion and analysis includes the operating results of the Sidney Division in 1996 to the date of disposition. NET SALES Net sales for the three-month period ended September 30, 1997 were $29,215, an increase of 10.6% as compared to sales of $26,406 for the same period in 1996. Net sales for the nine-month period ended September 30, 1997 were $73,505, an increase of 1.2% as compared to net sales of $72,621 for the same period in 1996. The increase in sales for both the quarter and nine-month period was driven primarily by growth (new distribution and new product introduction) in the kitchen/household tools line. Offsetting this growth were declines in the Company's cookware product line, which resulted primarily from the divestiture of the Sidney Division. Sidney Division net sales were $324 and $4,163 for the three-month period and nine-month period ended September 30, 1996, respectively. GROSS PROFIT Third quarter 1997 gross profit increased $2,998 from the comparable period in 1996 while gross profit for the first nine months of 1997 increased $5,956 over the first nine months of 1996. The quarter and year-to-date gross margin amounts were favorably impacted by the change in sales mix from low margin Sidney Division products to higher margin kitchen/household tools products. Because of the favorable change in sales mix, the Gross Profit as a percentage of net sales rose (i) to 43.5% for the three-month period ended September 30, 1997, from 36.7% for the comparable period last year, and (ii) to 40.6% for the nine-month period ended September 30, 1997, from 32.9% for the comparable period in 1996. In addition, the Company experienced more favorable production variances in the three-month and nine-month periods ended September 30, 1997 than those experienced in comparable periods of 1996. The more favorable production variances resulted primarily from the operation of the Sidney Division at reduced capacity during 1996 and the operation of the Company's other manufacturing facilities at reduced levels in 1996 (geared to the Company's 1996 inventory reduction program) as compared to 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expenses for the three-month period ended September 30, 1997 were $10,180 as compared to $8,729 for the same period in 1996. Of this increase, approximately $400 was related to increased warehouse costs which resulted primarily from increased volume of product shipped in addition to an acceleration of depreciation expense as a result of the Company's planned move to a new distribution facility by April 1, 1998. Severance expense of approximately $300 was recorded in the three months ended September 30, 1997 as a result of the elimination of ten positions on July 1, 1997. Other significant increases in the administrative area came from the Company's emphasis on customer service initiatives which include significant investments in computerized information systems (electronic data interchange, logistics and warehouse related software and hardware, etc.) as compared to 1996. Selling, general and administrative expenses for the first nine months of 1997 were $27,946 as compared to $28,462 for the same period in 1996. A non-operating charge directly related to the divestiture of the Sidney Division in the amount of $2,275 is included in 1996 expense for the first nine months. Excluding that charge, year-to-date expenses have increased by $1,759 (approximating the third quarter 1997 increase over the comparable period in 1996). OPERATING INCOME Operating income for the three-month period ended September 30, 1997 was $2,516 as compared to $969 for the three months ended September 30, 1996. Operating income for the first nine months of 1997 was $1,922 as compared to an operating loss of $4,550 for the comparable nine-month period in 1996. Interest expense for the three months ended September 30, 1997 was $721 as compared to $692 for the same period in 1996. For the nine months ended September 30, 1997, interest expense was $1,967 as compared to $2,050 for the first nine months of 1996. Net income of $932 for the third quarter of 1997 and the net loss of $253 for the first nine months of 1997 compares to net income of $60 and a net loss of $4,343 in respective 1996 periods. Related quarterly and year-to-date earnings (loss) per share improved from $0.02 and ($1.15) in 1996 to $0.24 and ($0.07) in 1997, respectively. PART II - OTHER INFORMATION 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, 1997. EXHIBITS EX-11 Computation of Primary Earnings Per Share EX-27 Financial Data Schedule EX-10.1 Services Agreement EX-10.2 Amended Credit Agreement 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 --, 1997 By /s/ Mark S. Scales Mark S. Scales Vice President Finance and Treasurer Chief Financial Officer By /s/ Brad A. Kelsheimer Brad A. Kelsheimer Corporate Controller Chief Accounting Officer