SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-7117
GENERAL HOUSEWARES CORP.
(Exact name of registrant as specified in its charter)
Delaware 41-0919772
(State or other jurisdiction of (IRS
incorporation or organization) Employer
Identification
No.)
1536 Beech Street
Terre Haute, Indiana 47804
(Address or principal executive offices) (Zip Code)
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)
On March 17, 1998, 3,818,303 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 17, 1998 was $43,671,840.
DOCMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1998 Annual Meeting
of Stockholders, which will be filed on or
prior to March 31, 1998, to the extent
stated in this report. Part III
PART I
Item 1. Business
(Dollars in thousands unless otherwise indicated)
General Housewares Corp. (hereinafter referred to as the "Company")
manufactures and markets consumer durable goods. The Company concentrates on
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 has
pursued such a position in the following product categories: cookware,
cutlery, kitchen/household tools and precision cutting tools. Cookware,
cutlery and kitchen/household tools come within the Housewares reportable
segment, while precision cutting tools come within the Precision Cutting Tools
reportable segment. For financial information related to the two reportable
segments, see Note 13 in the financial statements included in this report.
The commentary about the Company's business that follows includes a
description of the cookware business (Enamelware Division) and operations of
the Enamelware Division for the three years ended December 31, 1997 (and,
where applicable, earlier years). Effective March 19, 1998, the Company
entered into an agreement to sell the Enamelware Division. The Company
anticipates the sale transaction to be closed on March 31, 1998. This
transaction is more fully described in the Capital Resources and Liquidity
section of Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - and in Note 14 to the financial
statements included in this report.
HOUSEWARES SEGMENT
Approximately 50.1% of this segment's gross revenues during 1997 were related
to products made domestically in factories owned and operated by the Company.
The remaining products were obtained from ten foreign sources (some of which
buy from sub-contractors) primarily located in the Far East.
COOKWARE
In 1997, the Company was the only domestic manufacturer and marketer of
enamelware cookware, distributing its products throughout the United States,
Canada and selected European markets. Prior to 1997, the Company competed in
four main cookware product categories, covering a broad range of materials,
designs, colors and prices. In addition to enamelware, the categories
included cast aluminum, cast iron and stamped and spun aluminum.
In January of 1996, the Company announced its intention to exit the cast
aluminum and cast iron product categories ("Sidney Division") in an effort to
focus on faster growing, more profitable product categories. An agreement to
sell the assets of the Sidney Division, effective August 1, 1996, was executed
pursuant to which the Company received consideration of $4,000 in the form of
a cash payment of $450, a note receivable of $3,000 and the purchaser's
assumption of certain liabilities in exchange for certain assets of the Sidney
Division (including the manufacturing facility located in Sidney, Ohio) as
well as brand names and trademarks. The cast iron and cast aluminum product
lines included Magnalite (R), Magnalite Professional (R), Magnalite
Professional (R) with Eclipse (R), and Wagner's (R) 1891 Original Cast Iron.
As part of its strategy to focus on higher growth, more profitable product
categories, the Company sold the brand names, trademarks and certain assets
related to its stamped and spun aluminum cookware line, effective October 1,
1996. This cookware line consisted of heavy gauge, large capacity stamped and
spun aluminum products that were marketed under the brand name Leyse
Professional (TM) and distributed through department stores, mass merchants
and specialty shops. Leyse products were purchased from a domestic
manufacturer.
The remaining cookware line is enamelware. The Company is the only domestic
manufacturer of enamelware and has developed a leading market share. Ceramic
on Steel (TM) cookware products produced by the Company are sold under the
Columbian and Granite Ware (TM) brand names. As of September 1, 1994, the
Company acquired the Normandy line of enamelware from National Housewares,
Inc. Normandy enamelware products, similar to the Company's Ceramic on Steel
(TM) cookware products, were, at the time, manufactured in Mexico. In 1995,
the Normandy line of enamelware was discontinued and sourcing to service the
Normandy customers was transitioned to the Company's Ceramic on Steel (TM)
manufacturing operation. Enamelware is in demand because it is highly
efficient cookware, it is easy to cleanup and it is economically priced. 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.
The total United States market for cookware is large and diverse. The
Company's market share is minimal.
CUTLERY AND ASSOCIATED PRODUCTS
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,
four complete lines of kitchen knives for consumers, sharpening tools and
storage units. In 1997, the Company introduced Legacy Forged (TM) to compete
in the highest quality and price point segment of the cutlery market. The
Company believes that Legacy Forged (TM) is uniquely positioned due to the
strength and sharpness of the blade which results from a drop-forged
manufacturing process and a sharper blade angle than the competition. Another
competitive advantage in favor of Legacy Forged (TM) is the hybrid material
used to make the handle. This material, consisting of wine wood, dyed birch
and specially formulated poly resins, is produced such that the strips of wood
are thoroughly infused with the poly resins, creating an extremely attractive
and harder material that is impervious to moisture. The Company's 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. For
the consumer that prefers a synthetic handled knife, the Company manufactures
and sells the Metropolitan (R) product line which features a durable high-
impact plastic handle and a Taper Grind (R) edge. The Company also
manufactures and sells a popular priced knife under the Cherrywood (TM) brand
name. This line represents the highest quality knife offered through mass
distribution.
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.
The Company also sells a line of promotional priced cutlery. These products
compete in both the fine edge and "never-needs-sharpening" segments of the
cutlery industry and are purchased primarily from one supplier in Asia.
Promotional cutlery consists of five separate cutlery brands, three of which
(Premier (TM), Basics (TM) and American Carver (R)) are sold exclusively
through department stores, and the remaining lines (Essentials (R) and Classic
Chef(R)) are distributed through mass merchandisers.
While the overall market for kitchen cutlery in the United States has remained
relatively unchanged in recent years, foreign products, including the
Company's promotional-priced imported cutlery, have made significant inroads.
The Company believes that imports in 1997 accounted for more than half of
domestic sales in dollars and 75% of domestic sales in units. As a result of
its widely recognized brand name and reputation for high quality at a good
price, the Company is one of the leaders in the kitchen cutlery industry by
marketing a combination of the promotional priced imports and the traditional
Chicago Cutlery (R) products.
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, as well as, in some cases, ergonomic handles.
Prior to 1997, the Company manufactured and marketed cutting boards made of
wood, polyethylene, and combinations of wood and acrylic, marble or
polyethylene under the Idaho Woodworks (TM) and Chicago Cutlery (R) names. In
January of 1997, the Company decided to exit the cutting board category, and
all related production and sales activity ceased by March 31, 1997.
KITCHEN/HOUSEHOLD TOOLS
Effective October 1, 1992, the Company purchased all of the partnership
interests in OXO International L.P. ("OXO"), a New York limited partnership
engaged in marketing a broad line of kitchen tools under the Good Grips (R),
Softworks (TM), Prima (R), Plus (TM) and Basics brand names. 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 OXO products are primarily made, by manufacturers located in Asia,
according to OXO's designs and specifications. Subsequent to the acquisition,
the line was extended to include products designed for use outside of the
kitchen (i.e., household tools). The kitchen/household tools sold by OXO
generally utilize a proprietary handle which is covered by patents owned by
the Company which run through 2002. OXO kitchen/household 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 that utilizes its proprietary handle. Garden tools are primarily
distributed through specialty outlets. The OXO product category has
experienced significant growth since acquisition.
During 1997, the Company introduced a new product line of barbecue tools and
accessories under the Grilla Gear (TM) brand. This product line consists of
high quality, design-oriented products related to outdoor dining and home
entertainment such as, grilling tools, aprons, mitts, timers, magnets, etc.
The market in which the Company's kitchen/household tool product category
competes is a large market encompassing many types of tools and gadgets. As
such, the Company is not able to define its market share.
PRECISION CUTTING TOOLS SEGMENT
Effective October 1, 1994, the Company purchased certain assets of Walter
Absil Company Limited and Olfa Products Corp. (collectively referred to as the
"Olfa Products Group"). 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. Effective on the date of
acquisition, the Company and Olfa Corporation of Osaka, Japan, executed a ten
year agreement naming the Olfa Products Group as the exclusive distributor, in
the United States and Canada, of precision cutting tools and accessories
manufactured by Olfa Corporation. The Company believes that relations with
Olfa Corporation are strong and that a long-term relationship will continue.
Products of the Olfa Products Group are sold to industrial users and both
through distributors and direct, to hobby, craft, hardware and fabric stores.
Effective June 25, 1997, the Company acquired two product lines (rolling
scissors and a box/carton opener - the "OLO Division"). The Company paid for
the acquisition with cash of $689. The OLO Division products are manufactured
domestically by a third party and are purchased as finished goods by the
Company.
The North American hobby and craft market is both large and diverse with sales
exceeding $11 billion. Products distributed through the Olfa Products Group
and the OLO Division compete in small selected segments in this market.
Typically, these products compete on the basis of performance and value.
NET SALES BY PRODUCT CLASS
The following table sets forth the amounts and percentages of the Company's
net sales for the three years ended December 31, 1997 (including sales of
acquired and divested companies from the time of acquisition or divestiture),
for the classes of similar products described previously.
Year Ended December 31,
Housewares Segment: 1997 1996 1995
Cookware $16,401 16% $23,808 23% $41,375 35%
Cutlery 29,580 28% 34,309 33% 37,138 31%
Kitchen/Household Tools 31,666 30% 21,687 20% 15,649 13%
Manufacturer's Retail
Outlet Stores 8,830 9% 9,444 9% 9,208 8%
------- --- ------ --- ------- ---
Total Housewares Segment: 86,477 83% 89,248 85% 103,370 87%
Precision Cutting Tools Segment: 18,054 17% 16,231 15% 15,970 13%
General Housewares Corp. ------- --- ------ --- ------- ---
Consolidated $104,531 100% $105,479 100% $119,340 100%
DISTRIBUTION
Housewares 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 through independent commissioned sales representatives. The
Olfa Products Group also 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.".
Effective October 6, 1997, the Company entered into a five year agreement with
Owen Distribution Company for operation of a state-of-the-art distribution
center in Indianapolis, Indiana. As a result of this agreement, the Company's
primary distribution activities will be relocated to Indianapolis by April 1,
1998. The facility will allow the Company to respond more quickly and
effectively to customer requirements by reducing order fulfillment windows,
enhancing value-added services (pre-ticketing, anti-theft tagging, etc.) and
increasing transportation availability. Management believes this relocation
will maintain the Company's position as a leading supplier to the retail
trade.
MAJOR CUSTOMERS
During 1997, the ten largest customers of the Company accounted for 29.8% of
the Company's gross revenues -- no single customer accounted for more than 10%
of gross revenues. The Company has had good long-term relationships with its
major customers.
EMPLOYEES
The Company employs approximately 540 persons, of whom approximately 300 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 150 employees are represented by one labor organization, which
has a contract expiring March 14, 1999.
EXPORT SALES
Exports account for less than 10% of the Company's gross revenues.
SOURCE OF SUPPLY
The principal raw materials used in manufacturing the Company's housewares
products are steel, 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.
Kitchen/Household tool and promotional priced cutlery products are sourced
from ten suppliers located in Taiwan, Hong Kong and the Peoples Republic of
China. An interruption in supply from any one of the suppliers could have an
adverse impact on the Company's ability to fill orders on a timely basis.
However, the Company believes other manufacturers with whom the Company does
business would be able to increase production to fulfill the Company's
requirements.
As discussed earlier, Olfa Corporation of Osaka, Japan, is the primary source
of supply of precision cutting tool products. Although management believes it
is extremely unlikely, an interruption in supply from Olfa Corporation could
have a material adverse impact on the Company's results of operations.
SEASONALITY
Shipments of cookware, cutlery and kitchen tools are higher in the second half
of the year, and highest in the fourth quarter, due to the seasonality of
housewares retail sales. Shipments of precision cutting tools vary little
from quarter to quarter.
BACKLOG
The dollar value of unshipped orders was not material at December 31, 1997,
1996 and 1995.
WORKING CAPITAL
The future competitive position of the Company will become increasingly
dependent upon its ability to meet rapid delivery requirements from customers.
The Company believes that increased technological and supply chain initiatives
(such as the distribution relocation discussed above) will position it well
for the heightened customer requirements, while maintaining an optimal level
of inventory.
While the Company normally sets payment terms at net 30 days, industry
practice has dictated an occasional extension of such terms. Accordingly,
certain customers have been given extensions of payment terms.
FOREIGN OPERATIONS
The Company operates a wholly-owned subsidiary located in Montreal, Canada.
Revenues, Operating Income and Assets (in U.S. dollars) of the subsidiary for
the three years ended December 31, 1997 were, as follows:
1997 1996 1995
Net Sales $7,562 $6,298 $5,659
Operating Income 1,898 1,397 884
Assets 6,303 5,913 4,253
Item 2. Properties
The following table sets forth the location and size of the Company's
principal properties.
OPERATING FACILITIES
Property Owned
HOUSEWARES SEGMENT:
APPROXIMATE
FLOOR AREA
LOCATION NATURE OR USE OF PROPERTY (Square Feet)
Terre Haute, IN Manufacturing, distribution
and administrative (Ceramic
on Steel (TM) cookware and
distribution of cutlery and
kitchen/household tool
products) 469,000
Wauconda, IL Manufacturing (cutlery) 65,000
Property leased:
HOUSEWARES SEGMENT:
APPROXIMATE EXPIRATION
NATURE OR FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
Indianapolis Warehouse 131,000 Dec. 1, 2002
Terre Haute, IN Warehouse 172,800 May 1, 1998
New York, NY Administrative 25,000 Sept. 30, 1998
PRECISION CUTTING TOOL SEGMENT:
St. Laurent, Administrative
Quebec, Canada and Warehouse 16,230 Nov. 30, 2000
Plattsburgh, NY Warehouse 27,700 April 1, 1998
In addition, the Company leases an average of 2,700 square feet of retail
space in 23 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.
NON-OPERATING FACILITIES
Property Owned: (Reported as "other assets" in the consolidated financial
statements in this Report)
APPROXIMATE
FLOOR AREA
LOCATION NATURE OR USE OF PROPERTY (Square Feet)
New Hope, MN Manufacturing/Distribution
facility (leased to third
parties) 21,500
Antrim, NH Manufacturing facility 55,400
The Company sold a non-operating facility located in New Hope, MN (65,280
square feet - leased to a third party) on December 31, 1997. The remaining
New Hope, MN non-operating facility listed above was sold in January, 1998.
Item 3. Legal Proceedings
The Company and it subsidiaries are subject to certain legal proceedings and
claims, including environmental matters, that have arisen in the ordinary
conduct of its business.
Although management of the Company cannot predict the ultimate outcome of
these matters with certainty, it believes that their ultimate resolution will
not have a material effect on the Company.
For information concerning various environmental matters with which the
Company is involved, see Note 12 to the Consolidated Financial Statements
included in this Report.
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 12, 1998, or until the
election and qualification of a successor.
NAME POSITION WITH COMPANY AGE
Paul A. Saxton Chairman of the Board, President, 59
and Chief Executive Officer
John C. Blackwell Vice President, Sales and 60
Marketing
Gordon H. Brown Vice President, Supply Chain 58
Management and Logistics
Stephen M. Evans Vice President, Administration 56
William V. Higdon Vice President, Chief Information 53
Officer
Raymond J. Kulla Vice President, Secretary and 51
General Counsel
Mark S. Scales Vice President, Chief Financial
Officer and Treasurer 38
Bradley A. Kelsheimer Controller 29
Messrs. Saxton and Evans have been executive officers of the Company for more
than five years. Mr. Kulla has been employed with the Company since November
14, 1995, and an executive officer since January 1, 1996. Prior thereto, he
was Vice President, General Counsel and Secretary of AXIA Incorporated. Mr.
Blackwell has been employed with the Company and an executive officer since
March 20, 1995. Prior thereto, he served as Vice President, Sales and
Marketing, for EMX Corporation, Executive Vice President, Sales and Marketing
of Moulinex Appliances, Inc. and President and General Manager of Oster
Housewares, a division of Sunbeam/Oster Company. Mr. Brown has been employed
with the Company and an executive officer since July 3, 1995. Prior thereto,
he served as Managing Director of Bottom Line Logistics, a management
consulting firm. Mr. Scales has been employed with the Company and an
executive officer since July 10, 1995. Prior thereto, he served as Controller
at Cosco, Inc. and Hoosier Energy Rural Electric Cooperative, Inc. and as a
Senior Audit Manager at Price Waterhouse. Mr. Higdon has been employed with
the Company and an executive officer since December 2, 1996. Prior thereto,
he served as Director of Information Systems and Logistics at Merillat
Cabinet, a division of Masco. Mr. Kelsheimer has been employed with the
Company since March 13, 1995, serving as Assistant Corporate Controller until
his appointment as an executive officer and Controller on November 5, 1997.
Prior thereto, he served as an auditor at Price Waterhouse.
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 is disclosed in quarterly financial information presented in Item
8.
The approximate number of holders of Common Stock as of March 17, 1998,
including beneficial owners of shares held in nominee accounts of whom the
Company is aware, was 1,000.
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31, 1997 1996 1995 1994 1993
(in thousands except per share amounts)
Net sales $104,531 $105,479 $119,340 $97,729 $88,529
Operating income (loss) 4,476 (107) 7,080 6,637 6,415
Interest expense, net 2,749 2,751 3,115 1,699 1,299
Income (loss) before
income taxes and
extraordinary item 1,727 (2,858) 3,965 4,938 5,116
Income taxes (benefit) 1,065 (842) 1,679 2,188 2,080
Income (loss) before
extraordinary item 662 (2,016) 2,286 2,750 3,036
Extraordinary item, net
of income tax benefit - 619 - - -
Net income (loss) $ 662 $ (2,635) $ 2,286 $ 2,750 $ 3,036
Average number of common
shares outstanding
including common stock
equivalents 3,812 3,768 3,769 3,440 3,340
Income (loss) before
extraordinary item per
common share
(basic and diluted) $ 0.17 $ (0.54) $ 0.61 $ 0.80 $ 0.91
Extraordinary item, net
of income tax benefit
per common share
(basic and diluted) - (0.16) - - -
Net income (loss) per
common share
(basic and diluted) $ 0.17 $ (0.70) $ 0.61 $ 0.80 $ 0.91
Dividends per common
share $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.32
Financial Summary
Total assets $90,764 $ 95,279 $104,610 $98,358 $72,017
Total debt $32,554 $ 32,765 $ 39,201 $34,313 $17,000
Net worth $48,271 $ 48,490 $ 51,848 $50,255 $43,929
Effective September 1, 1994, the Company purchased the assets of Normandy, the
enamel on steel cookware business of National Housewares, Inc. Effective
October 1, 1994, the Company purchased the assets of the Olfa Products Group.
The acquisitions contributed to the increases in net sales from 1993 to 1994
and from 1994 to 1995.
Effective August 1, 1996, the Company divested its Sidney Division. The
divestiture contributed to the decreases in net sales from 1995 to 1996 and
from 1996 to 1997. Restructuring charges incurred in conjunction with the
divestiture are reflected in 1996.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands except per share amounts)
Additions
Balance at Charged to Deductions Balance
beginning costs and net of at end
Description of period expenses recoveries of period
Reserves deducted
from assets to
which they
apply:
Allowances for
possible losses
and discounts -
accounts
receivable:
Years Ended
December 31,:
1997 $3,575 $9,285 $10,078 $2,782
1996 $4,029 $9,409 $ 9,863 $3,575
1995 $5,312 $8,908 $10,191 $4,029
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth the operating data of the Company as a
percentage of net sales for the periods indicated below.
1997 1996 1995
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 59.4 64.8 66.2
----- ----- -----
Gross profit 40.6 35.2 33.8
Selling, general and
administrative expenses 36.3 35.3 27.8
----- ----- -----
Operating income (loss) 4.3 (0.1) 6.0
Interest expense 2.6 2.6 2.6
----- ----- -----
Income (loss) before income taxes
and extraordinary item 1.7 (2.7) 3.4
Income tax
expense (benefit) 1.0 (0.8) 1.4
----- ----- -----
Net income (loss) before
extraordinary item 0.7 (1.9) 2.0
Extraordinary item - 0.6 -
----- ----- -----
Net income (loss) 0.7% (2.5%) 2.0%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(dollars in thousands except per share amounts)
Year Ended December 31, 1997 versus 1996
Net sales for 1997 were $104,531, a decrease of 0.9% from net sales in 1996 of
$105,479. Relevant thereto, the 1996 divestiture of the Company's cast iron
and cast aluminum businesses ("Sidney Division"), the 1996 divestiture of the
Company's stamped and spun aluminum cookware line and the 1997 exit from the
cutting board business involved a reduction in net sales of $4,159, $1,185 and
$619, respectively. The Company also experienced a decrease in enamelware net
sales. Net sales decreased $2,363 from 1996 to 1997 due to loss of
distribution as well as price reductions, with approximately 35% of the
decrease related to reduced enamelware pricing. Cutlery net sales were $4,110
less in 1997 when compared to 1996. The imported promotional priced cutlery
product line accounted for $1,968 of this reduction and resulted primarily
from distribution losses in the department store trade. The remainder
resulted primarily from the loss of Chicago Cutlery(R) distribution at a large
department store chain and inventory reduction measures involving its products
taken by other large department store retailers. Offsetting these reductions
were distribution gains and new product introductions related to the
kitchen/household tools product line (contributing to an increase in net sales
of $9,243), increased distribution and promotions related to the precision
cutting tools segment (increased net sales of $1,773) and new product lines
for 1997 (barbecue tools and accessories - net sales of $727, and rolling
scissors/carton opener product lines - net sales of $199). Gross profit
increased from $37,177 in 1996 to $42,442 in 1997 due to a favorable change in
sales mix, favorable exchange rates related to precision cutting tool products
purchased in a foreign currency and the Company's inventory reduction efforts
in 1996, which resulted in lower production levels, causing higher fixed
overhead costs to be recorded in the Company's Consolidated Statement of
Operations. Gross profit was favorably impacted by $938 in 1996 due to the
reversal of a LIFO reserve, net of other inventory reserves, associated with
the sale of the assets of the Sidney Division. Selling, general and
administrative expenses increased to $37,966 in 1997 from $37,284 in 1996.
Increased distribution and information services expenses ($2,360 over 1996)
aimed at increasing customer service levels, severance expense related to
positions terminated in 1997 ($826) and increased selling expenses related to
the greater sales of kitchen/household tools product lines ($435) were
partially offset, in the year-to-year comparison, by the loss on the sale of
the assets of the Sidney Division in 1996 ($3,198).
Operating income of $4,476 in 1997 represented an increase of $4,583 over
operating loss in 1996 of $107. Interest expense was flat from 1996 to 1997.
The income before extraordinary item of $662, or $0.17 per share in 1997
compares to a loss before extraordinary item of $2,016, or $0.54 per share in
1996. The extraordinary charge in 1996 was due to the partial prepayment
($10,000) of 8.41% Senior Notes payable to a group of institutional investors
and the execution of a new bank Credit Agreement. The charge involved a
prepayment penalty and the write-off of unamortized debt issuance costs. This
charge, net of applicable income taxes, amounted to $619, or $0.16 per share.
Net income for 1997 was $662, or $0.17 per share, as compared to a net loss of
$2,635, or $0.70 per share, in 1996.
Year Ended December 31, 1996 versus 1995
Net sales for 1996 were $105,479, a decrease of 11.6% from net sales in 1995
of $119,340. This decrease was caused primarily by the sale of the assets of
the Company's cast iron and cast aluminum cookware businesses ("Sidney
Division") effective August 1, 1996, which resulted in a $12,725 net sales
reduction from 1995 to 1996. Sales of the Company's remaining cookware
businesses were $5,764 less in 1996 than in 1995, due primarily to non-
recurring initial orders shipped in 1995 that resulted from the 1994
acquisition of the assets of the Normandy enamel on steel cookware business of
National Housewares, Inc. and less shelf space dedicated to enamelware
products in 1996 by two major retailers. Increased sales of kitchen tools
partially offset the reduction in sales of the Company's cookware businesses.
Pricing changes had minimal impact on the change in sales from 1995 to 1996.
Gross profit decreased from $40,312 in 1995 to $37,177 in 1996 due to
decreased sales volume and the Company's inventory reduction efforts in 1996,
which resulted in decreased production levels, causing higher fixed overhead
costs to be recorded in the Company's Consolidated Statement of Operations.
Gross profit was favorably impacted by the reversal of a LIFO reserve
associated with the sale of the assets of the Sidney Division and favorable
foreign currency experience related to purchases of precision cutting tools.
Selling, general and administrative expenses increased to $37,284 in 1996 from
$33,232 in 1995. The loss on the sale of the assets of the Sidney Division
accounted for $3,198 of the increase in selling, general and administrative
expenses. The remainder of the increase was a result of increased
distribution and information service expenses.
Operating loss was $107 in 1996, a reduction of $7,187 from operating income
in 1995 of $7,080. Interest expense decreased from $3,115 in 1995 to $2,751
in 1996 due primarily to a reduction in working capital that resulted
primarily from the Company's inventory reduction efforts and the sale of the
assets of the Sidney Division. The loss before extraordinary item of $2,016,
or $0.54 per share, in 1996 compares to income before extraordinary item of
$2,286, or $0.61 per share, in 1995. The extraordinary charge in 1996 was due
to the partial prepayment ($10,000) of 8.41% Senior Notes payable to a group
of institutional investors and the execution of a new bank Credit Agreement.
The charge was comprised of the prepayment penalty and the write-off of
unamortized debt issuance costs. This charge, net of applicable income taxes,
amounted to $619, or $0.16 per share. The net loss for 1996 was $2,635, or
$0.70 per share, as compared to net income of $2,286, or $0.61 per share, in
1995.
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
Inventories increased from $18,513 in 1996 to $20,859 in 1997. The increase
was due in part to efforts aimed at increasing customer service levels. In
addition, the growth of the kitchen/household tools product line requires
greater inventory investments due to longer lead times caused by sourcing the
products from Asia.
Inventories decreased from $26,867 in 1995 to $18,513 in 1996. Approximately
40% of the decrease was due to the sale of the assets of the Sidney Division.
The remaining reduction in inventories resulted from the Company's emphasis on
sales forecasting and inventory reduction efforts, the combination of which
will allow the Company to deal effectively with customer service and also
optimize inventory levels.
Capital expenditures were $2.7 million, $4.2 million and $4.3 million in 1997,
1996 and 1995, respectively. As a result of the planned relocation of the
Company's distribution center in the first quarter of 1998, the Company has
committed to $1.5 million of capital expenditures related to computer hardware
and software, conveyor systems and racking.
On November 30, 1994, the Company completed a financing package consisting of
a $30,000 three-year bank Credit Agreement and the private placement of
$20,000 of 8.41% Senior Notes payable to a group of institutional investors.
Proceeds from the financing package were used to refinance existing bank loans
incurred to support working capital requirements and for acquisitions. On
November 13, 1996, the Company entered into a new bank Credit Agreement,
resulting in increased borrowing capacity. The new bank Credit Agreement
provides for $45,000 of borrowing capacity and expires on December 31, 1999.
The Company used proceeds from the new bank Credit Agreement to prepay $10,000
of 8.41% Senior Notes on November 15, 1996. The new bank Credit Agreement was
amended, effective September 30, 1997, to reconfigure certain financial
covenants contained therein. The Company was in compliance with all of the
financial covenants contained in the amended bank Credit Agreement as of
December 31, 1997, and management expects to be in compliance with such
covenants in the future.
The 8.41% Senior Notes were amended, effective December 31, 1997, to
reconfigure certain financial covenants contained therein. Had the 8.41%
Senior Notes not been amended, the Company would not have been in compliance
with a fixed charges coverage ratio covenant and a restricted payments
(dividends) covenant as of December 31, 1997. The Company was in compliance
with all of the financial covenants contained in the amended 8.41% Senior
Notes as of December 31, 1997, and management expects to be in compliance with
such covenants in the future.
On December 31, 1997, the Company completed the sale of one of three non-
operating facilities for $1.8 million in cash and used part of the proceeds to
prepay $1 million owed under a 12% note payable to the Estate of Ronald J.
Gangelhoff arising from the Company's purchase of Chicago Cutlery, Inc. in
1988, with the remaining proceeds used for working capital purposes. In
January of 1998, the Company completed the sale of a second non-operating
facility for $489 in cash, which was also used for working capital purposes.
The Company believes that cash provided from operations and available
borrowing facilities will continue to provide adequate support for the cash
needs of existing businesses; however, certain events, such as significant
acquisitions, could require additional external financing.
Substantially all of the expenditures made by the Company to comply with
environmental regulations were for the remediation of previously contaminated
sites. The Company has established a reserve to cover such expenses (see Note
12 to the Consolidated Financial Statements). In addition to the amounts
provided for in the reserve, the Company may be required to make certain
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.
On March 19, 1998, the Company announced that it had entered into an agreement
to sell its enamelware cookware business (Enamelware Division), which, subject
to certain conditions, will become effective March 31, 1998. In exchange for
the sale of certain assets related to the Enamelware Division, including
property, plant and equipment and inventories, as well as associated brand
names and trademarks, the Company expects to receive consideration of
approximately $6.4 million, of which approximately $5.0 million will be in the
form of a cash payment at closing. The Company anticipates the remainder of
the consideration to be in the form of a promissory note (the "Note") to be
paid in six equal annual installments beginning April 1, 1999. The
obligations under the Note shall be offset against rent due from the Company
for office and warehouse space in its current headquarters located within the
Enamelware Division facility. As a result of this agreement, the Company
anticipates recording in the first quarter of 1998, as a component of selling,
general and administrative expense, a charge against earnings of approximately
$1,500. This net non-cash charge will consist of the following components:
Excess of consideration received over net book value
of tangible assets sold $ 2,000
Non-cash charges:
Goodwill write-off (2,800)
Defined benefit pension plan curtailment (700)
Loss on sale $(1,500)
Net sales of the Enamelware Division were $14,145, $16,508 and $21,890 in
1997, 1996 and 1995, respectively. Income from operations (including
cooperative advertising, warehousing, goodwill amortization and direct
marketing expenses, but excluding restructuring charges and allocation of
corporate overhead charges) of the Enamelware Division was $2,278, $3,752 and
$5,506 in 1997, 1996 and 1995, respectively.
Proceeds from the asset sale and the resulting reduction in ongoing working
capital requirements will reduce debt outstanding and improve liquidity.
Effect of Inflation
For the years ended December 31, 1997 and 1996, there were no significant
effects related to raw material or finished goods price increases from
suppliers. For the year ended December 31, 1995, price increases in certain
commodities used by the Company (e.g., aluminum ingot (44%), steel (5%) and
packaging materials (10%)) had an adverse effect on the operations of the
Company. The impact of the aluminum ingot increase adversely impacted
operating income by approximately $800. As a result of the sale of the Sidney
Division's assets in 1996, the Company does not have future exposure related
to aluminum ingot price increases.
Year 2000
In 1997, the Company initiated the conversion of information systems and
related software applications to Year 2000 compatible status. Management
estimates the total cost of the Year 2000 project to be approximately $750
with approximately half of that amount incurred and reflected as a charge to
selling, general and administrative expense in 1997. Completion of the
project is planned prior to December 31, 1998.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Financial Statements:
Report of Independent Accountants
Consolidated Statement of Operations for the
three years ended December 31, 1997
Consolidated Statement of Changes in Stockholders'
Equity for the three years ended December 31, 1997
Consolidated Balance Sheet at December 31, 1997 and
1996
Consolidated Statement of Cash Flows for the three
years ended December 31, 1997
Notes to Consolidated Financial Statements
Quarterly Financial Information
Financial Statement Schedule:
For the three years ended December 31, 1997
VII - Valuation and Qualifying Accounts
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
Price Waterhouse LLP
To the Board of Directors and Stockholders of General Housewares Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
General Housewares Corp., and its subsidiaries, at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, 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.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
February 2, 1998, except as to Note 14, which is as of March 19, 1998
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1997 1996 1995
(in thousands except per share amounts)
Net sales $104,531 $105,479 $119,340
Cost of goods sold 62,089 68,302 79,028
Gross profit 42,442 37,177 40,312
Selling, general and
administrative expenses 37,966 37,284 33,232
Operating income (loss) 4,476 (107) 7,080
Interest expense, net 2,749 2,751 3,115
Income (loss) before income taxes
and extraordinary item 1,727 (2,858) 3,965
Income tax expense (benefit) 1,065 (842) 1,679
Income (loss) before
extraordinary item 662 (2,016) 2,286
Extraordinary item net
of income tax benefit - 619 -
Net income (loss) $ 662 $ (2,635) $ 2,286
Earnings (loss) per common share
(basic and diluted):
Income (loss) before extraordinary
item per common share $ 0.17 $ (0.54) $ 0.61
Extraordinary item, net of income
tax benefit per common share - (0.16) -
Net income (loss) per common share $ 0.17 $ (0.70) $ 0.61
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Common Capital in Cumulative
Stock Stock Excess of Translation
(in thousands) Shares Amount Par Value Adjustment
December 31, 1994 3,967 $1,324 $22,708 $(215)
Restricted stock activity 11 4 72 -
Shares issued upon exercise
of options 21 7 205 -
Shares issued for employee
stock purchase plan 4 1 67 -
Shares issued to treasury 34 11 422 -
Tax benefit from exercise of
stock options - - 54 -
Translation adjustments - - - 176
Minimum pension liability - - - -
Dividends - - - -
Net income - - - -
December 31, 1995 4,037 1,347 23,528 (39)
Restricted stock activity 15 5 211 -
Shares issued upon exercise
of options 18 5 139 -
Shares issued for employee
stock purchase plan 11 4 84 -
Tax benefit from exercise
of stock options - - 14 -
Translation adjustments - - - (56)
Minimum pension liability - - - -
Dividends - - - -
Net income - - - -
December 31, 1996 4,081 1,361 23,976 (95)
Restricted stock 3 1 69 -
Shares issued upon exercise
of options 3 1 45 -
Shares issued for employee
stock purchase plan 9 3 58 -
Tax benefit from exercise
of stock options - - 7 -
Translation adjustments - - - (228)
Minimum pension liability - - - -
Dividends - - - -
Net income - - - -
December 31, 1997 4,096 $1,366 $24,155 $(323)
Minimum
Retained Treasury Pension
Earnings Stock Liability Total
December 31, 1994 $30,029 $(3,216) $(375) $50,255
Restricted stock activity - - - 76
Shares issued upon exercise
of options - - - 212
Shares issued for employee
stock purchase plan - - - 68
Shares issued to treasury - (433) - -
Tax benefit from exercise
of stock options - - - 54
Translation adjustments - - - 176
Minimum pension liability - - (83) (83)
Dividends (1,196) - - (1,196)
Net income 2,286 - - 2,286
December 31, 1995 31,119 (3,649) (458) 51,848
Restricted stock activity - - - 216
Shares issued upon exercise
of options - - - 144
Shares issued for employee
stock purchase plan - - - 88
Tax benefit from exercise
of stock options - - - 14
Translation adjustments - - - (56)
Minimum pension liability - - 76 76
Dividends (1,205) - - (1,205)
Net income (2,635) - - (2,635)
December 31, 1996 27,279 (3,649) (382) 48,490
Restricted stock activity - - - 70
Shares issued upon exercise
of options - - - 46
Shares issued for employee
stock purchase plan - - - 61
Tax benefit from exercise
of stock options - - - 7
Translation adjustments - - - (228)
Minimum pension liability - - 382 382
Dividends (1,219) - - (1,219)
Net income 662 - - 662
December 31, 1997 $26,722 $(3,649) $ 0 $48,271
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
December 31, 1997 1996
(in thousands except for share amounts)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,363 $ 1,981
Accounts receivable, less
allowances of $2,782
($3,575 in 1996) 15,170 15,823
Inventories 20,859 18,513
Deferred tax assets 2,857 3,831
Other current assets 1,680 932
Total current assets 42,929 41,080
Note receivable 2,364 2,707
Property, plant and equipment, net 12,483 13,420
Other assets 3,581 6,479
Patents and other intangible assets 2,600 4,195
Cost in excess of net assets
acquired 26,807 27,398
------- -------
$90,764 $95,279
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term
debt $ 2,793 $2,190
Accounts payable 2,717 3,932
Salaries, wages and related
benefits 2,087 1,671
Accrued liabilities 2,838 3,288
Income taxes payable 437 379
Total current liabilities 10,872 11,460
Long-term debt 29,761 30,575
Deferred liabilities 1,860 4,754
Commitments and contingent liabilities
(Note 12)
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 - 4,095,730
and 1996 - 4,080,736 shares 1,366 1,361
Capital in excess of par value 24,155 23,976
Treasury stock at cost - 1997
and 1996 - 277,760 shares (3,649) (3,649)
Retained earnings 26,722 27,279
Cumulative translation adjustment (323) (95)
Minimum pension liability - (382)
Total stockholders' equity 48,271 48,490
------- -------
$90,764 $95,279
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1997 1996 1995
(in thousands)
Operating activities:
Net income (loss) $ 662 $(2,635) $ 2,286
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities -
Depreciation and amortization 5,408 4,853 4,486
Loss on sale of assets - 2,335 -
Foreign exchange (gain) loss . (5) 21 85
Compensation related to stock awards 77 215 77
Increase in deferred
income taxes (37) (1,531) (452)
Decrease (increase) in operating assets:
Accounts receivable 669 322 713
Inventory (2,267) 5,311 (5,985)
Other assets 1,841 (476) 34
(Decrease) increase in operating liabilities:
Accounts payable (1,215) 819 (1,094)
Salaries, wages and related benefits,
accrued and deferred liabilities (1,535) 545 542
Income taxes payable 58 (930) 171
------ ------- -------
Net cash provided by
operating activities 3,656 8,849 863
Investing activities:
Additions to property, plant and
equipment, net (2,649) (4,236) (4,345)
Payment for acquisitions (989) - -
Proceeds from sale of assets 1,785 1,750 -
Issuance of notes
receivable (21) (370) -
------- ------- -------
Net cash used for investing
activities (1,874) (2,856) (4,345)
Financing activities:
Long-term debt (repayment)
borrowings (211) 3,541 4,803
Repayment
of senior notes - (10,000) -
Proceeds from stock options and
employee stock purchases 107 246 280
Dividends paid (1,219) (1,205) (1,196)
------ ------- -------
Net cash (used for) provided by
financing activities (1,323) (7,418) 3,887
Net increase (decrease) in cash
and cash equivalents 459 (1,425) 405
Cash and cash equivalents at
beginning of year 1,981 3,414 2,993
Effect of exchange rate on cash (77) (8) 16
------ ------- -------
Cash and cash equivalents at
end of year $2,363 $ 1,981 $ 3,414
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share amounts)
1. Nature of Operations
The Company manufactures and markets consumer durable goods with principal
lines of business consisting of housewares (cookware, cutlery and
kitchen/household tools) and precision cutting tools. In addition, the
Company sells products through a chain of manufacturer's retail outlet stores.
The majority of the Company's sales are derived from the housewares line.
2. 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. All intercompany transactions and balances are eliminated
in consolidation.
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.
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 cooperative advertising allowances to customers.
Inventories - Inventories are stated at the lower of cost or market and at
December 31 were comprised of the following:
1997 1996
Raw Materials $ 4,903 $ 4,983
Work in Process 609 953
Finished Goods 15,504 13,519
------ -------
21,016 19,455
LIFO Reserve (157) (942)
------ -------
$20,859 $18,513
Cost, at December 31, 1997 and 1996, is determined on a last-in, first-out
(LIFO) basis for approximately 76% of the Company's inventories. The
remaining inventories are costed on a first-in, first-out (FIFO) basis.
Property, Plant and Equipment - Property, plant and equipment is recorded at
cost and depreciated using the straight-line method based on useful lives of
20 to 30 years for buildings and improvements and 3 to 15 years for machinery
and equipment.
Property, Plant and Equipment is as follows:
1997 1996
Land $ 648 $ 648
Buildings and Improvements 6,944 6,890
Machinery and Equipment 24,640 23,519
------ -------
32,232 31,057
Accumulated Depreciation (19,749) (17,637)
------ -------
$12,483 $13,420
Other Assets - On January 17, 1996, the Company sold a non-operating facility
located in Hyannis, Massachusetts. The Company received cash of $1.3 million
for the facility. The cash was used for working capital purposes. On
December 31, 1997, the Company completed the sale of one of three remaining
non-operating facilities for $1.8 million in cash and used part of the
proceeds to prepay $1 million owed under a 12% note payable to the Estate of
Ronald J. Gangelhoff arising from the Company's purchase of Chicago Cutlery,
Inc. in 1988, with the remaining proceeds used for working capital purposes.
In January of 1998, the Company completed the sale of a second non-operating
facility for $489 in cash, which was also used for working capital purposes.
The proceeds received on each of these sales approximated the net book value
of the asset sold. 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
$1,781 in 1997 ($1,789 in 1996 and $1,793 in 1995) and accumulated
amortization was $10,131 and $8,350 at December 31, 1997 and 1996,
respectively. The Company assesses the recoverability of costs in excess of
net assets acquired based on undiscounted future cash flows. No write-downs
to such costs were incurred for the periods ended December 31, 1997, 1996 or
1995.
Deferred Liabilities - Deferred liabilities include a minimum pension
liability (in 1996), deferred income taxes and deferred compensation.
Earnings per Share - FAS No. 128, "Earnings per Share", was adopted for the
year ended December 31, 1997, and retroactively applied to the prior years
presented. While options to purchase common shares were outstanding during
each of the years presented, the options' exercise price was greater than the
average market price in most cases, resulting in no difference between diluted
earnings per share and basic earnings per share calculations. There were no
other reconciling items between basic and diluted earnings per share.
Currency Translation - The net assets of foreign operations are translated
into U.S. dollars using year-end exchange rates. Revenue and expenses are
translated at average exchange rates during the reporting period.
Sales to Significant Customers - During 1995, the Company had gross sales to a
single customer of $12,980, which represented approximately 10% of total sales
for 1995. During 1997 and 1996, there were no sales to a single customer that
exceeded 10% of total sales.
Advertising - The Company participates in cooperative advertising programs
with certain customers related to products being promoted. In addition, the
Company conducts consumer advertising programs designed to highlight product
features and build brand awareness. Advertising expense related to the
programs is expensed as incurred and was $3,603, $3,644 and $3,675 for the
periods ended December 31, 1997, 1996 and 1995, respectively.
Reclassification - Certain 1995 and 1996 amounts have been reclassified to
conform with the 1997 presentation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Restructuring Charges
On January 4, 1996, the Company announced its intention to exit its cast iron
and cast aluminum businesses ("Sidney Division"). A purchase agreement to
sell the assets of the Sidney Division, effective August 1, 1996, was executed
whereby the Company received consideration of $4,000 in the form of a cash
payment of $450, a note receivable of $3,000, and the purchaser's assumption
of certain liabilities. The consideration was received in exchange for
certain assets of the Sidney Division, as well as associated brand names and
trademarks. The note receivable was discounted to a net present value of
$2,707 and will be paid with a $1,000 initial payment on July 31, 1999, and
quarterly payments of $125 commencing October 31, 1999, through July 31, 2003.
As a result of this agreement, the Company recorded in 1996, as a component of
selling, general and administrative expenses, a charge against earnings of
$3,198 ($400 of which relates to loss on curtailment of the Sidney Division
defined benefit pension plans). A benefit of $928 was recorded in cost of
sales as a result of the reversal of the Sidney Division LIFO reserve offset
by other inventory loss reserves. Approximately $505 of the selling, general
and administrative charge remains as a component of accrued liabilities and as
a reduction to non-current assets at December 31, 1997, representing future
warranty and pension payments to be made by the Company. Net sales of the
Sidney Division were $4,159 and $16,884 in 1996 and 1995, respectively. The
income (loss) from operations (including cooperative advertising, warehousing
and direct marketing expenses, but excluding restructuring charges and
allocation of corporate overhead expenses) of the Sidney Division was $(1,496)
and $820 in 1996 and 1995, respectively.
In addition to the foregoing, the Company closed three manufacturer's retail
outlet stores, sold certain assets associated with its stamped and spun
aluminum cookware product line and incurred a charge related to the write-down
of certain production equipment to net realizable value in 1996. The results
of operations of these stores and the stamped and spun aluminum cookware
product line, the charges incurred as a result of their disposition and the
aforementioned write-down related to production equipment amounted to
approximately $530 for the year ended December 31, 1996 (reflected in selling,
general and administrative expense).
In 1997, the Company initiated cost reduction activities including the
elimination of 32 positions that had supported a variety of selling, general
and administrative functions and the planned first quarter 1998 relocation of
its primary distribution center. Severance related wages and benefits of $826
were recorded as a charge to selling, general and administrative expense as a
result of the initiatives. Approximately $418 of the charge remains as a
component of accrued liabilities at December 31, 1997. All accrued payments
will be made in 1998.
4. Acquisitions
Effective June 25, 1997, the Company acquired two product lines for $689 in
cash that became part of the Company's precision cutting tool segment. The
acquisition was accounted for as a purchase. The net assets purchased, the
purchase price and pro-forma results of operations, as if combined throughout
the current and preceding periods, were not material. Related cost in excess
of assets acquired from the acquisition of $587 is being amortized over 15
years.
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"). In connection with issuance of restricted common stock
related to the acquisition, the Company agreed, under certain circumstances,
to make payments of up to $600 to the former owners upon sale of the
restricted common stock. Pursuant to this agreement, the Company paid $300 in
1997, the entire amount being recorded as an increase to cost in excess of net
assets acquired.
5. Debt
Long-term and short-term debt includes the following:
December 31, 1997 1996
Bank Credit Agreement $21,000 $18,000
8.41% Senior Notes payable
in equal annual installments
commencing 1998 through 2004 10,000 10,000
12% subordinated note payable
in equal annual installments
commencing 1996 through 2000 1,190 3,211
Deferred payment obligation due
in quarterly installments of $125
from January, 1995, through September,
1998 (discounted at 6%) 364 825
6% subordinated notes payable in
equal annual installments commencing
1995 through 1997 - 729
------ -------
32,554 32,765
Less current maturities and
short-term debt 2,793 2,190
------ -------
Long-term debt $29,761 $30,575
At December 31, 1997 and 1996, all of the Company's debt outstanding was
unsecured.
The bank debt outstanding at December 31, 1997, relates to a Credit Agreement
with three banks, dated November 13, 1996, consisting of an aggregate
commitment of $45,000 of which $215 was reserved for letters of credit at
December 31, 1997. This Credit Agreement expires on December 31, 1999. The
Credit Agreement may be renewed, under certain circumstances, for two
additional one-year periods. Drawings under the Credit Agreement are priced
at the banks' Prime or LIBOR with spreads based on an incentive formula. At
December 31, 1997, the Company could borrow under the Credit Agreement at
Prime plus 0.5% or LIBOR plus 2.0%. The interest rates on outstanding amounts
at December 31, 1997, ranged from 7.94% to 9.00%. Commitment fees of .375% of
the unused balance on the line of credit are included in interest expense.
During 1994, the Company sold $20,000 of 8.41% Senior Notes payable to a group
of institutional investors. On November 15, 1996, the Company prepaid $10,000
of the 8.41% Senior Notes with proceeds from the Credit Agreement. The
Company incurred a prepayment penalty of $799 related to this transaction. In
addition, the Company incurred a write-off of unamortized debt issuance costs
of $89 related to this transaction and the replacement of the aforementioned
Credit Agreement. In accordance with FAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt", the prepayment penalty and the write-off of
unamortized debt issuance costs have been reflected as an extraordinary item,
net of applicable income tax benefit of $269, in the Consolidated Financial
Statements.
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, certain investments
and lease commitments. At December 31, 1997, the Company was in compliance
with all covenants contained in the Credit Agreement. The 8.41% Senior Notes
were amended, effective December 31, 1997, to reconfigure certain financial
covenants contained therein. Had the 8.41% Senior Notes not been amended, the
Company would not have been in compliance with a fixed charges coverage ratio
covenant and a restricted payments (dividends) covenant as of December 31,
1997. The Company was in compliance with all of the financial covenants
contained in the amended 8.41% Senior Notes as of December 31, 1997, and
management expects to be in compliance with such covenants in the future. In
conjunction with the foregoing loan amendment, the interest rate associated
with the Senior Notes was increased to 8.91%, although the interest rate may
be reduced to 8.41% if the Company achieves certain cash flow goals contained
in the amendment.
The 12% subordinated note payable is due the Estate of the former principal
owner of Chicago Cutlery, Inc., a wholly-owned subsidiary of the Company. The
Estate is a significant stockholder of the Company. The principal balance of
the note was reduced by $21 and $157 in 1997 and 1996, respectively, as an
offset to payments made with regard to the environmental remediation program
discussed in Note 12. The terms of this note allow the Company to prepay the
note in whole or in part, without penalty. On December 31, 1997, the Company
made a $1 million prepayment related to the note.
The deferred payment obligation was incurred in connection with the
acquisition of the assets of the Normandy enamel on steel cookware business of
National Housewares, Inc.
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,
1997, are as follows:
1998 $ 2,793
1999 22,619
2000 1,429
2001 1,429
2002 1,429
Later years 2,855
Cash paid during 1997 for interest, net of cash received, was $2,706 (1996 -
$2,538; 1995 - $2,798). Of this amount, $417, $579 and $562 consisted of
amounts paid to related parties in 1997, 1996 and 1995, respectively.
6. Common Stock and Rights
Common stock at December 31, 1997, included 264,130 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.
7. Stock Plans
At December 31, 1997, the Company had two stock plans which are described
below. The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plan and its stock purchase plan. Had
compensation cost for the Company's stock plans been determined based on the
fair value at the grant dates for transactions under those plans, consistent
with the method of FAS No. 123, "Accounting for Stock Based Compensation", the
Company's net loss and net loss per share for 1996 and net income and net
income per share for 1997 and 1995 would have been adjusted to the pro forma
amounts indicated below:
1997 1996 1995
Income (loss) from
continuing operations:
As reported $ 662 $(2,016) $2,286
Pro forma $ 571 $(2,152) $2,238
Income (loss) per share
(basic and diluted) from
continuing operations:
As reported $ 0.17 $ (0.54) $ 0.61
Pro forma $ 0.15 $ (0.57) $ 0.59
The risk-free rate used in pro forma calculations is the yield, on the grant
date, of a U.S. Treasury Strip with a maturity date equal to the expected term
of the option. The expected life of vested stock options used in the
calculation is five years with no assumed forfeiture. The volatility
assumption utilized, (32.81%, 34.28% and 36.22% in 1997, 1996 and 1995,
respectively), was developed using the Company's historical stock price with
future dividend activity assumed to be consistent with 1997 activity.
The Company maintains a fixed stock plan for key employees which provides for
the granting of options or awards of restricted stock until January 31, 2003.
All stock options vest within three years of the date of grant with a maximum
option term of seven years. A summary of transactions under the plan follows:
Restricted Stock
Stock Shares Options
Shares Wtd. Avg.
Price
Outstanding December 31, 1994 10,500 231,404 $11.50
Granted during 1995 10,500 106,000 12.84
Canceled during 1995 - (13,000) 13.01
Released or exercised
during 1995 (3,500) (20,634) 10.40
Outstanding December 31, 1995 17,500 303,770 11.98
Granted during 1996 15,268 44,500 10.39
Canceled during 1996 - (7,550) 13.12
Released or exercised
during 1996 (9,500) (18,434) 7.84
Outstanding December 31, 1996 23,268 322,286 11.97
Granted during 1997 - 77,250 10.50
Canceled during 1997 - (128,739) 11.43
Released or exercised
during 1997 (8,000) (6,667) 7.13
Outstanding December 31, 1997 15,268 264,130 $11.88
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 $7.125 per share in
1997. Of the options outstanding at December 31, 1997, 47,834 were granted at
prices ranging from $9.250 to $10.375 per share, while 216,296 were granted at
prices ranging from $10.50 to $14.00 per share. The weighted average
remaining contractual lives for the ranges are 5.63 years and 5.12 years,
respectively. Options for 146,269 shares were exercisable at December 31,
1997.
Restricted stock granted under the plan is subject to restrictions relating to
earnings targets of the Company and/or continuous employment or other
relationships.
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, 1997, the balance in the plan
consisted of 24,343 shares of General Housewares Corp. Common Stock (22,569
shares in 1996).
8. Employee Benefit Plans
The Company sponsors four defined benefit pension plans (two of which cover
union employees at the Sidney Division - see Note 3) 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. Effective August 1, 1996, the Sidney Division's plans no longer
accrue service cost due to the 1996 sale of the assets of the Division.
Net periodic pension cost included the following components:
1997 1996 1995
Service cost-benefits earned
during the period $ 600 $ 544 $ 459
Interest cost on projected
benefit obligation 1,510 1,302 1,226
Actual return on plan assets (6,366) (1,991) (2,632)
Net amortization and deferral 5,169 819 1,561
------ ------- -------
Net periodic pension cost $ 913 $ 674 $ 614
The funded status of the plans as of December 31 was as follows:
1997 1996 1996
Assets Assets Accumulated
Exceed Exceed Benefits
Accumulated Accumulated Exceed
Benefits Benefits Assets
Accumulated benefit obligation
-vested $20,577 $12,383 $ 7,166
-non vested 287 195 20
------ ------- -------
20,864 12,578 7,186
Effect of projected
salary increases 1,459 1,592 -
------ ------- -------
Projected benefit
obligation 22,323 14,170 7,186
Plan assets at
fair value 25,857 13,758 6,881
------ ------- -------
Plan assets over (under)
projected benefit
obligation 3,534 (412) (305)
Unrecognized net transition
liability (548) (415) (270)
Unrecognized net (gain)loss
from experience differences (1,505) 2,240 1,154
Unrecognized prior
service cost 1,080 290 1,193
Adjustment to recognize
minimum liability - - (1,803)
------ ------- -------
Prepaid (accrued) pension
cost recognized in
balance sheet $ 2,561 $ 1,703 $ (31)
In accordance with the provisions of Statement of FAS No. 87, "Employers'
Accounting for Pensions", the Company recorded an additional minimum liability
at December 31, 1996, 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
$1,803 at December 31, 1996, 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, as of December 31, 1996, a deferred tax asset
of $227 has been recognized for the minimum liability charge to equity. The
fair value of plan assets exceeded the accumulated benefit obligation at
December 31, 1997. Accordingly, no additional minimum liability was included
in the Company's Consolidated Balance Sheet as of December 31, 1997.
The actuarial present value of the projected benefit obligation at December
31, 1997 and 1996, was determined using a weighted average discount rate of
7.25% 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, 1997 and 1996. As of December 31, 1997, approximately 16% (1996
- - 31%) 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
$275 in 1997 ($297 in 1996 and $316 in 1995).
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.
9. Income Taxes
The components of the provision for income taxes were as follows:
1997 1996 1995
Current income tax expense:
Federal $ 347 $ 134 $ 1,624
State 45 90 251
Foreign 718 471 219
------- ------- -------
Total current income tax
expense 1,110 695 2,094
Deferred income tax
expense (benefit):
Federal 18 (1,390) (389)
State (51) (141) (57)
Foreign (12) (6) 31
------ ------- -------
Total income tax expense (benefit)
before extraordinary item: 1,065 (842) 1,679
Current income tax benefit on
extraordinary item: - (269) -
------ ------- --------
Total income tax
expense (benefit) $ 1,065 $(1,111) $ 1,679
A reconciliation between taxes from continuing operations computed at the
federal statutory tax rate and the Company's consolidated effective tax rate
were as follows:
1997 1996 1995
Computed tax at
Federal statutory rate $ 587 $ (972) $ 1,348
State income taxes, net of
federal income tax benefit 30 (99) 128
Amortization of excess
purchase price 198 199 199
Tax effects attributable
to foreign operations 126 77 42
Miscellaneous items 124 (47) (38)
------ ------- -------
Total income tax expense (benefit)
before extraordinary item $ 1,065 $ (842) $ 1,679
Deferred tax assets (liabilities) were comprised of the following at December
31:
1997 1996
Gross deferred tax assets:
Accounts receivable allowances $ 587 $ 761
Inventory reserves 669 934
Vacation 160 149
Foreign tax credit 280 361
Restructuring 60 373
Package design costs 211 -
Other, miscellaneous 938 1,032
------ -------
Gross deferred tax assets $ 2,905 $ 3,610
Gross deferred tax liabilities:
Property, plant and equipment $ (327) $ (787)
Pension (521) (813)
Other, miscellaneous (166) (156)
------- -------
Gross deferred tax liabilities $(1,014) $(1,756)
------ -------
Net deferred tax assets $ 1,891 $ 1,854
Cash paid for income taxes during 1997 was $741 (1996-$87; 1995-$318).
10. Operating Leases
The Company 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 leases in which the Company is engaged 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, 1997:
1998 $1,910
1999 1,491
2000 983
2001 804
2002 654
Later years 589
Certain leases require payments of real estate taxes, insurance, repairs and
other charges. Total rental expense was $2,018 in 1997 (1996-$1,797; 1995-
$2,098).
11. Fair Value of Financial Instruments
FAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of information about the fair value of certain financial
instruments for which it is practical to estimate that value. The Company has
performed fair value calculations on its financial instruments (principally
debt obligations) and has determined that fair value approximates carrying
value.
12. Commitments and Contingent Liabilities
The Company is currently involved with private parties and state agencies in
the review and evaluation, or remediation, of six 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 $480 at December 31, 1997 ($394 at December 31,
1996), which aggregate amount management believes will be paid out during the
course of the next five years. Within a range of reasonably possible
environmental cleanup liabilities established on the basis of current
information, the recorded liability represents substantially all of the
currently estimable maximum loss that has been identified by the Company and
its environmental advisors. Based on provisions in the stock purchase
agreement related to the acquisition of Chicago Cutlery, Inc., the Company has
recovered approximately $1,109 previously expended by the Company on the
mandated remediation of hazardous wastes generated at the Antrim, New
Hampshire, manufacturing site (the "Antrim Site") owned by Chicago Cutlery,
Inc., through an offset to amounts owed to the holders of the 12% subordinated
note ($809 related to principal payments and $300 related to interest payments
- - see Note 5). Based on the opinion of legal counsel, the Company considers
it probable that it will retain such amounts. The holders of the 12%
subordinated note have not agreed to such offset. 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 and cash flow.
13. Segment Information
The Company's principal business involves the manufacture and marketing of
consumer durable goods. These operations are classified into two reportable
segments:
Housewares - Included in this segment are the Company's cookware, cutlery and
kitchen/household tool products, as well as a chain of manufacturer's retail
outlet stores with sales derived primarily from these products. These
products are used primarily in commercial and residential food preparation and
are distributed primarily through mass merchandisers, department stores and
specialty shops.
Precision Cutting Tools - Included in this segment is the Company's Olfa
Products Group and OLO Division. Products in this segment are designed and
marketed for diverse commercial and residential use including hobby, craft,
sewing and construction. The goods are sold both directly and through
distributors, primarily to hardware stores and sewing/hobby/craft stores.
Financial information by reportable segments is as follows:
Housewares Precision
1997 Cutting Tools
Net sales $86,477 $18,054
Operating income 630 3,846
Identifiable assets 76,862 13,902
Depreciation and amortization 5,006 402
Capital expenditures, net 2,607 42
1996
Net sales $ 89,248 $ 16,231
Operating (loss) income (2,600) 2,493
Identifiable assets 87,092 8,187
Depreciation and amortization 4,496 357
Capital expenditures, net 4,210 26
1995
Net sales $103,370 $ 15,970
Operating income 5,606 1,474
Identifiable assets 97,254 7,285
Depreciation and amortization 4,135 351
Capital expenditures, net 4,325 20
As discussed in Note 3, the Company sold the assets of its Sidney Division,
effective August 1, 1996. The reduction in assets and related restructuring
charges are included in the Housewares segment. Charges related to the 1997
restructuring referred to in Note 3 are also included in the Housewares
segment.
During 1995, the Company had gross sales to one customer of $12,577,
representing 11% of total Housewares segment gross sales. During 1997 and
1996, there were no sales to a single customer that exceeded 10% of either
segment's sales.
14. Subsequent Event
On March 19, 1998, the Company announced that it had entered into an agreement
to sell its enamelware cookware business (Enamelware Division), which, subject
to certain conditions, will become effective March 31, 1998. In exchange for
the sale of certain assets related to the Enamelware Division, including
property, plant and equipment and inventories, as well as associated brand
names and trademarks, the Company expects to receive consideration of
approximately $6.4 million, of which approximately $5.0 million will be in the
form of a cash payment at closing. The Company anticipates the remainder of
the consideration to be in the form of a promissory note (the "Note") to be
paid in six equal annual installments beginning April 1, 1999. The
obligations under the Note shall be offset against rent due from the Company
for office and warehouse space in its current headquarters located within the
Enamelware Division facility. As a result of this agreement, the Company
anticipates recording in the first quarter of 1998, as a component of selling,
general and administrative expense, a charge against earnings of approximately
$1,500. This net, non-cash charge will consist of the following components:
Excess of consideration received over net book value
of tangible assets sold $ 2,000
Non-cash charges:
Goodwill write-off (2,800)
Defined benefit pension plan curtailment (700)
Loss on sale $(1,500)
Net sales of the Enamelware Division were $14,145, $16,508 and $21,890 in
1997, 1996 and 1995, respectively. Income from operations (including
cooperative advertising, warehousing, goodwill amortization and direct
marketing expenses, but excluding restructuring charges and allocation of
corporate overhead charges) of the Enamelware Division was $2,278, $3,752 and
$5,506 in 1997, 1996 and 1995, respectively.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands of dollars except per share amounts)
Quarter ended Dec. 31, Sept. 30, June 30, March 31,
1997 1997 1997 1997
Net sales $31,026 $29,215 $23,415 $20,875
Gross profit $12,574 $12,696 $ 8,567 $ 8,605
Net income (loss) $ 915 $ 932 $ (491) $ (694)
Earnings per common share
(basic and diluted):
Net income (loss) $ 0.24 $ 0.24 $ (0.13) $ (0.18)
Dividends per common
share $ 0.08 $ 0.08 $ 0.08 $ 0.08
Market price range:
High 10-1/2 10-3/4 10-1/8 10-7/8
Low 8-3/4 8-9/16 8-1/2 9-1/4
Quarter ended Dec.31, Sept.30, June 30, March 31,
1996 1996 1996 1996
Net sales $32,858 $26,406 $21,613 $24,602
Gross profit $13,265 $ 9,698 $ 6,575 $ 7,639
Income (loss) before
extraordinary item $ 2,327 $ 60 $(2,174) $(2,229)
Extraordinary item, net
of income tax benefit (619) - - -
Net income (loss) $ 1,708 $ 60 $(2,174) $(2,229)
Earnings per common share
(basic and diluted):
Income (loss) before
extraordinary item
per common share $ 0.61 $ 0.02 $ (0.57) $ (0.59)
Extraordinary item, net
of income tax benefit
per common share $ (0.16) $ - $ - $ -
Net income (loss) per
common share $ 0.45 $ 0.02 $ (0.57) $ (0.59)
Dividends per common
share $ 0.08 $ 0.08 $ 0.08 $ 0.08
Market price range:
High 10-7/8 12-5/8 14-1/8 11-3/4
Low 8-3/8 9 11 7-7/8
As discussed in Note 3 to the consolidated financial statements, the Company
sold the assets of its Sidney Division, effective August 1, 1996. Related
restructuring charges are reflected in results for the quarters ended March
31, 1996 and June 30, 1996.
Restructuring charges incurred in 1997, as discussed in Note 3 to the
consolidated financial statements, are reflected in results for the quarters
ended September 30, 1997 and December 31, 1997.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of General Housewares Corp.
Our audits of the consolidated financial statements referred to in our report
dated February 2, 1998, except as to Note 14, which is as of March 19, 1998,
appearing in the 1997 Annual Report to Shareholders of General Housewares
Corp. (which report and consolidated financial statements are incorporated in
this Annual Report on Form 10-K) also included an audit of the Financial
Statement Schedule listed in Item 14(a) of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
February 2, 1998
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.
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, 1998, 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 10 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 November 12, 1996 (filed as Form 8-K on
December 4, 1996, and incorporated herein by reference).
5. Rights Agreement dated as of February 22, 1989 (filed with the
Securities and Exchange Commission as an Exhibit 2a 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 (filed as Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
10.2 Credit Agreement, dated November 13, 1996, between the Company and
Harris Trust and Savings Bank as agent, The First National Bank of Chicago,
and The Northern Trust Company (filed as Form 8-K on December 4, 1996, and
incorporated herein by reference).
*10c. Compensation Agreement, dated August 7, 1987, between the Company and
Paul A. Saxton relating to retirement and termination agreements (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).
*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 (filed as Exhibit 10f to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference).
*10g. Employment Agreement dated March 20, 1995, between the Company and John
C. Blackwell, relating, among other matters, to retirement and termination
agreements.
*10h. Employment Agreement dated July 3, 1995, between the Company and Gordon
H. Brown, relating, among other matters, to retirement and termination
agreements.
*10i. Employment Agreement dated November 11, 1995, between the Company and
Raymond J. Kulla, relating, among other matters, to retirement and termination
agreements.
*10j. Employment Agreement dated December 2, 1996, between the Company and
William V. Higdon relating, among other matters, to retirement and termination
agreements.
11. Computation of 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 February
2, 1998.
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.
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/Mark S. Scales 2/10/98
Mark S. Scales Date
Vice President, Chief Financial Officer
and Treasurer
By /s/Bradley A. Kelsheimer 2/10/98
Bradley A. Kelsheimer Date
Corporate Controller,
Chief 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 2/10/98
Paul A. Saxton Date
Chairman of the Board
President and Chief Executive Officer
/s/Thomas G. Belot 2/10/98
Thomas G. Belot - Director Date
/s/Charles E. Bradley 2/10/98
Charles E. Bradley - Director Date
/s/John S. Crowley 2/10/98
John S. Crowley - Director Date
/s/Thomas L. Francis 2/10/98
Thomas L. Francis - Director Date
/s/Joseph Hinsey IV 2/10/98
Joseph Hinsey IV - Director Date
/s/Richard E. Lundin 2/10/98
Richard E. Lundin - Director Date
/s/Ann Manix 2/10/98
Ann Manix - Director Date
/s/Phillip A. Ranney 2/10/98
Phillip A. Ranney - Director Date
EXHIBIT 11
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
1997 1996 1995
Net Income (loss) $ 662,000 $(2,635,000) $2,286,000
Shares:
Weighted average number of
shares of common stock
outstanding 3,809,896 3,759,089 3,744,309
Shares assumed issued (less
shares assumed purchased
for treasury) on stock
options 36 9,161 21,341
Outstanding shares for
diluted earnings per
share calculation 3,809,932 3,768,250 3,765,650
Earnings per common
shares basic and
fully diluted $ 0.17 $ (0.70) $ 0.61
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State Incorporated
General Housewares Export Corporation U.S. Virgin Islands
Chicago Cutlery, Inc. Florida
Chicago Cutlery etc., Inc. Indiana
General Housewares of Canada Inc. Quebec, Canada
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-33328, 2-77798 and 33-48336) of General
Housewares Corp., of our report dated February 2, 1998, appearing on page 22
of the Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule which appears in this Form 10-K.
Price Waterhouse LLP
Indianapolis, Indiana
March 27, 1998
EX-27
ART. 5 FDS FOR 10-K
[ARTICLE] 5
[CIK] 0000040643
[NAME] GENERAL HOUSEWARES CORP.
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] DEC-31-1997
[EXCHANGE-RATE] 1
[CASH] 2,363
[SECURITIES] 0
[RECEIVABLES] 18,745
[ALLOWANCES] 3,575
[INVENTORY] 20,859
[CURRENT-ASSETS] 42,929
[PP&E] 32,232
[DEPRECIATION] 19,749
[TOTAL-ASSETS] 90,764
[CURRENT-LIABILITIES] 10,872
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 1,366
[OTHER-SE] 46,905
[TOTAL-LIABILITY-AND-EQUITY] 90,764
[SALES] 104,531
[TOTAL-REVENUES] 104,531
[CGS] 62,089
[TOTAL-COSTS] 62,089
[OTHER-EXPENSES] 37,966
[LOSS-PROVISION] 465
[INTEREST-EXPENSE] 2,749
[INCOME-PRETAX] 1,727
[INCOME-TAX] 1,065
[INCOME-CONTINUING] 662
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 662
[EPS-PRIMARY] 0.17
[EPS-DILUTED] 0.17
Report of Independent Accountants
February 2, 1998
To the Participants and Administrative Committee of
General Housewares Corp. Employee Stock Purchase Plan
In our opinion, the accompanying statements of financial
condition and of income and changes in plan equity present
fairly, in all material respects, the financial condition of
General Housewares Corp. Employee Stock Purchase Plan at December
31, 1997 and 1996, and the changes in its financial condition for
the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the plan'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.
EMPLOYEE STOCK PURCHASE PLAN
STATEMENT OF FINANCIAL CONDITION
December 31,
1997 1996
Plan Assets
Investments in employer's securities
(cost, 1997 - $219,061; 1996 - $216,698) $ 255,602 $ 220,048
--------- ---------
Liabilities and Plan Equity
Liabilities - -
Plan equity 255,602 $ 220,048
--------- ---------
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
Year Ended December 31,
1997 1996
Dividend income $ 7,014 $ 6,262
Administrative expenses (304) (284)
------- -------
Net dividend income 6,710 5,978
Realized (loss) gain on investments (2,680) 12,521
Unrealized appreciation in investments 27,046 24,226
Participant contributions 51,758 84,861
Participant distributions (47,280) (62,365)
------- -------
Net increase in plan equity 35,554 65,221
Plan equity at beginning of period 220,048 154,827
------- -------
Plan equity at end of period $255,602 $220,048
------- -------
EMPLOYEE STOCK PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of the Plan
The following description of the General Housewares Corp.
Employee Stock Purchase Plan (the Plan) provides only general
information. Participants should refer to the Plan agreement for
a more complete description of the Plan's provisions.
Eligibility
All full time employees of General Housewares Corp. (the Company)
who have completed three months of service will be eligible to
participate in the Plan at the beginning of the next calendar
quarter subsequent to their completion of three months of
service.
Stock Purchases
First Chicago Trust Company of New York, the Custodian for the
Plan, will purchase the Company's common stock either (1) in the
open market, (2) from an employee desiring to dispose of his/her
shares pursuant to the Plan or (3) from the Company. The Company
will pay all brokerage fees on all purchases of common stock
under the Plan.
The price at which shares of common stock will be purchased will
be the lesser of:
(a) 90% of the market value of the common stock on the first
business day of the applicable calendar quarter, or
(b) 90% of the market value of the common stock on the last
business day of such calendar quarter.
The number of shares of common stock that will generally be
purchased in each calendar quarter will be equal to the amount of
payroll deductions made during such quarter plus any accumulated
dividends divided by the purchase price of the common stock.
Dividend reinvestments are subject to a 5% administration fee
paid by the Plan.
Withdrawals
An employee may withdraw part or all of his/her account balance
at any time by giving written notice to the Plan. At December
31, 1997, approximately 775 shares of common stock had not been
distributed to employees terminated in the third and fourth
quarter of 1997.
Participant Accounts
A stock purchase account shall be maintained by the Custodian in
the name of each participant. Authorized payroll deductions
shall be held by the Company and credited to the participant's
stock purchase account at the end of each calendar quarter.
Interest will not accrue or be paid on available funds or any
other cash held in a participant's stock purchase account. All
dividends paid on the Company's common stock held in a
participant's stock purchase account shall be used to purchase
additional shares of the Company's common stock.
2. Summary of Accounting Policies
Quoted market prices are used to value investments.
3. Investments
At December 31, 1997 and 1996, investments were comprised of
24,343 and 22,569 shares, respectively, of General Housewares
Corp. Common Stock. The closing market price on December 31,
1997 and 1996 was $10.50 and $9.75 per share, respectively. Net
unrealized appreciation of investments was $27,046 and $24,226 in
1997 and 1996, respectively. Realized (loss) gain for 1997 and
1996 is calculated as follows:
For the For the
Year Ended Year Ended
December 31, 1997 December 31, 1996
Cost (using a FIFO basis) $56,104 $71,524
Unrealized depreciation
recognized in prior years (6,144) (21,680)
------- -------
49,960 49,844
Sales proceeds 47,280 62,365
------- -------
Realized (loss) gain recognized
in current year $(2,680) $12,521
------- -------
4. Federal Income Taxes
The Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue
Code. As a result, participants are not subject to any tax at
the time of the purchase of the Company's common stock at a
discount. A favorable letter of determination has not been
requested or obtained from the Internal Revenue Service.
March 31, 1998
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, DC 20549
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission submitted
herewith for filing on behalf of General Housewares Corp. is the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997. This
filing is being effected by direct transmission to the Commission's EDGAR
System.
Very truly yours,
Raymond J. Kulla
General Counsel and Secretary