SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECIURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1998
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 1-7117
GENERAL HOUSEWARES CORP.
(Exact name of Registrant as specified in its Charter)
Delaware 41-0919772
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
1536 Beech Street 47804
Terre Haute, Indiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (812) 232-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at May 13, 1998
$.33-1/3 Par Value 4,097,389
GENERAL HOUSEWARES CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Condensed Statements of Operations
and Retained Earnings
Three months ended March 31, 1998 and 1997
Consolidated Condensed Balance Sheets
March 31, 1998 and December 31, 1997
Consolidated Condensed Statements of Cash Flows
Three months ended March 31, 1998 and 1997
Notes to Consolidated Condensed Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
SIGNATURES
COMPUTATION OF EARNINGS PER SHARE (basic & diluted)
FINANCIAL DATA SCHEDULE
PART I FINANCIAL INFORMATION
GENERAL HOUSEWARES CORP. & SUBSIDIARIES
(Dollars in thousands except per share amounts)
Consolidated Condensed Statements of Operations
and Retained Earnings
For the three months
ended March 31,
(Unaudited)
1998 1997
Net sales $21,044 $20,875
Cost of goods sold 12,974 12,270
------- -------
Gross profit 8,070 8,605
Selling, general and
administrative expenses 11,470 9,095
------- -------
Operating loss (3,400) (490)
Interest expense, net 626 595
------- -------
Loss from operations before
income tax benefit (4,026) (1,085)
Income tax benefit (1,325) ( 391)
------- -------
Net loss for the period (2,701) ( 694)
Retained earnings, beginning of period 26,722 27,279
Less: Dividends ($.08 per common share
in 1998 and 1997) 305 304
------- --------
Retained earnings, end of period $23,716 $26,281
Basic and diluted earnings per common share:
Net loss (0.71) ($0.18)
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED BALANCE SHEETS
As of
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
Current Assets:
Cash $ 114 $ 2,363
Accounts receivable, less allowance of
$2,511 ($2,782 in 1997) 13,586 15,170
Inventories 19,362 20,859
Deferred tax asset 2,857 2,857
Other current assets 2,007 1,680
Income taxes refundable 1,776 -
------- -------
Total current assets 39,702 42,929
Note receivable 3,597 2,364
Property, plant and equipment, net 9,406 12,483
Other assets 2,222 3,581
Patents and other intangible assets 2,527 2,600
Cost in excess of net assets acquired 23,689 26,807
------- -------
Total Assets $81,143 $90,764
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 2,673 $ 2,793
Notes payable 900 -
Accounts payable 3,387 2,717
Salaries, wages and related benefits 1,897 2,087
Accrued liabilities 3,350 2,838
Income taxes payable - 437
------- -------
Total current liabilities 12,207 10,872
Long-term debt 21,759 29,761
Deferred liabilities 1,886 1,860
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 - 1998 - 4,096,063
and 1997 - 4,095,730 shares 1,367 1,366
Capital in excess of par value 24,174 24,155
Treasury stock at cost - 1998 and
1997 - 277,760 shares (3,649) (3,649)
Retained earnings 23,716 26,722
Cumulative transition adjustment (317) (323)
------- -------
Total stockholders' equity 45,291 48,271
------ ------
Total Liabilities and Stockholders' Equity $81,143 $90,764
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the three months
ended March 31,
(Unaudited)
1998 1997
OPERATING ACTIVITIES:
Net loss ($ 2,701) ($694)
Adjustments to reconcile net loss to net
cash provided by operating activities -
Depreciation and amortization 1,806 1,630
Loss on sale of assets 1,500 -
Foreign exchange loss - (6)
Decrease (increase) in operating assets:
Accounts receivable 1,584 3,822
Inventory 245 (2,140)
Other assets 780 (233)
Increase (decrease) in operating liabilities:
Accounts payable 670 (863)
Salaries, wages and related benefits,
accrued and deferred liabilities 178 427
Income taxes payable (refundable) (2,213) (724)
------- -------
Net cash provided by
operating activities: 1,849 1,219
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (1,481) (606)
Proceeds from sale of assets 4,900 -
Note receivable activity - 187
------- -------
Net cash provided by (used for)
investing activities 3,419 (419)
FINANCING ACTIVITIES:
Debt (repayment) borrowing (7,222) 385
Proceeds from stock options and
employee purchases 20 80
Dividends paid (305) (304)
------- -------
Net cash (used for) provided by
financing activities (7,507) 161
------- -------
Net (decrease) increase in cash and
cash equivalents (2,239) 961
Cash and cash equivalents at beginning
of period 2,363 1,981
------- -------
Effect of exchange rate on cash (10) (16)
------- -------
Cash and cash equivalents at
end of period $114 $2,926
See notes to consolidated condensed financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - GENERAL
The accompanying interim Consolidated Condensed Financial Statements have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of
management, the financial statements included herein reflect all adjustments
necessary to present fairly the financial information for the periods
presented. The Consolidated Condensed Financial Statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K.
NOTE 2 - INVENTORIES
March 31, December 31,
1998 1997
Raw materials $ 2,820 $ 3,782
Work in process 1,147 1,730
Finished goods 14,319 15,504
------- -------
18,286 21,016
LIFO Reserve 1,076 (157)
------- -------
Total, net $19,362 $20,859
NOTE 3 - PROPERTIES
March 31, December 31,
1998 1997
Land $ 387 $ 648
Buildings 3,759 6,944
Equipment 16,797 24,640
------- -------
Total 20,943 32,232
Accumulated depreciation (11,537) (19,749)
------- -------
Total, net $ 9,406 $12,483
NOTE 4 - ASSET SALE
On March 31, 1998, the Company divested its enamelware cookware business
(Enamelware Division). In exchange for the sale to Columbian Home Products,
LLC (the Buyer) 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 received consideration consisting of a
cash payment of $4.9 million and a Promissory Note (the "Note") in the
principal amount of $1.3 million. The cash portion of the consideration is
subject to adjustment for certain conditions set forth in the Asset Purchase
Agreement. The Company anticipates that it will receive additional proceeds
of approximately $350 in the second quarter of 1998, pursuant to said
adjustments. The Note carries an interest rate of 9%, and calls for principal
and interest payments to be offset against the payments due the Buyer from the
Company pursuant to a seven-year lease pursuant to which the Company will
continue to occupy its current headquarters located within the Enamelware
Division facility. As a result of the sale, the Company has recorded (in the
quarter ended March 31, 1998), as a component of selling, general and
administrative expense, a charge against earnings of $1,500. This net, non-
cash charge consisted of the following components:
Excess of consideration received over net book
value of tangible assets sold $ 1,925
Non-cash charges:
Goodwill write-off (2,783)
Defined benefit plan pension curtailment (642)
-------
Loss on sale $(1,500)
-------
-------
Approximately $750 of the foregoing charge represents future pension and other
miscellaneous payments to be made and remains as a component of accrued
liabilities, and involved a reduction to non-current assets, at March 31,
1998.
Net sales of the Enamelware Division were $14,145, $16,508 and $21,890 in the
years ended December, 1997, 1996 and 1995, respectively. Income from
operations of the Enamelware Division (including cooperative advertising,
warehousing, goodwill amortization and direct marketing expenses but excluding
restructuring charges and allocation of corporate overhead charges) was
$2,278, $3,752 and $5,506 in 1997, 1996 and 1995, respectively. Net sales of
the Division were $2,362 and $2,447 for the three months ended March 31, 1998
and 1997, respectively, while income from operations was $282 and $193 for the
same periods.
NOTE 5 - LOAN COVENANTS
Terms of the Company's Bank Credit Agreement require compliance with certain
financial and non-financial covenants. At March 31, 1998, the Company was in
compliance with all financial covenants. As a result of the asset sale
discussed in Note 4, the Company would not have been in compliance with
certain non-financial covenants related to asset sales and leasing
transactions. The resulting events of non-compliance were waived prior to
consummation of the transaction.
NOTE 6 - COMPREHENSIVE INCOME
The comprehensive loss for the first quarter of 1998 and 1997 of $2,695 and
$753, respectively, includes the reported net loss adjusted by the non-cash
effect of changes in the cumulative translation adjustment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands)
The following table sets forth the operating data of the Company as a
percentage of net sales for the quarterly periods ended March 31,
(A) (B)
1998 1998 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 61.7 61.7 58.8
------ ------ ------
Gross profit 38.3 38.3 41.2
Selling, general and
administrative expenses 54.5 47.4 43.6
------ ------ ------
Operating loss (16.2) (9.1) (2.4)
Interest expense 3.0 3.0 2.9
------ ------ ------
Loss before income taxes (19.2) (12.1) (5.3)
Income taxes (6.3) (4.0) (1.9)
------ ------ ------
Net loss (12.9) (8.1) (3.4)
------ ------ ------
------ ------ ------
Note: Column (A) represents reported results for the quarter ended March 31,
1998. Column (B) represents results for the quarter before giving effect to
the loss on sale of assets of $1,500, related to the Company's Enamelware
Division, that was recorded as a component of selling, general and
administrative expenses.
Sale of Assets
On March 31, 1998, the Company completed the sale of certain assets related to
its enamelware cookware business (Enamelware Division). The transaction had a
material impact on both the financial position of the Company as of March 31,
1998, and results of operations for the three months then ended. The
following discussion considers those impacts -- referring to the Enamelware
Division transaction as the "Divestiture".
Financial Position
Referring to the Company's financial position as of March 31, 1998, as
contrasted with December 31, 1997, current assets decreased by $3,227 while
current liabilities increased by $1,335. In addition to a drop in accounts
receivable due to the seasonality of the Company's operations, current assets
were impacted by reduced inventory balances by reason of the fact that all
Enamelware Division inventory was sold in conjunction with the Divestiture.
Offsetting these reductions in current assets were additions consisting of a
short-term receivable related to the Divestiture and income taxes refundable
caused by a combination of first quarter 1998 tax payments and the first
quarter 1998 pre-tax loss. The increase in current liabilities reflects the
seasonality of the business and related working capital requirements. As a
result of the Divestiture, non-current assets increased by the receipt of a
$1.3 million note and decreased by a (1) $2.8 million write-off of goodwill;
and (2) a $3.1 million reduction in net property, plant and equipment. The
Company received approximately $5 million of cash, as a result of the
Divestiture, which was immediately applied to the reduction of outstanding
borrowings under the Company's bank agreement.
Results of Operations
Net sales for the three-month period ended March 31, 1998 were $21,044, an
increase of 1% as compared to net sales of $20,875 for the first three months
of 1997. The Company's kitchen and household tools line continued to
experience strong growth as first quarter sales increased $1,189 over the
first three months of 1997. The increase was largely attributable to the
initial distribution of a kitchen tool line extension with a major customer as
well as growth in the line's export sales. Offsetting this increase was a
$691 reduction in cutlery net sales and a $352 net sales reduction in the
Company's manufacturer's outlet retail store division. The reduction in
cutlery net sales was due primarily to shipping delays in March, associated
with the Company's transition to a new warehouse and distribution center. The
20% reduction in net sales at the Company's outlet store division was
consistent with the closing (since March 31, 1997) of approximately 20% of the
stores operated by the Company. First quarter 1998 gross profit was $8,070 as
compared to $8,605 in the first quarter of 1997. Aside from a favorable
adjustment to inventory reserves in the first three months of 1997, the
reduction in gross profit was caused primarily by reduced volume and related
unfavorable production variances in the Company's cutlery manufacturing
facility.
Selling, general and administrative expenses for the three-month period ended
March 31, 1998 were $11,470 as compared to $9,095 for the same period in 1997.
Of this increase, $1,500 was directly attributable to the net, non-cash loss
recognized as a result of the Divestiture. The remaining increase of $875 was
primarily related to additional warehouse costs resulting from the transition
of U.S. distribution activities from two warehouses formerly operated by the
Company to its new distribution center in Plainfield, Indiana. During the
transition period, the Company operated all three warehouses and incurred the
duplicative lease expense and equipment depreciation related thereto.
The first quarter operating loss was $3,400 as compared to a loss of $490 for
the same period in 1997. Interest expense was $626 as compared to $595 for
the same period in 1997 and the net loss was $2,701 as compared to $694 for
the same period in 1997. Basic and diluted net loss per share for the three
months ended March 31, 1998 and 1997, was $0.71 and $0.18, respectively.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K. There were no reports on Form 8-K filed for the three
months ended March 31, 1998. A report on Form 8-K related to the divestiture
of the Company's enamelware cookware business was filed on April 14, 1998.
EXHIBITS
EX-11
EX-27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL HOUSEWARES CORP.
Dated: April 14, 1998
/s/ Mark S. Scales
Mark S. Scales
Vice President Chief Financial
Officer and Treasurer
/s/ Bradley A. Kelsheimer
Bradley A. Kelsheimer
Corporate Controller