1
EXHIBIT 99(ii)
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1992,
TOGETHER WITH AUDITORS' REPORT
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Hamilton Beach/Proctor-Silex, Inc.:
We have audited the accompanying consolidated balance sheets of Hamilton
Beach/Proctor-Silex, Inc. (a Delaware Corporation), and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
operations, changes in stockholder's equity and cash flows for the years then
ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hamilton Beach/Proctor-Silex,
Inc., and subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
As explained in notes 1 and 9 to the consolidated financial statements, in
accordance with the implementation provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the Company has
given retroactive effect to the change in accounting for income taxes.
Arthur Andersen & Co.
Richmond, Virginia,
January 27, 1994
3
THIS PAGE LEFT BLANK INTENTIONALLY
4
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
ASSETS
1993 1992
-------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 2,673 $ 7,879
Accounts receivable, net 79,247 69,444
Inventories, net 51,781 51,444
Deferred income taxes 1,578 739
Prepaid expenses and other 6,545 6,682
-------- --------
Total current assets 141,824 136,188
PROPERTY, PLANT AND EQUIPMENT, net 52,781 52,036
DEFERRED CHARGES AND INTANGIBLE ASSETS, net 102,599 107,013
DEFERRED INCOME TAXES 3,051 1,490
OTHER ASSETS 36 31
-------- --------
Total assets $300,291 $296,758
======== ========
5
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY
1993 1992
-------- ---------
CURRENT LIABILITIES:
Revolving credit agreements $ 11,325 $ 7,075
Current maturity of other long-term obligations 10,068 9,736
Accounts payable 35,117 32,769
Other current liabilities 27,272 28,925
-------- ---------
Total current liabilities 83,782 78,505
-------- ---------
OTHER LIABILITIES 12,179 9,709
-------- ---------
LONG-TERM OBLIGATIONS:
Revolving credit agreements 37,000 28,000
Notes payable 28,145 38,145
Capital leases 625 643
-------- ---------
Total long-term obligations 65,770 66,788
-------- ---------
STOCKHOLDER'S EQUITY:
Common stock and paid-in capital, 100 shares
authorized, issued and outstanding at $0.01
par value 149,268 149,268
Retained deficit (7,085) (6,113)
Minimum pension liability (2,265) (437)
Cumulative translation adjustment (1,358) (962)
-------- ---------
Total stockholder's equity 138,560 141,756
-------- ---------
Total liabilities and stockholder's equity $300,291 $296,758
======== ========
The accompanying notes are an integral part of
these consolidated balance sheets.
6
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
1993 1992
-------- --------
Net sales $356,332 $358,575
Cost of sales 312,332 308,162
-------- --------
Gross profit 44,000 50,413
Selling, administrative and general expenses 28,899 27,719
-------- --------
Operating profit 15,101 22,694
Other income (expense):
Interest (6,570) (6,845)
Amortization (4,408) (5,123)
Other, net (4,102) 36
-------- --------
Income before income taxes 21 10,762
Provision for income taxes 993 5,377
-------- --------
Net (loss) income $ (972) $ 5,385
======== ========
The accompanying notes are an integral part of these consolidated statements.
7
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
(Dollars in Thousands, Other Than Par Value)
Common
Common Stock Stock
-------------------- and Minimum Cumulative Total
Shares Par Paid-in Retained Pension Translation Stockholder's
Outstanding Value Capital Deficit Liability Adjustment Equity
----------- ----- ------- ------- --------- ------------ --------------
BALANCES, December 31, 1991 100 $1 $149,268 $(11,498) $ - $ (11) $137,759
Minimum pension liability - - - - (437) - (437)
Net income - - - 5,385 - - 5,385
Translation adjustment - - - - - (951) (951)
--- -- -------- -------- ------- ---------- --------
BALANCES, December 31, 1992 100 1 149,268 (6,113) (437) (962) 141,756
Minimum pension liability - - - - (1,828) - (1,828)
Net loss - - - (972) - - (972)
Translation adjustment - - - - - (396) (396)
--- -- -------- -------- ------- ---------- --------
BALANCES, December 31, 1993 100 $1 $149,268 $ (7,085) $(2,265) $ (1,358) $138,560
=== == ======== ======== ======= ========== ========
The accompanying notes are an integral part of these consolidated statements.
8
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
1993 1992
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (972) $ 5,385
Adjustments to reconcile net (loss) income to net
cash provided by operating activities -
Depreciation 10,857 10,157
Loss (gain) on disposal of fixed assets 274 (16)
Amortization 4,408 5,123
Changes in assets and liabilities -
(Increase) decrease in:
Deferred income taxes (2,400) 1,749
Accounts receivable, net (9,803) 9,493
Inventories, net (337) (5,128)
Prepaid expenses and other 137 2,237
Other assets (5) 138
Increase (decrease) in:
Accounts payable 2,348 1,463
Other liabilities (867) (3,784)
--------- ---------
Net cash provided by operating activities 3,640 26,817
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,240) (10,771)
Proceeds from sale of fixed assets 228 154
Other, net - (101)
--------- ---------
Net cash used in investing activities (12,012) (10,718)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term obligations and revolving
credit agreements (39,842) (88,095)
Borrowings under long-term obligations and revolving
credit agreements 43,404 74,381
--------- ---------
Net cash provided by (used in) financing activities 3,562 (13,714)
--------- ---------
Effect of exchange rate changes on cash (396) (951)
--------- ---------
Net (decrease) increase in cash and cash equivalents (5,206) 1,434
CASH AND CASH EQUIVALENTS, beginning of year 7,879 6,445
--------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 2,673 $ 7,879
========= =========
The accompanying notes are an integral part of these consolidated statements.
9
HAMILTON BEACH/PROCTOR-SILEX, INC.,
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993 AND 1992
(Dollars in Thousands)
1. SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Hamilton Beach/Proctor-Silex, Inc. (the "Company"), designs, manufactures and
sells small consumer electric appliances. The Company is a wholly owned
subsidiary of HB/PS Holdings, Inc. HB/PS Holdings, Inc. is owned 80 percent by
NACCO Industries, Inc. ("NACCO"), and 20 percent owned by Glen Dimplex.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. All intercompany transactions and balances have
been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investments
with initial maturities of three months or less.
Inventories, net
Inventories are stated at the lower of cost or market. Cost has been
determined by the last-in, first-out ("LIFO") method for substantially all
inventories accounted for in the United States and under the first-in,
first-out method for all other inventories.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. All property, plant and
equipment is depreciated on a straight-line basis over estimated useful lives
of 40 years for buildings and 4 to 16 years for machinery and equipment.
Assets recorded under capital leases and leasehold improvements are amortized
over the lesser of their estimated useful lives or remaining lease terms on a
straight-line basis.
10
- 2-
Goodwill
Goodwill is being amortized on a straight-line basis over 40 years. The
Company continually evaluates whether events and circumstances have occurred
subsequent to its acquisitions that indicate the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the
Company's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable.
Product Development Costs
Costs associated with the development of new products and changes to existing
products are charged to operations as incurred. These costs amounted to $2,706
and $2,467 for 1993 and 1992, respectively.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated at
current exchange rates, while income and expense items are translated at average
rates for the period. Translation gains and losses are reported as a component
of stockholders' equity.
Financial Instruments
The fair market value of the Company's financial instruments approximates
their carrying values as of December 31, 1993. Fair market values are
determined through information obtained from quoted market sources, where
available, and management estimates.
Accounting Change
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), effective January 1, 1993, and has
elected to retroactively apply its provisions to January 1, 1989, as permitted
by this standard. Accordingly, retained earnings and goodwill have been
adjusted as of December 31, 1991, to reflect the cumulative impact of applying
this standard. The decrease to December 31, 1991, retained earnings of $1,396
consists of the cumulative effect of this change in accounting method at
January 1, 1989, and the impact on previously reported net income for the years
ended December 31, 1989, 1990, and 1991. The decrease to December 31, 1991
goodwill of $2,258 represents the cumulative impact of SFAS 109 on purchase
accounting for the acquisition of Hamilton Beach, Inc. as of December 31, 1991.
In addition, certain other assets and liabilities have been adjusted from their
net-of-tax amounts to their gross, pretax balances as required by SFAS 109.
11
- 3 -
For the year ended December 31, 1992, adoption of SFAS 109 reduced income
before income taxes by $1,035, primarily due to increased depreciation and
amortization expense as a result of the requirement, under SFAS 109, to report
assets acquired at their pretax amounts. Net income was reduced in total by
$267 due primarily to the reversal of acquired state net operating losses as
required by SFAS 109.
Reclassifications
Certain amounts in the 1992 financial statements have been reclassified to
conform to the current year's presentation.
2. MERGER:
On October 11, 1990, Hamilton Beach, Inc., and Proctor-Silex, Inc., merged to
form Hamilton Beach/Proctor-Silex, Inc. (the "Merger"). Hamilton Beach, Inc.,
remained as the surviving legal entity subsequent to the Merger. For financial
reporting purposes, this transaction has been accounted for as a purchase of
Hamilton Beach, Inc., by Proctor-Silex, Inc. Accordingly, the purchase price
was allocated to the assets and liabilities of Hamilton Beach, Inc., based on
their estimated fair value at acquisition date. Such allocations were made
based on valuations or other studies. The excess of the consideration paid
over the estimated fair value of net assets acquired, in the amount of $50,152,
as adjusted (see Note 1), has been recorded as goodwill to be amortized on a
straight-line basis over 40 years. Certain of the assets acquired and
liabilities assumed are subject to indemnification under the merger agreement.
Subsequent to December 31, 1993, all outstanding claims for indemnification
under the merger agreement were resolved. The resolution of these matters did
not have a material impact on the Company's financial position or results of
operations.
3. ACCOUNTS RECEIVABLE, NET:
At December 31, accounts receivable consisted of the following.
1993 1992
-------- --------
Accounts receivable $85,451 $77,549
Less - Allowance for returns, discounts and adjustments (5,397) (7,098)
Allowance for doubtful accounts (807) (1,007)
------- -------
Accounts receivable, net $79,247 $69,444
======= =======
12
- 4 -
4. INVENTORIES, NET:
At December 31, inventories consist of the following.
1993 1992
-------- --------
Raw materials $11,850 $13,256
Work in process 3,462 6,430
Finished goods 36,029 31,642
------- -------
51,341 51,328
LIFO allowance 440 116
------- -------
Inventories, net $51,781 $51,444
======= =======
As a result of declining prices and liquidation of certain LIFO inventories,
operating profit increased $324 for 1993 and $364 for 1992. The cost of
inventories stated under the LIFO method was 90 and 93 percent of the value of
total inventories at December 31, 1993 and 1992, respectively.
5. PROPERTY, PLANT AND EQUIPMENT, NET:
At December 31, property, plant and equipment (including capital leases) includes the following.
1993 1992
-------- --------
Land, buildings and improvements $16,071 $15,134
Machinery and equipment 76,982 65,709
Construction work in process 1,756 5,228
------- -------
94,809 86,071
Less- Accumulated depreciation and amortization (42,028) (34,035)
------- -------
Property, plant and equipment, net $52,781 $52,036
======= =======
6. DEFERRED CHARGES AND INTANGIBLE ASSETS, NET:
Goodwill amounted to $100,082 at December 31, 1993, net of accumulated
amortization and is being amortized over 40 years on a straight-line basis.
Amortization expense amounted to $2,827 and $2,947 for 1993 and 1992,
respectively. Patents, trademarks, and other at December 31, 1993, amounted to
$693, net of accumulated amortization, and are being amortized on a
straight-line basis over their remaining lives. Total amortization for 1993
and 1992, amounted to $437 and $402, respectively. Deferred financing costs at
December 31, 1993, amounted to $1,824, net of accumulated amortization, and are
being amortized using the effective interest method over the term of the
related indebtedness. Amortization expense related to deferred financing costs
for 1993 and 1992 was $1,144 and $1,774, respectively.
13
- 5 -
7. REVOLVING CREDIT AGREEMENTS AND NOTES PAYABLE:
The Company has a bank credit facility (the "Agreement"), which includes a
revolving credit line and letter-of-credit facility of up to $95,000 through
September 1995, the availability of which is determined based on accounts
receivable and inventory levels (as defined in the Agreement), and a $65,000
term note. The Agreement allows borrowings to be made at either (i) the
lender's prime rate plus 1.25 percent or (ii) LIBOR plus 2.25 percent.
Commitment fees are 0.5 percent of the unused portion of the revolving credit
line. The borrowing and commitment fee rates are subject to reductions based
upon the Company achieving certain predetermined interest coverage ratios.
During 1993, the Company received an average reduction in the borrowing rate of
1.23 and 0.125 percent in the commitment fee rate. The Agreement includes
certain covenants containing, among other things, maintenance of defined levels
of working capital and net worth and restrictions on interest coverage, capital
expenditures, incurrence of debt, and dividend payments.
The Agreement is secured by substantially all of the Company's assets. At
December 31, 1993, the Company was in compliance with all financial covenants
of the Agreement. The Company also has in place a master borrowing note, which
is secured through and subject to the Agreement and which allows for borrowings
of up to $8,000 on a daily basis.
During 1993 and 1992, total average borrowings outstanding under the revolving
credit agreements and master borrowing note were $56,620 and $47,627 at a
weighted-average interest rate of 5.84 and 5.52 percent, respectively. Maximum
borrowings under the revolving credit agreements and master borrowing note
during 1993 and 1992 were $80,983 and $68,660, respectively. In addition, at
December 31, 1993 and 1992, outstanding obligations under letters of credit
were $5,450 and $6,631, respectively.
At the option of Housewares Holding Company ("Housewares"), a wholly owned
subsidiary of NACCO, the Company may, subject to certain terms and conditions
of the Agreement, borrow up to $35,000 from Housewares. No borrowings were
outstanding during 1993 or 1992.
The next installment of $10,000 under the term note is required to be paid by
the Company on March 1, 1994. In addition, a portion of annual excess cash
flow (as defined in the Agreement) must be used to prepay the term note.
Accordingly, the Company prepaid $4,652 of the 1997 installment in the first
quarter 1993. No such prepayment is required as of December 31, 1993. In
addition, the Company prepaid $4,718 of the 1997 installment and $2,000 of the
1993 installment in March 1992 and $5,000 of the 1997 installment in September
1992, pursuant to this Agreement.
14
- 6 -
Notes payable of $38,145 are subject to the same terms, conditions, and
interest rates as those in the Agreement. These notes are payable in annual
installments as follows: 1994 - $10,000; 1995 - $12,500; 1996 - $15,000; 1997
- - $645.
The Company had various interest rate swap agreements in effect during 1993 and
1992. These agreements provided protection against significant increases in
interest rates for a significant portion of the Company's floating rate debt.
The Company continues to evaluate its exposure related to floating rate debt on
an ongoing basis.
8. LEASES:
The Company leases certain facilities under noncancelable leases expiring at
various dates through 2021.
Property under capital leases has been recorded as property, plant and equipment in the balance sheet, and the related amortization
is included with depreciation expense. At December 31, property, plant and equipment includes the following amounts relating to
capital leases.
1993 1992
-------- --------
Buildings $9,199 $9,199
Less- Accumulated amortization (2,787) (2,294)
------ ------
$6,412 $6,905
====== ======
Future minimum lease payments for capital leases as of December 31, 1993, are
as follows: 1994 - $126; 1995 - $126; 1996 - $114; 1997 - $103; 1998 - $77;
and thereafter - $904, and have a net present value of $693.
Future minimum lease payments for operating leases are as follows: 1994 -
$3,587; 1995 - $2,742; 1996 - $2,279; 1997 - $1,512; 1998 - $1,292; and
thereafter - $2,846.
Rental expenses for operating leases amounted to $4,526 and $4,145 for 1993 and
1992, respectively.
9. INCOME TAXES:
As discussed in Note 1, the Company adopted SFAS 109 in 1993 and has
retroactively applied its provisions to January 1, 1989. SFAS 109 requires,
among other things, the measurement of deferred tax assets or liabilities based
on the difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate. Deferred
income tax expense or benefit is based on the changes in the assets or
liabilities from period to period. The prior method of accounting for income
taxes measured deferred income tax expense or benefit based on timing
differences between the recording of income and expenses for financial
reporting purposes and for purposes of filing Federal income tax returns at
income tax rates in effect when the differences arose.
15
- 7 -
The Company is included in the consolidated Federal income tax return filed by
NACCO. The Company's tax sharing agreement with NACCO provides that Federal
income taxes are computed by the Company on a separate return basis, except
that net operating loss and tax credit carryovers which benefit the
consolidated tax return are advanced to the Company and are repaid as utilized
on a separate return basis. To the extent that these loss carryovers are not
used on a separate return basis, the Company is required under conditions
pursuant to the tax sharing agreement to refund to NACCO the balance of
carryovers advanced and not used by the Company.
The provision for income taxes consists of the following amounts.
1993 1992
-------- --------
Current:
Federal $ 793 $2,375
State 67 64
Foreign 1,034 941
------- ------
Total current provision 1,894 3,380
------- ------
Deferred:
Federal (912) 1,474
State (27) 637
Foreign 38 (114)
------- ------
Total deferred (benefit) provision (901) 1,997
------- ------
Total provision for income taxes $ 993 $5,377
======= ======
A reconciliation of Federal statutory and effective income tax follows.
1993 1992
-------- --------
Statutory taxes at 35% in 1993 and 34% in 1992 $ 8 $3,659
Effect of:
State taxes 34 463
Foreign taxes 322 262
Acquisition accounting adjustments 989 997
Change in statutory rates (200) -
Other (160) (4)
------- ------
Provision for taxes $ 993 $5,377
------- ------
Effective rate * 50%
======= ======
* - not meaningful
16
- 8 -
A summary of the deferred tax assets and (liabilities) which comprise the net deferred tax balances in the accompanying consolidated
balance sheets resulting from differences in the book and tax bases of assets and liabilities are as follows:
1993 1992
-------- --------
Deferred tax liabilities:
Advertising, sales, and inventory related reserves $ (3,433) $ (3,100)
Accelerated depreciation (6,763) (8,254)
------- -------
Total deferred tax liabilities (10,196) (11,354)
------- -------
Deferred tax assets:
Employee benefits 3,270 1,858
Plant restructuring reserve 530 1,153
Environmental reserve 2,467 2,509
Product liability reserve 1,488 1,611
Net operating loss carryover 5,546 5,928
Other 1,524 524
------- -------
Total deferred tax assets 14,825 13,583
------- -------
Net deferred tax assets $ 4,629 $ 2,229
======= =======
The Company has no valuation allowances as of December 31, 1993 and 1992. As
of December 31, 1993, the Company had state net operating loss carryovers
available for use on future returns of approximately $20,347. The Company also
had Federal net operating loss carryovers of approximately $13,249 at December
31, 1993, related to Hamilton Beach, Inc. For Federal tax purposes, the
utilization of acquired net operating loss carryovers is limited to $1,953 on
an annual basis, with any unused limitation available for carryover to
subsequent years. The Company utilized $1,953 of the Federal net operating
loss carryovers related to Hamilton Beach, Inc., in 1993. Federal carryovers
are scheduled to expire in the years 2000 to 2004, and state carryovers will
expire in the years 1994 to 2004.
No provision has been made for Federal income taxes on undistributed earnings
of foreign subsidiaries of approximately $10,102 as of December 31, 1993, as
any future remittances are expected to be substantially tax free.
17
- 9 -
10. RETIREMENT BENEFIT PLANS:
The Company sponsors a defined benefit plan, the Hamilton Beach/Proctor-Silex,
Inc., Profit Sharing Retirement Plan (the "Plan"). All full-time hourly and
salaried U.S. employees are eligible to participate in the Plan. The Plan
provides that participants accrue benefits annually based on age and annual
earnings. Upon retirement, participants will receive their account balance
under the Plan plus all frozen accrued benefits earned under previous benefit
plans. Benefits will be paid upon retirement at age 65 or at age 55 if the
employee has at least ten years of service. Participants become fully vested
after five years of service. The Company's funding policy is to contribute
each year an amount which satisfies the minimum required contribution but does
not exceed the maximum tax deductible contribution. Also, the Company may make
additional contributions to the Plan, dependent upon the Company achieving
certain profit and performance objectives. The Company contributed $1,043 to
the Plan for the plan year ended December 31, 1993. Assets held by the Plan
consist mainly of common stocks, corporate and government bonds, and cash and
cash equivalents.
The details of the components of net pension expense for the years ended December 31, 1993 and 1992 are as follows.
1993 1992
-------- --------
Service cost $1,167 $1,147
Interest cost on projected benefit obligation 2,208 2,115
Actual return on assets (1,730) (1,984)
Net amortization and deferral (500) (171)
------ ------
Net pension expense $1,145 $1,107
====== ======
Actuarial factors used in accounting for the Plan as of December 31, 1993 and 1992, are as follows.
1993 1992
-------- --------
Weighted-average discount rate 7.50% 8.25%
Long-term rate of return on assets 9.00% 9.00%
Rates of increase in compensation levels:
Salaried 4.75% 5.50%
Hourly 4.00% 4.50%
18
- 10 -
The funded status of the Plan and amounts recognized in the Company's consolidated balance sheets as of December 31, 1993 and 1992,
are as follows.
1993 1992
-------- --------
Actuarial present value of benefit obligation:
Vested accumulated benefit obligation $28,175 $24,833
Nonvested accumulated benefit obligation 1,604 1,204
------- -------
Total accumulated benefit obligation 29,779 26,037
Value of future salary projections 437 271
------- -------
Total projected benefit obligation 30,216 26,308
Fair value of plan assets 25,570 25,079
------- -------
Projected benefit obligation in excess of plan assets (4,646) (1,229)
Unrecognized net transition asset (8) (9)
Unrecognized net loss 3,916 499
Unrecognized prior service cost 66 71
Unrecognized basis change (23) -
Additional minimum liability (3,719) (478)
------- -------
Pension liability recognized in balance sheet
at December 31, 1993 and 1992 $(4,414) $(1,146)
======= =======
Statement of Financial Accounting Standards No. 87 "Employers' Accounting for
Pensions" ("SFAS 87"), requires the Company to recognize a minimum pension
liability equal to the unfunded accumulated benefit obligation ("ABO"). At
December 31, 1993 and 1992, the cumulative unfunded ABO was $4,414 and $1,146,
respectively. The Company recorded an adjustment which recognized an
additional minimum liability equal to the unfunded ABO. In accordance with
SFAS 87, the portion of the unfunded ABO in excess of unrecognized prior service
cost was charged directly to shareholder's equity and is separately presented
in the consolidated statements of changes in stockholder's equity.
The Company also has a defined contribution retirement savings plan covering
substantially all of its full-time employees. Prior to 1992, the Company
matched annually a defined percentage of the employee contributions based on
the Company's net profits, as defined in the related plan agreement. Effective
January 1, 1992, the Company no longer matches employee contributions to this
plan.
19
- 11 -
The Company provides retirement health care for all retirees who retired prior
to October 1, 1992. In addition, the Company provides life insurance benefits
to all retirees who retired prior to October 1, 1992, assuming they reached
certain age and service requirements while working for the Company.
11. POSTEMPLOYMENT BENEFIT PLANS:
In November 1992, Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," was issued. The Company
will be required to adopt this new method of accounting for benefits paid to
former or inactive employees after employment but before retirement no later
than 1994. This new standard requires, among other things, that the expected
costs of these benefits be recognized when they are earned or become payable
when certain conditions are met rather than the current method which recognizes
these costs when they are paid. The Company does not expect this standard to
materially impact its financial condition or results of operations when it is
adopted.
12. RELATED-PARTY TRANSACTIONS:
The Company sells merchandise to The Kitchen Collection, Inc. ("Kitchen
Collection"), a wholly owned subsidiary of Housewares. The Company's sales to
Kitchen Collection were $5,223 and $4,063, respectively, for 1993 and 1992.
Accounts receivable due from Kitchen Collection at December 31, 1993 and 1992,
amounted to $1,014 and $212, respectively, and are included in accounts
receivable.
NACCO incurs certain administrative and other expenses directly related to the
operation of the Company. These expenses are reimbursed to NACCO. The Company
expensed and paid $763 and $545 of these administrative expenses to NACCO in
1993 and 1992, respectively. The related payable to NACCO was $82 and $57 at
December 31, 1993 and 1992, respectively.
13. CONTINGENCIES:
In July 1992, an action alleging patent infringement was commenced against the
Company. In this action, the plaintiff alleged that the Company had infringed
on a U.S. patent. In August 1993, the Company reached an agreement settling
this action. The settlement amount has been accrued and recorded in 1993 and
is reflected as other expense in the consolidated statements of operations.
The Company has been named as a defendant in other actions involving claims of
personal injury, damage to property, product liability and various other legal
proceedings generally incidental to the Company's business. Management
believes the Company has meritorious defenses and will vigorously defend these
actions. Although the ultimate disposition of these proceedings is not
presently determinable, management does not believe that such proceedings will
have a material adverse effect upon the financial condition of the Company.
20
- 12 -
14. INDUSTRY SEGMENT AND FOREIGN OPERATIONS:
The Company designs, manufactures and sells small consumer electric appliances.
Net sales to one major customer totaled 14.3 percent in 1993 and 12.2 percent
in 1992.
The following table presents sales, operating profit and other financial
information by geographic area for 1993 and 1992.
United States Canada Eliminations Consolidated
------------- ------- ------------ ------------
1993:
Net sales $315,631 $40,701 $ - $356,332
Sales and transfers
between geographic
areas 36,228 - (36,228) -
Operating profit 13,165 2,294 (358) 15,101
Depreciation 10,770 87 - 10,857
Identifiable assets 286,705 15,085 (1,499) 300,291
Capital expenditures 12,224 16 - 12,240
1992:
Net sales $320,863 $37,712 $ - $358,575
Sales and transfers
between geographic
areas 31,224 - (31,224) -
Operating profit 20,615 2,149 (70) 22,694
Depreciation 10,031 126 - 10,157
Identifiable assets 279,404 18,926 (1,572) 296,758
Capital expenditures 10,710 61 - 10,771
Products are transferred between geographic areas on a basis intended to
reflect as nearly as possible the market value of the products. Identifiable
assets are those assets identified with the operations in each geographic area
at year-end. All deferred charges and intangible assets are attributed to the
United States.
Eliminations include amounts for intercompany sales, intercompany profits in
inventory, and intercompany investments.
15. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments (receipts) during 1993 and 1992, included interest of $6,865 and
$6,315 and income taxes of $2,360 and $(2,694), respectively.