SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1995
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
(State or other jurisdiction of 41-0919772
incorporation or organization) (I.R.S. Employer
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
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 18, 1996, 3,762,928 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 18, 1996 was $35,277,450.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1996 Annual
Meeting of Stockholders, which will be filed
on or prior to March 31, 1996, 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 limits itself to
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
currently enjoys such a position in the following product categories:
cookware, cutlery, kitchen tools and precision cutting tools. Cookware,
cutlery and kitchen tools are grouped into the Housewares reportable segment,
while precision cutting tools also constitute a reportable segment. For
financial information related to the two reportable segments, see Note 12 in
the financial statements included in this report.
HOUSEWARES
Approximately 71% of this segment's products sold by the Company during 1995
were produced domestically, primarily in factories owned and operated by the
Company.
The remaining products are obtained from seven foreign sources (some of which
buy from sub-contractors) primarily located in the Far East. The Company
believes that a loss of any individual foreign source would not have a
material impact on future results of operations.
COOKWARE
In 1995, the Company was one of the country's largest manufacturers and
marketers of cookware, distributing its products throughout the United States,
Canada and selected European markets. The Company's collection of leading,
brand name cookware products has enabled it to deliver, to both retailers and
consumers, products which satisfy a complete range of functional, aesthetic
and value requirements. The Company competed in four main cookware product
categories in 1995, covering a broad range of materials, designs, colors and
prices. The categories included cast aluminum, cast iron, stamped and spun
aluminum and enamelware.
In January of 1996, the Company announced its intention to exit the cast
aluminum and cast iron product categories during the first half of 1996 in an
effort to focus on faster growing, more profitable product categories. The
Company is in discussions with buyers possibly interested in acquiring the
associated product lines and the related manufacturing facility located in
Sidney, Ohio. The cast iron and cast aluminum product lines include
Magnalite(R), Magnalite Professional(R), Magnalite Professional(R) with
Eclipse(R) and Wagner's(R) 1891 Original Cast Iron brand names. Gross
revenues derived from the categories to be exited were $18,927 in 1995.
Remaining cookware lines include enamelware and stamped and spun aluminum.
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 Graniteware 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 operations. Enamelware
is in demand because of its easy cleanup and popular price. 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. Heavy gauge,
large capacity stamped and spun aluminum products are marketed under the brand
name Leyse Professional(TM) and distributed through department stores, mass
merchants and specialty shops. Leyse products are purchased from a domestic
manufacturer. Gross revenues derived from enamelware and stamped and spun
aluminum were $25,577 in 1995.
The total United States market for cookware, defined as metal pots and pans
used for top-of-stove and oven cooking, is estimated by the Cookware
Manufacturers Association at approximately $1.9 billion in terms of annual
sales. Domestic industry unit sales have remained relatively flat during the
past five years and, as a result, domestic manufacturers have lost market
share to imports, which the Association estimates have grown from 42% of the
market in 1990 to 47% in 1995. Imported merchandise, principally from Korea,
Taiwan, Mexico and the Peoples Republic of China, has been successful in
penetrating the market through comparable quality products at lower prices.
The cookware industry is highly competitive and fragmented. In addition, it is
characterized by little product differentiation. The Company believes that
known brand names, price-value relationships, product design, quality and
creative merchandising programs, as well as responsive, superior customer
service, are key factors contributing to success.
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 for consumers, under the Chicago Cutlery(R)
brand umbrella, three complete lines of kitchen knives for consumers,
sharpening tools, storage units and cutting boards. Its 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. The Company
manufactures and sells a popular priced knife under the Cherrywood(TM) brand
name. For the consumer that prefers a synthetic handled knife, the Company
manufactures and sells the Metropolitan(TM) product line which features a
durable high-impact plastic handle and a Taper Grind(R) edge.
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 promotionally priced cutlery under the banner
"Designed and Marketed by Chicago Cutlery(R)". These products compete in both
the fine edge and "never-needs-sharpening" segments of the cutlery industry
and are purchased from suppliers in the Far East. Promotional cutlery
"Designed and Marketed by Chicago Cutlery(R)" consists of thirteen separate
cutlery brands, seven of which are sold exclusively through department stores,
and the remaining lines are distributed through department stores, mass
merchandisers and catalog showrooms.
While the overall market for kitchen cutlery in the United States has remained
relatively unchanged in recent years, foreign products, including the
Company's promotionally priced imported cutlery, have made significant
inroads. The Company believes that imports in 1995 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 has gained market share in the kitchen cutlery
industry by marketing a combination of the promotionally 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.
Under the Idaho Woodworks(TM) and Chicago Cutlery(R) names, the Company
manufactures and markets cutting boards made of wood, polyethylene, and
combinations of wood and acrylic, marble or polyethylene.
Gross revenues derived from cutlery and associated products were $39,251 in
1995.
KITCHEN TOOLS
Effective October 1, 1992, the Company purchased all of the partnership
interests in OXO International L.P. ("OXO"), a New York limited partnership,
marketing a broad line of kitchen tools under the Good Grips(R), 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 the Far East according to OXO's
designs and specifications. The kitchen tools sold by OXO generally utilize a
proprietary handle which is covered by patents owned by the Company which run
through 2002. OXO(R) kitchen 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.
Gross revenues derived from the kitchen tool category were $16,262 in 1995.
PRECISION CUTTING TOOLS
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. The Olfa Products Group is
the exclusive distributor, in the United States and Canada, of precision
cutting tools and accessories manufactured by Olfa Corporation of Osaka,
Japan. 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 both to distributors and direct to hobby, craft,
hardware and fabric stores.
The North American hobby and craft market is both large and diverse with sales
exceeding $10 billion. Products distributed through the Olfa Products Group
compete in small selected segments in this market. Typically, these products
compete on the basis of performance and value.
Gross revenues derived from the precision cutting tool segment were $16,605 in
1995.
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 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."
Gross revenues derived from the stores were $9,248 in 1995.
MAJOR CUSTOMERS
During 1995, the ten largest customers of the Company accounted for 46% of the
Company's gross sales. Sales to the Company's largest customer, Wal-mart,
were $13.0 million or approximately 10% of total gross sales. The Company has
had good long-term relationships with its major customers.
EMPLOYEES
The Company employs approximately 845 persons, of whom 480 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 390 employees are represented by three different labor
organizations, which have contracts expiring in February, March and July of
1996.
Included in these Company totals are approximately 220 people employed at the
Sidney, Ohio, manufacturing facility, 200 of which are represented by two
labor organizations. It is anticipated that the sale of product lines
manufactured at the plant and possibly the facility itself, will reduce
headcount at the Company by these amounts.
EXPORT SALES
Exports account for less than 10% of the Company's total sales.
RAW MATERIALS
The principal raw materials used in manufacturing the Company's housewares
products are steel, iron, aluminum, 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. The Company's
precision cutting tool products are imported as finished goods.
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.
WORKING CAPITAL
The Company is increasingly forced to meet rapid delivery requirements from
customers, and increased inventory levels have resulted. The Company believes
that increased technological and supply chain initiatives, for which
implementation began in 1995, will position it well for the heightened
customer requirements.
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 of the subsidiary are all less than 10%
of total Company Revenues, Operating Income and Assets.
Item 2. Properties
The following table sets forth the location and size of the Company's
principal properties.
OPERATING FACILITIES
<TABLE>
Property Owned:
<CAPTION>
<S> <C> <C>
APPROXIMATE
FLOOR AREA
LOCATION NATURE OR USE OF PROPERTY (Square Feet)
HOUSEWARES SEGMENT:
Terre Haute, IN Manufacturing, distribution and 469,000
administrative (Ceramic on Steel(TM)
cookware and distribution of
cutlery and kitchen tool products)
Sidney, OH Manufacturing (cast iron, cast 186,500
aluminum cookware)
Wauconda, IL Manufacturing (cutlery) 65,000
</TABLE>
Property Leased:
[CAPTION]
<TABLE>
<S> <C> <C> <C>
APPROXIMATE EXPIRATION
NATURE OR FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
HOUSEWARES SEGMENT:
Sidney, OH Warehouse 32,000 July 31, 1999
Terre Haute, IN Warehouse 172,800 July 1, 1998
New York, NY Administrative 3,850 Sept. 30, 1998
Antioch, IL Manufacturing 50,000 May 1, 1998
(cutlery associated
products)
PRECISION CUTTING TOOL SEGMENT:
St. Laurent, Administrative
Quebec, CD and Warehouse 16,230 Nov. 30, 1997
Plattsburgh, NY Warehouse 27,700 Oct. 1, 1997
</TABLE>
In addition, the Company leases an average of 2,700 square feet of retail
space in 27 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 financial statements in
this Report)
[CAPTION]
<TABLE>
<S> <C> <C>
APPROXIMATE
FLOOR AREA
LOCATION NATURE OF USE OF PROPERTY (Square Feet)
New Hope, MN Manufacturing/
Distribution facility
(leased to third parties) 65,280
New Hope, MN Manufacturing/
Distribution facility
(leased to third party) 21,500
Antrim, NH Manufacturing facility 55,400
</TABLE>
In addition, at December 31, 1995, the Company owned a candle manufacturing
facility located in Hyannis, Massachusetts which it leased to a third party.
The 74,600 square feet facility was sold on January 17, 1996. The Company
received cash consideration that approximated net book value.
Item 3. Legal Proceedings
The Company and its wholly owned subsidiary, Chicago Cutlery, Inc., instituted
an action on February 2, 1995, against the personal representatives of the
Estate of Ronald J. Gangelhoff in the United States District Court for the
District of Minnesota, Fourth Division. The action was instituted in order to
comply with Minnesota probate practices for settling claims against estates.
The action seeks indemnity and/or contribution for all losses and expenses
suffered and incurred, and to be suffered and incurred, by the plaintiffs
arising from the New Hampshire Department of Environmental Services mandated
clean-up of hazardous substances generated at the Antrim, New Hampshire,
manufacturing site owned by Chicago Cutlery, Inc. and arising from the
remediation of the site and the landfill at which some of the substances were
disposed. The action also seeks a declaratory judgement that the defendants
are liable to the Company. The action is brought on the basis of the breach
of representations and warranties in the 1988 Stock Purchase Agreement
pursuant to which the Company purchased the stock of Chicago Cutlery, Inc.
from Ronald J. Gangelhoff. It is also brought under the provisions of the
Comprehensive Environmental Response, Compensation, and Liability Act, the
provisions of the New Hampshire Hazardous Waste Clean-up and Contribution
statutes and under common law causes of action. It is the opinion of the
Company's in-house legal counsel that adequate support exists in favor of the
Company in the case.
Before the death of Mr. Gangelhoff, Chicago Cutlery, Inc. had instituted an
action on October 8, 1993, against David D. Hurlin in the United States
District Court for the District of New Hampshire, seeking damages and a
declaratory judgement that Mr. Hurlin is liable to plaintiff for losses and
expenses suffered and incurred, and to be suffered and incurred, arising from
the mandated clean-up of hazardous substances generated at the Antrim, New
Hampshire, manufacturing site during the period it was owned by Goodell
Company and arising from remediation of the site. The basis of the action
against Mr. Hurlin is that as chief executive officer, a director and
substantial stockholder of the Goodell Company he was in control of, or in a
position to control and direct, hazardous substances handling and disposal
practices at the site when hazardous substances were improperly released to
the environment. The action is brought under the provisions of the
Comprehensive Environmental Response, Compensation, and Liability Act, the
provisions of the New Hampshire Hazardous Waste Clean-up and Contribution
statutes and under common law causes of action. To the extent that recovery
is made against David D. Hurlin, the amount of the Company's claim against the
assets of the late Ronald J. Gangelhoff will be reduced.
For information concerning various environmental matters with which the
Company is involved, see Notes to Consolidated Financial Statements on page 20
of 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 2, 1996, or until the
election and qualification of a successor.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Position with Company Age
Paul A. Saxton Chairman of the Board, President, 57
and Chief Executive Officer
John C. Blackwell Vice President, Sales and Marketing 58
Gordon H. Brown Vice President, Supply Chain
Management and Logistics 56
Stephen M. Evans Vice President, Administration 54
Robert L. Gray Vice President, Finance and 45
Treasurer
Raymond J. Kulla Vice President, Secretary and 49
General Counsel
Mark S. Scales Controller, Chief Accounting
Officer 36
</TABLE>
Messrs. Saxton, Evans and Gray 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.
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 18, 1996,
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
(in thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995 1994 1993 1992 1991
Net sales $119,340 $97,729 $88,529 $81,593 $74,752
Operating income 7,080 6,637 6,415 8,342 8,379
Interest expense, net 3,115 1,699 1,299 1,319 1,590
Income before
income taxes 3,965 4,938 5,116 7,023 6,789
Income taxes 1,679 2,188 2,080 2,599 2,919
Net income $2,286 $2,750 $3,036 $4,424 $3,870
Average number of
common shares
outstanding including
common stock
equivalents 3,769 3,440 3,340 3,295 3,217
Net income per
common share $0.61 $0.80 $0.91 $1.34 $1.20
Dividends per common
share $0.32 $0.32 $0.32 $0.32 $0.32
Financial Summary:
Total assets $104,610 $98,358 $72,017 $72,001 $61,832
Total debt 39,201 34,313 17,000 20,053 14,824
Net worth 51,848 50,255 43,929 41,696 37,252
</TABLE>
<TABLE>
<CAPTION>
VALUATION AND QUALIFYING ACCOUNTS
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
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,:
1995: $5,312 $8,908 $10,191 $4,029
1994: $3,379 $7,649 $5,716 $5,312
1993: $4,099 $11,795 $12,515 $3,379
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Dollars in Thousands Except per Share Amounts)
Year Ended December 31, 1995 versus 1994
Net sales for 1995 were $119,340, an increase of 22% over net sales of $97,729
in 1994. The increase stems primarily from acquisitions made in the third and
fourth quarters of 1994, as well as market penetration in the Company's
kitchen tool product line. Revenue increases resulting from acquisitions
represent approximately $14,660 or 15% of the growth in total sales. The
sales increase in the kitchen tool product line was driven primarily by volume
with modest price increases also a contributing factor. Gross profit
increased from $35,010 in 1994 to $40,312 in 1995 as a result of increased
sales volume. As a percentage of net sales, gross profit decreased 2% from
1994. Gross profit percentage was adversely affected by an increased cost of
aluminum, an unfavorable change in sales mix as well as inventory balancing
that resulted in adjustments to inventory and cost of sales. Selling, general
and administrative expenses increased to $33,232 from $28,373 in 1994. As a
percentage of sales, selling, general and administrative expenses decreased
from 29.0% in 1994 to 27.8% in 1995. Of the gross dollar increase,
approximately $3,500 was directly attributable to 1994 acquisitions. In
addition, significant personnel changes were made in 1995 resulting in
approximately $450 of increased severance and employment costs. Increases in
contractual incentive payments to the former owners of the kitchen tool
product line and royalty payments related to the design of the kitchen tool
product line driven by increased sales accounted for $516 of the increase. A
restructuring of distribution activities and the move of a manufacturing
facility resulted in an increase of $269. The decrease as a percentage of
sales is a result of increased sales activity covering fixed selling, general
and administrative costs.
Operating income for 1995 was $7,080, representing a $443 increase over
operating income of $6,637 in the prior year. Interest expense increased from
$1,699 in 1994 to $3,115 in 1995. Increased debt related to the 1994
acquisitions and working capital needs to support improved customer service
were primarily responsible for the increases in interest expense. Net income
for the year was $2,286 as compared to $2,750 in 1994; related earnings per
share dropped from $0.80 in 1994 to $0.61 in 1995. Earnings per share were
calculated on 3,769 weighted average shares as compared to 3,440 for 1994,
reflecting additional shares issued in connection with the 1994 acquisition
activity.
Year Ended December 31, 1994 versus 1993
Net sales for 1994 were $97,729, an increase of 10% when compared to net sales
of $88,529 for 1993. Sales increased as a result of growth in the Company's
kitchen tool and retail outlet store businesses and as a result of
acquisitions.
The increase in total net sales tied to acquisitions was $7,274. Of the
remaining increase, the spread between the kitchen tool and retail outlet
store businesses varied little. These increases were driven primarily by
volume with slight increases in price. While the dollar amount of gross
profit increased modestly, gross profit margins declined, reflecting
competitive pricing pressures and increased raw material costs. Selling,
general and administrative expense increased slightly. Increased costs
related to the higher sales volume and a partial year's amortization of
goodwill (related to the purchases of the assets of Walter Absil Company
Limited, Olfa Products Corp. and National Housewares, Inc.) were offset by
reduced general and administrative costs. Included in operating expense were
additions of $391 to bad debt reserves to cover customer bankruptcies during
the year and $153 (exclusive of amounts for which recovery from third parties
is expected) to the reserve provisions for environmental remediation. The
increase in environmental remediation estimates was a result of updated
communications from environmental authorities.
Net income was $2,750 or $0.80 per share in 1994 compared to $3,036 or $0.91
per share in 1993. The effective tax rate applied to pre-tax income increased
to 44% in 1994, compared to 41% in 1993. The effective tax rate increase was
attributable to provision for potential assessments with regard to ongoing
review by the Internal Revenue Service of years 1991-1993.
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 $20,841 in 1994 to $26,867 in 1995. The increase
was due to Company-wide goals of improving customer service coupled with a
soft retail holiday buying season that resulted in below forecast sales in the
fourth quarter of 1995. Inventories increased from $11,765 in 1993 to $20,841
in 1994.
Of this increase, $5,292 was directly attributable to acquisitions. The
remaining increase was a result of aggressive sales plans for 1995 that
required an increase in inventory levels.
On November 30, 1994, the Company completed a financing package consisting of
a $30,000 three-year bank loan agreement and the private placement of $20,000
of 8.41% Senior Notes. Proceeds from the new financing package were used to
refinance existing bank loans incurred to support working capital requirements
and for acquisitions. As a result of the new financing, the Company believes
that it has sufficient liquidity to fund existing operations and to continue
to make acquisitions.
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
11 to the Consolidated Financial Statements). In addition to the amounts
provided for in the reserve, the Company may be required to make certain
additional 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 January 4, 1996, the Company announced its intention to exit its cast iron
and cast aluminum cookware businesses during the first half of 1996. The
proceeds from such disposition and the concomitant reduction in ongoing
working capital requirements will result in a reduction of debt outstanding
and improved liquidity.
Effect of Inflation
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. For the years ended December 31, 1993 and 1994, there
were no significant effects related to price increases.
Effect of New Accounting Principles
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long Lived Assets and Long Lived Assets to be Disposed of,"
establishes the financial accounting and reporting standards for the
recognition of impairments to long lived assets. The implementation of this
statement, which will be required in 1996, is not expected to have a material
effect on the Company's consolidated financial position or cash flow.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," establishes a fair-value based method of accounting for
stock options and other equity instruments. The Company has not identified
the financial reporting effect of the implementation of this statement, which
will be required in 1996.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Financial Statements:
Report of Independent Accountants
Consolidated Statement of Income for the three years
ended December 31, 1995
Consolidated Statement of Changes in Stockholders'
Equity for the three years ended December 31, 1995
Consolidated Balance Sheet at December 31, 1995 and
1994
Consolidated Statement of Cash Flows for the three
years ended December 31, 1995
Notes to Consolidated Financial Statements
Quarterly Financial Information
Financial Statement Schedule:
For the three years ended December 31, 1995
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 income, 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, 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, 1996
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended December 31, 1995 1994 1993
(in thousands except per share amounts)
Net sales $119,340 $97,729 $88,529
Cost of goods sold 79,028 62,719 53,875
Gross profit 40,312 35,010 34,654
Selling, general and
administrative expenses 33,232 28,373 28,239
Operating income 7,080 6,637 6,415
Interest expense, net 3,115 1,699 1,299
Income before income taxes 3,965 4,938 5,116
Income taxes 1,679 2,188 2,080
Net income $2,286 $2,750 $3,036
Earnings per common share,
primary and fully diluted: $0.61 $0.80 $0.91
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Common Common Capital Cumulative
Balances Stock Stock Excess of Translation
(in thousands) Shares Amount Par Value Adjustment
- ------------------------------------------------------------------------------
December 31, 1992 3,531 1,177 17,357 -
Restricted Stock
activity - - 49 -
Shares issued upon
exercise of options 30 10 254 -
Shares issued for
employee stock
purchase plan 6 2 91 -
Tax benefit from
exercise of stock
options - - 283 -
Minimum pension
liability - - - -
Dividends - - - -
Net Income - - - -
- ------------------------------------------------------------------------------
December 31,
1993 3,567 1,189 18,034 -
Restricted Stock
activity (23) (5) 82 -
Shares issued upon
exercise
of options 16 5 141 -
Shares issued for
employee stock
purchase plan 7 2 70 -
Tax benefit from
exercise of stock
options - - 14 -
Shares issued for
acquisition 400 133 4,367 -
Translation
adjustments - - - (215)
Minimum pension
liability - - - -
Dividends - - - -
Net Income - - - -
- ------------------------------------------------------------------------------
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)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Minimum
Retained Treasury Pension
Earnings Stock Liability Total
- ------------------------------------------------------------------------------
December 31, 1992 $26,377 ($3,215) $- $41,696
Restricted Stock
activity - (1) - 48
Shares issued upon
exercise of options - - - 264
Shares issued for
employee stock
purchase plan - - - 93
Tax benefit from
exercise of stock
options - - - 283
Minimum pension
liability - - (446) (446)
Dividends (1,045) - - (1,045)
Net Income 3,036 - - 3,036
- ------------------------------------------------------------------------------
December 31, 1993 28,368 (3,216) (446) 43,929
Restricted Stock
activity - - - 77
Shares issued upon
exercise of options - - - 146
Shares issued for
employee stock
purchase plan - - - 72
Tax benefit from
exercise of stock
options - - - 14
Shares issued for
acquisition - - - 4,500
Translation
adjustments
Minimum pension - - - (215)
liability - - 71 71
Dividends (1,089) - - (1,089)
Net Income 2,750 - - 2,750
- ------------------------------------------------------------------------------
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
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1995 1994
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,414 $ 2,993
Accounts receivable, less
allowances of $4,029
($5,312 in 1994) 16,152 16,854
Inventories 26,867 20,841
Deferred tax assets 2,743 2,184
Other current assets 661 905
-------- -------
Total current assets 49,837 43,777
Property, plant and
equipment, net 14,613 13,001
Other assets 7,565 7,455
Patents and other intangible
assets 3,830 4,294
Cost in excess of net assets
acquired 28,765 29,831
-------- -------
$104,610 $98,358
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 12,000 $-
Current maturities of
long-term debt 2,163 1,122
Deferred payment obligation - 2,382
Accounts payable 3,579 3,544
Salaries, wages and related
benefits 2,487 2,525
Accrued liabilities 1,957 2,729
Income taxes payable 1,312 1,141
-------- -------
Total current liabilities 23,498 13,443
Long-term debt 25,038 30,809
Deferred liabilities 4,226 3,851
Commitments and contingent
liabilities
(Note 11)
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 - 1995 - 4,036,334
and 1994 - 3,966,705 shares 1,347 1,324
Capital in excess of par
value 23,528 22,708
Treasury stock at cost -
1995 - 277,760
and 1994 - 243,760 shares (3,649) (3,216)
Retained earnings 31,119 30,029
Cumulative translation
adjustment (39) (215)
Minimum pension liability (458) (375)
--------- --------
Total stockholders' equity 51,848 50,255
--------- --------
$104,610 $98,358
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended December 31, 1995 1994 1993
(in thousands)
Cash flows from operating activities:
Net income $2,286 $2,750 $3,036
Adjustments to reconcile net
income to net cash provided by
operating activities -
Depreciation and amortization 4,486 3,623 3,240
Foreign exchange loss (gain) 85 (95) -
Compensation related to stock
awards 77 76 48
Increase in deferred tax assets (452) (546) (333)
(Increase) decrease in operating
assets:
Accounts receivable 713 (2,636) 1,177
Inventory (5,985) (2,761) 755
Other assets 34 (482) (719)
Increase (decrease) in operating
liabilities:
Accounts payable (1,094) 1,585 (993)
Salaries, wages and related
benefits, accrued and deferred
liabilities 542 109 1,687
Income taxes payable 171 408 187
Net cash provided by ------- ------ ------
operating activities 863 2,031 8,085
Cash flows used for investing activities:
Additions to property, plant and
equipment, net (4,345) (2,545) (2,823)
Payment for acquisitions - (8,643) (609)
Net cash used for investing ------- -------- -------
activities (4,345) (11,188) (3,432)
Cash flows from financing activities:
Collection of notes receivable - 1,018 242
Long-term debt (repayment)
borrowings 4,803 (8,783) (3,488)
Issuance of senior notes - 20,000 -
Proceeds from stock options
and employee stock purchases 280 219 357
Dividends paid (1,196) (1,089) (1,045)
Net cash provided by (used for) ------ ------ ------
financing activities 3,887 11,365 (3,934)
Net increase in cash and
cash equivalents 405 2,208 719
Cash and cash equivalents at
beginning of year 2,993 785 66
Effect of exchange rate on cash 16 - -
------ ------ ------
Cash and cash equivalents at
end of year $3,414 $2,993 $785
See notes to consolidated financial statements.
</TABLE>
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
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 cookware and cutlery lines, with these
two lines approximately equal in size. Substantially all of the remaining
sales are in the kitchen tool and precision cutting tool lines which are
approximately equal in size.
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.
Inventories - Inventories are stated at the lower of cost or market and at
December 31 were comprised of the following:
<TABLE>
<S> <C> <C>
1995 1994
Raw Materials $4,635 $4,293
Work in Process 2,884 2,292
Finished Goods 21,417 16,064
------- -------
28,936 22,649
LIFO Reserve (2,069) (1,808)
------- -------
$26,867 $20,841
</TABLE>
Cost, at December 31, 1995, is determined on a last-in, first-out (LIFO) basis
for approximately 74% (80% at December 31, 1994) of the Company's
inventories.
The remaining inventories are determined on a first-in, first-out (FIFO)
basis. During 1993, inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the cost of 1993 purchases, the
effect of which decreased cost of goods sold by approximately $285 and
increased net income by approximately $170. There were no significant
liquidations in 1994 or 1995.
Property, Plant and Equipment - Property, plant and equipment is recorded at
cost and depreciated using the straight-line method on useful lives of 20 to
45 years for buildings and 3 to 15 years for machinery and equipment.
Property, Plant and Equipment is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Land $684 $674
Buildings 4,378 4,245
Machinery and Equipment 30,795 28,129
------- -------
35,857 33,048
Less Depreciation 21,244 20,047
------- -------
$14,613 $13,001
</TABLE>
Other Current Assets - Included in other current assets is a receivable
related to an anticipated recovery of $150 ($400 in 1994) of estimated
environmental costs (See Note 11) and other miscellaneous receivables and
prepaid expenses.
Other Assets - Included in other assets are three manufacturing facilities
(Land and Buildings - cost of $5,857 with accumulated depreciation of $1,546)
that the Company no longer operates. The Company sold one of these facilities
in January 1996 (see Note 13). The other two facilities are currently being
leased to unaffiliated third parties under non-cancelable leases. Income
generated by these leases is not significant to the consolidated operations of
the Company. Each of these facilities is being depreciated over its estimated
useful life using the straight-line method. 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
$1,793 in 1995 ($1,179 in 1994 and $1,008 in 1993) and accumulated
amortization was $6,561 and $4,768 at December 31, 1995 and 1994,
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, 1995, 1994 or
1993. At December 31, 1995 and 1994, the Company recognized an intangible
asset related to the recording of a minimum pension liability in accordance
with Statement of Financial Accounting Standards No. 87.
Advertising - The Company participates in cooperative advertising programs
with certain customers. Advertising expense related to the programs is
matched with associated revenues and was $3,675, $5,366, and $5,245 for the
periods ended December 31, 1995, 1994 and 1993, respectively.
Deferred Liabilities - Deferred liabilities include a minimum pension
liability, deferred income taxes and deferred compensation.
Earnings per Share - Earnings per share are computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year.
Sales to Significant Customers - During 1995 and 1994, the Company had gross
sales to a single customer of $12,980 and $13,278, respectively, which
represented approximately 10% and 13% of total sales for 1995 and 1994,
respectively.
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.
Reclassification - Certain 1994 and 1993 amounts have been reclassified to
conform with the 1995 presentation.
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.
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.
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.
Long-Lived Assets - FAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," is applicable for
financial statements for fiscal years beginning after December 15, 1995. The
Company does not expect the standard to have a significant impact on its 1996
financial statements.
Stock Based Compensation - FAS No. 123, "Accounting for Stock Based
Compensation," is applicable for financial statements for fiscal years
beginning after December 15, 1995. The standard establishes a fair value
based method of accounting for stock options and other equity instruments with
such fair value recognized in the income statement or disclosed in the
footnotes to the financial statements. The Company has not selected the
accounting treatment to be used, as defined by FAS No. 123, and therefore is
not in a position to identify the possible related financial statement impact.
3. Acquisitions
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"). The Olfa Products Group is the exclusive distributor, for
the United States and Canada, of precision cutting tools and accessories
manufactured by Olfa Corporation of Osaka, Japan. Assets acquired included
accounts receivable, inventories and equipment.
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. The common stock issued in connection with this
acquisition is restricted as to both sale and voting rights. All such
restrictions will expire no later than September 30, 1999.
The acquisition was accounted for as a purchase and the net assets and results
of operations are included in the Company's Consolidated Financial Statements
beginning October 1, 1994. The purchase price was allocated to the assets
acquired and liabilities assumed of the Olfa Products Group based on their
estimated respective fair values. Cost in excess of net assets acquired was
$6,349 and is being amortized over 20 years.
In connection with the issuance of restricted common stock related to the
acquisition of Olfa Products Group, the Company has agreed, under certain
circumstances, to make payments of up to $600 to the former owners upon sale
of the restricted common stock. In addition, the Company has agreed to make
payments of up to approximately $3,565 to the management of the Olfa Products
Group based upon the achievement of a specific aggregate financial target for
the three-year period ending December 31, 1997.
Effective September 1, 1994, the Company purchased the assets of Normandy, the
enamel on steel cookware business of National Housewares, Inc., for a cash
consideration of $1,800 and deferred payments equal to $3,767 plus an
incentive payment of $382 based upon operational performance for the remainder
of 1994. The cash payment was equivalent to the fair market value of the
inventories acquired. Cost in excess of net assets acquired was $4,149 and is
being amortized over 10 years.
The following unaudited pro forma information combines the consolidated
results of operations of the Company, the Olfa Products Group and Normandy as
if the acquisitions had occurred at the beginning of 1994 and 1993. The pro
forma information is not necessarily indicative of the results of operations
which would have actually occurred during such periods.
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
1994 1993
Net sales $114,184 $110,057
Income before taxes 5,831 6,971
Net income 3,277 4,137
Earnings per average
common share $0.88 $1.11
</TABLE>
4. Debt
Long-term and short-term debt includes the following:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, 1995 1994
Bank Credit Agreement $12,000 $3,000
8.41% senior notes
payable in equal annual
installments commencing
1998 through 2004 20,000 20,000
12% subordinated note
payable in equal annual
installments commencing
1996 through 2000 4,368 5,000
Deferred payment obligation
due in quarterly installments
of $125 from January, 1995
through September, 1998
(discounted at 6%) 1,363 1,793
6% subordinated notes
payable in equal annual
installments in Canadian dollars
commencing 1995 through
1997 1,470 2,138
------- -------
39,201 31,931
Less current maturities
and short-term debt 14,163 1,122
------- -------
Long-term debt $25,038 $30,809
</TABLE>
At December 31, 1995 and 1994, all of the Company's debt outstanding was
unsecured.
The bank debt outstanding at December 31, 1995, relates to a Credit Agreement
with two banks with an aggregate commitment of $30,000 of which $5,000 is
reserved for letters of credit at December 31, 1995. The commitment will
expire on November 30, 1997, but may be renewed, under certain circumstances,
for two additional one-year periods. Amounts outstanding under such Credit
Agreement are classified as short-term debt as of December 31, 1995, as the
Company intends to repay such outstanding amounts from current working capital
and the proceeds from the sale of assets disclosed in Note 13. Drawings under
the Credit Agreement are priced based on the banks' Prime or LIBOR with
spreads calculated on an incentive formula. At December 31, 1995, the Company
could borrow under the Credit Agreement at Prime or LIBOR + 1%. The interest
rates on outstanding amounts on December 31, 1995, range from 6.93% to
8.75%.
Commitment fees of .25% of the unused balance on the line of credit are
included in interest expense. In addition, during 1994, the Company sold
$20,000 of 8.41% Senior Notes payable to a group of institutional investors.
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.
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 $632 in 1995 as an offset to payments made with regard
to the environmental remediation program discussed in Note 11.
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. In addition to the obligation listed in the above
table, the Company had additional obligations related to the transaction of
$2,382, all of which were paid in January, 1995.
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,
1995, are as follows:
<TABLE>
<S> <C>
1996 $14,163
1997 2,196
1998 4,956
1999 4,592
2000 and thereafter 13,294
</TABLE>
Cash paid during 1995 for interest, net of cash received, was $2,798 (1994 -
$1,614; 1993 - $1,361). Of this amount, $562, $450 and $615 consisted of
amounts paid related parties in 1995, 1994 and 1993, respectively.
As of January 1, 1996, the Company was not in compliance with one of the
covenants in the Bank Credit Agreement. This non-compliance has been waived
through March 31, 1996. Based on the disposition of assets discussed in Note
13 and the Company's current operating performance, it is likely that the
Company will not be in compliance with certain covenants contained in the Bank
Credit Agreement at the end of the first quarter of 1996. Management intends
to seek waivers for any such non-compliance at such time as the impact of the
disposition of assets becomes determinable. The Company believes that such
waivers will be obtained.
5. Common Stock and Rights
Common stock reserved at December 31, 1995, included 303,770 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.
6. Stock Plans
The Company maintains a stock plan for key employees which provides for the
granting of options or awards of restricted stock until January 31, 2003. A
summary of transactions under the plan follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Restricted Stock
Stock Options
Outstanding December 31, 1992 45,400 216,669
Granted during 1993 - 68,000
Canceled during 1993 (3,400) (1,335)
Released or exercised
during 1993 (4,000) (29,596)
Outstanding December 31, 1993 38,000 253,738
Granted during 1994 10,500 5,000
Canceled during 1994 (34,000) (11,035)
Released or exercised
during 1994 (4,000) (16,299)
Outstanding December 31, 1994 10,500 231,404
Granted during 1995 10,500 106,000
Canceled during 1995 - (13,000)
Released or exercised
during 1995 (3,500) (20,634)
Outstanding December 31, 1995 17,500 303,770
</TABLE>
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 prices ranging from
$7.125 to $13.750 in 1995. Options outstanding at December 31, 1995, were
granted at prices ranging from $7.125 to $14.00 per share. Options for
179,069 shares were exercisable at December 31, 1995.
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, 1995, the balance in the plan
consisted of 17,951 shares of General Housewares Corp. Common Stock (13,072
shares in 1994).
7. Employee Benefit Plans
The Company sponsors four defined benefit pension plans 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.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Service cost-benefits
earned during the period $459 $458 $410
Interest cost on projected
benefit obligation 1,226 1,166 1,079
Actual return on plan assets (2,632) (34) (1,180)
Net amortization and deferral 1,561 (919) 168
------ ------ ------
Net periodic pension cost $614 $671 $477
</TABLE>
The funded status of the plans as of December 31 was as follows:
<TABLE>
<S> <C> <C> <C> <C>
1995 1994
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
Accumulated benefit obligation
- vested $14,193 $2,650 $12,315 $2,233
- non vested 304 51 220 47
------- ------ ------- ------
14,497 2,701 12,535 2,280
Effect of projected
salary increases 1,220 - 953 -
Projected benefits ------- ------ ------- ------
obligation 15,717 2,701 13,488 2,280
Plan assets at
fair value 15,677 2,395 13,090 2,172
Plan assets less ------- ------ ------- ------
than projected
benefits
obligation (40) (306) (398) (108)
Unrecognized net
transition (asset)
liability (823) 95 (960) 111
Unrecognized net
loss from experience
differences 2,246 793 2,131 672
Unrecognized prior
service cost 814 311 920 336
Adjustment to
recognize minimum
liability - (1,199) - (1,119)
------- ------ ------- ------
Prepaid (accrued)
pension cost
recognized in
balance sheet $2,197 ($ 306) $1,693 ($ 108)
</TABLE>
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87 - "Employers' Accounting for Pensions," the Company has
recorded an additional minimum liability at December 31, 1995 and 1994,
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 $1,199 at December 31,
1995, 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, a deferred tax asset of $336 has been recognized for the minimum
liability charge to equity.
The actuarial present value of the projected benefit obligation at December
31, 1995 and 1994, was determined using a weighted average discount rate of
7.25% and 8.0%, respectively, 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, 1995 and 1994. As of December 31, 1995,
approximately 32% (1994 - 59%) 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
$316 in 1995 ($302 in 1994 and $335 in 1993).
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.
8. Income Taxes
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Current income tax expense:
Federal $1,624 $2,382 $2,043
State 251 352 370
Foreign 219 - -
------ ------ ------
Total current income tax
expense 2,094 2,734 2,413
Deferred income tax
expense (benefit):
Federal (389) (546) (333)
State (57) - -
Foreign 31 - -
Total income tax ------ ------ ------
expense: $1,679 $2,188 $2,080
</TABLE>
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Percent of pre-tax income
1995 1994 1993
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes, net
of federal income tax
benefit 3.2 4.7 4.8
Amortization of excess
purchase price 5.0 4.0 3.9
Prior years accrual
adjustment - 1.4 (2.5)
Miscellaneous items .2 .2 .5
---- ---- ----
42.4% 44.3% 40.7%
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at December
31:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Gross deferred tax assets:
Accounts receivable
allowances $1,079 $849
Inventory reserves 487 -
Vacation 240 210
Self-insurance 117 119
Environmental reserve 150 539
Other, miscellaneous 449 355
------ -------
Gross deferred tax assets $2,522 $2,072
Gross deferred tax liabilities:
Property, plant and equipment ($1,239) ($1,296)
Pension (552) (403)
Other current receivables (56) (136)
Other, miscellaneous (250) (264)
Gross deferred tax -------- --------
liabilities ($2,097) ($2,099)
------- --------
Net deferred tax assets
(liabilities) $425 ($27)
</TABLE>
Cash paid for income taxes during 1995 was $318 (1994 - $1,659; 1993 -
$1,939).
The Company reached a settlement with the Internal Revenue Service in 1995
relating to the review of the Company's tax returns for the years ended
December 31, 1991, 1992 and 1993. The settlement did not have a significant
effect on the results of operations for the year ended December 31, 1995.
9. 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, 1995:
<TABLE>
<S> <C>
1996 $1,837
1997 1,690
1998 1,080
1999 634
2000 343
Later Years 236
</TABLE>
Certain leases require payments of real estate taxes, insurance, repairs and
other charges. Total rental expense was $2,098 in 1995 (1994 - $1,455; 1993 -
$1,106).
10. 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.
11. Commitments and Contingent Liabilities
The Company is currently involved in the review and evaluation, or
remediation, of seven 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 $403 at December 31, 1995 ($1,549 at December 31, 1994) which
aggregate amount management believes will be paid out during the course of the
next five years. Based on provisions in the stock purchase agreement related
to the acquisition of Chicago Cutlery, Inc., the Company has recovered $932
through an offset to amounts owed to the holders of the 12% subordinated note
(see Note 4) and based on the opinion of legal counsel, considers it probable
that it will retain such amounts. Additional amounts are also expected to be
recovered from the subordinated note holder as a result of environmental
remediation activities at a Chicago Cutlery facility. The holders of the 12%
subordinated note have not agreed to such offset. Within a range of
reasonably possible environmental cleanup liabilities established on the basis
of current information, the recorded liability represents approximately 68% of
the currently estimable maximum loss that has been identified by the Company
and its environmental advisors. 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 and cash flow.
12. 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 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. 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:
<TABLE>
<CAPTION>
<S> <C> <C>
Precision
Housewares Cutting Tools
- -----------------------------------------------------------------------------
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 4,325 20
- ------------------------------------------------------------------------------
1994
Net sales $93,973 $3,756
Operating income 6,613 24
Identifiable assets 93,314 5,044
Depreciation and
amortization 3,530 93
Capital expenditures 2,545 -
- ------------------------------------------------------------------------------
1993
Net sales $88,529 $-
Operating income 6,415 -
Identifiable assets 72,017 -
Depreciation and
amortization 3,240 -
Capital expenditures 2,823 -
- ------------------------------------------------------------------------------
</TABLE>
The Precision Cutting Tools segment was added in October of 1994 as a result
of an acquisition of assets. As such, 1994 results for this segment represent
only three months of activity.
During 1995, the Housewares segment had gross sales to one customer of
$12,577, which represents approximately 11% of total Housewares segment gross
sales for 1995. During 1994 and 1993, the Company had gross sales to that
same customer of $13,046 and $11,130, representing 14% and 13% of total
Housewares segment gross sales.
13. Subsequent Events
On January 4, 1996, the Company announced its intention to exit its cast iron
and cast aluminum cookware businesses during the first half of 1996. The
Company is in discussions with buyers interested in acquiring the associated
product lines and possibly the related manufacturing facility located in
Sidney, Ohio. A charge related to this transaction and other restructuring
efforts, including the closure of certain of the Company's retail outlet
stores, will be recorded in 1996. At this time, the Company is unable
to determine the financial statement impact related to these transactions that
will be recorded in 1996.
On January 17, 1996, the Company sold a non-operating facility located in
Hyannis, Massachusetts. The Company received cash consideration of $1,300 for
the facility, which represented an amount slightly above net book value. The
book gain and related tax liability will be reflected in first quarter 1996
financial statements.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes the 1995 and 1994 unaudited interim financial
information:
(in thousands of dollars except per share amounts - reclassifications have
been made to conform with income statement presentation for the periods ended
December 31, 1995 and 1994)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Quarter Ended Dec. 31, Sep. 30, June 30, Mar. 31,
1995 1995 1995 1995
Net sales $36,467 $30,630 $24,882 $27,361
Gross profit 11,715 10,006 8,898 9,693
Net income 1,342 605 127 212
Earnings per
common share:
Net income $0.36 $0.16 $0.03 $0.06
Earnings per
common share assuming
full dilution:
Net income $0.36 $0.16 $0.03 $0.06
Dividends per common
share $0.08 $0.08 $0.08 $0.08
Market price range:
High 11-5/8 14 14 16-3/8
Low 8-1/2 10-7/8 11-3/8 11-1/4
Quarter Ended Dec. 31, Sep. 30, June 30, Mar. 31,
1994 1994 1994 1994
Net sales $34,728 $26,298 $18,173 $18,530
Gross profit 12,387 9,487 6,301 6,835
Net income 1,515 1,034 108 93
Earnings per
common share:
Net income $0.43 $0.31 $0.03 $0.03
Earnings per
common share assuming
full dilution:
Net income $0.43 $0.31 $0.03 $0.03
Dividends per common
share $0.08 $0.08 $0.08 $0.08
Market price range:
High 16-3/8 12-5/8 14-1/4 15-1/4
Low 12-3/8 9-3/4 11 12-7/8
</TABLE>
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, 1996, 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 9 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 February 7, 1995 (filed as Exhibit 3.
(i) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by
reference).
5. Rights Agreement dated as of February 22, 1989 (filed
with the Securities and Exchange Commission as an
Exhibit to a 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 30, 1994, between the
Company and Harris Trust and Savings Bank as agent, and
The First National Bank of Chicago (filed as Exhibit
10.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by
reference).
*10b. Employment and Consulting Agreement, dated July 1, 1990,
between the Company and John H. Muller, Jr. (filed as
Exhibit 10b to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990, 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).
*10e. Employment Agreement, dated April 12, 1990, between the
Company and Robert L. Gray, relating, among other
matters, to termination arrangements (filed as Exhibit
10e 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 Ray J. Kulla, relating, among other
things, to retirement and termination agreements.
11. Computation of primary 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,
1996.
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.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period ended December 31, 1995.
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/ Robert L. Gray 3/18/96
Robert L. Gray Date
Vice President, Finance and Treasurer
Principal Financial Officer
By /s/ Mark S. Scales 3/18/96
Mark S. Scales Date
Controller
Principal 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 3/18/96
Paul A. Saxton Date
Chairman of the Board
President and Chief Executive Officer
/s/ Charles E. Bradley 3/18/96
Charles E. Bradley - Director Date
/s/ John S. Crowley 3/18/96
John S. Crowley - Director Date
/s/ Thomas L. Francis 3/18/96
Thomas L. Francis - Director Date
/s/ Joseph Hinsey IV 3/18/96
Joseph Hinsey IV - Director Date
/s/ Ann Manix 3/18/96
Ann Manix - Director Date
/s/ John H. Muller, Jr. 3/18/96
John H. Muller, Jr. - Director Date
/s/ Phillip A. Ranney 3/18/96
Phillip A. Ranney - Director Date
INDEX TO EXHIBITS
Exhibit No.
10g. Employment Agreement
10h. Employment Agreement
10i. Employment Agreement
11. Computation of primary earnings per share
21. Subsidiaries of the registrant
23. Consent of Price Waterhouse
27. Financial Data Schedule
99. Financial statements of the Company's
Employee Stock Purchase Plan
EXHIBIT 10G
March 6, 1995
Mr. John C. Blackwell
14510 Thornfield Court
Tampa, FL 33624
Dear John:
This is the formal offer of employment that I spoke to you about today on the
telephone. I am particularly pleased to be sending this to you because I
think you represent a very good fit for General Housewares Corp. at this time
in our corporate history and that we represent a very good opportunity for you
at this time in your personal history. Your background and skills are clearly
superior, but I also feel the chemistry is right between General Housewares
Corp. and you for a good relationship.
I don't think I need to provide much more data about the Company in this
letter. I think you have studied it and looked into it carefully. I should
say -- even if it's merely a refresher of what you already know -- that we
have a somewhat unique organization here. Going beyond the lack of formality
in terms of attire, I think we have begun to cultivate an atmosphere without
negative boundaries between parts of the organization. That is not to say
that nobody here has a structured job to do, because clearly there are many of
those. But it is to say that at the top levels of the Company there is a
strategic and collegial atmosphere that prevails. In practical terms, what
this means is that we want everybody involved at the staff level to be
familiar with and contributory to other functions than their own. I would
hope you would find this stimulating and exciting.
The following outlines the compensation package offered you at General
Housewares:
TITLE: Corporate Vice President, Sales and Marketing
REPORTING
RELATIONSHIP: Reports to the President and Chief Executive Officer of
General Housewares Corp.
SCOPE OF
RESPONSIBILITY: Management responsibility for sales and marketing
functions of the Company.
BASE SALARY: $160,000 per year.
INCENTIVE
COMPENSATION: Participate in corporate-wide incentive compensation plan
with top-end awards of 68% of base salary assuming
corporate goals are met.*
For 1995, you will be included in the incentive
compensation plan now in effect on a pro-rated basis.
Assuming your start date is March 20, 1995, and the
maximum goals were achieved, you would receive 68% of your
salary earned from March 20, until December 31, 1995.
STOCK OPTIONS: An option of 10,000 shares at the market value on your
date of employment will be granted by the Compensation
Committee of the Board of Directors.
RESTRICTED STOCK: 3,000 shares of restricted stock at no cost to you which
will vest 2/3 twelve months from your date of employment
and 1/3 twelve months later.
LIFE INSURANCE: Group Life and Accidental Death and Dismemberment
insurance coverage, both at 3 1/2 times your base salary,
plus an additional $500,000 death benefit for Travel
Accident Coverage and a scheduled portion thereof for
dismemberment.
LONG-TERM
DISABILITY: Insured coverage for 60% of base salary up to a maximum of
$5,000 per month to age 65, effective six months after
disability occurs. Yearly premiums to be paid by you.
MEDICAL PLAN/
DENTAL PLAN: Between regular group and supplemental key management
plans, we pay 100% of medical and dental expenses for you
and your eligible dependents. In your case, we will waive
all prior condition restrictions regarding medical
insurance for you and your dependents.
401K SAVINGS
PLAN: After one year of employment, you are eligible to join our
401K, matching contributions savings plan.
* 1995 Plan attached.
PENSION
PLAN: 2% of salary and incentive compensation, for each year of
service, with the average of five highest consecutive
calendar years in the last ten years of employment, up to
a maximum of 25 years or 50% of salary, subject to IRS
requirements. The GHC pension plan vests in five years.
MOVING EXPENSES: The Company will pay 100% of all moving costs and up to
three months of interim personal living expenses
associated with your move to Terre Haute. This includes
personal commuting costs as well as housing in Terre Haute
prior to your move.
AUTOMOBILE: You are entitled to a car lease allowance of $550.00 per
month, to applied in full or in part to a car of your
choice. The prior incumbent in your position leased a
Mercedes-Benz. That lease has one year to run and the
lease allowance will apply to that car until the end of
its lease. All maintenance expenses, replacement parts
(tires, etc.), gasoline and oil, and automobile insurance,
are paid for by GHC.
CLUB MEMBERSHIPS: You are entitled to initiation fees and dues to the
Country Club of Terre Haute and to the MVP Club in the
Boston Connection.
SEVERANCE: If we part company at any time during the first six months
of your employment at GHC, you will be eligible for six
months of severance well as any portion of management
bonus accruing to officers of the Company. In the event
that the Company decides to terminate your employment
after six months, you would receive severance payments (as
defined below) equalling your tenure at GHC, up to one
full year. For example if we part company after seven
months, you would receive seven months of severance; eight
months, eight months, etc., up to a full year.
After one full year, the severance is capped at one year
of salary and whatever portion of the management bonus is
applicable. Acceptance of this arrangement constitutes an
agreement by you not to pursue further remedies against
GHC in the event of your termination by the Company. You
are also covered under our severance compensation plan
which provides longer term severance in the event of
certain circumstances related to a takeover of the
Company. A copy of the present plan is attached.
EFFECTIVE DATE: March 20, 1995.
John, this offer is essentially what we discussed on the telephone. Hope it
is acceptable. Kathy and I look forward to seeing you on March 12, and having
you join us for dinner at The Country Club of Terre Haute.
Sincerely,
/s/ Paul A. Saxton
ACCEPTED:
/s/ John C. Blackwell
Date
EXHIBIT 10H
May 17, 1995
Mr. Gordon Brown
1853 Winfield Drive
Lakewood, CO 80215
Dear Gordon:
Details of the specifications for the position of V.P. Supply Chain Management
and Logistics which I plan to propose to our Board of Directors is outlined
below. Prior to its finalization, I would schedule, in addition to the
Management interviews, at least two interviews with members of our Board. The
Board, primarily as a formality, but one which I put a high value on, will
need to approve the compensation package outlined below, and while I would
anticipate their enthusiastic approval, I like to have the input of a couple
of key members before the fact.
The following outlines the compensation package for the position we discussed
at General Housewares:
TITLE: Corporate Vice President, Supply Chain Management and
Logistics
REPORTING
RELATIONSHIP: Reports to the President and Chief Executive Officer of
General
Housewares Corp.
SCOPE OF
RESPONSIBILITY: Management responsibility for supply chain and logistics
functions of the Company.
BASE SALARY: $160,000 per year.
INCENTIVE
COMPENSATION: Participate in corporate-wide incentive compensation plan
with top-end awards of 68% of base salary assuming
corporate goals are met.*
For 1995, you will be included in the incentive
compensation plan now in effect on a pro-rated basis.
Assuming your start date is July 1, 1995, and the maximum
goals were achieved, you would receive 68% of your salary
earned from July 1, until December 31, 1995.
STOCK OPTIONS: An option of 10,000 shares at the market value on your
date of employment will be granted by the Compensation
Committee of the Board of Directors.
RESTRICTED STOCK: 3,000 shares of restricted stock at no cost to you which
will vest 2/3 twelve months from your date of employment
and 1/3 twelve months later.
LIFE INSURANCE: Group Life and Accidental Death and Dismemberment
insurance coverage, both at 3 1/2 times your base salary,
plus an additional $500,000 death benefit for Travel
Accident Coverage and a scheduled portion thereof for
dismemberment.
LONG-TERM
DISABILITY: Insured coverage for 60% of base salary up to a maximum of
$5,000 per month to age 65, effective six months after
disability occurs. Yearly premiums to be paid by you.
MEDICAL PLAN/
DENTAL PLAN: Between regular group and supplemental key management
plans, we pay 100% of medical and dental expenses for you
and your eligible dependents. In your case, we will waive
all prior condition restrictions regarding medical
insurance for you and your dependents. If your present
medical plan, or your spouses, cannot be extended either
through COBRA or some other means, the Company will
reimburse for private short-term health coverage until you
are eligible for coverage under the Company Plan.
* 1995 Plan attached.
401K SAVINGS
PLAN: After one year of employment, you are eligible to join our
401K, matching contributions savings plan.
PENSION PLAN: 2% of salary and incentive compensation, for each year of
service, with the average of five highest consecutive
calendar years in the last ten years of employment, up to
a maximum of 25 years or 50% of salary, subject to IRS
requirements. The GHC pension plan vests in five years.
For purposes of your pension calculation, each year of
service will be credited to your pension at 1.4 years for
both the vesting period and credited service.
MOVING EXPENSES: The Company will pay 100% of all moving costs and up to
three months of interim personal living expenses
associated with your move to Terre Haute. This includes
personal commuting costs as well as housing in Terre Haute
prior to your move.
AUTOMOBILE: You are entitled to a car lease allowance of $575.00 per
month, to be applied in full or in part to a car of your
choice. All maintenance expenses, replacement parts
(tires, etc.), gasoline and oil, and automobile insurance,
are paid for by GHC.
CLUB MEMBERSHIPS: You are entitled to initiation fees and dues to the
Country Club of Terre Haute and to the MVP Club in the
Boston Connection.
SEVERANCE: If we part company at any time during the first six months
of your employment at GHC, you will be eligible for six
months of severance as well as any portion of management
bonus accruing to officers of the Company. In the event
that the Company decides to terminate your employment
after six months, you would receive severance payments (as
defined below) equalling your tenure at GHC, up to one
full year. For example if we part company after seven
months, you would receive seven months of severance; eight
months, eight months, etc., up to a full year.
After one full year, the severance is capped at one year
of salary and whatever portion of the management bonus is
applicable.
Acceptance of this arrangement constitutes an agreement by
you not to pursue further remedies against GHC in the
event of your termination by the Company. You are also
covered under our severance compensation plan which
provides longer term severance in the event of certain
circumstances related to a takeover of the Company. A
copy of the present plan is attached.
EFFECTIVE DATE: July 1, 1995.
Gordon, as I mentioned above, this offer is conditioned upon the approval of
the GHC Board of Directors which, were you to accept, I would anticipate being
granted.
Sincerely,
/s/ Paul A. Saxton
ACCEPTED:
/s/ Gordon H. Brown
Date
EXHIBIT 10
September 6, 1995
Mr. Raymond J. Kulla
130 Michaux
Riverside, IL 60546
Dear Ray:
After what has been a very professionally handled interview process through
Tucker Olson, I feel very positive and I am very enthused about the chemistry
between you and me, between you and the board members you have spoken to
and
between you and the other officers of the company. It is very clear to me
that your background, experience, cultural outlook, character, and style
provide for an almost ideal fit into the situation described by the employment
package below. And based on all of the above, I believe you have a
longer-term opportunity here, if all goes as I think it will, to move into
areas of management that go beyond the parameters of the position outlined
below, at some point in the future.
The immediate opportunity, however, is, in my opinion, exciting in and of
itself. The company is growing, of course, but that growth is not without
challenges that we encounter continually. We are in a relatively stable
industry, -- certainly in terms of technology -- but also regarding the key
marketing elements: product, price, promotion. But the challenges in a
business such as ours center around intellectual property, acquisition of
new businesses, techno-legal relationships with large customers, governmental
intervention and regulation of various kinds, human resource issues -- in
particular those related to acquired business --contract creation, and
SEC/NYSE relationships. These demands have increased in volume and intensity
over the past few years, and the importance of the legal function in our
business has increased accordingly.
As you evaluate the offer below, I know you will be cognizant of your
experience at GHC, brief as it has been, and the opportunities, the fit, and
the chemistry. I am personally delighted to send you this letter and will be
even more so when you join GHC.
TITLE: Corporate Vice President, General Counsel, and Secretary
REPORTING
RELATIONSHIP: Reports to the President and Chief Executive Officer of
General Housewares Corp.
SCOPE OF
RESPONSIBILITY: Management responsibility for legal affairs of the
Company.
BASE SALARY: $160,000 per year.
INCENTIVE
COMPENSATION: Participate in corporate-wide incentive compensation plan
with top-end awards of 68% of base salary assuming
corporate goals are met.*
For 1995, you will be included in the incentive
compensation plan now in effect on a pro-rated basis.
Assuming your start date is October 1, 1995, and the
maximum goals were achieved, you would receive 68% of your
salary earned from October 1, until December 31, 1995.
STOCK OPTIONS: An option of 10,000 shares at the market value on your
date of employment will be granted by the Compensation
Committee of the Board of Directors.
RESTRICTED STOCK: 3,000 shares of restricted stock at no cost to you which
will vest 2/3 twelve months from your date of employment
and 1/3 twelve months later will be granted by the
Compensation Committee of the Board of Directors.
LIFE INSURANCE: Group Life and Accidental Death and Dismemberment
insurance coverage, both at 3 1/2 times your base salary
up to $500,000 maximum, plus an additional $500,000 death
benefit for Travel Accident Coverage and a scheduled
portion thereof for dismemberment.
* 1995 Plan attached.
LONG-TERM
DISABILITY: Insured coverage for 60% of base salary up to a maximum of
$5,000 per month to age 65, effective six months after
disability occurs. Yearly premiums to be paid by you.**
MEDICAL PLAN/
DENTAL PLAN: Between regular group and supplemental key management
plans, we pay 100% of medical and dental expenses for you
and your eligible dependents. In your case, we will waive
all prior condition restrictions regarding medical
insurance for you and your dependents. If your present
medical plan, or your spouse's, cannot be extended either
through COBRA or some other means, the Company will
reimburse for private short-term health coverage until you
are eligible for coverage under the Company Plan.
401(K) SAVINGS
PLAN: After one year of employment, you are eligible to join our
401(K) plan at the beginning of the first quarter
following your one year anniversary. Company matches 50%
of contribution up to 6% of salary, subject to government
cap.
PENSION PLAN: Per Plan. Retirement income after 25 years of service
approximates 50% of five highest consecutive years of
salary out of the last ten years of employment, including
social security benefits. The GHC pension plan vests in
five years. For purposes of your pension calculation,
each year of service will be credited to your pension
at 1.5 years for both the vesting period and credited
service with a portion of your benefit being provided for
through a Company sponsored Supplemental Executive
Retirement Plan (SERP).
MOVING EXPENSES: The Company will pay 100% of all moving costs and up to
three months of interim personal living expenses
associated with your move to Terre Haute. This includes
personal commuting costs as well as housing in Terre Haute
prior to your move.
** At the present time, this program is under review and will be
improved.
AUTOMOBILE: You are entitled to a car lease allowance of $575.00 per
month, to be applied in full or in part to a car of your
choice. All maintenance expenses, replacement parts
(tires, etc.), gasoline and oil, and automobile insurance,
are paid for by GHC.
CLUB MEMBERSHIPS: You are entitled to initiation fees and dues to the
Country Club of Terre Haute and to the MVP Club in the
Boston Connection.
SEVERANCE: If the Company terminates your employment at any
time during the first six months of your employment at
GHC, you will be eligible for six months of severance as
well as any portion of management bonus accruing to
officers of the Company. In the event that the Company
decides to terminate your employment after six months, you
would receive severance payments (as defined below)
equalling your tenure at GHC, up to one full year. For
example if we part company after seven months, you would
receive seven months of severance; eight months, eight
months, etc., up to a full year. After one full year, the
severance is capped at one year of salary and whatever
portion of the management bonus is applicable.
Acceptance of this arrangement constitutes an agreement by
you not to pursue further remedies against GHC in the
event of your termination by the Company. You are also
covered under our severance compensation plan which
provides longer term severance in the event of certain
circumstances related to a takeover of the Company. A
copy of the present plan is attached.
EFFECTIVE DATE: __________ 1, 1995. GHC would be delighted to have you
join the Company as soon as you can. Personally, I will
be out of the country until October 7, returning to the
office on Monday, October 9. If you began on October 1,
you could begin working with Gordon Erickson, but, we
really want you to begin at your convenience.
The trip I am taking does have another significance however, and that is that
we'd like to get our answer from you by September 15, if possible. If you
agree to join GHC, obviously we can wind down our search. But if you do not,
we need to know as soon as possible so we can rekindle our efforts to find a
General Counsel.
Ray, since you have been interviewed and approved by five out of eight Board
Members, the following is almost moot, but this offer is conditioned upon the
final approval of the GHC Board of Directors, which, were you to accept, would
be granted expeditiously.
If there are any questions about this letter, or any suggestions, I would be
delighted to respond to them.
Sincerely,
/s/ Paul A. Saxton
ACCEPTED:
/s/ Raymond J. Kulla
Date
EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1994 1993
Net income $2,286,000 $2,750,000 $3,036,000
Shares:
Weighted average number of
shares of common stock
outstanding 3,744,309 3,406,115 3,265,896
Shares assumed issued (less
shares assumed purchased for
treasury) on stock options 21,341 34,156 74,442
Outstanding shares for
primary earnings per share
calculation 3,765,650 3,440,271 3,340,338
Earnings per
common share $0.61 $0.80 $0.91
</TABLE>
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
Statement on Form S-8 (No. 33-33328, 2-77798, 33-48336 and 33-82136) of
General Housewares Corp., of our report dated February 2, 1996, appearing on
pages 12-13 of this Annual Report on Form 10-K. We also consent to the
application of such report to the Financial Statement Schedule for the three
years ended December 31, 1995, listed under Item 8 of this Annual Report on
Form 10-K when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report
also included the Financial Statement Schedule.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
March 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 0
</LEGEND>
<CIK> 0000040643
<NAME> 0
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1993
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 3,414
<SECURITIES> 0
<RECEIVABLES> 20,181
<ALLOWANCES> 4,029
<INVENTORY> 26,867
<CURRENT-ASSETS> 49,837
<PP&E> 35,857
<DEPRECIATION> 21,244
<TOTAL-ASSETS> 104,610
<CURRENT-LIABILITIES> 23,498
<BONDS> 0
<COMMON> 1,347
0
0
<OTHER-SE> 50,501
<TOTAL-LIABILITY-AND-EQUITY> 104,610
<SALES> 119,340
<TOTAL-REVENUES> 119,340
<CGS> 79,028
<TOTAL-COSTS> 79,028
<OTHER-EXPENSES> 33,232
<LOSS-PROVISION> 212
<INTEREST-EXPENSE> 3,115
<INCOME-PRETAX> 3,965
<INCOME-TAX> 1,679
<INCOME-CONTINUING> 2,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,286
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
EXHIBIT 99
Employee Stock Purchase Plan
Financial Statements
December 31, 1995 and 1994
Price Waterhouse LLP
REPORT OF INDEPENDENT ACCOUNTANTS
February 2, 1996
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, 1995 and 1994, 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.
Price Waterhouse LLP
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1995 1994
PLAN ASSETS
Investments in employer's securities
(cost, 1995 - $196,947; 1994 - $159,750) $154,827 $183,016
LIABILITIES AND PLAN EQUITY
Liabilities - -
Plan Equity $154,827 $183,016
</TABLE>
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
<TABLE>
<S> <C> <C>
Year Year
Ended Ended
December 31, December 31,
1995 1994
Dividend income $4,584 $3,213
Administrative expenses (216) (149)
Net dividend income 4,368 3,064
Realized loss on
investments (4,344) (421)
Unrealized appreciation
(depreciation) in
investments (68,425) 23,994
Participant contributions 61,465 68,905
Participant distributions (21,253) (25,626)
-------- --------
Net increase (decrease) in
plan equity (28,189) 69,916
Plan equity at beginning
of period 183,016 113,100
--------- ---------
Plan equity at end of period $154,827 $183,016
</TABLE>
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 and be a participant 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.
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 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, 1995 and 1994 investments were comprised of 17,951
and 13,073 shares, respectively, of General Housewares Corp. Common
Stock. The closing market price on December 31, 1995 and 1994 was
$8.625 and $14 per share, respectively. Net unrealized appreciation
(depreciation) of investments was $(68,425) and $23,994 in 1995 and
1994, respectively. Realized gain (loss) for 1995 and 1994 is
calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended Year Ended
Dec. 31, 1995 Dec. 31, 1994
Cost (using FIFO basis) $27,378 $24,800
Unrealized appreciation
(depreciation) recognized
in prior years (1,781) (1,247)
------- -------
25,597 26,047
Sales proceeds 21,253 25,626
------- -------
Realized loss recognized
in current year ($4,344) ($421)
</TABLE>
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.
