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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 1-7117
GENERAL HOUSEWARES CORP.
(Exact name of registrant as specified in its charter)
Delaware 41-0919772
(State or other jurisdiction of ......................(IRS Employer
incorporation or organization) Identification No.)
1536 Beech Street
Terre Haute, IN (Zip Code) 47804
(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 17, 1997, 3,811,504 shares of the registrant's Common Stock, $.33-1/3
par value, were outstanding. The aggregate market value of the Common Stock
based upon the closing price of the Common Stock on the New York Stock
Exchange -- Composite Transactions) held by non-affiliates of the registrant
at March 17, 1997 was $39,067,916.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1997 Annual
Meeting of Stockholders, which will be filed
on or prior to March 31, 1997, to the extent
stated in this report. Part III
PART I
Item 1. Business
(Dollars in thousands unless otherwise indicated)
General Housewares Corp. (hereinafter referred to as the "Company")
manufactures and markets consumer durable goods. The Company concentrates on
product categories in which, through market share, product innovation or brand
image, it is considered a leader. Through the acquisition and/or development
of products that "delight and excite" the consumer (i.e., deliver unexpected
value, simplify and enhance a task or redefine a task), the Company believes
that it is able to establish such a leadership position. The Company
currently pursues such a position in the following product categories:
cookware, cutlery, kitchen/household tools and precision cutting tools.
Cookware, cutlery and kitchen/household 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 13 in the financial statements included in this report.
HOUSEWARES SEGMENT
Approximately 62.2% of this segment's products sold by the Company during 1996
were produced domestically in factories owned and operated by the Company.
The remaining products are obtained from 10 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 1996, the Company was a large domestic manufacturer and marketer of
cookware, distributing its products throughout the United States, Canada and
selected European markets. The Company's collection of 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
throughout much of 1996, 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 ("Sidney Division") in an effort to
focus on faster growing, more profitable product categories. An agreement to
sell the assets of the Sidney Division, effective August 1, 1996, was executed
pursuant to which the Company received consideration of $4,000 in the form of
a cash payment of $450,a note receivable of $3,000 and the purchaser's
assumption of certain liabilities in exchange for certain assets of the Sidney
Division (including the manufacturing facility located in Sidney, Ohio) as
well as brand names and trademarks. The cast iron and cast aluminum product
lines included Magnalite(R), Magnalite Professional(R), Magnalite
Professional(R) with Eclipse(R), and Wagner's(R) 1891 Original Cast Iron.
Gross revenues derived from the exited categories were $4,714 in 1996.
Effective October 1, 1996, the Company sold the brand names, trademarks and
certain assets related to its stamped and spun aluminum cookware line. This
cookware line consisted of heavy gauge, large capacity stamped and spun
aluminum products that were marketed under the brand name Leyse
Professional(TM) and distributed through department stores, mass merchants and
specialty shops. Leyse products were purchased from a domestic manufacturer.
Gross revenues derived from this category were $1,333 in 1996.
The remaining cookware line is enamelware. The Company is the only domestic
manufacturer of enamelware and has developed a leading market share. Ceramic
on Steel(TM) cookware products produced by the Company are sold under the
Columbian and Granite Ware (TM) brand names. As of September 1, 1994, the
Company acquired the Normandy line of enamelware from National Housewares,
Inc. Normandy enamelware products, similar to the Company's Ceramic on
Steel(TM) cookware products, were, at the time, manufactured in Mexico. In
1995, the Normandy line of enamelware was discontinued and sourcing to service
the Normandy customers was transitioned to the Company's Ceramic on Steel (TM)
manufacturing 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. Gross revenues derived from enamelware were
$18,047 in 1996.
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 $1.8 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 49% of the
market in 1991 to 50% in 1996. 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.
CUTLERY AND ASSOCIATED PRODUCTS
The Company is a manufacturer and marketer of quality kitchen cutlery with the
leading domestic brand name (Chicago Cutlery(R)) and market share in its
industry. The Company markets, under the Chicago Cutlery(R) brand umbrella,
four complete lines of kitchen knives for consumers, sharpening tools, 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. For the consumer that prefers a synthetic
handled knife, the Company manufactures and sells the Metropolitan(R) product
line which features a durable high-impact plastic handle and a Taper Grind(R)
edge. The Company introduced The Classic Collection(TM) in 1996, a line of
heavy duty work knives for hunters, fishermen, ranchers, gourmet chefs and
collectors of fine cutlery. This cutlery line features a heavier gauge of
steel, poly infused wood handles, nickel silver rivets and a Taper Grind (TM)
edge. The Company also manufactures and sells a popular priced knife under
the Cherrywood(TM) brand name.
All Chicago Cutlery(R) blades are made from high carbon stainless steel that
resists rusting, pitting and staining. The Taper Grind(R) edge provides a
uniform and smooth taper, thereby facilitating the blade's movement through
the object being cut.
The Company also sells a line of promotional priced cutlery. These products
compete in both the fine edge and "never-needs-sharpening" segments of the
cutlery industry and are purchased from suppliers in the Far East.
Promotional cutlery consists of five separate cutlery brands, three of which
(Premier(TM), Basics(TM) and American Carver(R)) are sold exclusively through
department stores, and the remaining lines (TechChoice(R) and Classic Chef(R))
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 promotional priced imported cutlery, have made significant inroads.
The Company believes that imports in 1996 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 promotional priced imports and the traditional
Chicago Cutlery(R) products.
The Company also manufactures a full line of knives for the commercial poultry
processing market. These molded handle knives are designed to meet the
special needs of professionals and have specialized blade shapes for specific
cutting jobs. The handles are textured to be slip-resistant and feature a
finger guard for safety, as well as, in some cases, ergonomic handles.
Under the Idaho Woodworks(TM) and Chicago Cutlery(R) names, the Company
manufactured and marketed during 1996 cutting boards made of wood,
polyethylene, and combinations of wood and acrylic, marble or polyethylene.
In January of 1997, the Company decided to exit the cutting board category
during the year.
Gross revenues derived from cutlery and associated products were $36,718 in
1996, of which $1,209 related to the cutting board category.
KITCHEN/HOUSEHOLD TOOLS
Effective October 1, 1992, the Company purchased all of the partnership
interests in OXO International L.P. ("OXO"), a New York limited partnership
engaged in marketing a broad line of kitchen tools under the Good Grips(R),
SoftWorks(TM), Prima(R), Plus(TM) and Basics brand names. The purchase price
was $6,250 and consisted of a cash payment of $5,500 and Subordinated
Promissory Note in the principal amount of $750 bearing interest at 8% per
annum. The OXO products are primarily made, by manufacturers located in the
Far East, according to OXO's designs and specifications. Subsequent to the
acquisition, the line was extended to include products designed for use
outside of the kitchen (i.e.,household tools). The kitchen/household tools
sold by OXO generally utilize a proprietary handle which is covered by patents
owned by the Company which run through 2002. OXO kitchen/household tools are
distributed primarily in the United States through department stores, gourmet
and specialty outlets and mass merchandisers. OXO also sells a line of garden
tools that utilizes its proprietary handle. Garden tools are primarily
distributed through specialty outlets. The OXO product category has
experienced significant growth since acquisition.
The market in which the Company's kitchen/household tool product category
competes is a large market encompassing many types of tools and gadgets. As
such, the Company is not able to define its market share, but believes that
its share is minimal.
Gross revenues derived from the kitchen/household tool category were $22,776
in 1996.
PRECISION CUTTING TOOLS SEGMENT
Effective October 1, 1994, the Company purchased certain assets of Walter
Absil Company Limited and Olfa Products Corp. (collectively referred to as the
"Olfa Products Group"). The purchase price was $13,576 and consisted of a
cash payment of $6,843, Subordinated Promissory Notes in the principal amount
of $2,233 bearing interest at 6% per annum and 400,000 restricted shares
(valued at $4,500) of the Company's common stock. 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 to industrial users and both through 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 $11 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 $16,938 in
1996.
DISTRIBUTION
Housewares products are sold by the Company to most major retail and wholesale
distribution organizations in the United States and Canada through its direct
sales force and through independent commissioned sales representatives. The
Olfa Products Group also utilizes a combination of a direct sales force and
independent commissioned sales representatives.
In addition, the Company sells products through a chain of "manufacturers'
retail outlet" stores operating under the name "Chicago Cutlery etc., Inc."
Gross revenues derived from the stores were $9,471 in 1996.
MAJOR CUSTOMERS
During 1996, the ten largest customers of the Company accounted for 41% of the
Company's gross sales -- no single customer accounted for more than 10% of
total sales. The Company has had good long-term relationships with its major
customers.
EMPLOYEES
The Company employs approximately 600 persons, of whom approximately 330 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 185 employees are represented by one labor organization, which
has a contract expiring March 14, 1999.
EXPORT SALES
Exports account for less than 10% of the Company's total sales.
RAW MATERIALS
The principal raw materials used in manufacturing the Company's housewares
products are steel, ceramic compounds, plastic compounds and hardwood
products. All of these materials are generally available from numerous
suppliers, and the Company believes that the loss of any one supplier would
not have a significant impact on its operations. 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 future competitive position of the Company will become increasingly
dependent upon its ability to meet rapid delivery requirements from customers.
The Company believes that increased technological and supply chain initiatives
will position it well for the heightened customer requirements, while
maintaining an optimal level of inventory. Inventories at year end were
reduced by $8,354 from 1995 to 1996 due to (i) the disposition of the Sidney
Division and the stamped and spun aluminum cookware product line, (ii) the
Company's emphasis on sales forecasting and (iii) an inventory reduction
program.
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 were, in each case,
less than 10% of total Company Revenues, Operating Income and Assets for the
years ended December 31, 1995 and 1994. Gross Revenues, Operating Income and
Identifiable Assets of the subsidiary were $6,295, $1,401 and $6,207 for the
year ended December 31, 1996.
Item 2. Properties
The following table sets forth the location and size of the Company's
principal properties.
OPERATING FACILITIES
Property Owned
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/household tool products)
Wauconda, IL Manufacturing (cutlery) 65,000
Property Leased:
APPROXIMATE EXPIRATION
NATURE OR FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
HOUSEWARES SEGMENT:
Sidney, OH Warehouse (Sub-leased
to third party) 32,000 July 31, 1999
Terre Haute, IN Warehouse 172,800 July 1, 1998
New York, NY Administrative 25,000 September 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
In addition, the Company leases an average of 2,700 square feet of retail
space in 26 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)
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
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 sought 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 sought a declaratory judgment that the defendants
were liable to the Company. The action was 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 was 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. Because the Company has fully offset all amounts
expended to mandated remediation of hazardous substances at the Antrim, New
Hampshire facility (the "Antrim Site") and believes this remedy is sufficient
and fully defensible, the action against the Estate of Ronald J. Gangelhoff
was voluntarily dismissed in October of 1996.
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 judgment that Mr. Hurlin was 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 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 was 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
was 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. This action was settled in October of 1996 and Mr. Hurlin paid the
Company $350 in exchange for a release from liability for the mandated
remediation of the Antrim Site.
For information concerning various environmental matters with which the
Company is involved, see Note 12 to the Consolidated Financial Statements
included in this Report.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company, each of whom
will serve in the capacities indicated until May 13, 1997, or until the
election and qualification of a successor.
Name Position with Company Age
Paul A. Saxton Chairman of the Board, President, 58
and Chief Executive Office
John C. Blackwell Vice President, Sales and Marketing 59
Gordon H. Brown Vice President, Supply Chain 57
Management and Logistics
Stephen M. Evans Vice President, Administration 55
Robert L. Gray Vice President, Corporate Development 46
and Chief Financial Officer
William V. Higdon Vice President, Chief Information 52
Officer
Raymond J. Kulla Vice President, Secretary and 50
General Counsel
Mark S. Scales Vice President, Corp. Controller 37
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. Mr. Higdon has been
employed with the Company and an executive officer since December 2, 1996.
Prior thereto, he served as Director of Information Systems and Logistics at
Merillat Cabinet, a division of Masco.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters
The market on which the Company's Common Stock is traded is the New York Stock
Exchange, Inc. The high and low sales prices of the Company's Common Stock
and the cash dividends declared for each quarterly period during the last two
fiscal years is disclosed in quarterly financial information presented in Item
8.
The approximate number of holders of Common Stock as of March 17, 1997,
including beneficial owners of shares held in nominee accounts of whom the
Company is aware, was 1,000.
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended December 31, 1996 1995 1994 1993 1992
(in thousands except per share amounts)
Net sales $105,479 $119,340 $97,729 $88,529 $81,593
Operating income (loss) (107) 7,080 6,637 6,415 8,342
Interest expense, net 2,751 3,115 1,699 1,299 1,319
Income (loss) before
income taxes and
extraordinary item (2,858) 3,965 4,938 5,116 7,023
Income taxes (benefit) (842) 1,679 2,188 2,080 2,599
Income (loss) before
extraordinary item (2,016) 2,286 2,750 3,036 4,424
Extraordinary item, net
of income tax benefit 619 - - - -
Net income (loss) $ (2,635) $ 2,286 $ 2,750 $ 3,036 $ 4,424
Average number of
common shares
outstanding including
common stock
equivalents 3,768 3,769 3,440 3,340 3,295
Income (loss) before
extraordinary item
per common share $ (0.54) $ 0.61 $ 0.80 $ 0.91 $ 1.34
Extraordinary item, net
of income tax benefit
per common share $ (0.16) $ - $ - $ - $ -
Net income (loss)
per common share $ (0.70) $ 0.61 $ 0.80 $ 0.91 $ 1.34
Dividends per common
share $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.32
Financial Summary:
Total assets $ 95,279 $104,610 $98,358 $72,017 $72,001
Total debt 32,765 39,201 34,313 17,000 20,053
Net worth 48,490 51,848 50,255 43,929 41,696
VALUATION AND QUALIFYING ACCOUNTS
(in thousands except per share amounts)
Additions
Balance at Charged to Deductions Balance
beginning costs and net of at end
Description of period expenses recoveries of period
- ------------------------------------------------------------------------------
Reserves deducted
from assets to
which they
apply:
Allowances for
possible losses
and discounts -
accounts
receivable:
Years Ended
December 31,:
1996: $4,029 $9,409 $9,863 $3,575
1995: $5,312 $8,908 $10,191 $4,029
1994: $3,379 $7,649 $5,716 $5,312
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, 1996 versus 1995
Net sales for 1996 were $105,479, a decrease of 11.6% from net sales in 1995
of $119,340. This decrease was caused primarily by the sale of the assets of
the Company's cast iron and cast aluminum cookware businesses ("Sidney
Division") effective August 1, 1996, which resulted in a $12,725 net sales
reduction from 1995 to 1996. Sales of the Company's remaining cookware
businesses were $5,764 less in 1996 than in 1995, due primarily to
non-recurring, initial orders shipped in 1995 that resulted from the 1994
acquisition of the assets of Normandy, enamel on steel cookware business of
National Housewares, Inc. and less shelf space dedicated to enamelware
products in 1996 by two major retailers. Increased sales of kitchen tools
partially offset the reduction in sales of the Company's cookware businesses.
Pricing changes had minimal impact on the change in sales from 1995 to 1996.
Gross profit decreased from $40,312 in 1995 to $37,177 in 1996 due to
decreased sales volume and the Company's inventory reduction program which
resulted in decreased production levels, causing higher fixed overhead costs
to be recorded in the Company's Consolidated Statement of Operations. Gross
profit was favorably impacted by the reversal of a LIFO reserve associated
with the sale of the assets of the Sidney Division and favorable foreign
currency experience related to purchases of precision cutting tools. As a
percentage of net sales, gross profit increased to 35.2% in 1996 from 33.8% in
1995 due primarily to the LIFO reserve reversal, the favorable foreign
currency experience and favorable change in sales mix. Selling, general and
administrative expenses increased to $37,284 in 1996 from $33,232 in 1995. As
a percentage of net sales, selling, general and administrative expenses were
35.3% in 1996 and 27.8% in 1995. The loss on the sale of the assets of the
Sidney Division accounted for most of the increase in selling, general and
administrative expenses.
Operating income(loss) was $(107) in 1996, a reduction of $7,187 from
operating income in 1995 of $7,080. Interest expense decreased from $3,115 in
1995 to $2,751 in 1996 due to a reduction in working capital that resulted
primarily from the Company's inventory reduction program and the sale of the
assets of the Sidney Division. The loss before extraordinary item of $2,016,
or $0.54 per share, in 1996 compares to income before extraordinary item of
$2,286, or $0.61 per share, in 1995. The extraordinary charge in 1996 is due
to the partial prepayment $(10,000) of 8.41% Senior Notes payable to a group
of institutional investors and the execution of a new bank credit agreement.
The charge is comprised of the prepayment penalty and the write-off of
unamortized debt issuance costs. This charge, net of applicable income taxes,
amounted to $619, or $0.16 per share. The net loss for 1996 was $(2,635), or
$(0.70) per share, as compared to net income of $2,286, or $0.61 per share, in
1995.
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 resulted primarily from acquisitions made in the third
and fourth quarters of 1994, as well as market penetration in the Company's
kitchen tools product line. Revenue increases resulting from acquisitions
represented 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 is 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 was 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.
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 decreased from $26,867 in 1995 to $18,513 in 1996. Approximately
40% of the decrease was due to the sale of the assets of the Sidney Division.
The remaining reduction in inventories resulted from the Company's emphasis on
sales forecasting and an inventory reduction program, the combination of which
will allow the Company to deal effectively with customer service and also
optimize inventory levels. 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.
On November 30, 1994, the Company completed a financing package consisting of
a $30,000 three-year bank credit agreement and the private placement of
$20,000 of 8.41% Senior Notes payable to a group of institutional investors.
Proceeds from the new financing package were used to refinance existing bank
loans incurred to support working capital requirements and for acquisitions.
On November 13, 1996, the Company entered into a new bank credit agreement,
resulting in increased borrowing capacity. The new bank credit agreement
provides for $45,000 of borrowing capacity and expires on December 31, 1999.
The Company used proceeds from the new bank credit agreement to prepay $10,000
of 8.41% Senior Notes on November 15, 1996. As a result of the restructuring
of its financing in 1996, 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
12 to the Consolidated Financial Statements). In addition to the amounts
provided for in the reserve, the Company may be required to make certain
capital expenditures which, in aggregate, are not expected to be material.
Subsequent to the completion of the remediation contemplated in setting the
reserve, the Company believes that the ongoing costs of compliance with
environmental regulation, including the cost of monitoring, pollution
abatement and disposal of hazardous materials, will not be material.
Effect of Inflation
For the years ended December 31, 1996 and 1994, there were no significant
effects related to price increases. For the year ended December 31, 1995,
price increases in certain commodities used by the Company (e.g., aluminum
ingot (44%), steel (5%) and packaging materials (10%)) had an adverse effect
on the operations of the Company. The impact of the aluminum ingot increase
adversely impacted operating income by approximately $800. As a result of the
sale of the Sidney Division's assets, the Company does not have future
exposure related to aluminum ingot price increases.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Financial Statements:
Report of Independent Accountants
Consolidated Statement of Operations for the three
years ended December 31, 1996
Consolidated Statement of Changes in Stockholders'
Equity for the three years ended December 31, 1996
Consolidated Balance Sheet at December 31, 1996 and
1995
Consolidated Statement of Cash Flows for the three
years ended December 31, 1996
Notes to Consolidated Financial Statements
Quarterly Financial Information
Financial Statement Schedule:
For the three years ended December 31, 1996
VII - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
To the Board of Directors and Stockholders of General Housewares Corp. In our
opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
General Housewares Corp., and its subsidiaries at December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, 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
January 31, 1997
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1996 1995 1994
(in thousands except per share amounts)
Net sales $105,479 $119,340 $97,729
Cost of goods sold 68,302 79,028 62,719
Gross profit 37,177 40,312 35,010
Selling, general and
administrative expenses 37,284 33,232 28,373
Operating income (loss) (107) 7,080 6,637
Interest expense, net 2,751 3,115 1,699
Income (loss) before income taxes
and extraordinary item (2,858) 3,965 4,938
Income tax expense (benefit) (842) 1,679 2,188
Income (loss) before
extraordinary item (2,016) 2,286 2,750
Extraordinary item, net
of income tax benefit 619 - -
Net income (loss) $ (2,635) $ 2,286 $ 2,750
Earnings (loss)per common share
primary and fully diluted:
Income (loss) before
extraordinary item,
per common share $ (0.54) $ 0.61 $ 0.80
Extraordinary item, net
of income tax benefit
per common share $ (0.16) $ - $ -
Net income (loss)
per common share $ (0.70) $ 0.61 $ 0.80
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Common Capital in Cumulative
Balances Stock Stock Excess of Translation
(in thousands) Shares Amount Par Value Adjustment
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)
Restricted stock
activity 15 5 211 -
Shares issued upon exercise
of options 18 5 139 -
Shares issued for employee
stock purchase plan 11 4 84 -
Tax benefit from exercise
of stock options - - 14 -
Translation adjustments - - - (56)
Minimum pension
liability - - - -
Dividends - - - -
Net Income (loss) - - - -
December 31, 1996 4,081 $1,361 $23,976 $(95)
Minimum
Retained Treasury Pension
Earnings Stock Liability Total
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 - - - (215)
Minimum pension
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
Restricted stock
activity - - - 216
Shares issued upon exercise
of options - - - 144
Shares issued for employee
stock purchase plan - - - 88
Tax benefit from exercise
of stock options - - - 14
Translation adjustments - - - (56)
Minimum pension
liability - - 76 76
Dividends (1,205) - - (1,205)
Net Income (loss) (2,635) - - (2,635)
December 31, 1996 $27,279 $(3,649) $( 382) $48,490
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
December 31, 1996 1995
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 1,981 $ 3,414
Accounts receivable, less
allowances of $3,575
($4,029 in 1995) 15,823 16,152
Inventories 18,513 26,867
Deferred tax assets 3,831 2,743
Other current assets 932 661
Total current assets 41,080 49,837
Note receivable 2,707 -
Property, plant and equipment, net 13,420 14,613
Other assets 6,479 7,565
Patents and other intangible assets 4,195 3,830
Cost in excess of net assets
acquired 27,398 28,765
------ ------
$ 95,279 $104,610
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt $ - $ 12,000
Current maturities of long-term
debt 2,190 2,163
Accounts payable 3,932 3,579
Salaries, wages and related
benefits 1,671 2,487
Accrued liabilities 3,288 1,957
Income taxes payable 379 1,312
Total current liabilities 11,460 23,498
Long-term debt 30,575 25,038
Deferred liabilities 4,754 4,226
Commitments and contingent liabilities
(Note 12)
Stockholders' Equity:
Preferred stock - $1.00 par value:
Authorized - 1,000,000 shares
Common stock - $.33-1/3 par value:
Authorized - 10,000,000 shares
Outstanding - 1996 - 4,080,736
and 1995 - 4,036,334 shares 1,361 1,347
Capital in excess of par value 23,976 23,528
Treasury stock at cost - 1996
and 1995 - 277,760 shares (3,649) (3,649)
Retained earnings 27,279 31,119
Cumulative translation
adjustment (95) (39)
Minimum pension liability (382) (458)
Total stockholders' equity 48,490 51,848
------- -------
$95,279 $104,610
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1996 1995 1994
(in thousands)
Operating activities:
Net income (loss) $(2,635) $2,286 $2,750
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities -
Depreciation and amortization 4,853 4,486 3,623
Loss on sale of assets 2,335 - -
Foreign exchange loss (gain) 21 85 (95)
Compensation related to stock
awards 215 77 76
Increase in deferred income taxes (1,531) (452) (546)
(Increase) decrease in operating assets:
Accounts receivable 322 713 (2,636)
Inventory 5,311 (5,985) (2,761)
Other assets (476) 34 (482)
Increase (decrease) in operating
liabilities:
Accounts payable 819 (1,094) 1,585
Salaries, wages and related benefits,
accrued and deferred liabilities 545 542 109
Income taxes payable (930) 171 408
------ ------ ------
Net cash provided by
operating activities 8,849 863 2,031
Investing activities:
Additions to property, plant and
equipment, net (4,236) (4,345) (2,545)
Payment for acquisitions - - (8,643)
Proceeds from sale of assets 1,750 - -
------- ------- -------
Net cash used for investing
activities (2,486) (4,345) (11,188)
Financing activities:
Collection (issuance) of notes
receivable (370) - 1,018
Long-term debt (repayment)
borrowings 3,541 4,803 (8,783)
Issuance (repayment)
of senior notes (10,000) - 20,000
Proceeds from stock options and employee
stock purchases 246 280 219
Dividends paid (1,205) (1,196) (1,089)
------ ------ ------
Net cash provided by (used for)
financing activities (7,788) 3,887 11,365
Net increase (decrease)in cash and
cash equivalents (1,425) 405 2,208
Cash and cash equivalents at
beginning of year 3,414 2,993 785
Effect of exchange rate on cash (8) 16 -
------ ------ ------
Cash and cash equivalents at
end of year $1,981 $3,414 $2,993
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except per share amounts)
1. Nature of Operations
The Company manufactures and markets consumer durable goods with principal
lines of business consisting of housewares (cookware, cutlery, and kitchen
tools) and precision cutting tools. In addition, the Company sells products
through a chain of manufacturer's retail outlet stores. The majority of the
Company's sales are derived from the housewares line.
2. Accounting Policies
Principles of Consolidation - The Consolidated Financial Statements include
the accounts of General Housewares Corp. and its subsidiaries, all of which
are wholly-owned. All intercompany transactions and balances are eliminated
in consolidation.
Inventories - Inventories are stated at the lower of cost or market and at
December 31 were comprised of the following:
1996 1995
Raw Materials $ 2,873 $ 4,678
Work in Process 953 2,910
Finished Goods 15,629 21,348
------- -------
19,455 28,936
LIFO Reserve ( 942) ( 2,069
------- -------
$18,513 $26,867
Cost, at December 31, 1996, is determined on a last-in, first-out (LIFO) basis
for approximately 76% (74% at December 31, 1995) of the Company's inventories.
The remaining inventories are costed on a first-in, first-out (FIFO) basis.
Property, Plant and Equipment - Property, plant and equipment is recorded at
cost and depreciated using the straight-line method based on useful lives of
20 to 30 years for buildings and 3 to 15 years for machinery and equipment.
Property, Plant and Equipment is as follows:
1996 1995
Land $ 648 $ 684
Buildings 6,890 6,615
Machinery and Equipment 23,519 28,558
------- -------
31,057 35,857
Depreciation (17,637) (21,244)
------- -------
$13,420 $14,613
Other Current Assets - Included in other current assets at December 31, 1996
and 1995, is a receivable related to an anticipated recovery of $150 of
estimated environmental costs and other miscellaneous receivables and prepaid
expenses.
Other Assets - Included in other assets at December 31, 1996, are two
manufacturing facilities (Land and Buildings - cost of $3,717 with accumulated
depreciation of $933) that the Company no longer operates. These facilities
are currently being leased to unaffiliated third parties under non-cancelable
leases. Income generated by these leases is not significant to the
consolidated results of 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
$1,789 in 1996 ($1,793 in 1995 and $1,179 in 1994) and accumulated
amortization was $8,350 and $6,561 at December 31, 1996 and 1995,
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, 1996, 1995, or
1994. At December 31, 1996 and 1995, the Company recognized an intangible
asset related to the recording of a minimum pension liability in accordance
with Statement of Financial Accounting Standards ("FAS") No. 87.
Advertising - The Company participates in cooperative advertising programs
with certain customers related to products being promoted. In addition, the
Company conducts consumer advertising programs designed to highlight product
features and build brand awareness. Advertising expense related to the
programs is expensed as incurred and was $3,644, $3,675, and $5,366 for the
periods ended December 31, 1996, 1995, and 1994, 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. During 1996, there were no sales to a single customer that
exceeded 10% of total sales.
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 1995 and 1994 amounts have been reclassified to
conform with the 1996 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.
3. Restructuring Charges
On January 4, 1996, the Company announced its intention to exit its cast iron
and cast aluminum businesses ("Sidney Division"). A purchase agreement to
sell the assets of the Sidney Division, effective August 1, 1996, was executed
whereby the Company received consideration of $4,000 in the form of a cash
payment of $450, a note receivable of $3,000, and the purchaser's assumption
of certain liabilities. The consideration was received in exchange for certain
assets of the Sidney Division, as well as associated brand names and
trademarks. The note receivable has been discounted to a net present value of
$2,707 and will be paid with a $1,000 initial payment on July 31, 1999 and
quarterly payments of $125 commencing October 31, 1999, through July 31, 2003.
As a result of this agreement, the Company has recorded, as a component of
selling, general and administrative expenses, a charge against earnings of
$3,198 ($400 of which relates to loss on curtailment of the Sidney Division
defined benefit pension plans). A benefit of $928 was recorded in cost of
sales as a result of the reversal of the Sidney Division LIFO reserve offset
by other inventory loss reserves. Approximately $1,200 of the selling, general
and administrative charge remains as a component of accrued liabilities and as
a reduction to non-current assets at December 31, 1996, representing future
warranty and pension payments to be made by the Company. Net sales of the
Sidney Division were $4,159, $16,884, and $17,298 in 1996, 1995, and 1994,
respectively. The income (loss) from operations (including cooperative
advertising, warehousing, and direct marketing expenses, but excluding
restructuring charges and allocation of corporate overhead expenses) of the
Sidney Division was $(1,496), $820, and $525 in 1996, 1995, and 1994,
respectively.
In addition to the foregoing, the Company closed three manufacturer's retail
outlet stores, sold certain assets associated with its stamped and spun
aluminum cookware product line and incurred a charge related to the write-down
of certain production equipment to net realizable value in 1996. The results
of operations of these stores and the stamped and spun aluminum cookware
product line, the charges incurred as a result of their disposition and the
aforementioned write-down related to production equipment amounted to
approximately $530 for the year ended December 31, 1996.
On January 17, 1996, the Company sold a non-operating facility located in
Hyannis, Massachusetts. The Company received cash of $1,300 for the facility
which represented an amount slightly greater than net book value.
4. 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. The pro forma
information is not necessarily indicative of the results of operations which
would have actually occurred during such periods.
(Unaudited)
1994
Net sales $114,184
Income before taxes 5,831
Net income 3,277
Earnings per average
common share $ 0.88
5. Debt
Long-term and short-term debt includes the following:
December 31, 1996 1995
Bank Credit Agreement $18,000 $12,000
8.41% Senior Notes
payable in equal annual
installments commencing
1998 through 2004 10,000 20,000
12% subordinated note
payable in equal annual
installments commencing
1996 through 2000 3,211 4,368
Deferred payment obligation
due in quarterly installments
of $125 from January, 1995
through September, 1998
(discounted at 6%) 825 1,363
6% subordinated notes
payable in equal annual
installments
commencing 1995 through
1997 729 1,470
------- -------
32,765 39,201
Less current maturities
and short-term debt 2,190 14,163
------- -------
Long-term debt $30,575 $25,038
At December 31, 1996, and 1995, all of the Company's debt outstanding was
unsecured.
The bank debt outstanding at December 31, 1996, relates to a Credit Agreement
with three banks, dated November 13, 1996, consisting of an aggregate
commitment of $45,000 of which $3,046 was reserved for letters of credit at
December 31, 1996. This Credit Agreement expires on December 31, 1999, and
replaced a similar agreement with two banks which consisted of an aggregate
commitment of $30,000. The Credit Agreement may be renewed, under certain
circumstances, for two additional one-year periods. Drawings under the Credit
Agreement are priced at the banks' Prime or LIBOR with spreads based on an
incentive formula. At December 31, 1996, the Company could borrow under the
Credit Agreement at Prime of 8.25% or LIBOR + 1.0%. The interest rate on
outstanding amounts at December 31, 1996, was 6.62%. Commitment fees of .25%
of the unused balance on the line of credit are included in interest expense.
The amounts outstanding under the previous Credit Agreement at December 31,
1995, were classified as short-term debt as the Company intended to, and
subsequently did, repay such amounts from current working capital.
During 1994, the Company sold $20,000 of 8.41% Senior Notes payable to a group
of institutional investors. On November 15, 1996, the Company prepaid $10,000
of the 8.41% Senior Notes with proceeds from the Credit Agreement. The
Company incurred a prepayment penalty of $799 related to this transaction. In
addition, the Company incurred a write-off of unamortized debt issuance costs
of $89 related to this transaction and the replacement of the aforementioned
Credit Agreement. In accordance with FAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt", the prepayment penalty and the write-off of
unamortized debt issuance costs have been reflected as an extraordinary item,
net of applicable income tax benefit of $269, in the Consolidated Financial
Statements.
Terms of the Credit Agreement and the Senior Notes require, among other
things, that the Company maintain certain minimum financial ratios. In
addition, the agreements provide for limits on dividends, certain investments,
and lease commitments. At December 31, 1996, the Company was in compliance
with all covenants contained in the Credit Agreement and the Senior Notes.
One of the covenants contained in the Credit Agreement is a fixed charges
coverage ratio calculated on a rolling four quarter basis (commencing with the
quarter ended September 30, 1996) at the end of each calendar quarter. Due to
the seasonality of the Company's operations (substantially all of the
Company's earnings occur in the last two quarters of the year) and the
Extraordinary Item recorded in the fourth quarter of 1996, the Company
believes it is likely that it will not be in compliance with the fixed charges
coverage ratio as of the next measurement date (March 31, 1997). The Company
expects to be in compliance with this covenant at December 31, 1997. The
Company expects that it will be able to obtain waiver of any noncompliance if
such noncompliance occurs in 1997 relative to this covenant. The Company also
expects to be in compliance with all other covenants contained in the Credit
Agreement and the Senior Notes during 1997.
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 $157 and $632 in 1996 and 1995, respectively, as an
offset to payments made with regard to the environmental remediation program
discussed in Note 12.
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,
1996, are as follows:
1997 $ 2,190
1998 2,793
1999 20,429
2000 1,640
2001 1,429
Later years 4,284
Cash paid during 1996 for interest, net of cash received, was $2,538 (1995 -
$2,798; 1994 - $1,614). Of this amount, $579, $562, and $450 consisted of
amounts paid to related parties in 1996, 1995, and 1994, respectively.
6. Common Stock and Rights
Common stock reserved at December 31, 1996, included 322,286 shares reserved
for outstanding stock options.
In February, 1989, the Company effected a dividend distribution of one Right
for each outstanding share of common stock. Under certain circumstances, each
Right may be exercised to purchase 1/100th of a share of Series A Junior
Participating Preferred Stock, at a purchase price of $25, subject to
adjustment to prevent dilution. Each preferred share fraction is designed to
be equivalent in voting and dividend rights to one share of common stock. The
Rights may only be exercised after a person acquires, or has the right to
acquire, 21% or more of the common stock or makes an offer for 30% or more of
the common stock. The Rights, which do not have voting rights and do not
entitle the holder to dividends, expire on February 27, 1999, and may be
redeemed by the Company prior to their being exercisable at a price of $.01
per Right.
7. Stock Plans
At December 31, 1996, the Company had two stock plans which are described
below. The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plan and its stock purchase plan. Had
compensation cost for the Company's stock plans been determined based, on the
fair value at the grant dates for transactions under those plans consistent
with the method of FAS No. 123, "Accounting for Stock Based Compensation", the
Company's net loss and net loss per share for 1996 and net income and net
income per share for 1995 would have been adjusted to the pro forma amounts
indicated below:
1996 1995
(Loss) income from
continuing operations:
As reported $(2,016) $2,286
Pro forma ( 2,152) 2,238
(Loss) income per share
from continuing operations:
As reported $(0.54) $ 0.61
Pro forma (0.57) 0.59
The risk-free rate used in pro forma calculations is the yield, on the grant
date, of a U.S. Treasury Strip with a maturity date equal to the expected term
of the option. The expected life of vested stock options used in the
calculation is five years with no assumed forfeiture. The volatility
assumption utilized (36.22% and 34.28% in 1995 and 1996, respectively) was
developed using the Company's historical stock price with future dividend
activity assumed to be consistent with 1996 activity.
The Company maintains a fixed stock plan for key employees which provides for
the granting of options or awards of restricted stock until January 31, 2003.
All stock options vest within three years of the date of grant with a maximum
option term of seven years. A summary of transactions under the plan follows:
Restricted Stock
Stock Options
Shares Shares Wtd. Avg.
Price
Outstanding December 31, 1993 38,000 253,738 $11.34
Granted during 1994 10,500 5,000 13.75
Canceled during 1994 (34,000) (11,035) 13.06
Released or exercised
during 1994 (4,000) (16,299) 9.00
Outstanding December 31, 1994 10,500 231,404 11.50
Granted during 1995 10,500 106,000 12.84
Canceled during 1995 - (13,000) 13.01
Released or exercised
during 1995 (3,500) (20,634) 10.40
Outstanding December 31, 1995 17,500 303,770 11.98
Granted during 1996 15,268 44,500 10.39
Canceled during 1996 - ( 7,550) 13.12
Released or exercised
during 1996 (9,500) (18,434) 7.84
Outstanding December 31, 1996 23,268 322,286 $11.97
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 $11.000 per share in 1996. Of the Options Outstanding at December
31, 1996, 112,667 were granted at prices ranging from $7.125 to $10.375 per
share while 209,619 were granted at prices ranging from $11.000 to $14.000 per
share. The weighted average remaining contractual life for the ranges is 3.81
years and 5.18 years, respectively. Options for 194,467 shares were
exercisable at December 31, 1996.
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, 1996, the balance in the plan
consisted of 22,569 shares of General Housewares Corp. Common Stock (17,951
shares in 1995).
8. Employee Benefit Plans
The Company sponsors four defined benefit pension plans (two of which cover
union employees at the Sidney Division) which cover substantially all salaried
and hourly employees. Pension benefit formulas are related to final average
pay or fixed amount per year of service. It is the Company's policy to fund
at least the minimum amounts required by applicable regulations. Effective
August 1, 1996, the Sidney Division's plans no longer accrue service cost due
to the 1996 sale of the assets of the Division.
Net periodic pension cost included the following components:
1996 1995 1994
Service cost-benefits
earned during the period $ 544 $ 459 $ 458
Interest cost on projected
benefit obligation 1,302 1,226 1,166
Actual return on plan assets (1,991) (2,632) (34)
Net amortization and deferral 819 1,561 (919)
----- ----- -----
Net periodic pension cost $ 674 $ 614 $ 671
The funded status of the plans as of December 31 was as follows:
1996 1995
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
Accumulated benefit obligation
vested $12,383 $7,166 $14,193 $2,650
non vested 195 20 304 51
------ ------ ------- ------
12,578 7,186 14,497 2,701
Effect of projected salary
increases 1,592 - 1,220 -
------ ------ ------ ------
Projected benefit
obligation 14,170 7,186 15,717 2,701
Plan assets at
fair value 13,758 6,881 15,677 2,395
------ ------ ------ ------
Plan assets less than
projected benefit
obligation (412) (305) (40) (306)
Unrecognized net transition
(asset) liability (415) (270) (823) 95
Unrecognized net loss
from experience
differences 2,240 1,154 2,246 793
Unrecognized prior service
cost 290 1,193 814 311
Adjustment to recognize
minimum liability - (1,803) - (1,199)
------ ------ ------ ------
Prepaid (accrued) pension cost
recognized in balance
sheet $ 1,703 $( 31) $ 2,197 $(306)
In accordance with the provisions of Statement of FAS No. 87 - "Employers'
Accounting for Pensions", the Company has recorded an additional minimum
liability at December 31, 1996 and 1995, representing the excess of the
accumulated benefit obligation over the fair value of plan assets and prepaid
pension asset. The minimum liability for plans with accumulated benefits in
excess of assets of $1,803 and $1,199 at December 31, 1996 and 1995,
respectively, has been included in the Company's Consolidated Balance Sheet as
a deferred liability with an offset in other intangible assets and equity. In
addition, as of December 31, 1996, a deferred tax asset of $227 ($336 as of
December 31, 1995) has been recognized for the minimum liability charge to
equity.
The actuarial present value of the projected benefit obligation at December
31, 1996 and 1995, was determined using a weighted average discount rate of
7.25% and a rate of increase in future compensation levels of 4%. The
weighted average expected long-term rate of return on assets was 9% at
December 31, 1996 and 1995. As of December 31, 1996, approximately 31% (1995
- - 32%) 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
$297 in 1996 ($316 in 1995 and $302 in 1994).
The Company maintains a non-qualified, unfunded deferred compensation plan for
certain key executives providing payments upon retirement. The present value
of the deferred compensation is included in deferred liabilities.
9. Income Taxes
The components of the provision for income taxes were as follows:
1996 1995 1994
Current income tax expense
(benefit):
Federal $ 134 $1,624 $2,382
State 90 251 352
Foreign 471 219 -
----- ----- -----
Total current income tax
expense (benefit) 695 2,094 2,734
Deferred income tax
expense (benefit):
Federal (1,390) (389) (546)
State (141) (57) -
Foreign (6) 31 -
----- ----- -----
Total income tax
expense (benefit)
before extraordinary
item: $(842) $1,679 $2,188
Current income tax benefit
on extraordinary item: $(269) - -
------ ------ ------
Total income tax (benefit)
expense $(1,111) $1,679 $2,188
A reconciliation between taxes from continuing operations computed at the
federal statutory tax rate and the Company's consolidated effective tax rate
is as follows:
1996 1995 1994
Computed tax at
federal statutory rate ( 972) 1,348 1,679
State income taxes, net
of federal income tax
benefit (99) 128 232
Amortization of excess
purchase price 199 199 199
Miscellaneous items 30 4 78
----- ----- -----
Total income tax expense
(benefit) before
extraordinary item ( 842) 1,679 2,188
Deferred tax assets (liabilities) are comprised of the following at December
31:
1996 1995
Gross deferred tax assets:
Accounts receivable
allowances $ 761 $ 1,079
Inventory reserves 934 487
Vacation 149 240
Self-insurance 75 117
Environmental reserve 147 150
Foreign tax credit 361 -
Restructuring 373 -
Other, miscellaneous 810 449
----- -----
Gross deferred tax assets $3,610 $2,522
Gross deferred tax liabilities:
Property, plant and equipment $(787) $(1,239)
Pension ( 813) ( 552)
Other current receivables ( 56) ( 56)
Other, miscellaneous ( 100) ( 250)
------- -------
Gross deferred tax
liabilities $(1,756) $(2,097)
------- --------
Net deferred tax assets
$1,854 $ 425
Cash paid for income taxes during 1996 was $87 (1995 - $318; 1994 - $1,659).
The Company reached a settlement with the Internal Revenue Service in 1995
relating to a review of the Company's tax returns for the years ended December
31, 1991, 1992, and 1993. The settlement did not have a significant impact on
the results of operations for the year ended December 31, 1995.
The Internal Revenue Service is reviewing the Company's tax returns for the
years ended December 31, 1994 and 1995. The Company does not expect this
review to have a significant impact on future results of operations.
10. Operating Leases
The Company leases warehouses, administrative offices, computer equipment, and
retail outlet store space. Certain of the retail store leases provide for
contingent rental payments, generally based on the sales volume of the
applicable retail unit. All leases in which the Company is engaged are
classified as operating leases.
Future minimum annual lease payments under these operating leases, the
majority of which have initial or remaining non-cancelable lease terms in
excess of one year, were as follows at December 31, 1996:
1997 $1,652
1998 983
1999 560
2000 271
2001 154
Later Years 60
Certain leases require payments of real estate taxes, insurance, repairs, and
other charges. Total rental expense was $1,797 in 1996 (1995 - $2,098; 1994 -
$1,455).
11. Fair Value of Financial Instruments
FAS No. 107, "Disclosures about Fair Value of Financial Instruments", requires
disclosure of information about the fair value of certain financial
instruments for which it is practical to estimate that value. The Company has
performed fair value calculations on its financial instruments (principally
debt obligations) and has determined that fair value approximates carrying
value.
12. Commitments and Contingent Liabilities
The Company is currently involved in the review and evaluation, or
remediation, of six sites posing potential or identified environmental
contamination problems. Based on information currently available,
management's best estimate of probable remediation costs, recorded as a
liability, is $394 at December 31, 1996 ($403 at December 31, 1995), which
aggregate amount management believes will be paid out during the course of the
next five years. Within a range of reasonably possible environmental cleanup
liabilities established on the basis of current information, the recorded
liability represents substantially all of the currently estimable maximum
loss that has been identified by the Company and its environmental advisors.
Based on provisions in the stock purchase agreement related to the acquisition
of Chicago Cutlery, Inc., the Company has recovered approximately $1,100
previously expended by the Company on the mandated remediation of hazardous
wastes generated at the Antrim, New Hampshire, manufacturing site (the "Antrim
Site") owned by Chicago Cutlery, Inc. through an offset to amounts owed to the
holders of the 12% subordinated note (see Note 5). Based on the opinion of
legal counsel, the Company considers it probable that it will retain such
amounts. The holders of the 12% subordinated note have not agreed to such
offset. In addition, the Company instituted an action against David D.
Hurlin, former chief executive officer, director and substantial stockholder
of the Goodell Company, a previous owner of the Antrim Site. The action
sought to recover amounts expended due to the mandated remediation at the
Antrim Site. This case was settled on October 18, 1996, and the Company has
received payment from David D. Hurlin in the amount of $350. While neither the
timing nor the amount of the ultimate costs associated with environmental
matters can be accurately determined, management does not expect that these
matters will have a material effect on the Company's consolidated financial
position, results of operation, and cash flow.
13. Segment Information
The Company's principal business involves the manufacture and marketing of
consumer durable goods. These operations are classified into two reportable
segments:
Housewares - Included in this segment are the Company's cookware, cutlery, and
kitchen 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:
Precision
Housewares Cutting Tools
1996
Net sales $ 89,248 $16,231
Operating income (loss) (2,600) 2,493
Identifiable assets 87,092 8,187
Depreciation and
amortization 4,496 357
Capital expenditures,
net 4,210 26
1995
Net sales $ 103,370 $15,970
Operating income 5,606 1,474
Identifiable assets 97,254 7,285
Depreciation and
amortization 4,135 351
Capital expenditures,
net 4,325 20
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,
net 2,545 -
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. As discussed in Note 3, the Company sold the
assets of its Sidney Division, effective August 1, 1996.
During 1995 and 1994, the Company had gross sales to one customer of $12,577
and $13,046, representing 11% and 14% of total Housewares segment gross sales.
During 1996, there were no sales to a single customer that exceeded 10% of a
segment's sales.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes the 1996 and 1995 unaudited interim financial
information:
(in thousands of dollars except per share amounts)
Quarter Ended Dec. 31, Sep. 30, June 30, Mar. 31,
1996 1996 1996 1996
Net sales $32,858 $26,406 $21,613 $24,602
Gross profit 13,265 9,698 6,575 7,639
Income (loss) before
extraordinary item 2,327 60 (2,174) (2,229)
Extraordinary item, net
of income tax benefit (619) - - -
Net income (loss) $ 1,708 $ 60 $(2,174) $(2,229)
Earnings per
common share:
Income (loss) before
extraordinary item
per common share $ 0.61 $ 0.02 $ (0.57) $ (0.59)
Extraordinary item, net
of income tax benefit
per common share $ (0.16) $ - $ - $ -
Net income (loss)
per common share $ 0.45 $ 0.02 $ (0.57) $ (0.59)
Dividends per common
share $ 0.08 $ 0.08 $ 0.08 $ 0.08
Market price range:
High 10-7/8 12-5/8 14-1/8 11-3/4
Low 8-3/8 9 11 7-7/8
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
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
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of General Housewares Corp.
Our audits of the consolidated financial statements referred to in our report
dated January 31, 1997 appearing in this Annual Report on Form 10-K also
included an audit of the Financial Statement Schedule listed in Item 14(a) of
this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
January 31, 1997
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, 1997, 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 November 12, 1996 (filed as Form 8-K on
December 4, 1996, and incorporated herein by reference).
5. Rights Agreement dated as of February 22, 1989 (filed with the Securities
and Exchange Commission as an Exhibit 2a Registration Statement on Form 8-A,
and incorporated herein by reference).
10. Material Contracts
10.1 Note Purchase Agreement, dated November 30, 1994 among the Company and
certain institutional investors (filed as Exhibit 10.1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, and incorporated
herein by reference).
10.2 Credit Agreement, dated November 13, 1996, between the Company and
Harris Trust and Savings Bank as agent, The First National Bank of Chicago,
and The Northern Trust Company (filed as Form 8-K on December 4, 1996, and
incorporated herein by reference).
*10c. Compensation Agreement, dated August 7, 1987, between the Company and
Paul A. Saxton relating to retirement and termination agreements (filed as
Exhibit 10c to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by reference).
*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
Raymond J. Kulla, relating, among other things, to retirement and termination
agreements.
*10j. Employment Agreement, dated December 2, 1996, between the Company and
William V. Higdon relating, among other matters, to retirement and termination
agreements.
11. Computation of 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 January
31, 1997.
99. Audited financial statements of the Company's Employee Stock Purchase
Plan.
(b) Reports on Form 8-K
Form 8-K was filed during the last quarter of 1996 documenting the credit
agreement, dated November 13, 1996, between the Company and Harris Trust and
Savings Bank as agent, The First National Bank of Chicago and The Northern
Trust Company.
* Represents a contract, plan or arrangement pursuant to which compensation or
benefits are provided to certain Executive Officers or Directors of the
Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GENERAL HOUSEWARES CORP.
By /s/ Robert L. Gray 3/17/97
Robert L. Gray Date
Vice President, Corporate Development,
Chief Financial Officer, and Treasurer
By /s/ Mark S. Scales 3/17/97
Mark S. Scales Date
Vice President, Controller and
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 3/17/97
Paul A. Saxton Date
Chairman of the Board
President and Chief Executive Officer
/s/ Thomas G. Belot 3/17/97
Thomas G Belot - Director Date
/s/ Charles E. Bradley 3/17/97
Charles E. Bradley - Director Date
/s/ John S. Crowley 3/17/97
John S. Crowley - Director Date
/s/ Thomas L. Francis 3/17/97
Thomas L. Francis - Director Date
/s/ Joseph Hinsey IV 3/17/97
Joseph Hinsey IV - Director Date
/s/ Richard E. Lundin 3/17/97
Richard E. Lundin - Director Date
/s/ Ann Manix 3/17/97
Ann Manix - Director Date
/s/ Phillip A. Ranney 3/17/97
Phillip A. Ranney - Director Date
INDEX TO EXHIBITS
Exhibit No.
10j. 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 10j
November 15, 1996
Mr. William V. Higdon
2581 Wimbledon Park Blvd.
Toledo, OH 43617
TITLE: Corporate Vice President, Chief Information Officer
REPORTING
RELATIONSHIP: Reports to the President and Chief Executive Officer of
General Housewares Corp.
SCOPE OF
RESPONSIBILITY: Management responsibility for Information Systems and
Services of the Company.
BASE SALARY: $165,000 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 1996, you will be included in the incentive compensation
plan now in effect on a pro-rated basis. Assuming your start
date is December 1, 1996, and the maximum goals were
achieved, you would receive 68% of your salary earned from
December 1, until December 31, 1996.
Alternatively, in the event that leaving your present job
will nullify an opportunity you have to earn a bonus based on
our 1996 performance, we would pay you a signing bonus based
on our mutual estimate of your 1996 bonus with Merillat.
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 base salary, not to exceed
$500,000 without proof of insurability, plus an additional
$500,000 death benefit for Travel Accident Coverage and a
scheduled portion thereof for dismemberment. Employee
contributes toward coverage.
LONG-TERM
DISABILITY: Insured coverage for 60% of base salary up to a maximum of
$11,000 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,
the Company pays 100% of medical and dental expenses for you
and your eligible dependents. Employee contributes
approximately 20% toward basic coverage.
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
and incentive compensation 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.
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.
EFFECTIVE
DATE: December 1, 1996. GHC would be delighted to have you join
the Company as soon as you can. Obviously, we want you to be
as comfortable as possible with your move to GHC, and offer
you the opportunity to come to Terre Haute with your wife and
evaluate the housing situation. Please call me as soon as
you receive this and we will set up a time for you to come
and arrange accommodations, dinner plans, etc.
Sincerely,
ACCEPTED:
/s/ William V. Higdon
November 17, 1996
EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER SHARE
1996 1995 1994
Net income (loss) $(2,635,000) $2,286,000 $2,750,000
Shares:
Weighted average number of
shares of common stock
outstanding 3,759,089 3,744,309 3,406,115
Shares assumed issued (less
shares assumed purchased for
treasury) on stock options 9,161 21,341 34,156
Outstanding shares for
primary earnings per share
calculation 3,768,250 3,765,650 3,440,271
Earnings per
common share $(0.70) $0.61 $0.80
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State Incorporated
General Housewares Export Corporation U.S. Virgin Islands
Chicago Cutlery, Inc. Florida
Chicago Cutlery etc., Inc. Indiana
General Housewares of Canada Inc. Quebec, Canada
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-33328, 2-77798, 33-48336 and 33-82136) of
General Housewares Corp., of our report dated January 31, 1997, appearing on
page 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, 1996, 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 14, 1997
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EXHIBIT 99
Employee Stock Purchase Plan
Financial Statements
December 31, 1996 and 1995
Price Waterhouse LLP
REPORT OF INDEPENDENT ACCOUNTANTS
January 31, 1997
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, 1996 and 1995, 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
December 31, 1996 1995
PLAN ASSETS
Investments in employer's securities
(cost, 1996 - $216,698; 1995 - $196,947) $220,048 $154,827
LIABILITIES AND PLAN EQUITY
Liabilities - -
Plan Equity $220,048 $154,827
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
Year Year
Ended Ended
December 31, December 31,
1996 1995
Dividend income $6,262 $4,584
Administrative expenses (284) (216)
Net dividend income 5,978 4,368
Realized gain (loss) on
investments 12,521 (4,344)
Unrealized appreciation
(depreciation) in
investments 24,226 (68,425)
Participant contributions 84,861 61,465
Participant distributions (62,365) (21,253)
-------- --------
Net increase (decrease) in
plan equity 65,221 (28,189)
Plan equity at beginning
of period 154,827 183,016
-------- --------
Plan equity at end of period $220,048 $154,827
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. At December 31, 1996, approximately 1,128
shares of common stock had not been distributed to employees terminated in the
fourth quarter of 1996.
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, 1996 and 1995 investments were comprised of 22,569 and 17,951
shares, respectively, of General Housewares Corp. Common Stock. The closing
market price on December 31, 1996 and 1995 was $9.750 and $8.625 per share,
respectively. Net unrealized appreciation (depreciation) of investments was
$24,226 and $(68,425) in 1996 and 1995, respectively. Realized gain (loss)
for 1996 and 1995 is calculated as follows:
Year Ended Year Ended
Dec. 31, 1996 Dec. 31, 1995
Cost (using FIFO basis) $71,524 $27,378
Unrealized appreciation
(depreciation) recognized
in prior years (21,680) (1,781)
-------- --------
49,844 25,597
Sales proceeds 62,365 21,253
-------- --------
Realized gain (loss) recognized
in current year 12,521 ($4,344)
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.
