SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECIURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 1-7117
GENERAL HOUSEWARES CORP.
(Exact name of Registrant as specified in its Charter)
Delaware 41-0919772
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
1536 Beech Street 47804
Terre Haute, Indiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (812) 232-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Class of Common Stock Outstanding at August 12, 1998
3,824,168
$.33-1/3 Par Value
GENERAL HOUSEWARES CORP.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Page Number
Consolidated Condensed Statements of Operations
and Retained Earnings
Three months and six months ended
June 30, 1998 and 1997 ----
Consolidated Condensed Balance Sheets
June 30, 1998 and December 31, 1997 ----
Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 1998 and 1997 ----
Notes to Consolidated Condensed Financial Statements ----
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----
PART II OTHER INFORMATION ----
ITEM 6. EXHIBITS ----
SIGNATURES ----
COMPUTATION OF EARNINGS PER SHARE ----
FINANCIAL DATA SCHEDULE ----
PART I FINANCIAL INFORMATION
GENERAL HOUSEWARES CORP. & SUBSIDIARIES
(Dollars in thousands except per share amounts)
Consolidated Condensed Statements of Operations
and Retained Earnings
(Unaudited)
For the three months For the six months
ended June 30, ended June 30
1998 1997 1998 1997
Net sales $20,900 $23,415 $41,944 $44,290
Cost of goods sold 12,307 14,848 25,281 27,118
------ ------- ------ ------
Gross profit 8,593 8,567 16,663 17,172
Selling, general and
administrative expenses 8,314 8,671 19,784 17,766
------- ------- ------ ------
Operating income (loss) 279 (104) (3,121) (594)
Interest expense, net 582 651 1,208 1,246
------- ------- ------ ------
Loss from operations
before income tax benefit (303) (755) (4,329) (1,840)
Income tax benefit (102) (264) (1,427) (655)
------- ------- ------ -------
Net loss for the period (201) (491) (2,902) (1,185)
Retained earnings,
beginning of period 23,716 26,281 26,722 27,279
Less: Dividends ($.08 per
quarter per common share)
in 1998 and 1997) 304 305 609 609
------- ------- ------ ------
Retained earnings,
end of period $23,211 $25,485 $23,211 $25,485
Basic and diluted earnings
per common share:
Net loss ($0.05) ($0.13) ($0.76) ($0.31)
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED BALANCE SHEETS
As of
June 30, December 31,
1998 1997
(Unaudited)
ASSETS
Current Assets:
Cash $ 615 $ 2,363
Accounts receivable, less allowance of
$3,242 ($2,782 in 1997) 14,761 15,170
Inventories 19,921 20,859
Deferred tax asset 2,857 2,857
Other current assets 1,827 1,680
Income taxes refundable 1,538 -
Total current assets 41,519 42,929
Notes receivable 3,529 2,364
Property, plant and equipment, net 9,457 12,483
Other assets 1,992 3,581
Patents and other intangible assets 2,454 2,600
Cost in excess of net assets acquired 23,374 26,807
------- -------
Total Assets $82,325 $90,764
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 2,673 $ 2,793
Notes payable 650 -
Accounts payable 2,586 2,717
Salaries, wages and related benefits 1,626 2,087
Accrued liabilities 3,510 2,838
Income taxes payable - 437
Total current liabilities 11,045 10,872
Long-term debt 24,759 29,761
Deferred liabilities 1,899 1,860
Stockholders' Equity:
Preferred stock - $1.00 par value:
Authorized - 1,000,000 shares
Common stock - $.33-1/3 par value:
Authorized - 10,000,000 shares
Outstanding - 1998 - 4,097,379
and 1997 - 4,095,730 shares 1,366 1,366
Capital in excess of par value 24,188 24,155
Treasury stock at cost - 1998 and
1997 - 277,760 shares (3,649) (3,649)
Retained earnings 23,211 26,722
Cumulative transition adjustment (494) (323)
Total stockholders' equity 44,622 48,271
------- -------
Total Liabilities and Stockholders' Equity $82,325 90,764
See notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months
ended June 30,
1998 1997
OPERATING ACTIVITIES:
Net loss ($2,902) ($1,185)
Adjustments to reconcile net loss to net
cash provided by (used for)operating
activities -
Depreciation and amortization 3,026 3,044
Loss on sale of assets 1,500 -
Foreign exchange loss - (5)
Compensation related to stock awards - 35
Decrease (increase) in operating assets:
Accounts receivable 409 3,737
Inventory (314) (4,435)
Other assets 395 344
Increase (decrease) in operating liabilities:
Accounts payable (131) (557)
Salaries, wages and related benefits,
accrued and deferred liabilities 80 (230)
Income taxes payable (refundable) (1,975) (1,465)
Net cash provided by (used for)
operating activities: 88 (717)
INVESTING ACTIVITIES:
Additions to property, plant
and equipment (2,436) (1,573)
Proceeds from sale of assets 5,375 -
Additions to cost in excess of net
assets acquired (10) (987)
Note receivable activity 387 -
Net cash provided by (used for)
investing activities 3,316 (2,560)
FINANCING ACTIVITIES:
Debt (repayment) borrowing (4,472) 2,961
Proceeds from stock options and
employee purchases 33 80
Dividends paid (609) (609)
Net cash (used for) provided by
financing activities (5,048) 2,432
Net decrease in cash and
cash equivalents (1,644) (845)
Cash and cash equivalents at beginning
of period 2,363 1,981
Effect of exchange rate on cash (104) (12)
Cash and cash equivalents at
end of period $615 $1,124
See notes to consolidated condensed financial statements.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 - GENERAL
The accompanying interim Consolidated Condensed Financial Statements have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of
management, the financial statements included herein reflect all adjustments
necessary to present fairly the financial information for the periods
presented. The Consolidated Condensed Financial Statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1997 Annual Report on Form 10-K.
NOTE 2 - INVENTORIES
June 30, December 31,
1998 1997
Raw materials $ 2,246 $ 3,782
Work in process 1,578 1,730
Finished goods 15,021 15,504
------- -------
$18,845 $21,016
LIFO Reserve 1,076 (157)
Total, net $19,921 $20,859
NOTE 3 - PROPERTIES
June 30, December 31,
1998 1997
Land $ 387 $ 648
Buildings 3,170 6,944
Equipment 17,290 24,640
------ -------
Total $20,847 $32,232
Accumulated depreciation (11,390) (19,749)
Total, net $ 9,457 $12,483
NOTE 4. - COMPREHENSIVE INCOME
The comprehensive loss for the second quarter of 1998 and 1997 of $378 and
$466, respectively, includes the reported net loss adjusted by the non-cash
effect of changes in the cumulative translation adjustment.
NOTE 5 - LOAN COVENANTS
Terms of the Company's Bank Credit Agreement require compliance with certain
financial covenants. As a result of the change in the Company's cumulative
translation account and operations in the second quarter of 1998, the Company
was not in compliance with a required net worth covenant as of June 30, 1998.
The event of non-compliance was waived and related borrowings were classified
as non-current as of June 30, 1998.
NOTE 6 - FINANCIAL INSTRUMENTS
The Company purchases inventory in Japanese Yen to support its precision
cutting tool division. During the second quarter of 1998, the Company entered
into forward currency exchange contracts to manage its exposure against the
Japanese currency. The contracts, which are held for purposes other than
trading, mature over the next four months and cover inventory receipts of
approximately $4 million. Realized and unrealized gains and losses on foreign
currency contracts used to purchase inventory with no firm purchase
commitments are recognized currently in net income as they do not qualify as
hedges for accounting purposes. Realized and unrealized gains and losses on
forward contracts used to purchase inventories for which the Company has firm
purchase commitments are accounted for as hedges and therefore recognized in
income when related inventory is sold. The Company is exposed to loss in the
event of non-performance by counter parties on foreign exchange contracts.
The Company does not anticipate non-performance by any of those counter
parties. The amount of this exposure is generally limited to unrealized (or
deferred) gains on the contracts. As of June 30, 1998, deferred gains and
losses related to the instruments were not significant. Assuming no
significant changes in the Company's treasury policies, the application of
recently issued Statement of Financial Accounting Standards No. 133
"Accounting For Derivative Instruments and Hedging Activities", will not have
a material effect on the Company's financial position or operating income upon
its implementation in the first quarter of 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(In thousands)
The following table sets forth the operating data of the Company as a
percentage of net sales for the following periods:
Three months ended June 30, Six months ended June 30,
(A) (B)
1998 1997 1998 1998 1997
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 58.9 63.4 60.3 60.3 61.2
----- ----- ----- ----- -----
Gross profit 41.1 36.6 39.7 39.7 38.8
Selling, general
and administra-
tive expenses 39.8 37.0 47.2 43.6 40.1
Operating loss 1.3 (0.4) (7.5) (3.9) (1.3)
Interest expense 2.8 2.8 2.9 2.9 2.8
----- ----- ----- ----- -----
Loss before income
taxes (1.4) (3.2) (10.4) (6.8) (4.1)
Income taxes (0.5) (1.1) (3.4) (2.2) (1.5)
----- ----- ----- ----- -----
Net loss (1.0) (2.1) (7.0) (4.6) (2.6)
Note: Column (A) represents reported results for the six months ended June
30, 1998. Column (B) represents reported results for the six months ended
June 30, 1998 adjusted for the loss on sale of assets related to the Company's
enamelware cookware business (Enamelware Division).
SALES OF ASSETS
On March 31, 1998, the Company completed the sale of certain assets related to
its Enamelware Division. The transaction had a material impact on the
financial position of the Company as of both March 31, 1998 and June 30, 1998.
The transaction also materially impacted the results of operations for the six
months ended June 30, 1998. The following discussion considers those impacts
- -- referring to the Enamelware Division transaction as the "Divestiture".
FINANCIAL POSITION
Referring to the Company's financial position as of June 30, 1998, as
contrasted with December 31, 1997, current assets decreased by $1,410 while
current liabilities increased by $173. The Company's cash balance was reduced
by the timing of debt repayment. The reduction in current assets from
December 31, 1997 reflects lower inventory levels resulting from the
Divestiture. Offsetting the cash and inventory reductions was an increase in
income taxes refundable caused by a combination of 1998 tax payments and the
pre-tax loss recorded in the first six months of 1998.
RESULTS OF OPERATIONS
Net sales for the three month period ended June 30, 1998 were $2,515 (or
10.7%) less than net sales for the three months ended June 30, 1997. Net
sales for the six-month period ended June 30, 1998 were $2,346 (or 5.3%) less
than net sales for the six months ended June 30, 1997. The decrease in net
sales for both the three and six-month period was due primarily to the
Divestiture, as second quarter 1997 Enamelware Division net sales were $3,197.
In addition, net sales for the six-month period were adversely affected by
significant charges and deductions classified as adjustments between gross and
net sales. These adjustments included returns and allowances and freight
costs that resulted from the transition of distribution activities to a new
facility. On a comparable basis, excluding Enamelware Division sales from
1997 and 1998, gross sales for the first six months of 1998 increased $2,696
or 6.6% over gross sales for the first six months of 1997 and gross sales for
the second quarter of 1998 increased $2,597 over gross sales in the second
quarter of 1997. The Company has experienced some shift in sales mix as the
OXO kitchen and household tools line continues to experience strong growth
(gross sales increased $2,066 and $3,488 for the three and six month periods
ended June 30, 1998, respectively, as compared to the same periods in 1997)
while sales at the Company's manufacturer's retail outlet store division
("Outlet Stores") and cutlery division were lower as compared with the first
six months of 1997 (Outlet Stores' gross sales and cutlery division gross
sales dropped $1,000 and $920, respectively. The increase in OXO sales was
driven by both new product introductions and increased distribution while the
drop in Outlet Stores' sales was due to a combination of store closures and
reduced store traffic. Gross profit for the three-month period ended June 30,
1998 was $8,593 as compared to $8,567 for the same three-month period in 1997.
As a percent of net sales, gross profit for the second quarter of 1998 was
41.1% as contrasted with 36.6% in the second quarter of 1997. The increase as
a percent of sales was due primarily to the shift in sales mix from lower-
margin Enamelware Division and Outlet Stores' sales to higher-margin kitchen
and household tool sales. In addition, the Company purchases inventory to
support its precision cutting tool division in Japanese currency, and more
favorable exchange rates in 1998 contributed to higher gross margins (a
favorable material price variance of $342). For the six-month period ended
June 30, 1998, gross profit was $16,663. This compares to gross profit of
$17,172 for the same period in 1997. As a percent of net sales, gross profit
was 39.7% for the first six months of 1998 as compared to 38.8% in the first
six months of 1997. The favorable items discussed above, which impacted the
second quarter comparison, were offset by certain first-quarter factors: (1)
a first quarter 1997 favorable adjustment to inventory reserves and (2)
reduced production volume and related unfavorable production variances in the
Company's cutlery manufacturing facility in the first three months of 1998.
Selling, general and administrative expenses for the three-month period ended
June 30, 1998 were $8,314 as compared to $8,671 for the same period in 1997.
The decrease reflects the lower sales volume. Selling, general and
administrative expenses for the six-month period ended June 30, 1998 were
$19,784 as compared to $17,766 for the first six months of 1997. Of the
increase, $1,500 was directly attributable to the net, non-cash loss
recognized as a result of the Divestiture. The remaining increase was
primarily related to additional first quarter 1998 warehouse costs resulting
from the transition of U.S. distribution activities from the two warehouses
formally operated by the Company to its new distribution center in Plainfield,
Indiana. During the transition period, the Company operated all three
warehouses and incurred the duplicative lease expense and equipment
depreciation related thereto.
Operating income for the three months ended June 30, 1998 was $279 as compared
to a loss of $104 for the same period in 1997. The Company experienced an
operating loss of $3,121 for the first six months of 1998 as compared to a
loss of $594 for the same period in 1997. Net losses for the three-month and
six-month periods ended June 30, 1998 were $201 and $2,902 ($0.05 and $0.76
per common share), respectively. Net losses for the same periods in 1997 were
$491 and $1,185 ($0.13 and $0.31 per common share), respectively.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
11a. Earnings Per Share
Reports on Form 8-K. There were no reports on Form 8-K filed for
the three months ended June 30, 1998.
EXHIBITS
EX-11
EX-27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL HOUSEWARES CORP.
Dated: August 13, 1998 /s/ Mark S. Scales
Mark S. Scales
Vice President Chief Financial
Officer and Treasurer
/s/ Bradley A. Kelsheimer
Bradley A. Kelsheimer
Corporate Controller
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Dollars in thousands except per share amounts)
For six months ended June 30,
1998 1997
Basic Diluted Basic Diluted
Net loss ($2,902) ($2,902) ($1,185) ($1,185)
Shares:
Weighted average number of
shares of common stock
outstanding 3,812,478 3,812,478 3,807,020 3,807,020
Shares assumed issued (less shares
assumed purchased for treasury) on
stock option agreements - 5,202 - 1,307
Rounding 522 320 (20) (327)
3,813,000 3,818,000 3,807,000 3,808,000
Net loss per common share ($0.76) ($0.76) ($0.31) ($0.31)
For three months ended June 30,
1998 1997
Basic Diluted Basic Diluted
Net loss ($ 201) ($ 201) ($ 491) ($ 491)
Shares:
Weighted average number of
shares of common stock
outstanding 3,813,251 3,813,251 3,809,954 3,809,954
Shares assumed issued (less shares
assumed purchased for treasury) on
stock option agreements - 1,457 - 55
Rounding (251) 292 46 (9)
3,813,000 3,815,000 3,810,000 3,810,000
Net loss per common share ($0.05) ($0.05) ($0.13) ($0.13)
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