SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1998
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
incorporation or organization) Employer
Identification
No.)
1536 Beech Street
Terre Haute, Indiana 47804
(Address or principal executive offices) (Zip Code)
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, 1999, 4,027,268 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, 1999, was $52,857,892.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 1999 Annual Meeting
of Stockholders, which will be filed on or
prior to March 29, 1999, 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") markets
and distributes 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 pursues
(or has pursued) such a position in the following product categories:
cookware, cutlery, kitchen/household tools, precision cutting tools and
barbecue tools. Each of these product categories represents a reportable
segment except for barbecue tools which is included in "Other" in the
reportable segment financial disclosure included in Note 13 to the
consolidated financial statements. The Company operates a small number of
manufacturer's retail outlet stores that also represent a reportable segment.
For financial information related to the reportable segments, see Note 13 to
the consolidated financial statements included in this report.
The commentary about the Company's business that follows includes a
description of the cookware business (Enamelware Division) and operations of
the Enamelware Division for the three years ended December 31, 1998 (and,
where applicable, earlier years). On March 31, 1998, the Company sold the
Enamelware Division. This transaction is more fully described below in the
Capital Resources and Liquidity section of Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - and in Note 3
to the consolidated financial statements included in this report.
COOKWARE SEGMENT
Until the sale of the Enamelware Division on March 31, 1998, the Company was
the only domestic manufacturer and marketer of enamelware cookware, and
distributed its products throughout the United States, Canada and selected
European markets. Prior to 1997, the Company competed in four main cookware
product categories, covering a broad range of materials, designs, colors and
prices. In addition to enamelware, the categories included cast aluminum,
cast iron and stamped and spun aluminum.
In August of 1996, the Company exited the cast aluminum and cast iron product
categories ("Sidney Division") in an effort to focus the company's resources
on new product innovation, marketing and distribution and away from
manufacturing operations. An agreement was executed to sell certain assets
of the Sidney Division, effective August 1, 1996, pursuant to which the
Company received consideration of $4,000 in the form of a cash payment of
$450, a $3,000 note receivable 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 a license to
use the 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.
As part of its strategy, the Company sold the brand names, trademarks and
certain assets related to its stamped and spun aluminum cookware line,
effective October 1, 1996. 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.
Continuing the implementation of its strategy, the Company sold the
Enamelware Division effective March 31, 1998. In exchange for the sale of
certain assets related to the Enamelware Division, including plant, property
and equipment and inventories as well as associated brand names and
trademarks, the Company received consideration consisting of a cash payment
of $4.9 million and a promissory note in the principal amount of $1.3
million. The Enamelware Division product lines included 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 were similar to the Enamelware Division's cookware
products and were manufactured in Mexico. In 1995, the Normandy line of
enamelware was discontinued and sourcing to service the Normandy customers
was transitioned to the Enamelware Division's manufacturing operation.
Enamelware is in demand because it is highly efficient cookware, it is easy
to clean-up and it is economically priced. 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, hardware stores, mass merchandise outlets and warehouse
clubs.
The total United States market for cookware is large and diverse. The
Company's market share was modest.
CUTLERY SEGMENT
The Company is a manufacturer and marketer of quality kitchen cutlery with
the leading domestic brand name (Chicago Cutlery (R)) and a significant
market
share in its industry. The Company markets, under the Chicago Cutlery (R)
brand umbrella, six complete lines of kitchen knives for consumers,
sharpening tools and storage units. In 1997, the Company introduced Legacy
Forged (TM) to compete in the highest quality and price point segment of the
cutlery market. The Company believes Legacy Forged (TM) to be uniquely
positioned due to the strength and sharpness of the blade -- which results
from a drop-forged manufacturing process and a sharper blade angle than the
competition. Another competitive advantage is the hybrid material used to
make the Legacy Forged (TM) handle. This material, consisting of dyed birch
infused with specially formulated poly resins, is produced using strips of
wood thoroughly saturated with the poly resins, creating an extremely
attractive material that is impervious to moisture.
In 1998, the Company introduced two new product lines to complement its
offerings in the highest quality and price point segment and mid-price
segment, respectively, of the cutlery market. The 440A Fine product line was
introduced to complement Legacy Forged and offer the consumer a high quality
knife at a lower price point than forged knives. The same hybrid material
used to make the handle of Legacy Forged is utilized for 440A Fine. The
manufacturing process involves wide, heavy gauge, premium steel that is drop-
sheared so that a long, deep taper grind can be applied to the blade
resulting in an extremely sharp edge. Also in 1998, the Company introduced
the Centurion (TM) product line to complement its most popular household
cutlery line, The Walnut Tradition (R). Whereas the Walnut Tradition (R)
features a solid American walnut handle with a Taper Grind (R) edge on the
blade, Centurion has the look and feel of a forged knife with a black
synthetic handle. Centurion is sourced from Asia and shipped to Chicago
Cutlery's Wauconda, Illinois, facility where the final taper grind is applied
to ensure that each knife meets Chicago Cutlery's demanding sharpness
requirement. The Company also manufactures and sells the Metropolitan (R)
product line which features a durable high-impact plastic handle and a Taper
Grind (R) edge. The Company also manufactures and sells a popular priced
knife under the Cherrywood (TM)brand name and a similar knife under the
American Pride (R) brand name. These lines represent the highest quality
knife offered through mass distribution.
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 medium being cut.
The Company also sells a line of promotionally-priced cutlery. These
products compete in both the fine edge and "never-needs-sharpening" segments
of the cutlery industry and are purchased primarily from one supplier in
Asia. Promotionally-priced cutlery consists of six separate cutlery brands,
four of which (Premier (TM), Basics (TM), American Carver (R) and Chef's
Professional (TM)) are sold exclusively through department stores, and the
remaining two (Essentials (R) and Classic Chef(R)) are distributed through
mass merchandisers.
While the overall market for kitchen cutlery in the United States has
remained relatively unchanged in recent years, foreign products, including
the Company's promotionally-priced imported cutlery, have made significant
inroads. The Company believes that imports in 1998 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 umbrella and reputation for high
quality at a good price, the Company has maintained its position as one of
the leaders in the kitchen cutlery industry by marketing a combination of the
promotionally-priced imports and the traditional Chicago Cutlery (R)
products.
The Company also manufactures a full line of knives for the commercial
poultry processing market. These molded-handle knives are designed to meet
the special needs of professionals and have specialized blade shapes for
specific cutting jobs. The handles are textured to be slip-resistant and
feature a finger guard for safety as well as, in some cases, ergonomic
handles.
Prior to 1997, the Company manufactured and marketed cutting boards made of
wood, polyethylene, and combinations of wood, acrylic, marble or
polyethylene, under the Idaho Woodworks (TM) and Chicago Cutlery (R) names.
In January of 1997, the Company decided to exit the cutting board category,
and all related production and sales activity ceased by March 31, 1997.
KITCHEN/HOUSEHOLD TOOLS SEGMENT
Effective October 1, 1992, the Company purchased all of the partnership
interests in OXO International L.P., a New York limited partnership ("OXO").
The purchase price was $6,250 and consisted of a cash payment of $5,500 and a
Subordinated Promissory Note in the principal amount of $750 bearing interest
at 8% per annum. OXO markets a broad line of kitchen tools under the Good
Grips (R), Softworks (TM), Touchables (TM), Prima (R), Plus (TM) and Basics
(TM) brand names. The OXO products are made by manufacturers located in Asia,
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 that 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 1992. The market in which
the Company's kitchen/household tool product category competes is a large
market encompassing many types of tools and gadgets. By reason thereof, the
Company is not able to define its market share.
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. On the same date,
the Company and Olfa Corporation of Osaka, Japan, executed a ten year
agreement naming the Olfa Products Group as the exclusive distributor, in the
United States and Canada, of precision cutting tools and accessories
manufactured by Olfa Corporation. 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 through
distributors as well as directly to hobby, craft, hardware and fabric stores.
Effective June 25, 1997, the Company acquired two product lines (rolling
scissors and a box/carton opener - the "OLO Division"). The Company paid for
the acquisition with cash of $689. The OLO Division products are
manufactured domestically by a third party and are purchased as finished
goods by the Company.
The North American hobby and craft market is large and diverse, with sales
exceeding $12 billion. Products distributed through the Olfa Products Group
and the OLO Division compete in small selected segments in this market.
Typically, these products compete on the basis of performance and value.
OTHER SEGMENT
During 1997, the Company introduced a new product line of barbecue tools and
accessories under the Grilla Gear (TM) brand. This product line consists of
high quality, design-oriented products related to outdoor dining and home
entertainment, such as grilling tools, aprons, mitts, timers, magnets, etc.
The market in which the Company's barbecue tools product category competes is
a large market encompassing many types of tools and gadgets. As a
consequence, the Company is not able to define its market share. The
"Other" segment also includes certain other less-significant product lines.
MANUFACTURER'S RETAIL OUTLET STORES SEGMENT
The Company, through its wholly-owned subsidiary Chicago Cutlery, etc., Inc.
(CCE), operates a small number of manufacturer's retail outlet stores. The
weighted-average number of stores open and total square footage for the years
ended December 31, 1996, 1997 and 1998 were 27 and 70,300, 25 and 65,100, and
20 and 52,700, respectively. CCE sells a variety of kitchen and home
consumer products including The Walnut Tradition (R) and the Metropolitan (R)
cutlery product lines marketed by Chicago Cutlery.
DISTRIBUTION
The Company's products are sold to most major retail and wholesale
distribution organizations in the United States and Canada through its direct
sales force and independent commissioned sales representatives.
Effective October 6, 1997, the Company entered into a five year agreement
with Owen Distribution Company for the lease and operation of a state-of-the-
art distribution center near Indianapolis, Indiana. The Company's primary
distribution activities were relocated to Indianapolis, effective April 1,
1998. The facility allows the Company to respond more quickly and
effectively to customer requirements by expediting order fulfillment,
enhancing value-added services (pre-ticketing, anti-theft tagging, etc.) and
increasing transportation availability. Management believes this relocation
will help the Company to maintain its position as a leading supplier to the
retail trade.
MAJOR CUSTOMERS
During 1998, the ten largest customers of the Company accounted for 41.2% of
the Company's gross revenues -- no single customer accounted for more than
10% of gross revenues. The Company has had good long-term relationships with
its major customers.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 325 persons, of
whom approximately 115 were involved in manufacturing with the balance
serving in sales, general and administrative capacities. The Company
believes that its relations with employees are good.
The Company's employees are not represented by labor organizations.
EXPORT SALES
Exports account for less than 10% of the Company's gross revenues.
SOURCE OF SUPPLY
The principal raw materials used in manufacturing the Company's products are
steel, 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
marketing and distribution operations.
Kitchen/Household tools and certain other products are sourced from over 20
suppliers located in Taiwan, Hong Kong and the Peoples Republic of China. An
interruption in supply from any one of the suppliers could have an adverse
impact on the Company's ability to fill orders on a timely basis. However,
the Company believes other manufacturers with whom the Company does business
would be able to increase production to fulfill the Company's requirements.
As discussed above, Olfa Corporation of Osaka, Japan, is the sole source of
the Olfa precision cutting tool products. Although management believes it to
be unlikely, an interruption in supply from Olfa Corporation could have a
material adverse impact on the Company's results of operations.
SEASONALITY
Shipments of the Company's products are generally 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, however, vary
little from quarter to quarter.
BACKLOG
The dollar value of unshipped orders was not material at December 31, 1998,
1997 and 1996.
WORKING CAPITAL
The future competitive position of the Company will become increasingly
dependent upon its ability to meet rapid delivery requirements imposed by
customers. The Company believes that increased technological and supply
chain initiatives (such as the distribution relocation discussed above) will
position it well for the heightened customer requirements, while maintaining
an optimal level of inventory.
The Company sets standard payment terms at net 30 days; however, industry
practice has dictated an occasional extension of terms. Accordingly, certain
customers have at times been given payment term extensions.
FOREIGN OPERATIONS
The Company operates a wholly-owned subsidiary located in Montreal, Canada.
Revenues, Pre-tax Income and Identifiable Assets (in U.S. dollars) of the
subsidiary for the three years ended December 31, 1998, were as follows:
1998 1997 1996
Net Sales $7,697 $7,562 $6,298
Pre-tax Income 2,140 1,702 1,141
Identifiable Assets 6,303 6,303 5,913
Item 2. Properties
The following table sets forth the location and size of the Company's
principal properties.
OPERATING FACILITIES
Property Owned
CUTLERY SEGMENT:
APPROXIMATE
FLOOR AREA
LOCATION NATURE OR USE OF PROPERTY (Square Feet)
Wauconda, IL Manufacturing (cutlery) 65,000
Property leased:
KITCHEN/HOUSEHOLD SEGMENT:
APPROXIMATE EXPIRATION
NATURE OR FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
New York, NY Administrative 25,000 Dec. 31, 2007
PRECISION CUTTING TOOLS SEGMENT:
APPROXIMATE EXPIRATION
NATURE OR FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
St. Laurent, Administrative
Quebec, Canada and Warehouse 16,230 Nov. 30, 2000
ALL SEGMENTS:
APPROXIMATE EXPIRATION
NATURE OR FLOOR AREA DATE
LOCATION USE OF PROPERTY (Square Feet) OF LEASE
Terre Haute Administrative 48,450 March 31, 2005
Indianapolis Warehouse 131,000 Dec. 1, 2002
In addition, the Company leases an average of 2,600 square feet of retail
space in 18 factory outlet malls with initial lease terms ranging from 3 to 7
years.
In the opinion of the Company's management, the properties 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 consolidated financial
statements in this Report)
APPROXIMATE
FLOOR AREA
LOCATION NATURE OR USE OF PROPERTY (Square Feet)
Antrim, NH Manufacturing facility 55,400
The Antrim, NH manufacturing facility was sold for approximately $150 in cash
on February 17, 1999.
Item 3. Legal Proceedings
The Company and its subsidiaries are subject to certain legal proceedings and
claims, including environmental matters, that have arisen in the ordinary
conduct of its business.
Although management of the Company cannot predict the ultimate outcome of
these matters with certainty, it believes that their ultimate resolution will
not have a material effect on the Company.
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 11, 1999, or until the
election and qualification of a successor.
NAME POSITION WITH COMPANY AGE
Paul A. Saxton Chairman of the Board, President 60
and Chief Executive Officer
John C. Blackwell Vice President, Sales and 61
Marketing
Gordon H. Brown Vice President, Distribution and 59
Supply Chain Management
Stephen M. Evans Vice President, Administration 57
Raymond J. Kulla Vice President, Secretary and 52
General Counsel
Alexander T. Lee President, OXO International and 38
Corporate Vice President
Mark S. Scales Vice President, Chief Financial
Officer and Treasurer 39
Bradley A. Kelsheimer Controller 30
Messrs. Saxton and Evans have been executive officers of the Company for more
than five years. Mr. Evans and the Company executed a severance agreement in
January, 1999, pursuant to which Mr. Evans will no longer be employed by the
Company as of June 30, 1999. 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. Lee has been employed with the Company since September 1,
1994, serving as Director of Product Development and General Manager at OXO
International until his appointment as an executive officer and President of
OXO International on August 5, 1998. Prior thereto, he attended Harvard
Business School where he received a Masters in Business Administration degree
in 1994. Mr. Lee served as Senior Designer at Michael Graves, Architect,
prior to attending Harvard Business School. 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. Blackwell and the Company executed a
severance agreement in January, 1999, pursuant to which Mr. Blackwell will no
longer be employed by the Company effective June 30, 1999. 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. Kelsheimer has been
employed with the Company since March 13, 1995, serving as Assistant
Corporate Controller until his appointment as an executive officer and
Controller on November 5, 1997. Prior thereto, he served as a Senior Auditor
at Price Waterhouse.
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters
The market on which the Company's Common Stock is traded is the New York
Stock Exchange, Inc. The high and low sales prices of the Company's Common
Stock and the cash dividends declared for each quarterly period during the
last two fiscal years is disclosed in quarterly financial information
presented in Item 8.
The approximate number of holders of Common Stock as of March 17, 1999,
including beneficial owners of shares held in nominee accounts of whom the
Company is aware, was 2,000.
SHAREHOLDER RIGHTS PLAN
On November 10, 1998, the Board of Directors of the Company approved the
extension of the benefits afforded by the Company's existing rights plan by
adopting a new shareholder rights plan.
Pursuant to the new Rights Agreement (the "1999 Rights Agreement"), dated as
of November 10, 1998, by and between the Company and First Chicago Trust
Company of New York, as Rights Agent, one Right was issued for each share of
common stock, par value $.33 1/3 per share, of the Company (the "Common
Stock") outstanding as of the expiration of the Company's previously issued
preferred stock purchase rights (February 27, 1999). Each of the new Rights
will entitle the registered holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par
value $0.01 per share, at a price of $40. The Rights, however, will not
become exercisable unless and until, among other things, any person acquires
21% or more of the outstanding Common Stock. If a person (an "Acquiring
Person") acquires 21% or more of the outstanding Common
Stock (subject to certain conditions and exceptions more fully described in
the 1999 Rights Agreement), each Right will entitle the holder (other than
the Acquiring Person) to purchase Common Stock of the Company having a market
value equal to twice the exercise price of a Right. The new Rights are
redeemable under certain circumstances at $.01 per Right and will expire,
unless earlier redeemed, on February 27, 2009.
The foregoing summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the 1999 Rights
Agreement, a copy of which is referenced in Exhibit 5 to this Annual Report
on Form 10-K and incorporated herein by reference.
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
Year ended December 31, 1998 1997 1996 1995 1994
(in thousands except per share amounts)
Net sales $97,031 $104,531 $105,479 $119,340 $97,729
Operating income (loss) 3,068 4,476 (107) 7,080 6,637
Interest expense, net 2,299 2,749 2,751 3,115 1,699
Income (loss) before
income taxes and
extraordinary item 769 1,727 (2,858) 3,965 4,938
Income taxes (benefit) 730 1,065 (842) 1,679 2,188
Income (loss) before
extraordinary item 39 662 (2,016) 2,286 2,750
Extraordinary item, net
of income tax benefit - - (619) - -
Net income (loss) $ 39 $ 662 $ (2,635) $ 2,286 $ 2,750
Average number of diluted
common shares outstanding
including common stock
equivalents 3,915 3,810 3,759 3,769 3,440
Income (loss) before
extraordinary item per
common share
(basic and diluted) $ 0.01 $ 0.17 $ (0.54) $ 0.61 $ 0.80
Extraordinary item, net
of income tax benefit
per common share
(basic and diluted) - - (0.16) - -
Net income (loss) per
common share
(basic and diluted) $ 0.01 $ 0.17 $ (0.70) $ 0.61 $ 0.80
Dividends per common
share $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.32
Financial Summary
Total assets $80,234 $90,764 $ 95,279 $104,610 $98,358
Total debt $23,359 $32,554 $ 32,765 $ 39,201 $34,313
Net worth $47,289 $48,271 $ 48,490 $ 51,848 $50,255
Effective September 1, 1994, the Company purchased the assets of Normandy,
the enamel on steel cookware business of National Housewares, Inc. Effective
October 1, 1994, the Company purchased the assets of the Olfa Products Group.
The acquisitions contributed to the increase in net sales from 1994 to 1995.
Effective August 1, 1996, the Company sold its Sidney Division. The sale
contributed to the decreases in net sales from 1995 to 1996 and from 1996 to
1997. Restructuring charges incurred in conjunction with the sale are
reflected in 1996.
Effective March 31, 1998, the Company sold its Enamelware Division. The sale
contributed to the decrease in net sales from 1997 to 1998. Restructuring
charges incurred in conjunction with the sale are reflected in 1998.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
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,:
1998 $2,782 $10,630 $10,172 $3,240
1997 $3,575 $ 9,285 $10,078 $2,782
1996 $4,029 $ 9,409 $ 9,863 $3,575
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth the operating data of the Company as a
percentage of net sales for the periods indicated below.
1998 1997 1996
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 56.2 59.4 64.8
----- ----- -----
Gross profit 43.8 40.6 35.2
Selling, general and
administrative expenses 40.6 36.3 35.3
----- ----- -----
Operating income (loss) 3.2 4.3 (0.1)
Interest expense 2.4 2.6 2.6
----- ----- -----
Income (loss) before income taxes
and extraordinary item 0.8 1.7 (2.7)
Income tax
expense (benefit) 0.8 1.0 (0.8)
----- ----- -----
Net income (loss) before
extraordinary item 0.0 0.7 (1.9)
Extraordinary item - - (0.6)
----- ----- -----
Net income (loss) 0.0% 0.7% (2.5%)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(dollars in thousands except per share amounts)
Year Ended December 31, 1998 versus 1997
Net sales for 1998 were $97,031, a decrease of 7.2% from net sales in 1997 of
$104,531. Relevant thereto, the 1998 sale of the Company's ceramic on steel
business ("Enamelware Division") involved a reduction in Cookware Segment net
sales of $11,783. Cutlery Segment net sales were $1,531 less in 1998 when
compared to 1997. The discontinuance of a product line previously sold to
the department store trade, the discontinuance of the cutting board business
and the loss of distribution related to a product line manufactured for the
mass merchandise trade resulted in a net sales reduction of $2,526.
Partially offsetting this reduction was an increase in net sales related to
the imported promotionally-priced cutlery product line of $995 resulting from
distribution gains in the mass merchandise trade. Net sales related to the
Manufacturer's Retail Outlet Stores Segment decreased by $1,691 due to a
reduction in the number of store locations from 23 in 1997 to 18 at the end
of 1998. Partially offsetting the reductions in the Cookware, Cutlery and
Manufacturer's Retail Outlet Stores Segments were distribution gains and new
product introductions related to the Kitchen/Household Tools Segment
(contributing to an increase in net sales of $7,515), and increased
distribution and promotions related to the Precision Cutting Tools Segment
(increased net sales of $683). Gross profit was essentially flat from 1997
to 1998 as the decrease caused by the reduction in net sales was offset by a
favorable change in sales mix and favorable exchange rates related to
precision cutting tool products purchased in a foreign currency. Selling,
general and administrative expenses increased to $39,445 in 1998 from $37,966
in 1997. The loss on sale of the Enamelware Division of $1,500, increased
distribution-related expenses of $380 (resulting from operating multiple
facilities in the first quarter of 1998 and related start-up expenses due to
the relocation to the Plainfield facility), the partial write-down of $870
related to the net realizable value of a note receivable and increased
royalty expenses of $578 related to the greater sales of the
Kitchen/Household Tools Segment and barbecue tools (Other Segment), were
partially offset, in the year-to-year comparison, by the reduction in
expenses related to the Enamelware Division and reduced salary expense
resulting from the 1997 reduction-in-force activities.
Operating income of $3,068 in 1998 represented a decrease of $1,408 from
1997. Interest expense was $450 less in 1998 when compared to 1997,
primarily due to the sale of the Enamelware Division and the resulting cash
proceeds and reduced working capital requirements. The 1998 effective income
tax rate of 95% compares to an effective income tax rate of 62% in 1997. By
way of explanation, the Company records non-deductible amortization expense,
in the annual amount of $576, related to the 1988 purchase of Chicago
Cutlery, Inc. Accordingly, the non-deductible nature of this expense can
have a dramatic impact on the Company's effective tax rate, as evidenced by
the 1998 and 1997 rates, depending on the level of pre-tax earnings. Net
income for 1998 was $39, or $0.01 per share, as compared to net income of
$662, or $0.17 per share, in 1997.
Year Ended December 31, 1997 versus 1996
Net sales for 1997 were $104,531, a decrease of 0.9% from net sales in 1996
of $105,479. Relevant thereto, the 1996 sale of the Company's cast iron and
cast aluminum businesses ("Sidney Division"), the 1996 sale of the Company's
stamped and spun aluminum cookware line and the 1997 exit from the cutting
board business involved a reduction in net sales of $4,159 (Cookware
Segment), $1,185 (Cookware Segment) and $619 (Cutlery Segment),
respectively. The Company also experienced a decrease in enamelware net
sales (Cookware Segment). Net sales decreased $2,362 from 1996 to 1997 due
to loss of distribution as well as price reductions, with approximately 35%
of the decrease related to reduced enamelware pricing. Cutlery Segment net
sales were $4,729 less in 1997 when compared to 1996. The imported
promotionally-priced cutlery product line accounted for $1,968 of this
reduction and resulted primarily from distribution losses in the department
store trade. The remainder resulted primarily from the loss of Chicago
Cutlery (R) distribution at a large department store chain, inventory
reduction measures involving its products taken by other large department
store retailers and the aforementioned exit from the cutting board
business. Offsetting these reductions were distribution gains and new
product introductions related to the Kitchen/Household Tools Segment
(contributing to an increase in net sales of $9,243), increased
distribution and promotions related to the Precision Cutting Tools Segment
(increased net sales of $1,832) and new product lines for 1997 (barbecue
tools and accessories - net sales of $727). Gross profit
increased from $37,177 in 1996 to $42,442 in 1997 due to a favorable change
in sales mix, favorable exchange rates related to precision cutting tool
products purchased in a foreign currency and the Company's inventory
reduction efforts in 1996, which resulted in lower production levels, causing
higher fixed overhead costs to be recorded in the Company's Consolidated
Statement of Operations. Gross profit was favorably impacted by $938 in
1996 due to the reversal of a LIFO reserve, net of other inventory
reserves, associated with the sale of the assets of the Sidney Division.
Selling, general and administrative expenses increased to $37,966 in 1997
from $37,284 in 1996. Increased distribution and information services
expenses ($2,360 over 1996) aimed at increasing customer service levels,
severance expense related to positions terminated in 1997 ($826) and
increased selling expenses related to the greater sales of Kitchen/
Household Tools product lines ($435) were partially offset, in the year-to-
year comparison, by the loss on the sale of the assets of the Sidney
Division in 1996 ($3,198).
Operating income of $4,476 in 1997 represented an increase of $4,583 over
operating loss in 1996 of $107. Interest expense was flat from 1996 to 1997.
The income before extraordinary item of $662, or $0.17 per share in 1997
compares to a loss before extraordinary item of $2,016, or $0.54 per share in
1996. The extraordinary charge in 1996 was 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 involved a
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. Net income for 1997 was $662, or $0.17 per share, as compared to a
net loss of $2,635, or $0.70 per share, in 1996.
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 $20,859 in 1997 to $19,122 in 1998. The decrease
was due primarily to the sale of the Enamelware Division.
Inventories increased from $18,513 in 1996 to $20,859 in 1997. The increase
was due in part to efforts aimed at increasing customer service levels. In
addition, the growth of the Kitchen/Household Tools Segment requires greater
inventory investments due to sourcing the product from Asia.
Capital expenditures were $3.7 million, $2.7 million and $4.2 million in
1998, 1997 and 1996, respectively.
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 was to expire on December 31,
1999. The new bank Credit Agreement was extended in December 1998 and now
expires December 31, 2000. The Company used proceeds from the new bank
Credit Agreement to prepay $10,000 of 8.41% Senior Notes on November 15,
1996. The Company was in compliance with all of the financial covenants
contained in both the new bank Credit Agreement and the Senior Notes as of
December 31, 1998, and management expects to be in compliance with such
covenants in the future.
On December 31, 1997, the Company completed the sale of one of three non-
operating facilities for $1.8 million in cash and used part of the proceeds
to prepay $1 million owed under a 12% note payable to the Estate of Ronald
J. Gangelhoff arising from the Company's purchase of Chicago Cutlery, Inc.,
in 1988, with the remaining proceeds used for working capital purposes. In
January of 1998, the Company completed the sale of a second non-operating
facility for $489 in cash, which was also used for working capital purposes.
The Company believes that cash provided from operations and available
borrowing facilities will continue to provide adequate support for the cash
needs of existing businesses; however, certain events, such as significant
acquisitions, could require additional external financing.
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). After completion of the
remediation contemplated by 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.
Effective March 31, 1998, the Company sold its enamelware cookware business
(Enamelware Division). In exchange for the sale of certain assets related to
the Enamelware Division, including property, plant and equipment and
inventories, as well as associated brand names and trademarks, the Company
received consideration of approximately $6.2 million, of which approximately
$4.9 million was in the form of a cash payment at closing. The remainder of
the consideration was a promissory note (the "Note") to be paid in six equal
annual installments beginning April 1, 1999. The obligations under the Note
will be offset against rent due from the Company for office and warehouse
space in its current headquarters located within the Enamelware Division
facility. As a result of this agreement, the Company recorded in the first
quarter of 1998, as a component of selling, general and administrative
expense, a charge against earnings of approximately $1,500. This net, non-
cash charge consisted of the following components:
Excess of consideration received over net book value
of tangible assets sold $ 2,100
Non-cash charges:
Goodwill write-off (2,800)
Defined benefit pension plan curtailment (800)
--------
Loss on sale $(1,500)
--------
--------
Net sales of the Enamelware Division were $2,362, $14,145 and $16,508 in
1998, 1997 and 1996, respectively. Income from operations (including
cooperative advertising, warehousing, goodwill amortization and direct
marketing expenses, but excluding restructuring charges and allocation of
corporate overhead charges) of the Enamelware Division was $191, $2,278 and
$3,752 in 1998, 1997 and 1996, respectively.
Proceeds from the sale of the Enamelware Division and the resulting reduction
in ongoing working capital requirements have reduced debt outstanding and
improved liquidity.
Effect of Inflation
For the years ended December 31, 1998, 1997 and 1996, there were no
significant effects related to raw material or finished goods price increases
from suppliers.
Year 2000
The Year 2000 ("Y2K") computer software compliance issues affect the Company
and most companies throughout the world. Historically, many computer
programs were developed using just the last two digits (rather than all
four) to define the applicable year. Accordingly, these programs, unless
modified to perform otherwise, may recognize a date using the two digits
"00" as the year 1900 rather than the year 2000. Computer programs that do
not recognize the proper date could generate erroneous data or cause systems
to fail.
The Company has developed a program to address the Y2K issues. This program
is divided into four major sections -- Business Administration, Business
Applications, Facilities/Information Technology Infrastructure and the
Customer Fulfillment Process. The general phases of the program common to
all sections are (1) inventorying Y2K items; (2) assigning priorities to
identified items; (3) assessing the Y2K status of items that, if failed,
would have a material impact on the Company; (4) remediating critical items
that are not Y2K compliant; (5) testing critical items; and (6) designing
and implementing contingency and business continuation plans.
As of February 28, 1999, the Company had inventoried, prioritized and
assessed critical Y2K items and was substantially complete with the inventory
for all other Y2K items. Remediation efforts were being performed in the
Business Applications, Facilities/Information Technology Infrastructure and
Customer Fulfillment Process sections of the Y2K program. The testing of
items and Y2K contingency planning were in process as of February 28, 1999.
The Company has completed the inventory process, the prioritization process
and the assessment process for all four sections as of February 28, 1999.
Remediation and testing are currently planned to be completed no later than
June 30, 1999, for all four sections of the Y2K program.
The Company is utilizing internal personnel, contract programmers and vendors
to identify Y2K non-compliance problems, modify code and test the
modifications. In some cases, non-compliant software and hardware may be
replaced.
The Company relies on third-party suppliers for finished goods, raw
materials, water, utilities, communications, transportation and other key
services. Interruption of vendor and supplier operations due to Y2K issues
would affect Company operations in a material way. The Company has
undertaken initiatives to evaluate the efforts of its vendors and suppliers
to mitigate Y2K risks and determine alternatives and contingency plan
requirements. While approaches to reducing risks of interruption due to
vendor and supplier failures may vary, options include identification of
alternate suppliers and accumulation of inventory where feasible or
warranted. These activities are intended to provide a means of managing
risk but cannot eliminate the potential for disruption due to third-party
failure.
The Company is also dependent upon customers for sales and cash flow. Y2K
interruptions in the operations of the Company's customers could result in
reduced sales, increased inventory or receivable levels and cash flow
reductions. While these events are possible, the Company believes that its
customer base is broad enough to minimize the consequences of a single
occurrence. The Company is, however, taking steps to monitor the status of
customers' efforts to become Y2K compliant as a means of identifying risks
and the need for contingencies.
In addition to the Y2K program activities described above, the Company is
developing contingency plans intended to mitigate the possible disruption in
business operations that may result from Y2K non-compliance problems and is
developing cost estimates for such plans. Contingency plans will primarily
address issues surrounding the Company's internal software systems and the
reliance it places on critical vendors and suppliers. Contingency plans may
include the identification of alternative software processing capabilities
and the stock-piling of raw and packaging materials, increasing finished
goods inventory levels, securing alternate sources of supply and other
appropriate measures. Once developed, contingency plans and related cost
estimates will be refined on an ongoing basis as additional information
becomes available.
External and internal costs specifically associated with modifying internal
software for Y2K compliance are expensed as incurred. The Company does not
separately track the internal costs incurred for its Y2K program. Such costs
are principally the related payroll costs for the Company's information
systems group. Total external costs related to the Company's Y2K program
incurred as of December 31, 1998, aggregated $1,050. The future incremental
external cost of completing the Company's Y2K program is estimated to be
approximately $700. These amounts do not include any costs associated with
the implementation of contingency plans, which are in the process of being
developed. All costs related to the Company's Y2K program are being funded
through operating cash flow.
The failure to correct a material Y2K problem could result in an interruption
in, or failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Y2K problem, resulting in part from the
uncertainty of the Y2K readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of
Y2K failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Company's Y2K program
is expected to significantly reduce the Company's level of uncertainty about
the Y2K problem and, in particular, about the Y2K compliance and readiness
of its business partners. The Company believes that, with the completion of
its Y2K program as scheduled, the possibility of significant interruptions of
normal operations should be reduced.
Impact of Recently Issued Accounting Pronouncements
Assuming no significant changes in the Company's treasury policies, the
application of recently issued Statement of Financial Accounting Standards
(FAS) No. 133, "Accounting For Derivative Instruments and Hedging
Activities", will not have a material effect on the Company's financial
position or operating results upon its implementation in the first quarter of
2000.
Forward-Looking Information
Periodically, in written reports and oral statements, the Company
discusses its expectations regarding future performance. These forward-
looking statements are based on currently available competitive, financial
and economic data and management's views and assumptions regarding future
events. Such forward-looking statements are inherently uncertain, and
investors must recognize that actual results may differ materially from
those expressed or implied in the forward-looking statements. Among the
factors that could impact the Company's ability to achieve its stated goals
are the following: (i) the Company's ability to realize improvements in
productivity and efficiency from its ADVANCE(SM) (Automated Distribution
Value-Added Network CEnter) logistics program; (ii) significant competitive
activity, including promotional and price competition, and changes in
consumer demand for the Company's products; (iii) inherent risks in the
marketplace associated with new product introductions, including
uncertainties about trade and consumer acceptance; (iv) the Company's
ability to integrate acquisitions into its existing operations; and (v)
failure by the Company or one or more of its significant vendors or
customers to correct a material Y2K problem. In addition, the Company's
results may also be affected by general factors, such as economic
conditions in the markets where the Company competes.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to a variety of market risks including the effects of
changes in foreign exchange rates and interest rates. Purchases of inventory
for the Company's Precision Cutting Tools Segment are denominated in Japanese
yen. In addition, results of operations and financial position of the
Canadian operations of the Precision Cutting Tools Segment are denominated
in Canadian dollars. The exposure to purchases of inventory in Japanese
currency is managed by using derivative financial instruments (forward
currency contracts) in accordance with established policies and procedures.
The Company does not use derivative financial instruments to manage exposure
related to Canadian dollar currency-related fluctuations impacting
operational results or financial position of the Canadian operations of
the Precision Cutting Tools Segment or to manage exposure related to
interest rate fluctuations. Derivative financial instruments are not
used for trading purposes.
Forward contracts held (in thousands except for exchange rates):
Weighted Contract
Average Amount Spot
Strike Japanese Rate at
Currency Price Yen 12/31/98 Maturity
- -------- -------- -------- -------- --------
Japanese yen 120.90 386,000 113.45 1999
Debt instruments held (dollars in thousands):
Weighted
Average
Interest Future Principal Cash Outflows
Type Rate 1999 2000 2001 2002
- ----- -------- ---- ---- ---- ----
Variable rate
debt (1) $ 600 $14,000 $ - $ -
Fixed rate long-
term debt 8.49% $ 1,616 $ 1,429 $ 1,429 $ 1,429
Future Principal Cash Outflows
Type 2003 Thereafter
- ----- -------- ----------
Variable rate
debt $ - $ -
Fixed rate
long-term debt $ 1,429 $ 1,429
(1) Variable rate based on Prime or LIBOR spreads.
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, 1998
Consolidated Statement of Comprehensive Income (Loss)
for the three years ended December 31, 1998
Consolidated Statement of Changes in Stockholders'
Equity for the three years ended December 31, 1998
Consolidated Balance Sheet at December 31, 1998 and
1997
Consolidated Statement of Cash Flows for the three
years ended December 31, 1998
Notes to Consolidated Financial Statements
Quarterly Financial Information
Financial Statement Schedule:
For the three years ended December 31, 1998
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
PricewaterhouseCoopers 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 comprehensive income (loss), 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 8, 1999
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1998 1997 1996
(in thousands except per share amounts)
Net sales $97,031 $ 104,531 $105,479
Cost of goods sold 54,518 62,089 68,302
Gross profit 42,513 42,442 37,177
Selling, general and
administrative expenses 39,445 37,966 37,284
Operating income (loss) 3,068 4,476 (107)
Interest expense, net 2,299 2,749 2,751
Income (loss) before income taxes
and extraordinary item 769 1,727 (2,858)
Income tax expense (benefit) 730 1,065 (842)
Income (loss) before
extraordinary item 39 662 (2,016)
Extraordinary item, net
of income tax benefit - - (619)
Net income (loss) $ 39 $ 662 $ (2,635)
Earnings (loss) per common share:
Income (loss) before extra-
ordinary item -- basic $ 0.01 $ 0.17 $ (0.54)
Extraordinary item, net
of income tax benefit --
basic - - (0.16)
Net income (loss) -- basic $ 0.01 $ 0.17 $ (0.70)
Income (loss) before extra-
ordinary item -- diluted $ 0.01 $ 0.17 $ (0.54)
Extraordinary item, net of
income tax benefit -- diluted - - (0.16)
Net income (loss) -- diluted $ 0.01 $ 0.17 $ (0.70)
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
For the year ended December 31, 1998 1997 1996
(in thousands)
Net income (loss) $ 39 $ 662 $(2,635)
Other comprehensive income
(loss), net of tax:
Foreign currency translation
adjustments (472) (228) (56)
Minimum pension liability
adjustments (net
of taxes of $228 and $45
in 1997 and 1996) - 382 76
------- ------- -------
Other comprehensive income (loss) (472) 154 20
------- ------- -------
Comprehensive income (loss) $ (433) $ 816 $(2,615)
------- ------- -------
------- ------- -------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Common Capital in Cumulative
Stock Stock Excess of Translation
(in thousands) Shares Amount Par Value Adjustment
December 31, 1995 4,047 $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 loss - - - -
December 31, 1996 4,091 $1,361 $23,976 $(95)
Restricted stock activity 3 1 69 -
Shares issued upon exercise
of options 3 1 45 -
Shares issued for employee
stock purchase plan 9 3 58 -
Tax benefit from exercise
of stock options - - 7 -
Translation adjustments - - - (228)
Minimum pension liability - - - -
Dividends - - - -
Net income - - - -
December 31, 1997 4,106 $1,366 $24,155 $(323)
Restricted stock activity 200 66 565 -
Shares issued upon exercise
of options 1 - 3 -
Shares issued for employee
stock purchase plan 4 2 38 -
Translation adjustments - - - (472)
Dividends - - - -
Net income - - - -
December 31, 1998 4,311 $1,434 $24,761 $(795)
Minimum
Retained Treasury Pension
Earnings Stock Liability Total
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 loss (2,635) - - (2,635)
December 31, 1996 $27,279 $(3,649) $(382) $48,490
Restricted stock activity - - - 70
Shares issued upon exercise
of options - - - 46
Shares issued for employee
stock purchase plan - - - 61
Tax benefit from exercise
of stock options - - - 7
Translation adjustments - - - (228)
Minimum pension liability - - 382 382
Dividends (1,219) - - (1,219)
Net income 662 - - 662
December 31, 1997 $26,722 $(3,649) $ - $48,271
Restricted stock activity - - - 631
Shares issued upon exercise
of options - - - 3
Shares issued for employee
stock purchase plan - - - 40
Translation adjustments - - - (472)
Dividends (1,223) - - (1,223)
Net income 39 - - 39
December 31, 1998 $25,538 $(3,649) $ - $47,289
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
December 31, 1998 1997
(in thousands except for share amounts)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,598 $ 2,363
Accounts receivable, less
allowances of $3,240
($2,782 in 1997) 16,158 15,170
Inventories 19,122 20,859
Deferred tax assets 3,016 2,857
Other current assets 1,453 1,680
Total current assets 41,347 42,929
Notes receivable 2,578 2,364
Property, plant and equipment, net 9,492 12,483
Other assets 1,744 3,581
Patents and other intangible assets 2,307 2,600
Cost in excess of net assets
acquired 22,766 26,807
------- -------
$80,234 $90,764
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 600 $ -
Current maturities of long-term
debt 1,616 2,793
Accounts payable 2,116 2,717
Salaries, wages and related
benefits 1,696 2,087
Accrued liabilities 3,386 2,838
Income taxes payable 1,122 437
Total current liabilities 10,536 10,872
Long-term debt 21,143 29,761
Deferred liabilities 1,266 1,860
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 - 1998 - 4,310,967
and 1997 - 4,106,240 shares 1,434 1,366
Capital in excess of par value 24,761 24,155
Treasury stock at cost - 1998
and 1997 - 277,760 shares (3,649) (3,649)
Retained earnings 25,538 26,722
Accumulated other comprehensive
income (795) (323)
Total stockholders' equity 47,289 48,271
------- -------
$80,234 $90,764
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1998 1997 1996
(in thousands)
Operating activities:
Net income (loss) $ 39 $ 662 $(2,635)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,933 5,408 4,853
Loss on sale of assets 1,500 - 2,335
Write-down of note receivable 870 343 -
Foreign exchange (gain) loss - (5) 21
Compensation related to stock awards 630 77 215
Increase in deferred
income taxes (894) (37) (1,531)
(Increase) decrease in operating assets:
Accounts receivable (988) 669 322
Inventory 485 (2,267) 5,311
Other assets 602 1,841 (476)
(Decrease) increase in operating liabilities:
Accounts payable (601) (1,215) 819
Salaries, wages and related benefits,
accrued and deferred liabilities 129 (1,535) 545
Income taxes payable 685 58 (930)
------ ------- -------
Net cash provided by
operating activities $7,390 $3,999 $8,849
Investing activities:
Additions to property, plant and
equipment, net $(3,723) $(2,649) $(4,236)
Additions to cost in excess
of assets acquired (10) (989) -
Proceeds from sale of assets 5,375 1,785 1,750
Note receivable activity 883 (364) (370)
------- ------- -------
Net cash provided by (used for)
investing activities $2,525 $(2,217) $(2,856)
Financing activities:
Note payable activity $600 $- $-
Long-term debt (repayment)
borrowings (8,366) (211) 3,541
Repayment
of senior notes (1,429) - (10,000)
Proceeds from stock options and
employee stock purchases 44 107 246
Dividends paid (1,223) (1,219) (1,205)
------ ------- -------
Net cash used for
financing activities $(10,374) $(1,323) $(7,418)
Net (decrease) increase in cash
and cash equivalents (459) 459 (1,425)
Cash and cash equivalents at
beginning of year 2,363 1,981 3,414
Effect of exchange rate on cash (306) (77) (8)
------ ------- -------
Cash and cash equivalents at
end of year $ 1,598 $2,363 $ 1,981
------- ------- -------
------- ------- -------
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 kitchen and household tools, precision
cutting tools, kitchen cutlery and cookware. In addition, the Company sells
products through a chain of manufacturer's retail outlet stores.
2. Accounting Policies
Principles of Consolidation - The Consolidated Financial Statements include
the accounts of General Housewares Corp. and its subsidiaries (the
"Company"), all of which are wholly-owned. All intercompany transactions and
balances are eliminated in consolidation.
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.
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.
Inventories - Inventories are stated at the lower of cost or market and at
December 31 were comprised of the following:
1998 1997
Raw materials $2,277 $4,903
Work in process 842 609
Finished goods 15,027 15,504
------ -------
18,146 21,016
LIFO reserve 976 (157)
------ -------
$19,122 $20,859
Cost, at December 31, 1998 and 1997, is determined on a last-in, first-out
(LIFO) basis for approximately 57% and 76%, respectively, 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 improvements and 3 to 15 years for machinery
and equipment. To the extent third parties are utilized in computer software
and hardware implementation efforts, costs related to development and
implementation of new software and hardware are capitalized and depreciated
using the straight-line method based on a useful life of three years. Third-
party training and consulting costs (related to pre-existing computer assets)
are expensed as incurred. All costs specifically associated with
modifying internal software and hardware for Year 2000 compliance are
expensed as incurred.
Property, plant and equipment is as follows:
1998 1997
Land $387 $648
Buildings and improvements 3,545 6,944
Machinery and equipment 17,940 24,640
------ -------
21,872 32,232
Accumulated depreciation (12,380) (19,749)
------ -------
$9,492 $12,483
Other Assets - On January 17, 1996, the Company sold a non-operating facility
located in Hyannis, Massachusetts. The Company received cash of $1.3 million
for the facility. The cash was used for working capital purposes. On
December 31, 1997, the Company completed the sale of one of three remaining
non-operating facilities for $1.8 million in cash and used part of the
proceeds to prepay $1 million owed under a 12% note payable to the Estate of
Ronald J. Gangelhoff arising from the Company's purchase of Chicago Cutlery,
Inc. (CCI) in 1988, with the remaining proceeds used for working capital
purposes. In January of 1998, the Company completed the sale of a second
non-operating facility for $489 in cash, which was also used for working
capital purposes. On February 17, 1999, the Company sold the third non-
operating facility for approximately $150 in cash. The proceeds received on
each of these sales approximated the net book value of the asset sold. 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 $1,395 in 1998 ($1,781 in 1997 and $1,789 in 1996). In
connection with the sale of assets related to the Company's enamelware
cookware business as discussed in Note 3, the Company wrote off $2.8 million
of cost in excess of net assets acquired. Accumulated amortization was
$10,080 and $10,131 at December 31, 1998 and 1997, respectively. The Company
assesses the recoverability of costs in excess of net assets acquired based
on undiscounted future cash flows. Except for the aforementioned write-off
related to the sale of the Company's enamelware cookware business, no write-
downs of such costs were incurred for the periods ended December 31, 1998,
1997 or 1996.
Deferred Liabilities - Deferred liabilities include deferred income taxes and
deferred compensation.
Financial Instruments - 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 recognized in income
when related inventory is sold. In cases where firm purchase commitments
exist, effects of recognition are presented with the item being hedged
(inventories) for cash flow purposes.
Earnings per Share - FAS No. 128, "Earnings per Share", was adopted for the
year ended December 31, 1997, and retroactively applied to the prior years
presented. While options to purchase common shares were outstanding during
each of the years presented, the options' exercise price was greater than the
average market price in most cases, resulting in no difference between
diluted earnings per share and basic earnings per share calculations. In
addition, restricted stock, for which vesting periods had not lapsed, were
not significant enough to result in a difference between diluted and basic
earnings per share. There were no other reconciling items between basic and
diluted earnings per share.
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.
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 $3,318, $3,603 and $3,644 for the
periods ended December 31, 1998, 1997 and 1996, respectively.
Reclassification - Certain 1996 and 1997 amounts have been reclassified to
conform with the 1998 presentation.
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 licenses to
use associated brand names and trademarks. The note receivable was
discounted to a net present value of $2,707 with a scheduled principal
payment of $1,000 due July 31, 1999, and subsequent quarterly payments of
$125 commencing October 31, 1999, through July 31, 2003. The estimated net
realizable value of this note receivable at December 31, 1998 and 1997, was
$1.5 million and $2.4 million, respectively. Interest income related to the
note is recorded when cash is received. Related amounts were not significant
for the years ended December 31, 1998, 1997 or 1996. As a result of this
sale agreement, the Company recorded, in 1996, 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. Net sales of the Sidney Division were $4,159 in
1996. The 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 in 1996.
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 (reflected in
selling, general and administrative expense).
In 1997, the Company initiated cost reduction activities including the
elimination of 32 positions that had supported a variety of selling, general
and administrative functions and the planned first quarter 1998 relocation of
its primary distribution center. Severance related wages and benefits of
$826 were recorded as a charge to selling, general and administrative expense
as a result of the initiatives in 1997. All severance related payments were
made in 1997 and 1998.
On March 31, 1998, the Company sold its enamelware cookware business
(Enamelware Division). In exchange for the sale to Columbian Home Products,
LLC (the "Buyer") of certain assets related to the Enamelware Division,
including property, plant and equipment and inventories as well as associated
brand names and trademarks, the Company received consideration consisting of
a cash payment of $4.9 million and a Promissory Note (the "Note") in the
principal amount of $1.3 million. The Note carries an interest rate of 9%,
and calls for principal and interest payments to be offset against the
payments due the Buyer from the Company pursuant to a seven-year lease
whereby the Company will continue to occupy its current headquarters located
within the Enamelware Division facility. As a result of the sale, the
Company has recorded, in 1998, as a component of selling, general and
administrative expense, a charge against earnings of $1,500. This net, non-
cash charge consisted of the following components:
Excess of consideration received over net book value
of tangible assets sold $2,100
Non-cash charges:
Goodwill write-off (2,800)
Defined benefit plan pension curtailment (800)
-------
Loss on sale $(1,500)
-------
-------
The defined benefit plan pension curtailment remains as a reduction to non-
current assets at December 31, 1998.
Net sales of the Enamelware Division were $2,362, $14,145 and $16,508 in the
years ended December 31, 1998, 1997 and 1996, respectively. Income from
operations of the Enamelware Division (including cooperative advertising,
warehousing, goodwill amortization and direct marketing expenses, but
excluding restructuring charges and allocation of corporate overhead
charges) was $191, $2,278 and $3,752 in 1998, 1997 and 1996, respectively.
4. Acquisitions
Effective June 25, 1997, the Company acquired two product lines for $689, in
cash, that became part of the Company's Precision Cutting Tools Segment. The
acquisition was accounted for as a purchase. The net assets purchased, the
purchase price and pro forma results of operations, as if combined throughout
the preceding periods, were not material. Related cost in excess of assets
acquired from the acquisition of $587 is being amortized over 15 years.
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"). In connection with issuance of restricted common stock
related to the acquisition, the Company agreed, under certain circumstances,
to make payments of up to $600 to the former owners upon sale of the
restricted common stock. Pursuant to this agreement, the Company paid $300
in 1997, the entire amount being recorded as an increase to cost in excess of
net assets acquired.
5. Debt
Long-term and short-term debt includes the following:
December 31, 1998 1997
Long-term bank Credit Agreement $14,000 $21,000
8.41% senior notes payable
in equal annual installments
commencing 1998 through 2004 8,572 10,000
12% subordinated note payable
in equal annual installments
commencing 1996 through 2000 187 1,190
Deferred payment obligation due
in quarterly installments of $125
from January, 1995, through September,
1998 (discounted at 6%) - 364
Short-term bank note payable 600 -
------ -------
23,359 32,554
Less current maturities and
short-term debt 2,216 2,793
------ -------
Long-term debt $21,143 $29,761
At December 31, 1998 and 1997, all of the Company's debt outstanding was
unsecured.
The long-term bank debt outstanding at December 31, 1998, relates to a Credit
Agreement with three banks, dated November 13, 1996, consisting of an
aggregate commitment of $45,000 of which $17 was reserved for letters of
credit at December 31, 1998. This credit agreement, with an original
expiration date of December 31, 1999, was renewed during 1998 for an
additional one-year period. The Credit Agreement, which now expires on
December 31, 2000, may be renewed, under certain circumstances, for an
additional one-year period. Drawings under the Credit Agreement are
priced at the banks' Prime or LIBOR with spreads based on an incentive
formula. At December 31, 1998, the Company could borrow under the Credit
Agreement at Prime of 7.75% or LIBOR plus 1.5%. The interest rates on
outstanding amounts at December 31, 1998, ranged from 6.7% to 7.0%.
Commitment fees of .375% of the unused balance on the line of credit are
included in interest expense.
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, 1998, the Company was in compliance
with all covenants contained in the Credit Agreement and Senior Notes.
The 12% subordinated note payable is due the Estate of the former principal
owner of CCI. The Estate is a significant stockholder of the Company. The
principal balance of the note was reduced by $3 and $21 in 1998 and 1997,
respectively, as an offset to payments made with regard to the environmental
remediation program discussed in Note 12. The terms of this note allow the
Company to prepay the note in whole or in part, without penalty.
The Deferred Payment Obligation was incurred in connection with the
acquisition, in 1994, of the assets of the Normandy enamel on steel cookware
business of National Housewares, Inc.
The short-term bank note payable relates to a $1 million revolving line with
one bank. The line is used for short-term working capital requirements,
carries an interest rate at the bank's prime rate (7.75% at December 31,
1998), and expires on April 30, 1999.
Terms of the Deferred Payment Obligation and the Subordinated Note provide
for the right of offset upon the occurrence of certain events.
Aggregate long-term debt principal payments for the five years subsequent to
December 31, 1998, are as follows:
1999 $ 2,216
2000 15,427
2001 1,429
2002 1,429
2003 1,429
Later years 1,429
Cash paid during 1998 for interest, net of cash received, was $2,277 (1997 -
$2,706; 1996 - $2,538). Of this amount, $142, $417 and $579 consisted of
amounts paid to related parties in 1998, 1997 and 1996, respectively.
6. Common Stock and Rights
Common stock, at December 31, 1998, included 226,093 shares reserved for
outstanding stock options.
In November 1998, 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 $40, 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. Each Right entitles the holder (other than the acquiree)
to purchase common stock of the Company having a market value equal to
twice the exercise price of a Right. The Rights, which do not have voting
rights and do not entitle the holder to dividends, expire on February 27,
2009, 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, 1998, 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 1998 and 1997 would have been adjusted to the pro forma
amounts indicated below:
1998 1997 1996
Income (loss) from
continuing operations:
As reported $ 39 $ 662 $(2,016)
Pro forma $ (55) $ 571 $(2,152)
Income (loss) per share
(basic and diluted) from
continuing operations:
As reported $ 0.01 $ 0.17 $ (0.54)
Pro forma $(0.01) $ 0.15 $ (0.57)
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, (32.81% and 34.28% in 1997 and 1996, respectively), was
developed using the Company's historical stock price with future dividend
activity assumed to be consistent with 1997 activity. No stock options were
granted in 1998.
The Company maintains a fixed stock plan for key employees which provides for
the granting of options or awards of restricted stock until February 1, 2007.
All stock options vest within three years of the date of grant with a maximum
option term of ten years. A summary of transactions under the plan follows:
Restricted Stock
Stock Shares Options
Shares Wtd. Avg.
Price
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
Granted during 1997 - 77,250 10.50
Canceled during 1997 - (128,739) 11.43
Released or exercised
during 1997 (8,000) (6,667) 7.13
Outstanding December 31, 1997 15,268 264,130 $11.88
Granted during 1998 200,750 - -
Canceled during 1998 (4,268) (37,704) 10.94
Released or exercised
during 1998 (4,000) (333) 10.50
Outstanding December 31, 1998 207,750 226,093 $12.04
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 $10.50 per
share in 1998. Of the options outstanding at December 31, 1998, 87,917 were
granted at prices ranging from $9.25 to $10.50 per share, while 138,176 were
granted at prices ranging from $12.00 to $14.00 per share. The weighted
average remaining contractual lives for the ranges are 5.93 years and 3.12
years, respectively. Options for 161,176 shares were exercisable at December
31, 1998. The weighted average price of these exercisable shares was $12.69.
Restricted stock granted under the plan is subject to restrictions relating
to continuous employment or other relationships. Unearned compensation is
recorded at the date of restricted stock awards based on the market value
of shares at the award date and is amortized over the vesting period of
awards. Related unearned compensation, which is netted with capital in
excess of par value on the Consolidated Balance Sheet and Consolidated
Statement of Stockholders' Equity, was $1,455 as of December 31, 1998.
Total amortization of unearned compensation expense was $630 in 1998. The
vesting period for restricted stock awards outstanding at December 31, 1998,
extends through January 1, 2002. The weighted average price of
restricted stock at the date of grant was $10.19 and $8.57 for 1998 and 1996,
respectively.
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, 1998, the
balance in the plan consisted of 19,234 shares of General Housewares Corp.
Common Stock (24,343 shares in 1997).
8. Employee Benefit Plans
In 1996 and 1997, the Company sponsored four defined benefit pension plans.
Two of the plans covered union employees at the Sidney Division, and one of
the plans covered union employees at the Enamelware Division. The Sidney
Division was sold in 1996 and the Enamelware Division was sold in
1998. All three of the plans related to divested operations were retained by
the Company but ceased accruing service cost at the date of sale.
Subsequent to the asset sales, assets and liabilities of the three
plans related to divested operations were merged with an existing plan which
historically covered substantially all of the Company's non-union employees.
As of December 31, 1998, the Company's sponsorship of defined benefit plans
was limited to the one merged plan. Pension benefit formulas remain distinct
to the four previous plans and are related to agreed-upon payment schedules
which, in general, are based on 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. In 1998, the Company adopted FAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". Related disclosures have been modified accordingly. The standard
does not change the measurement or recognition of employee benefit plans.
The change in benefit obligation for the plan is as follows:
1998 1997
Benefit obligation at beginning of year $22,323 $21,356
Service cost 433 709
Interest cost 1,573 1,510
Actuarial loss (gain) 1,098 (104)
Benefits paid (1,425) (1,148)
------- -------
Benefit obligation at end of year $24,002 $22,323
------- -------
------- -------
The change in fair value of assets and funded status for the plan is as
follows:
1998 1997
Fair value of plan assets at beginning of year $25,857 $20,639
Actual return on plan assets 5,103 6,366
Benefits paid (1,425) (1,148)
------- -------
Fair value of plan assets at end of year $29,535 $25,857
------- -------
Funded status $5,533 $3,534
Unrecognized transition asset (411) (548)
Unrecognized actuarial gain (4,165) (1,505)
Unrecognized prior service cost 153 1,080
------- -------
Prepaid benefit cost $1,110 $2,561
------- -------
------- -------
The weighted average assumptions as of December 31 were as follows:
1998 1997 1996
Discount rate 7.00% 7.25% 7.25%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.00%
The components of net periodic benefit cost were as follows:
1998 1997 1996
Service cost $ 433 $ 600 $ 544
Interest cost 1,573 1,510 1,302
Expected asset return (1,696) (1,590) (1,435)
Prior service cost amortization 92 163 143
Recognized net actuarial loss 244 367 241
Transition asset amortization (137) (137) (121)
------- ------- -------
Net periodic benefit cost $ 509 $ 913 $ 674
------- ------- -------
------- ------- -------
In addition to the defined benefit plan 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
$195 in 1998 ($275 in 1997 and $297 in 1996).
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:
1998 1997 1996
Current income tax expense:
Federal $ 588 $ 347 $ 134
State 82 45 90
Foreign 895 718 471
------- ------- -------
Total current income tax
expense 1,565 1,110 695
Deferred income tax
(benefit) expense:
Federal (802) 18 (1,390)
State (89) (51) (141)
Foreign 56 (12) (6)
------ ------- -------
Total income tax expense
(benefit) before
extraordinary item 730 1,065 (842)
Current income tax benefit on
extraordinary item - - (269)
------ ------- --------
Total income tax
expense (benefit) $ 730 $ 1,065 $(1,111)
A reconciliation between taxes from continuing operations computed at the
federal statutory tax rate and the Company's consolidated effective tax rate
were as follows:
1998 1997 1996
Computed tax at
federal statutory rate $ 261 $ 587 $ (972)
State income taxes, net of
federal income tax benefit 54 30 (99)
Amortization of excess
purchase price 199 198 199
Tax effects attributable
to foreign operations 144 126 77
Miscellaneous items 72 124 (47)
------ ------- -------
Total income tax expense
(benefit) before
extraordinary item $ 730 $ 1,065 $ (842)
Deferred tax assets (liabilities) were comprised of the following at December
31:
1998 1997
Gross deferred tax assets:
Accounts receivable allowances $ 820 $ 570
Inventory reserves 873 669
Vacation 44 160
Foreign tax credit 280 280
Package design costs 116 211
Note receivable reserves 371 17
Reserve for environmental 50 40
Other, miscellaneous 775 958
------ -------
Gross deferred tax assets $3,329 $ 2,905
Gross deferred tax liabilities:
Property, plant and equipment $ (323) $ (327)
Pension (31) (521)
Other, miscellaneous (190) (166)
------ -- -----
Gross deferred tax liabilities $ (544) $(1,014)
Net deferred tax assets $2,785 $ 1,891
------ ------
------ ------
Cash paid for income taxes during 1998 was $987 (1997-$741; 1996-$87).
The Internal Revenue Service is reviewing the Company's tax return for the
year ended December 31, 1996. 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, 1998:
1999 $2,042
2000 1,581
2001 1,346
2002 1,172
2003 478
Later years 837
Certain leases require payments of real estate taxes, insurance, repairs and
other charges. Total rental expense was $2,290 in 1998 (1997-$2,018; 1996-
$1,797).
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 fair value
of the Company's notes receivable is determined by calculating the present
value of expected future cash receipts associated with these instruments.
The fair value of the Company's long-term debt is determined by calculating
the present value of expected future cash outlays associated with the debt
instruments. The discount rate used for both calculations is equivalent to
the estimated current rate attainable for notes and debt of similar
maturities. Based on the calculations performed, the Company has determined
that fair value approximates carrying value for its financial instruments.
12. Commitments and Contingent Liabilities
The Company is currently involved with private parties and state agencies in
the review and evaluation, or remediation, of four sites posing potential or
identified environmental contamination problems. Based on information
currently available, management's best estimate (based on an undiscounted
calculation) of probable remediation costs, recorded as a liability, is $285
at December 31, 1998 ($480 at December 31, 1997), 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 $1,113 previously expended on the mandated remediation of
hazardous wastes generated at the Antrim, New Hampshire, manufacturing site
(the "Antrim Site") previously owned by Chicago Cutlery, Inc., through an
offset to amounts owed to the holders of the 12% subordinated note ($813
related to principal payments and $300 related to interest payments - 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. 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 operations and cash flow.
13. Segment Information
In 1998, the Company adopted FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". FAS No. 131 supersedes FAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments.
The Company is organized based on product lines which have distinct brand
names and are managed as autonomous marketing units. The Company evaluates
performance and allocates resources to segments based on divisional operating
income. Divisional operating income is calculated by deducting direct
operating expenses from gross profit. Direct operating expenses include
certain marketing, warehousing, cooperative advertising, and administrative
charges (intangible amortization and royalty charges) that are structured for
divisional tracking or are consistently allocated to the divisional level.
General marketing overhead expenses, selling costs and general corporate
overhead expenses are allocated to the divisional level from time to time,
but, in general, are not used to make operating decisions and assess
performance. These costs are excluded from divisional operating income.
Assets that are identifiable for segment reporting purposes include
inventories, property, plant and equipment, patents and other intangible
assets and cost in excess of net assets acquired.
The Company has identified the following segments as reportable segments for
purposes of applying FAS No. 131: Kitchen and Household Tools (K&HT),
Precision Cutting Tools (PCT), Kitchen Cutlery (CUT), Cookware (COOK),
Retail Outlet Stores (RET) and Other Housewares-Related Products (OTHER).
The table below presents information about reported segments for the three
years ended December 31:
1998 K&HT PCT CUT COOK
Net sales $ 38,445 $ 18,746 $ 28,049 $ 2,362
Divisional operating income $ 12,077 $ 7,452 $ 7,418 $ 191
Depreciation and
amortization expense $ 1,127 $ 442 $ 1,888 $ 193
Total identifiable assets $ 11,037 $ 10,857 $ 26,166 $ -
Identifiable capital
expenditures $ 2,389 $ 148 $ 795 $ 10
1998 RET OTHER TOTAL
Net sales $ 7,139 $ 2,290 $ 97,031
Divisional operating income $ 1,464 $ 169 $ 28,771
Depreciation and
amortization expense $ 283 $ 45 $ 3,978
Total identifiable assets $ 1,713 $ 1,188 $ 50,961
Identifiable capital
expenditures $ 45 $ 131 $ 3,518
1997 K&HT PCT CUT COOK
Net sales $ 30,930 $ 18,063 $ 29,580 $ 14,145
Divisional operating income $ 10,894 $ 6,365 $ 8,403 $ 2,278
Depreciation and
amortization expense $ 991 $ 402 $ 1,885 $ 849
Total identifiable assets $ 12,125 $ 10,171 $ 28,078 $ 7,297
Identifiable capital
expenditures $ 715 $ 46 $ 1,028 $ 287
1997 RET OTHER TOTAL
Net sales $ 8,830 $ 2,983 $104,531
Divisional operating income $ 995 $ 308 $ 29,243
Depreciation and
amortization expense $ 347 $ 3 $ 4,477
Total identifiable assets $ 1,869 $ 713 $ 60,253
Identifiable capital
expenditures $ 280 $ 15 $ 2,371
1996 K&HT PCT CUT COOK
Net sales $ 21,687 $ 16,231 $ 34,309 $ 21,851
Divisional operating income $ 6,818 $ 5,189 $ 7,615 $ 2,314
Depreciation and
amortization expense $ 781 $ 357 $ 1,631 $ 1,088
Total identifiable assets $ 8,363 $ 9,780 $ 30,629 $ 8,215
Identifiable capital
expenditures $ 440 $ 28 $ 656 $ 793
1996 RET OTHER TOTAL
Net sales $ 9,445 $ 1,956 $105,479
Divisional operating income $ 2,011 $ 261 $ 24,208
Depreciation and
amortization expense $ 383 $ - $ 4,240
Total identifiable assets $ 2,296 $ 1,717 $ 61,000
Identifiable capital
expenditures $ - $ 15 $ 1,932
A reconciliation of total segment information to total consolidated financial
information for the three years ended December 31, 1998, 1997 and 1996 is as
follows:
1998 1997 1996
Divisional operating income $28,771 $29,243 $24,208
Unallocated corporate S,G&A 25,703 24,767 24,315
Income (loss) before interest and taxes 3,068 4,476 (107)
Unallocated interest expense 2,299 2,749 2,751
Income (loss) before income ------- ------- -------
taxes and extraordinary item $ 769 $ 1,727 $(2,858)
------- ------- --------
------- ------- --------
1998 1997 1996
Identifiable assets $50,961 $60,253 $61,000
Accounts receivable 16,158 15,170 15,823
Other unallocated assets 13,115 15,341 18,456
------- ------- -------
Total consolidated assets $80,234 $90,764 $95,279
------- ------- -------
------- ------- -------
1998 1997 1996
Segment depreciation and
amortization $3,978 $4,477 $4,240
Unallocated information systems and
corporate facility depreciation 955 931 613
------ ------ -------
Total consolidated depreciation
and amortization $4,933 $5,408 $4,853
------ ------ ------
------ ------ ------
1998 1997 1996
Identifiable capital expenditures $3,518 $2,371 $1,932
Unallocated corporate capital
expenditures 205 278 2,304
------ ------ ------
Total consolidated capital
expenditures $3,723 $2,649 $4,236
------ ------ ------
------ ------ ------
The Company allocates warehouse expense as well as depreciation related to
warehouse operations to segments based on shipping and storage volume.
Of the total revenues derived by the Precision Cutting Tools Segment, $7,697,
$7,562 and $6,298 relate to an operating division in Canada for the years
ended December 31, 1998, 1997 and 1996, respectively. Divisional operating
income from this operating division was $3,117, $2,846 and $2,224 for the
years ended December 31, 1998, 1997 and 1996, respectively.
14. Financial Instruments
The Company purchases inventory in Japanese yen to support its precision
cutting tool division. During 1998, the Company entered into forward
currency exchange contracts to manage its exposure against the Japanese
currency. As of December 31, 1998, the contracts, which are held for
purposes other than trading, mature over the next six months and cover
inventory receipts of approximately $3.2 million. 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 December 31, 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 FAS 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.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands of dollars except per share amounts)
Quarter ended Dec. 31, Sept. 30, June 30, March 31,
1998 1998 1998 1998
Net sales $27,640 $27,447 $20,900 $21,044
Gross profit $13,347 $12,503 $ 8,593 $ 8,070
Net income (loss) $ 1,562 $ 1,379 $ (201) $(2,701)
Net income (loss) per
common share -- basic $ 0.41 $ 0.36 $ (0.05) $ (0.71)
Net income (loss) per
common share --
diluted $ 0.39 $ 0.35 $ (0.05) $ (0.71)
Dividends per common
share $ 0.08 $ 0.08 $ 0.08 $ 0.08
Market price range:
High 12 1/16 11 1/8 11 1/8 11 13/16
Low 7 3/4 8 7/16 9 3/8 10 3/8
Quarter ended Dec. 31, Sept. 30, June 30, March 31,
1997 1997 1997 1997
Net sales $31,026 $29,215 $23,415 $20,875
Gross profit $12,574 $12,696 $ 8,567 $ 8,605
Net income (loss) $ 915 $ 932 $ (491) $ (694)
Earnings per common share
(basic and diluted):
Net income (loss) $ 0.24 $ 0.24 $ (0.13) $ (0.18)
Dividends per common
share $ 0.08 $ 0.08 $ 0.08 $ 0.08
Market price range:
High 10 1/2 10 3/4 10 1/8 10 7/8
Low 8 3/4 8 9/16 8 1/2 9 1/4
Restructuring charges incurred in 1997, as discussed in Note 3 to the
consolidated financial statements, are reflected in results for the quarters
ended September 30, 1997 and December 31, 1997.
As discussed in Note 3 to the consolidated financial statements, the Company
sold the assets of its Enamelware Division, effective March 31, 1998.
Related restructuring charges are reflected in results for the quarter ended
March 31, 1998.
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 February 8, 1999, appearing in the 1998 Annual Report to Shareholders
of General Housewares Corp. (which report and consolidated financial
statements are incorporated 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.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 8, 1999
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 8 of the Company's definitive
proxy statement which the Company expects to file with the Securities and
Exchange Commission on or prior to March 29, 1999, 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 11, 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 November 10, 1998 (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).
*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 matters, to retirement and
termination
agreements.
*10j. Employment Agreement and Release of Claims dated January 19, 1999,
between the Company and John C. Blackwell.
11. Computation of earnings per share.
21. Subsidiaries of the registrant.
23. Consent of PricewaterhouseCoopers LLP, independent accountants, to the
incorporation by reference constituting part of Registration Statements on
Form S-8 (Nos. 33-33328, 2-77798 and 33-48336) of their report dated February
8, 1999.
99. Audited financial statements of the Company's Employee Stock Purchase
Plan.
*Represents a contract, plan or arrangement pursuant to which compensation or
benefits are provided to certain Executive Officers or Directors of the
Company.
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/Mark S. Scales 2/9/99
Mark S. Scales Date
Vice President, Chief Financial Officer
and Treasurer
By /s/Bradley A. Kelsheimer 2/9/99
Bradley A. Kelsheimer Date
Corporate Controller,
Chief 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 2/9/99
Paul A. Saxton Date
Chairman of the Board
President and Chief Executive Officer
/s/John A. Bricker, Jr. 2/9/99
John A. Bricker, Jr. - Director Date
/s/Charles E. Bradley 2/9/99
Charles E. Bradley - Director Date
/s/John S. Crowley 2/9/99
John S. Crowley - Director Date
/s/Thomas L. Francis 2/9/99
Thomas L. Francis - Director Date
/s/Joseph Hinsey IV 2/9/99
Joseph Hinsey IV - Director Date
/s/Richard E. Lundin 2/9/99
Richard E. Lundin - Director Date
/s/Ann Manix 2/9/99
Ann Manix - Director Date
/s/Phillip A. Ranney 2/9/99
Phillip A. Ranney - Director Date
EXHIBIT 10j - BLACKWELL
EMPLOYMENT AGREEMENT AND RELEASE OF CLAIMS
This Employment Agreement and Release of Claims has been entered into by and
between John Blackwell ("Employee") and General Housewares Corp. ("Company").
Background
Employee has served as an employee of Company, and he currently serves as
Company's Vice President - Sales and Marketing. Because of changes in
Company's business activities, Employee and Company agree that Company will
not need the services of Employee in his capacity as Vice President - Sales
and Marketing after June 30, 1999. Employee and Company wish to enter into
this Agreement to provide for (i) Employee's continued employment as Vice
President - Sales and Marketing through June 30, 1999, (ii) Employee's
employment as a consultant from July 1, 1999, through June 30, 2000, and
(iii) termination of Employee's employment on June 30, 2000. For purposes of
this Agreement, the terms defined in Paragraph 16, when capitalized, shall
have the meanings given to them therein.
In consideration of the premises, Company and Employee agree as follows:
Agreement
1. If Employee (i) signs and dates this Agreement and submits it to
Company as provided herein not later than twenty-one (21) days after this
Agreement is provided to Employee, (ii) complies with the other requirements
of this Agreement, and (iii) does not provide written revocation of this
Agreement to Company within the seven (7) day revocation period referred to
in Paragraph 10, Company shall provide the compensation and benefits
described herein.
2. Subject to the terms of this Paragraph, Employee's employment as Vice
President - Sales and Marketing shall continue through June 30, 1999 ("Basic
Employment Period"). For the period from the effective date of this
Agreement through June 30, 1999, Employee shall continue to be compensated at
the base salary rate of $178,000 per year. Payment pursuant to the preceding
provisions of this Paragraph 2 shall be made in accordance with Company's
standard payroll practices and shall be subject to applicable tax
withholding. During the Basic Employment Period, Employee shall continue to
participate in Company's retirement and group insurance plans (including
Company's executive health program) pursuant to the terms of those plans and
shall be entitled to use the Company-provided automobile that he was using on
the effective date of this Agreement. In addition, Employee shall continue
to be considered an employee of Company within the meaning of any stock
option plan pursuant to which he has been issued options that are outstanding
on the date of this Agreement. Company shall not have the right to terminate
Employee's employment before the end of the Extended Employment Period
described in Exhibit A hereto.
3. On June 30, 1999, Employee shall cease to serve as Vice President -
Sales and Marketing. From July 1, 1999, through June 30, 2000 ("Extended
Employment Period"), Employee shall be employed by Company as a consultant;
provided, however, Employee's employment during the Extended Employment
Period shall be contingent on his (i) remaining in the employment of Company
throughout the entire Basic Employment Period, (ii) compliance with the terms
of this Agreement, (iii) execution of the Separation Agreement and Release of
Claims ("Separation Agreement") attached as Exhibit A during the period
specified therein and expiration of the revocation period in the Separation
Agreement without such revocation occurring, and (iv) compliance with all
terms and conditions set out in the Separation Agreement. The terms of
Employee's employment during the Extended Employment Period are specified in
the Separation Agreement. If Employee complies with the provisions of this
Paragraph, Company shall pay the compensation and benefits as provided for in
the Separation Agreement.
4. Except as provided in Paragraph 5, if Employee voluntarily terminates
his employment with Company before the end of the Basic Employment Period for
a reason other than Company's failure to comply with the terms hereof,
Company's obligation to make payments pursuant to Paragraph 2 shall cease.
If Employee dies during the Basic Employment Period, (i) Company shall
continue the base salary provided for in Paragraph 2 to Employee's surviving
wife until the earlier of (A) June 30, 2000, or (B) her death; (ii) Company
shall pay Employee's surviving wife a nonqualified monthly survivor's benefit
from July, 2000, through the earlier of (A) June, 2002, or (B) her death,
equal to the monthly benefit that Participant would have received (as a
combined benefit under the Company's qualified pension plan and the General
Housewares Corp. Supplemental Executive Retirement Plan ("SERP", beginning
as of July 1, 2002, if he had terminated employment on the day before his
death and elected to receive his retirement benefit as a joint and 100%
survivor annuity for him and his wife, and (iii) Company shall pay Employee's
surviving wife a monthly supplemental survivor's benefit, beginning July 1,
2002, and continuing for her life equal to the excess of the amount
determined under the preceding clause (ii) over the combined monthly amount
that Participant's surviving wife would receive under Company's qualified
pension plan and the SERP, if paid as a life annuity beginning on July 1,
2002 (as adjusted pursuant to the following sentence). The benefit described
in clause (iii) of the preceding sentence shall be reduced (but not below
zero) by the actuarial value (using the actuarial factors in effect under
Company's qualified pension plan on the date of Employee's death) of any
Company-provided group life insurance benefit payable on account of
Employee's death. Company may, in its complete discretion, pay the present
actuarial value (using the factors referred to in the preceding sentence) of
the death benefit payable to Employee's wife pursuant to clause (iii) above
as an immediate lump sum payment rather than a monthly payment.
5. Notwithstanding the preceding provisions of this Agreement, if a Change
of Control occurs after the effective date of this Agreement, and during the
Basic Employment Period or during the 21 day period following the Basic
Employment Period during which Employee may execute the Separation Agreement,
Company terminates Employee's employment for any reason or Employee
terminates his employment for Good Reason, Company shall make the following
payments and provide the following benefits:
a. Company shall continue to pay Employee's base compensation at the rate
provided for in Paragraph 2 through June 30, 2000. If Employee dies before
June 30, 2000, Company shall continue to make such payments to Employee's
surviving wife until the earlier of (i) June 30, 2000, or (ii) his surviving
wife's death.
b. Company shall continue to provide for Employee until the earlier of (i)
June 30, 2000, or (ii) his death the benefits provided for active full-time
executive employees under Company's retirement and group insurance plans
(including Company's executive health program), as in effect immediately
before the Change of Control. Group medical insurance coverage provided
pursuant to the preceding sentence shall include coverage for Employee's wife
on the same terms as if Employee were an active full-time executive employee.
If Company is unable to provide such benefits through its retirement and
group insurance plans, it shall provide such benefits outside of its plans.
Moreover, Company shall continue to treat Employee as an employee under any
stock option plan of Company pursuant to which Employee has options that are
outstanding on the effective date of this Agreement until the earlier of (i)
June 30, 2000, or (ii) his death. If Company is unable to provide the
benefit described in the preceding sentence because of the terms of such
stock option plans, it shall provide the same benefit outside of such plans.
For the period beginning with termination of group medical coverage provided
pursuant to the preceding provisions of this Subparagraph (b) and continuing
until Employee and his wife have either reached the eligibility age for
Medicare coverage or died, Company shall make available to Employee and his
wife the group medical coverage available for active executive employees,
provided that Employee and his wife pay for such coverage at the same rate
that they would be required to pay if they were paying for continuation
coverage under COBRA.
c. Company shall continue to provide for Employee's use of the Company-
provided automobile used by Employee immediately before the Change of Control
until the earlier of (i) termination of the lease for such automobile in May,
2000, or (ii) Employee's death.
d. Beginning July, 2000, and continuing through June, 2002, Company shall
pay Employee a monthly nonqualified retirement benefit equal to the combined
monthly benefit that would have been payable to Employee under Company's
qualified pension plan and the SERP if he had worked for Company for the
salary provided herein (including Exhibit A) through June 30, 2000; had
terminated employment on June 30, 2000; and had begun to receive his
retirement benefit on July 1, 2002, in the form of a life and 100% survivor
annuity for him and his wife. If Employee dies before July 1, 2002, Company
shall continue the monthly benefit described in the preceding sentence to
Employee's surviving wife through the earlier of (i) June, 2002, or (ii) her
death. In addition, Employee's surviving wife shall be entitled to the post-
June, 2002, supplemental survivor's benefits described in Paragraph 4(iii).
In calculating the benefits payable pursuant to this Subparagraph (d), all
changes to Company's qualified pension plan and SERP after the effective date
of this Agreement shall be disregarded to the extent that they adversely
affect such benefits.
6. Employee shall, upon Company's reasonable request, deliver to Company
any and all materials relating to Company's business, including without
limitation all confidential information, keys, business notes, credit cards,
memoranda, devices, and documents. Employee shall not retain or deliver to
any person other than a Company officer any photocopies, facsimiles, computer
records, or other records or reproductions of such materials.
7. Employee shall not, during the Basic Employment Period, use for himself
or others or divulge or convey to others any secret or confidential
information, knowledge, or data of Company or of third parties obtained by
him during his employment with Company. Such information includes but is not
limited to procedures and processes, the identity and capabilities of
Company's suppliers, the identity, needs, preferences, and requirements of
Company's customers, marketing and cost information, and other information
not generally known that would be of value to Company's current or future
competitors. This Paragraph supplements and does not supersede Employee's
obligations under statute or common law to protect Company's trade secrets
and confidential information. The use or attempted use of confidential
information in violation of this Paragraph would cause irreparable harm to
Company. Company shall be entitled to obtain immediate injunctive relief
without notice in the form of a temporary restraining order, preliminary
injunction, or permanent injunction against Employee to enforce the terms of
this Paragraph. Company shall not be required to post any bond or other
security and shall not be required to demonstrate any actual injury or damage
to obtain such injunctive relief.
8. In consideration of Company's agreement to make payments and provide
benefits as described herein, Employee releases and discharges Company; all
of its officers, directors, agents, insurers, and employees; any employee
benefit plan maintained by Company; and any agent or fiduciary of any such
plan (all together, "Released Persons") from any and all claims or actions of
any kind directly or indirectly related to or in any way connected with his
employment with Company or the termination thereof ("Released Claims").
Employee gives this release regardless of whether the Released Claims are
known or unknown. Employee further agrees that he will not initiate or
participate as a party in any lawsuit or claim against a Released Person
based on or relating to any of the Released Claims. The Released Claims
include, but are not limited to, those based on allegations of wrongful
discharge and/or breach of contract and those alleging discrimination on the
basis of race, color, sex, religion, national origin, age, handicap, or
disability under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Equal Pay Act of 1963, the Americans with Disabilities Act of 1990, the Civil
Rights Act of 1991, or any other federal, state, or local law, rule, or
regulation. The Released Claims do not include claims that arise after the
date on which Employee signs this Agreement or relate to Employee's benefits
under Company's qualified pension plan or SERP.
9. Employee agrees that if this Agreement is ever held to be invalid or
unenforceable (in whole or in part) as to any particular type of claim or as
to any particular circumstances, it shall remain fully valid and enforceable
as to all other claims and circumstances. Employee agrees that he will
return the amounts paid and the value of benefits provided pursuant to this
Agreement before asserting or bringing any actions or claims that are not
released because of the invalidity or unenforceability of this Agreement.
Employee also agrees that if he files or participates as a party in a lawsuit
based upon a Released Claim, he will return the amounts paid and the value of
benefits provided pursuant to this Agreement and pay all costs and expenses
(including attorneys' fees) incurred by Released Persons in defending against
the claim.
10. Employee acknowledges that he has been given a period of twenty-one
(21) days within which to consider this Agreement and that he has been
advised to consult with an attorney before signing it. Employee understands
that he may revoke this Agreement by providing notice of revocation to
Company within seven (7) days after the date he signs the Agreement and that
the Agreement will not become effective or enforceable until the seven (7)
day revocation period has expired. If Employee does not notify the Company
of his revocation as provided herein within such seven (7) day revocation
period, this Agreement shall become effective.
11. This Agreement shall be considered to have been submitted to Company on
the earlier of the date it is received by Company's General Counsel at 1536
Beech Street, Terre Haute, IN 47804 or the date it is mailed by first class
U.S. mail, return receipt requested, to such person at the address specified
above. Revocation of this Agreement shall be considered to have been
submitted to Company when received by Company's General Counsel at the
address indicated in the preceding sentence or upon telephonic notice to
Company's General Counsel at (812) 232-1000.
12. Company may withhold from any payment hereunder amounts that Company
deems necessary to satisfy federal, state, or local tax withholding
requirements.
13. This Agreement may be amended only by the written agreement of the
parties hereto.
14. This Agreement shall be construed, administered, and enforced in
accordance with the provisions of Indiana law, except where such law is
preempted by federal law.
15. This Agreement shall be binding on Company's successors and assigns.
16. For purposes of this Agreement, the following terms shall have the
meanings specified below:
a. "Change of Control" means one of the following events:
i. if any person becomes the beneficial owner, directly or indirectly, of
securities of Company representing 30% or more of the combined voting power
of Company's then outstanding securities, excluding any person who becomes
such a beneficial owner in connection with a transaction described in clause
iii(A) below;
ii. if the following individuals cease for any reason to constitute a
majority of the number of individuals then serving as directors of Company:
individuals who, on the effective date of this Agreement, are serving as
directors and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation, relating to the
election of directors of Company) whose appointment or election by the Board
or nomination for election by Company's stockholders was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on the effective date of this Agreement or
whose appointment, election, or nomination for election was previously so
approved or recommended;
iii. if there is consummated a merger or consolidation of Company with any
other corporation, other than (A) a merger or consolidation which would
result in the voting securities of Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan
of Company or any subsidiary of Company, at least 70% of the combined voting
power of the securities of Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation, or (B) a
merger or consolidation effected to implement a recapitalization of Company
(or similar transaction) in which no person is or becomes the beneficial
owner, directly or indirectly, of securities of Company (not including in the
securities beneficially owned by such person any securities acquired directly
from Company or its affiliates other than in connection with the acquisition
by Company or its affiliates of a business) representing 30% or more of the
combined voting power of Company's then outstanding securities; or
iv. if the Company's shareholders approve a plan of complete liquidation or
dissolution of Company or there is consummated an agreement for the sale or
disposition by Company of all or substantially all of Company's assets, other
than a sale or disposition by Company of all or substantially all of
Company's assets to an entity, at least 70% of the combined voting power of
the voting securities of which are owned by shareholders of Company in
substantially the same proportions as their ownership of Company immediately
prior to such sale.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred by virtue of the consummation of a transaction
or series of integrated transactions immediately following which the
record holders of the common stock of Company immediately prior to such
transaction or series of transactions continue to have substantially
the same proportionate ownership in any entity which owns all or
substantially all of the assets of Company immediately following such
transaction or series of transactions.
b. "Good Reason" means the occurrence (without Employee's express written
consent) after the Change of Control of any one of the following acts by
Company:
i. a reduction by Company of Employee's base salary;
ii. a reduction by Company of Employee's benefits; or
iii. removal by Company of Employee from any position in which he is serving
on the effective date of the Change of Control to a subordinate position.
Employee's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any act constituting Good Reason
hereunder.
17. Any dispute or controversy arising under or in connection with this
Agreement shall be conclusively settled by arbitration in Terre Haute,
Indiana, by a panel of three arbitrators (selected in accordance with this
Paragraph) in accordance with the rules of the American Arbitration
Association then in effect. The panel of arbitrators shall be selected as
follows: each of Company and Employee shall select one arbitrator, and the
two arbitrators selected by the parties shall select the third arbitrator.
If any arbitration occurs with respect to a dispute arising before a Change
of Control, the parties shall share equally in the costs of the arbitration.
If an arbitration occurs with respect to a dispute arising after a Change of
Control, Company shall pay the entire costs of the arbitration and, if
Employee prevails, shall reimburse Employee for all legal fees and expenses
incurred in connection with the arbitration. Judgment may be entered on the
arbitrators' award in any court having jurisdiction.
18. Employee represents that he has read this Agreement, fully understands
each and every provision, and signs it voluntarily. Employee further
acknowledges that in consideration of agreeing to accept the payments and
benefits specified herein, he is giving up possible administrative and/or
legal claims. Employee acknowledges that he has not been offered any
consideration other than the consideration described herein for signing this
Agreement, that he has not relied on any oral representation or promise, and
that this Agreement represents the complete agreement between the parties
relating to his employment and the termination thereof. This Agreement
shall, upon its effective date, supersede all prior employment agreements
between Company and Employee, including any agreements related to Employee's
rights upon a change of control; provided, however, this Agreement shall not
reduce Employee's rights under the SERP.
EMPLOYEE GENERAL HOUSEWARES CORP.
By:
Title:
Date:
EXHIBIT A
SEPARATION AGREEMENT AND RELEASE OF CLAIMS
This Separation Agreement and Release of Claims has been entered into by and
between John Blackwell ("Employee") and General Housewares Corp. ("Company").
Background
Employee served as Company's Vice President - Sales and Marketing until June
30, 1999, at which time Employee's employment in that position terminated.
Employee and Company wish for Employee to continue in Company's employment
for the period specified herein and subject to the terms hereof. For
purposes of this Agreement, the terms defined in Paragraph 15, when
capitalized, have the meanings given to them therein.
In consideration of the premises, Company and Employee agree as follows:
Agreement
1. If Employee (i) signs and dates this Agreement and submits it to
Company as provided herein after June 30, 1999, and before July 21, 1999,
(ii) complies with the other requirements of this Agreement, and (iii) does
not provide written revocation of this Agreement to Company within the seven
(7) day revocation period referred to in Paragraph 9, Company shall provide
the compensation and benefits described herein; provided, however, Company's
obligations hereunder shall be subject to satisfaction of the conditions and
contingencies set forth in the Employment Agreement and Release of Claims to
which this Agreement is an Exhibit.
2. Subject to the terms of this Paragraph, Employee shall be employed as a
consultant during the period beginning July 1, 1999, and ending June 30, 2000
("Extended Employment Period"). During the Extended Employment Period,
Employee shall perform such services for Company as mutually agreed to by
Company and Employee from time to time, but (except as otherwise expressly
provided herein), Employee shall not be precluded from performing services
for another employer. Employee shall not be required to reside in Terre
Haute, Indiana, during any part of the Extended Employment Period. If the
consulting services agreed to by Employee and Company during the Extended
Employment Period require that Employee travel more than 50 miles from his
residence, Company shall reimburse Employee for his travel expenses. Company
shall not have the right to terminate Employee's employment for any reason
before the end of the Extended Employment Period. Throughout the Extended
Employment Period, Company shall provide Employee with the following
compensation and benefits:
a. Company shall pay Employee a base salary at the rate of $178,000 per
year, in accordance with Company' standard payroll practices and subject to
applicable tax withholding.
b. Employee shall continue to participate in Company's retirement and
group insurance plans (including Company's executive health program)
according to the terms of such plans as if he were a regular full-time
executive employee, regardless of the hours actually worked during any
particular month of the Extended Employment Period. In addition, Employee
shall continue to be considered an employee of Company within the meaning of
any stock option plan pursuant to which he has been issued options that are
outstanding on June 30, 1999.
c. Employee may continue to use the Company-provided automobile that he is
using on the effective date of this Agreement during that portion of the
Extended Employment Period ending upon expiration of the lease for such
automobile.
At the end of the Extended Employment Period, Employee's employment shall
terminate, and Company shall have the following obligations:
a. Beginning July, 2000, and continuing through June, 2002, Company shall
pay Employee a monthly nonqualified retirement benefit equal to the combined
monthly benefit that would have been payable to Employee under Company's
qualified pension plan and the SERP if he had worked for Company for the
salary provided herein through June 30, 2000; had terminated employment on
June 30, 2000; and had begun to receive his retirement benefit on July 1,
2002, in the form of a life and 100% survivor annuity for him and his wife.
If Employee dies before July 1, 2002, Company shall continue the monthly
benefit described in the preceding sentence to Employee's surviving wife
through the earlier of (i) June, 2002, or (ii) her death. In addition,
Employee's surviving wife shall be entitled to the post-June, 2002,
supplemental survivor's benefits described in Paragraph 3(iii). In
calculating the benefits payable pursuant to this Subparagraph (a), all
changes to Company's qualified pension plan and SERP after the effective date
of the Employment Agreement and Release of Claims to which this Agreement is
an Exhibit shall be disregarded to the extent that they adversely affect such
benefits.
b. For the period beginning July 1, 2000, and continuing until Employee
and his wife have either reached the eligibility age for Medicare coverage or
died, Company shall make available to Employee and his wife the group medical
coverage available for active executive employees, provided that Employee and
his wife pay for such coverage at the same rate that they would be required
to pay if they were paying for continuation coverage under COBRA.
3. If Employee dies during the Extended Employment Period, (i)
Company shall continue the base salary provided for in Paragraph 2 to
Employee's surviving wife until the earlier of (A) June 30, 2000, or (B) her
death; (ii) Company shall pay Employee's surviving wife a nonqualified
monthly survivors benefit from July, 2000, through the earlier of (A) June,
2002, or (B) her death, equal to the monthly benefit that Participant would
have received (as a combined benefit under the Company's qualified pension
plan and the General Housewares Corp. Supplemental Executive Retirement Plan
("SERP"), beginning as of July 1, 2002, if he had terminated employment on
the day before his death and elected to receive his retirement benefit as a
joint and 100% survivor annuity for him and his wife, and (iii) Company shall
pay Employee's surviving wife a monthly supplemental survivor's benefit,
beginning July 1, 2002, and continuing for her life equal to the excess of
the amount determined under the preceding clause (ii) over the combined
monthly amount that Participant's surviving wife would receive under
Company's qualified pension plan and the SERP, if paid as a life annuity
beginning on July 1, 2002 (as adjusted pursuant to the following sentence).
The benefit described in clause (iii) of the preceding sentence shall be
reduced (but not below zero) by the actuarial value (using the actuarial
factors in effect under Company's qualified pension plan on the date of
Employee's death) of any Company-provided group life insurance benefit
payable on account of Employee's death. Company may, in its complete
discretion, pay the present actuarial value (using the factors referred to in
the preceding sentence) of the death benefit payable to Employee's wife
pursuant to clause (iii) above as an immediate lump sum payment rather than a
monthly payment.
4. Notwithstanding the preceding provisions of this Agreement, if a
Change of Control occurs after the effective date of this Agreement, and
Company terminates Employee's employment for any reason during the Extended
Employment Period, Company shall make the following payments and provide the
following benefits:
a. Company shall continue to pay Employee's base compensation at the rate
of $178,000 per year through June 30, 2000. If Employee dies before June 30,
2000, Company shall continue to make such payments to Employee's surviving
wife until the earlier of (i) June 30, 2000, or (ii) his surviving wife's
death.
b. Company shall continue to provide for Employee until the earlier of (i)
June 30, 2000, or (ii) his death the benefits provided for active full-time
executive employees under Company's retirement and group insurance plans
(including Company's executive health program), as in effect immediately
before the Change of Control. Group medical insurance coverage provided
pursuant to the preceding sentence shall include coverage for Employee's wife
on the same terms as if Employee were an active full-time executive employee.
If Company is unable to provide such benefits through its retirement and
group insurance plans, it shall provide such benefits outside of its plans.
Moreover, Company shall continue to treat Employee as an employee under any
stock option plan of Company pursuant to which Employee has options that are
outstanding on June 30, 1999, until the earlier of (i) June 30, 2000, or (ii)
his death. If Company is unable to provide the benefit described in the
preceding sentence because of the terms of such stock option plans, it shall
provide the same benefit outside of such plans. For the period beginning
with termination of group medical coverage provided pursuant to the preceding
provisions of this Subparagraph (b) and continuing until Employee and his
wife have either reached the eligibility age for Medicare coverage or died,
Company shall make available to Employee and his wife the group medical
coverage available for active executive employees, provided that Employee and
his wife pay for such coverage at the same rate that they would be required
to pay if they were paying for continuation coverage under COBRA.
c. Company shall continue to provide for Employee's use of the Company-
provided automobile used by Employee immediately before the Change of Control
until the earlier of (i) termination of the lease for such automobile in May,
2000, or (ii) Employee's death.
d. Beginning July, 2000, and continuing through June, 2002, Company shall
pay Employee a monthly nonqualified retirement benefit equal to the combined
monthly benefit that would have been payable to Employee under Company's
qualified pension plan and the SERP if he had worked for Company for the
salary provided herein through June 30, 2000; had terminated employment on
June 30, 2000; and had begun to receive his retirement benefit on July 1,
2002, in the form of a life and 100% survivor annuity for him and his wife.
If Employee dies before July 1, 2002, Company shall continue the monthly
benefit described in the preceding sentence to Employee's surviving wife
through the earlier of (i) June, 2002, or (ii) her death. In addition,
Employee's surviving wife shall be entitled to the post-June, 2002,
supplemental survivor's benefits described in Paragraph 3(iii). In
calculating the benefits payable pursuant to this Subparagraph (d), all
changes to Company's qualified pension plan and SERP after the effective date
of the Employment Agreement and Release of Claims to which this Agreement is
an Exhibit shall be disregarded to the extent that they adversely affect such
benefits.
5. Employee shall, upon Company's reasonable request, deliver to Company
any and all materials relating to Company's business, including without
limitation all confidential information, keys, business notes, credit cards,
memoranda, devices, and documents. Employee shall not retain or deliver to
any person other than a Company officer any photocopies, facsimiles, computer
records, or other records or reproductions of such materials.
6. Employee shall not, during the Extended Employment Period, use for
himself or others or divulge or convey to others any secret or confidential
information, knowledge, or data of Company or of third parties obtained by
him during his employment with Company. Such information includes but is not
limited to procedures and processes, the identity and capabilities of
Company's suppliers, the identity, needs, preferences, and requirements of
Company's customers, marketing and cost information, and other information
not generally known that would be of value to Company's current or future
competitors. This Paragraph supplements and does not supersede Employee's
obligations under statute or common law to protect Company's trade secrets
and confidential information. The use or attempted use of confidential
information in violation of this Paragraph would cause irreparable harm to
Company. Company shall be entitled to obtain immediate injunctive relief
without notice in the form of a temporary restraining order, preliminary
injunction, or permanent injunction against Employee to enforce the terms of
this Paragraph. Company shall not be required to post any bond or other
security and shall not be required to demonstrate any actual injury or damage
to obtain such injunctive relief.
7. In consideration of Company's agreement to make payments and provide
benefits as described herein, Employee releases and discharges Company; all
of its officers, directors, agents, insurers, and employees; any employee
benefit plan maintained by Company; and any agent or fiduciary of any such
plan (all together, "Released Persons") from any and all claims or actions of
any kind directly or indirectly related to or in any way connected with his
employment with Company or the termination thereof ("Released Claims").
Employee gives this release regardless of whether the Released Claims are
known or unknown. Employee further agrees that he will not initiate or
participate as a party in any lawsuit or claim against a Released Person
based on or relating to any of the Released Claims. The Released Claims
include, but are not limited to, those based on allegations of wrongful
discharge and/or breach of contract and those alleging discrimination on the
basis of race, color, sex, religion, national origin, age, handicap, or
disability under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Equal Pay Act of 1963, the Americans with Disabilities Act of 1990, the Civil
Rights Act of 1991, or any other federal, state, or local law, rule, or
regulation. The Released Claims do not include claims that arise after the
date on which Employee signs this Agreement or relate to Employee's benefits
under Company's qualified pension plan or SERP.
8. Employee agrees that if this Agreement is ever held to be invalid or
unenforceable (in whole or in part) as to any particular type of claim or as
to any particular circumstances, it shall remain fully valid and enforceable
as to all other claims and circumstances. Employee agrees that he will
return the amounts paid and the value of benefits provided pursuant to this
Agreement before asserting or bringing any actions or claims that are not
released because of the invalidity or unenforceability of this Agreement.
Employee also agrees that if he files or participates as a party in a lawsuit
based upon a Released Claim, he will return the amounts paid pursuant to this
Agreement and pay all costs and expenses (including attorneys' fees) incurred
by Released Persons in defending against the claim.
9. Employee acknowledges that he has been given a period of twenty-one
(21) days within which to consider this Agreement and that he has been
advised to consult with an attorney before signing it. Employee understands
that he may revoke this Agreement by providing notice of revocation to
Company within seven (7) days after the date he signs the Agreement and that
the Agreement will not become effective or enforceable until the seven (7)
day revocation period has expired. If Employee does not notify Company of
his revocation as provided herein within such seven (7) day revocation
period, this Agreement shall become effective.
10. This Agreement shall be considered to have been submitted to Company on
the earlier of the date it is received by Company's General Counsel at 1536
Beech Street, Terre Haute, IN 47804 or the date it is mailed by first class
U.S. mail, return receipt requested, to such person at the address specified
above. Revocation of this Agreement shall be considered to have been
submitted to Company when received by Company's General Counsel at the
address indicated in the preceding sentence or upon telephonic notice to
Company's General Counsel at (812) 232-1000.
11. Company may withhold from any payment hereunder amounts that Company
deems necessary to satisfy federal, state, or local tax withholding
requirements.
12. This Agreement may be amended only by the written agreement of the
parties hereto.
13. This Agreement shall be construed, administered, and enforced in
accordance with the provisions of Indiana law, except where such law is
preempted.
14. This Agreement shall be binding on Company's successors and assigns.
15. For purposes of this Agreement, "Change of Control" means one of the
following events:
a. if any person becomes the beneficial owner, directly or indirectly, of
securities of Company representing 30% or more of the combined voting power
of Company's then outstanding securities, excluding any person who becomes
such a beneficial owner in connection with a transaction described in clause
c(i) below;
b. if the following individuals cease for any reason to constitute a
majority of the number of individuals then serving as directors of Company:
individuals who, on the effective date of this Agreement, are serving as
directors and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation, relating to the
election of directors of Company) whose appointment or election by the Board
or nomination for election by Company's stockholders was approved or
recommended by a vote of at least two-thirds of the directors then still in
office who either were directors on the effective date of this Agreement or
whose appointment, election, or nomination for election was previously so
approved or recommended;
c. if there is consummated a merger or consolidation of Company with any
other corporation, other than (i) a merger or consolidation which would
result in the voting securities of Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any
trustee or other fiduciary holding securities under an employee benefit plan
of Company or any subsidiary of Company, at least 70% of the combined voting
power of the securities of Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a recapitalization of Company
(or similar transaction) in which no person is or becomes the beneficial
owner, directly or indirectly, of securities of Company (not including in the
securities beneficially owned by such person any securities acquired directly
from Company or its affiliates other than in connection with the acquisition
by Company or its affiliates of a business) representing 30% or more of the
combined voting power of Company's then outstanding securities; or
d. if the Company's shareholders approve a plan of complete liquidation or
dissolution of Company or there is consummated an agreement for the sale or
disposition by Company of all or substantially all of Company's assets, other
than a sale or disposition by Company of all or substantially all of
Company's assets to an entity, at least 70% of the combined voting power of
the voting securities of which are owned by shareholders of Company in
substantially the same proportions as their ownership of Company immediately
prior to such sale.
Notwithstanding the foregoing, a "Change of Control" shall not be
deemed to have occurred by virtue of the consummation of a transaction or
series of integrated transactions immediately following which the record
holders of the common stock of Company immediately prior to such transaction
or series of transactions continue to have substantially the same
proportionate ownership in any entity which owns all or substantially all of
the assets of Company immediately following such transaction or series of
transactions.
16. Any dispute or controversy arising under or in connection with this
Agreement shall be conclusively settled by arbitration in Terre Haute,
Indiana, by a panel of three arbitrators (selected in accordance with this
Paragraph) in accordance with the rules of the American Arbitration
Association then in effect. The panel of arbitrators shall be selected as
follows: each of Company and Employee shall select one arbitrator, and the
two arbitrators selected by the parties shall select the third arbitrator.
If any arbitration occurs with respect to a dispute arising before a Change
of Control, the parties shall share equally in the costs of the arbitration.
If an arbitration occurs with respect to a dispute arising after a Change of
Control, Company shall pay the entire costs of the arbitration and, if
Employee prevails, shall reimburse Employee for all legal fees and expenses
incurred in connection with the arbitration. Judgment may be entered on the
arbitrators' award in any court having jurisdiction.
17. Employee represents that he has read this Agreement, fully understands
each and every provision, and signs it voluntarily. Employee further
acknowledges that in consideration of agreeing to accept the payments and
benefits specified herein, he is giving up possible administrative and/or
legal claims. Employee acknowledges that he has not been offered any
consideration other than the consideration described herein for signing this
Agreement, that he has not relied on any oral representation or promise, and
that this Agreement represents the complete agreement between the parties
relating to his employment and the termination thereof. This Agreement
supersedes all prior employment agreements between Company and Employee,
including any agreements related to Employee's rights upon a change of
control; provided, however, this Agreement shall not reduce Employee's rights
under the SERP.
EMPLOYEE GENERAL HOUSEWARES CORP.
/s/ John Blackwell /s/ Paul A. Saxton,
President
Date: January 19, 1999 Date: January 19, 1999
EXHIBIT 11
COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE
1998 1997 1996
Net Income (loss) $ 39,000 $ 662,000
$(2,635,000)
Shares:
Weighted average number of
shares of common stock
outstanding 3,822,655 3,809,896 3,759,089
Shares assumed issued (less
shares assumed purchased
for treasury) on stock
options and restricted stock 92,319 36 -
Outstanding shares for
diluted earnings per
share calculation 3,914,974 3,809,932 3,759,089
Earnings per common
shares basic and
fully diluted $ 0.01 $ 0.17 $ (0.70)
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State or Country 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 and 33-48336) of General
Housewares Corp., of our report dated February 8, 1999, appearing on page ---
- -
of the Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of
our
report on the Financial Statement Schedule which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
March ----, 1999
EX-27
ART. 5 FDS FOR 10-K
[ARTICLE] 5
[CIK] 0000040643
[NAME] GENERAL HOUSEWARES CORP.
[MULTIPLIER] 1,000
[CURRENCY] U.S. DOLLARS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1997
[PERIOD-END] DEC-31-1997
[EXCHANGE-RATE] 1
[CASH]
[SECURITIES] 0
[RECEIVABLES]
[ALLOWANCES]
[INVENTORY]
[CURRENT-ASSETS]
[PP&E]
[DEPRECIATION]
[TOTAL-ASSETS]
[CURRENT-LIABILITIES]
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON]
[OTHER-SE]
[TOTAL-LIABILITY-AND-EQUITY]
[SALES]
[TOTAL-REVENUES]
[CGS]
[TOTAL-COSTS]
[OTHER-EXPENSES]
[LOSS-PROVISION]
[INTEREST-EXPENSE]
[INCOME-PRETAX]
[INCOME-TAX]
[INCOME-CONTINUING]
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME]
[EPS-PRIMARY]
[EPS-DILUTED]
</TABLE>
Report of Independent Accountants
February 8, 1999
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, 1998 and 1997, and the changes in its financial condition for
each of the three years in the period ended December 31, 1998, 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.
EMPLOYEE STOCK PURCHASE PLAN
STATEMENT OF FINANCIAL CONDITION
December 31,
1998 1997
Plan Assets
Investments in employer's securities
(cost, 1998 - $166,970; 1996 - $219,061) $230,808 $ 255,602
--------- ---------
Liabilities and Plan Equity
Liabilities $ - $ -
Plan equity $230,808 $ 255,602
--------- ---------
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
Year Ended December 31,
1998 1997 1996
Dividend income $ 6,046 $ 7,014 $ 6,262
Administrative expenses (244) (304)
(284)
------- ------- --------
Net dividend income 5,802 6,710 5,978
Realized (loss) gain on investments (6,537) (2,680) 12,521
Unrealized appreciation in investments 38,554 27,046 24,226
Participant contributions 34,275 51,758 84,861
Participant distributions (96,888) (47,280)
(62,365)
------- ------- -------
Net (decrease) increase in plan equity (27,794) 35,554 65,221
Plan equity at beginning of period 255,602 220,048 154,827
------- ------- -------
Plan equity at end of period $230,808 $255,602 $220,048
------- -------- --------
EMPLOYEE STOCK PURCHASE PLAN
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 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 (known as "Equiserve" effective
January 1, 1997), 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, 1998, approximately 2,820 shares of common stock had not been
distributed to employees terminated in the third and fourth
quarter of 1998.
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 the 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, 1998 and 1997, investments were comprised of
19,234 and 24,343 shares, respectively, of General Housewares
Corp. Common Stock. The closing market price on December 31,
1998 and 1997 was $12.00 and $10.50 per share, respectively. Realized
loss for 1998 and 1997 is calculated as follows:
For the For the
Year Ended Year Ended
December 31, 1998 December 31, 1997
Cost (using a FIFO basis) $92,360 $56,104
Unrealized appreciation
(depreciation) recognized
in prior years 11,065 (6,144)
------- -------
103,425 49,960
Sales proceeds 96,888 47,280
------- -------
Realized loss recognized
in current year $(6,537) $(2,680)
------- -------
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.
March 18, 1999
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, DC 20549
Dear Sirs:
Pursuant to regulations of the Securities and Exchange Commission submitted
herewith for filing on behalf of General Housewares Corp. is the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998. This
filing is being effected by direct transmission to the Commission's EDGAR
System.
Very truly yours,
Raymond J. Kulla
General Counsel and Secretary
