UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________.
Commission file number: 1-11007
TOASTMASTER INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1204566
(State or other jurisdiction (I.R.S. Employer of
incorporation or organization) Identification No.)
1801 NORTH STADIUM BOULEVARD, COLUMBIA, MISSOURI 65202
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(573) 445-8666
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $.10 par value 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]
THE AGGREGATE MARKET VALUE OF THE 3,522,514 SHARES OF COMMON
STOCK OF THE REGISTRANT HELD BY NON-AFFILIATES OF THE REGISTRANT
ON JANUARY 31, 1998 WAS $15,410,999. AT JANUARY 31, 1998, THERE
WERE 7,539,450 SHARES OF THE REGISTRANT'S COMMON STOCK
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE
INTO THE INDICATED PARTS OF THIS REPORT: (1) 1997 ANNUAL REPORT
TO SHAREHOLDERS - PART II AND (2) DEFINITIVE PROXY STATEMENT FOR
THE 1998 ANNUAL MEETING OF SHAREHOLDERS TO BE FILED WITH THE
COMMISSION PURSUANT TO REGULATION 14A - PART III.
<PAGE>
PART I
ITEM 1. BUSINESS.
BUSINESS
GENERAL
Toastmaster Inc. ("Toastmaster" or the "Company") designs,
manufactures, markets and services a wide array of electrical
consumer appliances and time pieces under the brand names of
Toastmaster [Registered Trademark] and Ingraham [Registered
Trademark]. These products presently may be classified into two
principal categories: kitchen countertop appliances and time
products. A third category, consisting of environmental comfort
products, was discontinued in 1997 as part of the Company's
overall restructuring. Kitchen countertop appliances account for
most of Toastmaster's revenues. See "BUSINESS--Products."
Although the Company historically has been best known for its
complete line of toasters, including its Bagel Perfect
[Registered Trademark] toasters, its kitchen countertop
appliances include a wide variety of other popular electric
products, such as the Breadmaker's Hearth [Trademark], a
combination breadmaker/countertop oven, the Corner Bakery
[Trademark] breadmaker with dessert function, the Bread Box
[Registered Trademark] automatic breadmaker, the Cool Edge Grill
[Trademark] with sear section, Faultless [Trademark] by
Toastmaster clothes irons, Snackster [Registered Trademark] snack
and sandwich makers, countertop ovens, dessert and waffle bakers,
griddles, buffet ranges, Handi-Pan [Registered Trademark] mini-
fry pans, carving knives, hand mixers, can openers, blenders,
food slicers , coffee makers and grinders and tea kettles. The
Company's time products consist of an extensive line of clocks
and timers, including battery wall clocks, electric analog alarm
clocks, electric analog alarm clocks under the Timex [Registered
Trademark] and Indiglo [Registered Trademark] brand names,
decorator wall clocks and mechanical and electronic household
timers. The Company's environmental products included electric
fans, forced-air, radiant and ceramic heaters and console and
table-top humidifiers. The Toastmaster [Registered Trademark]
brand name has been in continuous use since the invention of the
automatic pop-up toaster by a predecessor of the Company in 1926,
and the Ingraham [Registered Trademark] brand name has been used
on time products manufactured by the Company or its predecessors
since 1831.
BACKGROUND AND FORMATION OF THE COMPANY
Although the Company was incorporated on January 24, 1980,
its predecessors trace their origin to the E. Ingraham Company
founded in 1831. The Company's senior executive officers, Robert
H. Deming, Daniel J. Stubler and John E. Thompson, operated the
consumer products group (including its predecessor division) of
the McGraw-Edison Company beginning in 1976. Toastmaster Inc., a
privately-held corporation formed by management of that group,
including these same key executives, acquired the kitchen
countertop appliance, environmental and time products businesses
of this group from the McGraw-Edison Company in 1980. In October
1983, Toastmaster Inc. was acquired by Magic Chef, Inc. and was
operated as a wholly-owned subsidiary by these executives. The
management team, led by the Company's current senior executive
officers, purchased Toastmaster Inc., effective January 1, 1987,
following the acquisition of Magic Chef, Inc. by the Maytag
Company. On June 23, 1994, the Company changed its state of
incorporation from Delaware to Missouri through a merger with a
wholly-owned subsidiary corporation.
The Company's principal executive offices are located at
1801 North Stadium Boulevard, Columbia, Missouri 65202, and its
telephone number is (573) 445-8666. Unless the context otherwise
requires, the terms "Toastmaster" or the "Company," as used in
this report, refer to Toastmaster Inc., a Missouri corporation,
and its predecessors.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on its
established brand names by offering a superior combination of
product quality, value and customer service at the appropriate
price points for its various channels of distribution. The
Company manufactures products in categories in which the Company
already has or believes it can achieve a significant market
share. Toastmaster believes it currently holds the first or
second market position for toasters, countertop ovens, waffle
bakers, buffet ranges and griddles. This market position
assessment is based primarily on a comparison of the Company's
unit sales with nonpublic information as to aggregate unit sales
by product category compiled by an independent organization based
on data submitted by industry participants.
<PAGE>
The Company continues to expand its core of established
products through new product development. These innovations
frequently involve technological advances in product design and
functionality and capitalize on emerging trends in consumer needs
and shifts in tastes and preferences. See "BUSINESS--New
Products." The Company also regularly enhances existing product
features and modernizes product designs. In addition, the
Company uses a combination of promotional and direct selling
efforts to maintain and expand upon its strength in all major
channels of distribution and to access new channels of
distribution.
The trend toward "just-in-time" purchasing by the Company's
customers and the related need to ship promptly have been
evolving for several years based on the desire by retailers to
more closely manage inventory levels. The Company has responded
to this trend by seeking to shorten the lead time for production,
working with its suppliers to obtain delivery of raw materials
and components more promptly, and improving its forecasts of
future demand. As a result, the Company has been able, in many
cases, to produce and ship more rapidly while reducing its
inventory in relation to net sales. The Company also believes
that certain products can be acquired more cost effectively by
purchasing these products from outside vendors.
PRODUCTS
The Company's product line currently consists of 212 models
of the Company's kitchen countertop appliances and 474 models of
the Company's time products. As used herein, the term "models"
means stock-keeping units, which term includes different products
as well as similar products with different features.
The following table sets forth the approximate amounts and
percentages of the Company's revenues by each of its product
categories during the periods shown.
Year Ended December 31,
1997 1996 1995
(Dollars in thousands)
Revenues Percent Revenues Percent Revenues Percent
Kitchen countertop
appliances $126,019 78.1% $130,712 76.6% $158,080 79.5%
Time products 33,673 20.9% 34,918 20.5% 33,221 16.7%
Environmental
products* 1,490 1.0% 5,009 2.9% 7,663 3.8%
$161,182 100.0% $170,639 100.0% $198,964 100.0%
_______________
* The Company is discontinuing its environmental products business.
Kitchen Countertop Appliances. Toastmaster has historically
been best known for its complete line of two-slice and four-slice
toasters. Based on the number of units sold, the Company
believes that it currently has the second highest market share in
the total toaster product category. In order to maintain its
market position, the Company periodically augments its toaster
line with additional product and design features, such as cool-
touch exteriors, three slots with one wide slot capable of
handling larger items such as bagels and pastries, extra wide
slots, and an under-the-cabinet model. The Company expects to
introduce several new toasters in 1998, including a two and four
slice version of the Ultra [Trademark] toaster, featuring "Tuxedo
Chrome" finish and every upscale feature found in the Company's
top of the line toasters, and a chrome "Retro" two slice toaster
with modern features.
New additions planned for the Company's other lines of
kitchen countertop appliances in 1998 include a smaller version
of the Breadmaker's Hearth [Trademark], requiring less counter
space but still offering all the features of the larger version.
Also new in 1998 are a line of products under the "Global Design
by Toastmaster" brand that include a toaster, electric kettle,
egg cooker, deep fryer and a stand mixer, all featuring European
styling and manufactured for the Company by Bosch-Siemens of
Germany under an exclusive contract and a line of very highly
styled appliances including a toaster, a thermal carafe
coffeemaker and an electric kettle designed by the F.A. Porsche
Design Group, featuring a brushed chrome finish and <PAGE> unique
features and packaging. In addition, the Company plans to
introduce an ice cream maker, a deep fryer, a Swiss Design
coffeemaker, several new countertop ovens and an opening price
point horizontal loaf breadmaker.
New additions to the Company's line of kitchen countertop
appliances in 1997 included the Breadmaker's Hearth [Trademark],
a revolutionary breadmaker/countertop oven, a line of clothes
irons, a line of Chromatics [Trademark] appliances, with all
chrome exterior finish, the Corner Bakery [Trademark] breadmaker
with dessert function, two new Wafflemaster [Trademark] waffle
bakers and a Cool Edge Grill [Trademark] with searing section.
The Company believes it has a significant market share of
the countertop oven product category, which includes toaster-oven-
broilers, oven broilers and convection ovens. Historically,
the Company has been a leader in product and engineering
innovation in this product category, including the introduction
of the continuous cleaning countertop oven, the under-the-cabinet
toaster-oven-broiler and the first cool-touch toaster-oven-broiler.
In 1998, the Company plans to introduce an electronic touch pad
control toaster oven.
Based on the number of units sold, the Company believes it
continues to be the market leader in waffle bakers and to be one
of the top two sellers of buffet ranges. The Company's
leadership in waffle bakers has been maintained through new
product introductions such as the Waffle Express [Trademark]
waffle baker, Belgian waffler and cool-touch waffle bakers.
Based on the number of units sold, the Company believes it
has the second largest share of the griddle market. In addition
to offering cool edge perimeter griddles and variations in size,
the Company introduced a "keep warm" feature to differentiate its
products in this product category. The Company also offers a
number of other popular electric kitchen countertop products
under the Toastmaster brand name, including Handi-Pan [Registered
Trademark] mini-fry pans, carving knives, mixers, including a
line of Comfort Zone [Trademark] ergonomic hand mixers, can
openers, Chopster [Registered Trademark] mini food processor,
blenders, food slicers, tea kettles, and coffee makers and
grinders, which, with the exception of the Handi-Pan [Registered
Trademark], are manufactured for the Company by other
manufacturers.
Time Products. The Company offers an extensive line of
clocks and timers, generally sold under the Ingraham [Registered
Trademark] brand name, most of which are manufactured at the
Company-owned plant in Laurinburg, North Carolina. The Company's
time products are comprised of electric analog alarm clocks,
electric and quartz wall clocks, imported key-wound clocks,
L.E.D. digital clocks and decorator wall clocks with wooden
cases. The time products market is highly fragmented. While
overall "SKU" counts have remained relatively flat during the
past several years many new models have replaced previously
existing models, reflecting current trends in home decorating.
The Company also manufactures household (electromechanical)
timers, which are used for, among other purposes, switching
electric lights and other appliances on and off at predetermined
times. Toastmaster is one of two principal manufacturers of
household timers.
In addition to the normal line changes in 1997, the Company
continued the expansion of a line of analog electric clocks
bearing the Timex [Registered Trademark] brand name under a
license agreement with that company. Several new models are
expected to be introduced in 1998 to replace existing models.
See "BUSINESS--Marketing and Customers."
Environmental Products. As a part of the Company's overall
restructuring begun in the fourth quarter of 1996, the Company is
discontinuing its environmental products line. The discontinuance
of that product line is the culmination of the Company's decision
nearly three years ago to de-emphasize environmental comfort
products which collectively accounted for only 3.8%, 2.9% and 1%
of total revenues for the years ended December 31, 1995, 1996 and
1997, respectively. The Company believes that it should
concentrate its efforts on the more profitable areas of the
Company's business; kitchen countertop appliances and time
products. The Company's environmental products consisted of
electric-powered fans, forced-air, radiant and ceramic heaters
and console and table-top humidifiers.
NEW PRODUCTS
The Company has a product planning and development staff
which is devoted to the creation of new products and the
enhancement of existing products. This staff is also responsible
for feasibility analysis of new product ideas and oversees <PAGE> the
process of developing each new product through the initial
production run. This staff regularly collaborates with
marketing, sales and engineering personnel to anticipate
opportunities and generate ideas for new products and product
enhancements. A combination of market research, competitive
product tracking, and feedback from key retail buyers is used to
obtain information on market and consumer trends and to identify
shifts in consumer tastes and preferences.
The development of new products and the enhancement of
existing products are important to the Company's business. The
Company's tradition of product innovation dates back to the
invention of the automatic pop-up toaster in 1926 by a
predecessor of the Company and has frequently involved
technological advances in product design and function.
Illustrations of these innovations include the Breadmaker's
Hearth [Trademark], a revolutionary breadmaker/countertop oven,
Bread Box [Registered Trademark] breadmakers with exclusive bread
stick and butter making features, the Corner Bakery [Trademark]
breadmaker, with special dessert function, Bagel Perfect
[Registered Trademark] toasters with a special adjustment to
toast bagels on one side while only warming the other side, the
Cool Edge Grill [Trademark] , with searing section, the Speed
Grill [Trademark] indoor contact grill, the Handi-Pan [Registered
Trademark] mini-fry pan with a removable control handle to make
it dishwasher safe, cool-touch steel toasters, continuous-cleaning
and cool-touch toaster-oven-broilers, under-cabinet
four-slice toasters, and three-slice toasters having a wide slot
capable of handling larger items such as bagels and pastries.
The Company also regularly enhances existing products by adding
new features and modernizing their designs in order to maintain
their visual appeal and competitiveness.
Toastmaster introduced a number of new products during 1997,
including several four-slice Bagel Perfect [Registered Trademark]
toasters, the Breadmaker's Hearth [Trademark], a revolutionary
breadmaker/countertop oven, a line of clothes irons, a line of
Chromatics [Trademark] appliances, with all chrome exterior
finish, the Corner Bakery [Trademark] breadmaker with dessert
function, two new Wafflemaster [Trademark] waffle bakers and a
Cool Edge Grill [Trademark] with searing section.
Toastmaster plans to introduce additional new products
during 1998, including a smaller version of the Breadmaker's
Hearth [Trademark], requiring less counter space but still
offering all the features of the larger version. Also new in 1998
are a line of products under the "Global Design by Toastmaster"
brand that include a toaster, electric kettle, egg cooker, deep
fryer and a stand mixer, all featuring European styling and
manufactured for the Company by Bosch-Siemens of Germany under an
exclusive contract and a line of very highly styled appliances
including a toaster, a thermal carafe coffeemaker and an electric
kettle designed by the F.A. Porsche Design Group, featuring a
brushed chrome finish and unique features and packaging. In
addition, the Company plans to introduce an ice cream maker, a
deep fryer, a Swiss Design coffeemaker, several new countertop
ovens and an opening price point horizontal loaf breadmaker.
MARKETING AND CUSTOMERS
The Company's products are sold in all major channels of
distribution through approximately 900 active accounts, including
mass merchandisers, department stores, catalog showrooms,
hardware cooperatives, wholesale clubs, military exchanges and
other retailers, as well as through private-label arrangements.
The Company's major retail customers include Wal-Mart (including
Sam's Clubs), Service Merchandise, Kmart, Target Stores (a
division of Dayton Hudson), Sears Roebuck, Army-Air Force
Exchange Service, Caldor Inc., Ace Hardware, Tru Serv
Corp(formerly Cotter & Company), J.C. Penney, PriceCostco,
Federated and Macy's Department Stores, and May Department
Stores. The Company also sells to two-step distributors who sell
to department and other stores that prefer to utilize the
services of a distributor.
The Company distributes its products in each of the
geographic regions in the United States. Export sales in 1997
increased approximately 23% over export sales in the prior year
and have continued to account for less than 10% of the Company's
revenues.
During 1995, 1996 and 1997, Wal-Mart (including Sam's Clubs)
accounted for approximately 29%, 27% and 27%, respectively, of
the Company's revenues. Wal-Mart is the only customer of the
Company that accounted for more than 10% of the Company's
revenues during such periods. During 1995, 1996 and 1997, the
Company's revenues in the aggregate with respect to its five
largest customers were approximately 45.7%, 42.8% and 44%,
respectively, of its total revenues. Although the Company has
long-established relationships with many of its customers, the
Company does not have long-term supply contracts with them. See
"Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<PAGE>
Certain large customers are treated as national accounts and
are serviced directly by approximately 15 members of the
Company's internal sales staff. The Company also sells its
products through approximately 120 independent commissioned
salespersons affiliated with manufacturers' representatives
organizations. Sales representatives are located nationwide and
are paid an agreed commission based on a percentage of sales in
their respective territories. The Company's sales representative
agreements are generally terminable by either party on 30 days
notice.
The Company strengthens its brand name recognition and
product awareness at the consumer level through various
advertising and promotional strategies, including cooperative
advertising with retailers, national magazine ads and other print
media, television ads and trade publications . The Company also
makes use of in-store displays and product demonstrations. Cross
promotions of the Company's products with nationally recognized
food brands recently have been utilized at the point of sale
including the promotion of the Bread Box [Registered Trademark]
with ConAgra bread mixes and Red Star [Registered Trademark]
yeast. The Company also offers manufacturer's rebates on selected
products. Television advertising is used primarily for the
introduction of new products. No significant television
advertising was conducted in 1997 and no significant television
is currently planned for 1998.
The Company has entered into and continues to pursue
additional alliances with companies owning highly recognizable
brand names that will license the use of those names on new
products introduced by the Company. Recent examples of this
strategy include several new models of clothes irons bearing the
Faultless Starch [Registered Trademark] brand name, time pieces
bearing the Timex [Registered Trademark] brand name, and a
selection of kitchen appliances bearing the Gear [Registered
Trademark] brand name. Certain of these products may jointly bear
the Toastmaster brand name in order to combine the strength of
household names with instant favorable recognition.
SERVICE
The Company seeks to deliver superior service by managing
its business to satisfy the needs and preferences of its
customers as well as consumers. Management seeks to accomplish
this by manufacturing high quality products in volume to provide
value pricing, ready availability and design features and by
providing marketing support and operational assistance. In
addition, the Company provides after-sale service to address or
repair problems associated with the products by furnishing
information on product use and obtaining feedback on satisfaction
with the product.
By operating Company-owned production facilities,
Toastmaster is usually able to provide on-time shipments of its
products. The ability to control production at its own
manufacturing facilities and produce products in large quantities
gives the Company an advantage in satisfying the varying volume
requirements of its retail customers.
Toastmaster responds to a variety of its customers'
operational needs by assisting customers with in-store stocking
and monitoring of inventory levels, as well as promptly
processing cooperative advertising and promotional discount
requests. In addition, the Company provides promotional support
for its products in the form of in-store displays and product
demonstrations. In response to the growing preference among
retailers for paperless order systems, the Company has utilized
the EDI (Electronic Data Interchange) capability of its computer
system for several years. Toastmaster's EDI capabilities enable
the Company to more efficiently receive electronic transmission
of customer orders and transmit shipping and invoice information
electronically. The Company enhanced their EDI system in 1997
with the acquisition of new software.
The Company maintains a consumer relations department and a
national service center to respond to requests for information,
to handle product repairs, to coordinate the Company's nationwide
network of authorized service centers and to assure prompt
responses to consumer requests and concerns. Each of the
Company's products includes an instruction manual and the address
and telephone number of Toastmaster's national service center
from which consumers may obtain further information.
Products sold after January 1, 1996 generally have a limited
three-year warranty from the date of purchase. Prior to this
date, the Company's products generally were sold with a limited
one-year warranty from the date of purchase, although limited
warranties with respect to certain of the Company's toasters,
toaster-ovens and griddles are provided for two years from the
date of purchase. In addition, the Company's wide slot three-
slice toaster has a limited warranty that extends for <PAGE> the
lifetime of the original purchaser. In the case of defects in
material or workmanship, the Company agrees to repair or replace
the defective product without charge.
PRODUCTION AND PRODUCT SERVICES
Products accounting for 70% of the Company's net sales are
manufactured at its own domestic facilities. The Company
manufactures toasters, toaster-oven-broilers and electric heating
elements at its Company-owned plant in Macon, Missouri. All
other kitchen countertop appliances are manufactured at the
Company-owned plant in Boonville, Missouri. Time products
manufactured by the Company are produced at the Company-owned
plant in Laurinburg, North Carolina. The Company believes that
its ownership of manufacturing plants facilitates cost savings
through vertical integration, incorporation of manufacturing
technology and other improvements in productivity and cost
control in certain products. The Company also believes, however,
that certain products can be acquired more cost effectively from
outside vendors. The mix of products manufactured in the
Company's facilities versus those purchased from contract
suppliers is likely to change in the future, but the Company
currently intends to continue to manufacture over 60% of its
products in the near future.
By manufacturing the majority of its products in Company-
owned plants, the Company believes it is better able to assure
product quality and reliability than many of its competitors that
make more extensive use of product imports. This approach also
improves the Company's ability to provide on time and
uninterrupted product shipments as well as minimizing certain
risks associated with reliance on foreign vendors, such as
foreign currency fluctuations, import duties, trade restrictions,
work stoppages and political instability. In certain categories,
however, products are imported which are manufactured in
accordance with the Company's design and engineering
specifications and are inspected by the Company to assure that
quality control is maintained.
The Company's engineering department is responsible
primarily for the design and testing of its products. The
Company has acquired a computer design system to assist its
engineers in developing new products and modifying existing
products.
Most of the component parts and raw materials purchased by
the Company for its manufacturing operations, such as finished
and aluminized steel, phenolic resins and molded parts are
available from numerous suppliers. The Company does not believe
that it is dependent on any single source for any significant
portion of its component purchases or raw materials, the loss of
which may have a material adverse effect on the Company. The
Company has not experienced any significant raw material or
component shortages.
SEASONALITY
The Company believes that sales of many of its products are
seasonal, in that a significant percentage of certain of its
products are given as gifts, and therefore sell in larger volumes
during the Christmas shopping season. The Company's gross
profits are generally lower in the first quarter than in the
fourth quarter due, in part, to a higher level of sales in the
last quarter which enables fixed production costs to be spread
over a greater number of units. See Note 8 of Notes to
Consolidated Financial Statements under "Item 8. Financial
Statements and Supplementary Data" for quarterly financial
information.
COMPETITION
The product categories in which the Company competes are
mature and highly competitive. Competition is based upon price
and quality, as well as innovation in the design of new products
and replacement models and in marketing and distribution
approaches. The Company believes that new product introductions,
such as Bagel Perfect [Trademark] toasters, breadmakers with
unique functions like dessert cycles, bread stick pans, and
butter cycles, the Cool Edge Grill [Trademark] with searing
section, and enhancements of existing products, as well as their
continued market acceptance, are of particular importance to the
Company's growth and profitability. The Company competes with
established companies, several of which have substantially
greater facilities, personnel, financial and other resources than
those of the Company. The Company's competitors in its major
product categories (some of which effectively compete only in
certain subcategories) include, among others: (i) kitchen
countertop appliances -- NACCO Industries (Proctor-Silex and
Hamilton Beach), Black & Decker, <PAGE> Sunbeam Corp. (Sunbeam-Oster),
Rival Co., Signature Brands Inc. (Mr. Coffee), Salton-Maxim and
National Presto; and (ii) time products -- General Time Corp.
(Westclox) and Intermatic.
The Company believes its most important competitive
strengths are favorable consumer recognition of the Company's
well established brand names, its core of established products,
the quality, design and competitive pricing of those products,
innovation in the development of new products and the enhancement
of existing products, its access to all major channels of
distribution, its ability to provide quality and on-time shipment
through Company-owned plants and warehouses, attention to
customer needs and service and the continuity and ability of its
management team.
EMPLOYEES
As of December 31, 1997, the Company employed approximately
1,300 persons. The Company's employees are not represented by
any labor union. The Company generally considers its relationship
with employees to be good.
REGULATION
The Company is subject to federal, state and local
regulations concerning the environment, occupational safety and
health, and consumer products safety. The Company has not
experienced significant difficulty in complying with such
regulations and compliance generally has not had an adverse
effect on the Company's business. All of the Company's electric-
powered products (other than certain battery operated products
for which listing is not available) are listed by Underwriters
Laboratories, Inc. ("UL"), or the Canadian Standards Association
(CSA), or have a cross listing (CUL), recognized by both
organizations. These organizations are independent, not-for-
profit corporations engaged in the testing of products for
compliance with certain public safety standards.
TRADEMARKS AND PATENTS
The Company holds a number of patents and trademarks
registered in the United States and foreign countries for various
products and processes, including the Toastmaster [Registered
Trademark] and Ingraham [Registered Trademark] trademarks
registered with the United States Patent and Trademark Office.
The Company considers these two trademarks to be of considerable
value and of material importance to its business.
The Company holds numerous domestic and international
patents, including design patents. The Company believes that
none of the Company's product lines is dependent upon any single
patent or group of patents.
ITEM 2. PROPERTIES.
The Company owns all of the facilities listed below. These
facilities have been pledged as collateral to secure payment of
the Company's debt obligations. See Note 3 of Notes to
Consolidated Financial Statements under "Item 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA." The following table sets
forth the location, approximate square footage and principal use
of each of the Company's significant facilities.
Location Square Feet Use
Boonville, Missouri 169,000 Manufacturing facility and
service center
Macon, Missouri 171,000 Manufacturing facility
Laurinburg, NC 223,000 Mfg. and Whse. facility
Columbia, Missouri 107,000 Warehouse
Columbia, Missouri 65,000 Warehouse
<PAGE>
Moberly, Missouri 134,000 Warehouse
Columbia, Missouri 62,000 Executive offices
Boonville, Missouri 58,000 Idle facility
Kirksville, Missouri 114,000 Warehouse
The Company believes that its facilities generally are
suitable and adequate for its current level of operations and
provide sufficient productive capacity for its foreseeable needs
without the need for material capital expenditures. The Company
completed construction of a warehouse addition of approximately
48,000 square feet on the Laurinburg, North Carolina facility in
late 1996, and occupied the new space in January 1997. In
addition, the Company is in the process of completing major roof
repairs at the Macon, Missouri facility.
ITEM 3. LEGAL PROCEEDINGS.
GENERAL
The Company is a party to various actions and proceedings
incident to its normal business operations. The Company believes
that the outcome of such litigation will not have a material
adverse effect on its business, financial condition or results of
operations. The Company has product liability and general
liability insurance policies in amounts it believes to be
reasonable given its current level of business. It is
conceivable, however, that the Company could incur claims for
which it is not insured or that exceed the amount of its
insurance coverage.
CERTAIN ENVIRONMENTAL MATTERS
The Company is a party to environmental proceedings at two
sites which are described below and is investigating the need for
remediation at two additional facilities of the Company. The
Company has accrued approximately $200,000 for the anticipated
future costs of investigation and remediation. Although such
costs could exceed that amount, the Company believes that any
such excess will not be material to the Company.
On May 30, 1991, the Missouri Department of Natural
Resources ("MDNR") submitted a letter to Toastmaster proposing to
place the Company's Kirksville, Missouri facility on the Missouri
Registry of Confirmed Abandoned or Uncontrolled Hazardous Waste
Disposal Sites in Missouri. Toastmaster appealed the listing. A
Consent Agreement resolving the matter was executed in February
1997 and, as a result, the site will not be listed. A remedial
action plan is currently being developed. Toastmaster is
committed to an appropriate remediation of the site.
Toastmaster is one of over 300 potentially responsible
parties ("PRPs") at the Missouri Electric Work site in Cape
Girardeau, Missouri (the "Site"), which has been identified for
cleanup under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). Under CERCLA,
a PRP's liability for cleanup costs is strict, joint and several.
A Consent Decree has been entered into by PRPs which includes a
commitment to pay for soil remediation and groundwater
investigation at the Site. This Decree has been approved. Under
the Consent Decree's allocation formula, Toastmaster's fractional
share of the cost of soil remediation and groundwater
investigation is approximately 0.479% of the total cost, which
percentage and therefore the portion of the remediation and
investigation costs borne by the Company may vary depending upon
the government's or participating PRP's ability to collect from
non-signing PRPs or the failure of signing PRPs to pay the
amounts for which they are responsible under the Consent Decree.
The total cost for soil remediation and groundwater investigation
is currently estimated at $17 million. Based on this estimate,
and taking into account the portion agreed to be borne by de
minimis settlors, settling federal defendants and the
Environmental Protection Agency ("EPA"), Toastmaster's allocated
share of costs under this Consent Decree is estimated to be
approximately $50,000.
The provisions of the Consent Decree to which the Company is
a party do not address groundwater remediation, the cost of which
has not been determined. Primarily because of the small volume
of waste Toastmaster allegedly contributed to the Site, as well
as the large number of other PRPs and the EPA's commitment to pay
20% of the total cost of groundwater remediation, Toastmaster
does not anticipate that its share of groundwater remediation
costs will be material.
<PAGE>
Contamination was detected at the Laurinburg, North Carolina
facility of the same types of materials as those detected at the
Kirksville site described above. The Company notified the North
Carolina Department of Health and Environment of this
contamination. Toastmaster was notified by letter dated February
5, 1990 that the Laurinburg facility has been included on the
Inactive Hazardous Waste Sites Priority List. Once placed on
this list, responsible parties are encouraged to cleanup the site
or, if the site endangers public health or the environment, a
remedial action can be ordered by the State. After conducting
the necessary investigative work and acquiring the approval of
the State, a remedial plan was implemented at this site
consisting of a groundwater recovery system. In addition, a
former waste water treatment facility has been closed in
accordance with applicable environmental requirements.
Contamination was detected at the Macon, Missouri facility
of the same type of materials as those detected at the Kirksville
site previously described. The Company has entered into a
contract with a consultant to provide further investigative and
remedial work. An agreement to enter the Voluntary Cleanup
Program with the MDNR to remediate the Macon, Missouri facility
contamination was signed in March 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Executive officers of Toastmaster are elected annually and
serve until their successors are duly elected and qualified or
until their earlier resignation or removal. The current
executive officers of the Company, their ages and present
positions with the Company are as follows:
Name Age Position and Offices Held
Robert H. Deming 63 Chairman, Chief Executive Officer and
Director
Daniel J. Stubler 54 President, Chief Operating Officer and
Director
John E. Thompson 50 Executive Vice President --
Chief Financial Officer, Treasurer and
Director
Scott R. Thrasher 42 Senior Vice President -- Sales and
Marketing
Ralph J. Ronalter,
Jr. 42 Vice President/General Manager -- Time
Products
Linda G. Arnold 50 Vice President -- Human Resources and
Secretary
The business experience of each of the executive officers of
the Company during the last five years is as follows:
Robert H. Deming has served as Chairman of the Board of
Directors, Chief Executive Officer and Director of the Company
since January 1987. Since joining the Company in 1976, he has
served as President from 1976 through January 1987 and as
Chairman of the Board of Directors and Chief Executive Officer
from 1980 through 1983. Mr. Deming holds a Bachelor of Science
degree in Accounting and a Master of Science degree in Business
Administration from the University of Colorado, as well as a
Doctorate in Business Administration from The Harvard University
Graduate School of Business Administration. Mr. Deming is not
engaged in the day-to-day operations of the Company, but rather
spends his business-related time on monitoring the performance of
the Company, strategic and long-range planning, and identifying
and evaluating acquisition opportunities. In addition, he spends
a portion of his business-related time in the furtherance of the
interests of the Company, which interests include activities
intended either to fulfill the Company's social responsibility <PAGE> or
to keep Mr. Deming abreast of developments or opportunities in
the Company's industry or related fields of knowledge or
management.
Daniel J. Stubler has served as President, Chief Operating
Officer, and Director since January 1987. Between 1976 and
January 1987, he served the Company in several capacities, the
last of which was as Senior Vice President with responsibility
for marketing and administration and Secretary of the Company.
He currently serves as a director of First Missouri
Bancorporation. Mr. Stubler holds a Bachelor of Science degree
in Accounting from Gannon University and a Masters of Science
degree in Industrial Relations from the University of
Massachusetts at Amherst.
John E. Thompson has served as Executive Vice President --
Chief Financial Officer, Treasurer and Director of the Company
since January 1987. Between 1970 and January 1987, he has served
in several capacities, the last of which was as Senior Vice
President of the Company. He currently serves as a director of
First National Bank & Trust Company, Columbia, Missouri. Mr.
Thompson holds a Bachelor of Science degree in Accounting from
Northern Illinois University.
Scott R. Thrasher joined the Company in 1977 and has served
as Senior Vice President -- Sales and Marketing since April 1995.
Previously, he served as Senior Vice President -- Sales from
January 1994 to April 1995, and as Vice President -- Sales from
January 1991 to January 1994. Mr. Thrasher holds a Bachelor of
Science degree in Marketing from the University of Missouri.
Ralph J. Ronalter, Jr. joined the Company in 1982 and has
served as Vice President and General Manager -- Time Products
since October 1989. Previously, he served as Vice President with
responsibility for sales and marketing in the Time Products
division from 1984 to October 1989. Mr. Ronalter holds a
Bachelor of Science degree in Geology from the University of
North Carolina-Chapel Hill.
Linda G. Arnold joined the Company in 1978 and has served as
Vice President -- Human Resources since January 1987 and as
Secretary of the Company since November 1991. Previously, she
served as Director of Personnel of the Company from 1984 to
January 1987. Ms. Arnold attended the University of Missouri,
Kansas City.
There is no arrangement or understanding between any
executive officer and any other person pursuant to which such
executive officer was selected as an officer except as
contemplated by the Stockholders' Agreement described below. Mr.
Deming, Mr. Stubler, Mr. Thompson and Ralph J. Ronalter, Jr.,
together with certain other shareholders of the Company, have
agreed to vote those of their shares subject to the Stockholders'
Agreement (representing 3,718,379 shares of Toastmaster common
stock as of January 31, 1998 and constituting approximately 49.3%
of the shares outstanding) in favor of the election of directors
approved by Mr. Deming, including Messrs. Deming, Stubler and
Thompson, and have given their irrevocable proxy to Mr. Deming to
effect that vote. This voting agreement and related proxy
automatically terminate upon the earlier of May 16, 1999 or Mr.
Deming's death, mental incapacity or voluntary termination of
employment with the Company, at such time as Mr. Deming, together
with his family, ceases to own at least 500,000 shares of Common
Stock (as adjusted for any stock dividend, stock split,
combination or reclassification of shares, recapitalization or
similar transaction) and upon the occurrence of certain other
events specified in the Stockholders' Agreement and proxy (and,
in the case of Mr. Stubler and Mr. Thompson, their voting
agreement and related proxy also terminate if they are
involuntarily terminated from their respective offices or removed
as a director).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Market for the
Company's Common Stock and Related Stockholder Matters" in the
Registrant's 1997 Annual Report to Shareholders.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Selected
Financial Information" in the Registrant's 1997 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1997 Annual Report to
Shareholders.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS MADE IN THIS REPORT ON FORM 10-K ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS, FINANCIAL CONDITION OR BUSINESS COULD DIFFER
MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION OR
BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW UNDER THE
CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS,
FINANCIAL CONDITION OR BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL
CONDITION OR BUSINESS
In order to take advantage of the safe harbor provisions for
forward-looking statements contained in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, added to those Acts
by the Private Securities Litigation Reform Act of 1995, the
Company is hereby identifying important risks and uncertainties
that could affect the Company's actual results of operations,
financial condition or business and that could cause the
Company's actual results of operations, financial condition or
business to differ materially from its historical results of
operations, financial condition or business, or the results of
operations, financial condition or business contemplated by
forward-looking statements made herein or elsewhere, orally or in
writing, by, or on behalf of, the Company. Factors that could
cause or contribute to such differences include, but are not
limited to, those factors described below.
COMPETITION AND IMPORTANCE OF NEW PRODUCT INTRODUCTIONS
The product categories in which the Company competes are
mature and highly competitive. Competition is based upon price
and quality, as well as innovation in the design of new products
and replacement models and in marketing and distribution
approaches. The Company believes that new product introductions
and enhancements of existing products, as well as their continued
market acceptance, are material factors in its growth and
profitability. No assurance can be given that the Company will
continue to be successful in introducing new products or further
enhancing existing products to meet customer needs and
expectations.
RELIANCE ON CERTAIN CUSTOMERS
The Company's revenues in the aggregate with respect to its
five largest customers during 1995, 1996 and 1997 were
approximately 45.7%, 42.8% and 44%, respectively, of its total
revenues. During 1995, 1996 and 1997, Wal-Mart (including Sam's
Clubs) accounted for approximately 29%, 27% and 27%,
respectively, of the Company's revenues. Although the Company
has long-established relationships with many of its customers,
the Company does not have long-term supply contracts with them.
A decrease in business from any of its major customers could have
a material adverse effect on the Company's results of operations
and financial condition, as has been true in the past.
<PAGE>
RETAIL INDUSTRY
The Company sells its products to retailers, including mass
merchandisers, department stores, catalog showrooms, hardware
cooperatives, wholesale clubs, military exchanges and other
retailers. Certain of such retailers have engaged in leveraged
buyouts or transactions in which they incurred a significant
amount of debt, and some are currently operating under the
protection of bankruptcy laws. Retail sales depend, in part, on
general economic conditions and a significant further decline in
such conditions could have a negative impact on sales by
retailers of the type of products offered by the Company. A
significant deterioration in the financial condition of the
Company's major customers, or in the retail environment in
general, could have a material adverse effect on the Company's
sales and profitability. In addition, as a result of the desire
of retailers to more closely manage inventory levels, there is a
growing trend among retailers to make purchases on a "just-in-
time" basis, which requires the Company to shorten its lead time
for production in certain cases and more closely anticipate
demand and could in the future require the carrying of additional
inventories by the Company.
SEASONALITY AND VARIABILITY OF QUARTERLY RESULTS AND STOCK PRICE
The Company believes that sales of many of its products are
seasonal, in that a significant percentage of certain of its
products are given as gifts, and therefore sell in larger volumes
during the Christmas shopping season. Gross profits are usually
lower in the first quarter than in the fourth quarter due to
lower sales volume, and correspondingly lower production volumes.
In addition, the Company's quarterly results of operations could
be adversely affected by the timing of new product introductions,
competitive pricing pressures, fluctuations in product returns,
increases in selling, general and administrative expenses,
changes in interest rates, overall market conditions and other
factors. Operating results also can vary between quarters of the
same or different years due to, among other things, changes in
product mix, limitations on the timing of price increases and
variances in the cost of raw materials, and the timing of high
volume retail periods or special promotions. As a result, the
Company experiences variability in its operating results on a
quarterly basis, which may make quarterly year-to-year
comparisons less meaningful. In addition, the Company's stock
price may experience significant price and volume fluctuations in
response to internal and external factors which cause variations
in its quarterly results of operations and the stock markets.
DEPENDENCE UPON EXECUTIVE OFFICERS
The development of the Company's business has been largely
dependent on the efforts of Robert H. Deming, Daniel J. Stubler
and John E. Thompson. The loss of the services of one or more of
these officers could have a material adverse effect on the
Company. The Company has entered into an employment agreement
with each of these officers.
FLUCTUATIONS IN PRICES OF RAW MATERIALS
The Company purchases its raw materials from various outside
sources. The price and availability of raw materials can
fluctuate and periods of shortage are possible. The principal
raw materials used by the Company in producing its products are
aluminum, steel and plastic, together with paperboard packaging,
and are purchased at prevailing market prices. The price and
availability of raw materials are determined by constantly
changing market forces over which the Company has limited
control. Moreover, there can be no assurance that the Company
would be able to recover increases in raw materials prices
through price increases of its products. A significant increase
in the price of raw materials and/or a significant shortage of
raw materials could have a material adverse effect on the
Company's results of operations and financial condition.
<PAGE>
CREDIT AGREEMENT RESTRICTIONS
The Company's revolving credit and term loan agreement with
its existing lender contains certain restrictions on the Company,
including requirements as to the maintenance of net worth and
certain financial ratios, minimum levels of income and working
capital, payment of cash dividends or purchases of treasury
stock, additions to property, plant and equipment and incurrence
of additional indebtedness. There can be no assurance that the
Company will be able to achieve and maintain compliance with the
prescribed financial ratio tests or other requirements of the
revolving credit and term loan agreement. The Company has
successfully sought and received waivers and amendments to its
revolving credit and term loan agreement on various occasions.
If further waivers or amendments are requested by the Company,
there can be no assurance that the Company's lender will again
grant such requests. The failure to obtain any such waivers or
amendments would reduce the Company's flexibility to respond to
adverse industry conditions and could have a material adverse
effect on the Company's results of operations, financial
condition and business.
EXPOSURE TO CURRENCY EXCHANGE RATES
Although the Company is not primarily dependent upon
unaffiliated foreign companies for the manufacture of most of its
products (with the notable exception of the breadmakers, among
others), the Company's operations nevertheless are subject to
fluctuations in foreign currency exchange rates relative to the
United States dollar. The operations of the Company's wholly-
owned subsidiary, Toastmaster de Mexico S.A. de C.V.,
particularly could be adversely affected by the devaluation of
the peso relative to the dollar. In addition, a strengthening of
the United States dollar relative to local currencies abroad will
reduce the cost of imported products and benefit the Company
relatively less than those of its competitors who rely more
heavily on imported products.
RESTRUCTURING UNCERTAINTIES
The Company's proposed restructuring involves risks and
uncertainties concerning, among other things, the costs, savings
and other effects resulting from foreign sourcing of products and
disposition of the environmental product line and the nature,
scope and effectiveness of any other restructuring that may
emerge from the Company's evaluation process. There can be no
assurance that the Company will be able to accurately predict the
consequences of the restructuring, and any material deviation in
the results of such restructuring from those anticipated by the
Company could have a material adverse effect on the Company's
results of operations, financial condition and business.
INCREASED RELIANCE ON FOREIGN SUPPLIERS
Although the Company is not primarily dependent upon
unaffiliated foreign companies for the manufacture of most of its
products (with the notable exception of the breadmakers, among
others), the Company's operations nevertheless are subject to
increased reliance on foreign suppliers for certain of its
products. The risks associated with reliance on foreign vendors,
such as foreign currency fluctuations, import duties, trade
restrictions, work stoppages and political instability are
increased as more product is obtained from these suppliers. While
the Company believes it has chosen reliable and dependable
suppliers, they are nevertheless, unaffiliated independent
companies, subject to the risks mentioned above. Products which
are imported are manufactured in accordance with the Company's
design and engineering specifications and are inspected by the
Company to assure that quality control is maintained.
YEAR 2000 COMPLIANCE
The Company has begun to implement its action plan for Year
2000 compliance with the objective of insuring that all
computerized systems and software programs are capable of
functioning in the next century. The costs of ensuring that its
computer systems are Year 2000 compliant have not been material
to date and are not anticipated to be material to its business,
financial condition or results of operations in the future.
However, if the Year 2000 compliance plan is not implemented, or
are not made timely, the Year 2000 issue could be material.
<PAGE>
ADDITIONAL FACTORS
Additional risks and uncertainties that may affect future
results of operations, financial condition or business of the
Company include, but are not limited to: (i) demand for the
Company's products; (ii) the effect of economic and industry
conditions on prices for the Company's products and its cost
structure; (iii) the ability to keep pace with technological
change including developing and implementing technological
advances timely and cost-effectively in order to lower its cost
structure, to provide better service and remain competitive; (iv)
adverse publicity, news coverage by the media, or negative
reports by brokerage firms, industry and financial analysts
regarding the Company or its products which may have the effect
of reducing the reputation, goodwill or customer demand for, or
confidence in, the Company's products; (v) the ability to attract
and retain capital for growth and operations on competitive
terms; and (vi) changes in accounting policies and practices.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1997 Annual Report to
Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Pursuant to General Instruction G(2) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the captions "Consolidated
Balance Sheets," "Consolidated Statements of Operations,"
"Consolidated Statements of Shareholders' Equity," "Consolidated
Statements of Cash Flows," "Notes to Consolidated Financial
Statements" and "Independent Auditors' Report" in the
Registrant's 1997 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item (except for the information set
forth in Item 4A of Part I hereof with respect to the
Registrant's executive officers) is incorporated herein by
reference to (i) the information under the caption "Election of
Directors" (except that the information set forth under the
following subcaptions thereunder is expressly excluded from such
incorporation: "Compensation of Directors" and "Meetings of the
Board and Committees") and (ii) the information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance," in
each case, in the Registrant's definitive Proxy Statement for its
1998 Annual Meeting of Shareholders to be filed pursuant to
Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Executive
Compensation and Other Information" (except that the information
set forth under the following subcaptions thereunder is expressly
excluded from such incorporation: "Compensation Committee
Report" and "Company Performance") in the Registrant's definitive
Proxy Statement for its 1998 Annual Meeting of Shareholders to be
filed pursuant to Regulation 14A.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Pursuant to General Instruction G(3) to Form 10-K, the
information required by this Item is incorporated herein by
reference to the information under the caption "Ownership of
Toastmaster Common Stock" in the Registrant's definitive Proxy
Statement for its 1998 Annual Meeting of Shareholders to be filed
pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Exhibits, Financial Statements and Financial
Statement Schedules:
1. Financial Statements:
The following financial statements of the Registrant
and report of the Registrant's independent auditors, included in
the Registrant's Annual Report to Shareholders for the year ended
December 31, 1997, are incorporated by reference in Item 8 to
this report:
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1997 and
1996.
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules:
Independent Auditors' Report
Schedule I -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are
not applicable or the required information is shown in
the Consolidated Financial Statements or the Notes
thereto.
3. Exhibits:
Exhibit
No. Description
3.1 Articles of Incorporation (filed with the Registrant's
Registration Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.1 and incorporated herein by reference)
<PAGE>
3.1.1 Articles of Merger (in which the Registrant's Articles of
Incorporation were amended to change the name of the
Registrant) (filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994 as Exhibit
3.1.1 and incorporated herein by reference)
3.2 Bylaws (filed with the Registrant's Registration Statement
on Form 8-B (File No. 1-11007) as Exhibit 3.2 and
incorporated herein by reference)
4.1 Specimen Definitive Common Stock Certificate (filed with
the Registrant's Registration Statement on Form 8-B (File
No. 1-11007) as Exhibit 3.3 and incorporated herein by
reference)
4.2 Promissory Note, dated November 21, 1989 (filed with the
Registrant's Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 4.4 and incorporated herein by
reference)
4.3 Loan and Security Agreement, dated as of November 19,
1993, between Barclays Business Credit, Inc. and the
Registrant (filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 as Exhibit
10.1 and incorporated herein by reference)
4.3.1 First Amendment to Loan and Security Agreement, dated as
of March 7, 1994, between Barclays Business Credit, Inc.
and the Registrant (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
as Exhibit 10.1.1 and incorporated herein by reference)
4.3.2 Second Amendment to Loan and Security Agreement, dated as
of April 20, 1994, between the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-80208) as
Exhibit 4.3.2 and incorporated herein by reference)
4.3.3 Assignment, Assumption and Third Amendment to Loan
Agreement, dated as of June 23, 1994, among the
Registrant's predecessor, the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's
Registration Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.5.3 and incorporated herein by reference)
4.3.4 Fourth Amendment to Loan and Security Agreement, dated as
of October 24, 1994, between the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 10.1.4 and incorporated herein by reference)
4.3.5 Fifth Amendment to Loan and Security Agreement, dated as
of November 17, 1994, between the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 10.1.5 and incorporated herein by reference)
4.3.6 Sixth Amendment to Loan and Security Agreement, dated as
of December 31, 1994, between the Registrant and Shawmut
Capital Corporation (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 10.1.6 and incorporated herein by reference)
4.3.7 Seventh Amendment to Loan and Security Agreement, dated as
of April 24, 1995, between the Registrant and Shawmut
Capital Corporation (filed with the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 as
Exhibit 10 and incorporated herein by reference)
4.3.8 Eighth Amendment to Loan and Security Agreement, dated as
of July 18, 1995, between the Registrant and Shawmut
Capital Corporation (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
as Exhibit 10.1.8 and incorporated herein by reference)
<PAGE>
4.3.9 Ninth Amendment to Loan and Security Agreement, dated as
of March 28, 1996, between the Registrant and Fleet
Capital Corporation (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
as Exhibit 10.1.9 and incorporated herein by reference)
4.3.10 Tenth Amendment to Loan and Security Agreement, dated as
of July 12, 1996, between the Registrant and Fleet
Capital Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 as Exhibit 10.1.10 and incorporated herein
by reference)
4.3.11 Eleventh Amendment to Loan and Security Agreement, dated
as of October 22, 1996, between the Registrant and Fleet
Capital Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 as Exhibit 10.1.11 and incorporated
herein by reference)
4.3.12 Waiver and Twelfth Amendment to Loan and Security
Agreement, dated as of February 21, 1997, between the
Registrant and Fleet Capital Corporation (filed with the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 as Exhibit 10.1.12 and
incorporated herein by reference)
4.3.13 Thirteenth Amendment to Loan and Security Agreement,
dated as of March 11, 1998, between the Registrant and
Fleet Capital Corporation (filed as Exhibit 10.1.13)
10.1 Loan and Security Agreement, dated as of November 19,
1993, between Barclays Business Credit, Inc. and the
Registrant (filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 as Exhibit
10.1 and incorporated herein by reference)
10.1.1 First Amendment to Loan and Security Agreement, dated as
of March 7, 1994, between Barclays Business Credit, Inc.
and the Registrant (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993
as Exhibit 10.1.1 and incorporated herein by reference)
10.1.2 Second Amendment to Loan and Security Agreement, dated as
of April 20, 1994, between the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-80208) as
Exhibit 4.3.2 and incorporated herein by reference)
10.1.3 Assignment, Assumption and Third Amendment to Loan
Agreement, dated as of June 23, 1994, among the
Registrant's predecessor, the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's
Registration Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.5.3 and incorporated herein by reference)
10.1.4 Fourth Amendment to Loan and Security Agreement, dated as
of October 24, 1994, between the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 10.1.4 and incorporated herein by reference)
10.1.5 Fifth Amendment to Loan and Security Agreement, dated as
of November 17, 1994, between the Registrant and Barclays
Business Credit, Inc. (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 10.1.5 and incorporated herein by reference)
10.1.6 Sixth Amendment to Loan and Security Agreement, dated as
of December 31, 1994, between the Registrant and Shawmut
Capital Corporation (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 10.1.6 and incorporated herein by reference)
10.1.7 Seventh Amendment to Loan and Security Agreement, dated
as of April 24, 1995, between the Registrant and Shawmut
Capital Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995 as Exhibit 10 and incorporated herein by
reference)
<PAGE>
10.1.8 Eighth Amendment to Loan and Security Agreement, dated as
of July 18, 1995, between the Registrant and Shawmut
Capital Corporation (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
as Exhibit 10.1.8 and incorporated herein by reference)
10.1.9 Ninth Amendment to Loan and Security Agreement, dated as
of March 28, 1996, between the Registrant and Fleet
Capital Corporation (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
as Exhibit 10.1.9 and incorporated herein by reference)
10.1.10 Tenth Amendment to Loan and Security Agreement, dated as
of July 12, 1996, between the Registrant and Fleet
Capital Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996 as Exhibit 10.1.10 and incorporated herein
by reference)
10.1.11 Eleventh Amendment to Loan and Security Agreement, dated
as of October 22, 1996, between the Registrant and Fleet
Capital Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 as Exhibit 10.1.11 and incorporated
herein by reference)
10.1.12 Waiver and Twelfth Amendment to Loan and Security
Agreement, dated as of February 21, 1997, between the
Registrant and Fleet Capital Corporation (filed with the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 as Exhibit 10.1.12 and
incorporated herein by reference)
10.1.13 Thirteenth Amendment to Loan and Security Agreement,
dated as of March 11, 1998, between the Registrant and
Fleet Capital Corporation
10.2 Master Agreement of Lease, dated October 1, 1991,
between St. Louis Leasing Corporation and the Registrant
(filed with Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-43932)
as Exhibit 10.2 and incorporated herein by reference)
10.3 Stockholders' Agreement, dated November 13, 1991, among
the Registrant and the shareholders of the Registrant
identified therein (filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-43932)
as Exhibit 10.3 and incorporated herein by reference)
10.3.1 Amendment to Stockholders' Agreement, dated December 30,
1993, among the Registrant and the shareholders of the
Registrant identified therein (filed with the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 as Exhibit 10.3.1 and
incorporated herein by reference)
10.4 Form of Employment Agreement between the Registrant and
Robert H. Deming (filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-43932)
as Exhibit 10.4 and incorporated herein by reference)*
10.5 Form of Employment Agreement between the Registrant and
Daniel J. Stubler (filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-43932)
as Exhibit 10.5 and incorporated herein by reference)*
10.6 Form of Employment Agreement between the Registrant and
John E. Thompson (filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-43932)
as Exhibit 10.6 and incorporated herein by reference)*
10.7 Form of Indemnification Agreement and Schedule of
Parties Thereto (filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-43932)
as Exhibit 10.7 and incorporated herein by reference)*
10.7.1 Revised Schedule of Parties to Indemnification
Agreements (filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 10.7.1 and incorporated herein
by reference)*
<PAGE>
10.8 Toastmaster Inc. Incentive Stock Option Plan (filed with
the Registrant's Registration Statement on Form S-1
(File No. 33-43932) as Exhibit 10.8 and incorporated
herein by reference)
10.9 Toastmaster Inc. Non-Statutory Stock Option Plan (filed
with the Registrant's Registration Statement on Form S-1
(File No. 33-43932) as Exhibit 10.9 and incorporated
herein by reference)
10.10 Toastmaster Inc. Incentive Program - 1994 (filed with
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993 as Exhibit 10.13 and
incorporated herein by reference)*
10.11 Toastmaster Inc. Savings and Investment Plan (filed with
Registrant's Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 10.11 and incorporated herein
by reference)*
10.12 Toastmaster Inc. Pension Plan for Salaried Employees
(filed with the Registrant's Registration Statement on
Form S-1 (File No. 33-43932) as Exhibit 10.12 and
incorporated herein by reference)*
10.13 Toastmaster Inc. Supplemental Insurance Plan (filed with
the Registrant's Registration Statement on Form S-1
(File No. 33-43932) as Exhibit 10.13 and incorporated
herein by reference)*
10.14 Directors and Officers Insurance and Company
Reimbursement Policy (filed with Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 10.14 and incorporated herein
by reference)
10.15 Toastmaster Inc. Non-Employee Directors Stock Option
Plan (filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992 as Exhibit
10.16 and incorporated herein by reference)
10.16 Toastmaster Inc. Supplemental Executive Retirement Plan
(filed with the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 as Exhibit 10.19
and incorporated herein by reference)*
10.17 Toastmaster Inc. Incentive Program - 1995 (filed with
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 as Exhibit 10.20 and
incorporated herein by reference)*
10.18 Toastmaster Inc. Incentive Program - 1996 (filed with
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 as Exhibit 10.21 and
incorporated herein by reference)*
10.19 Toastmaster Inc. Incentive Program - 1997 (filed with
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 as Exhibit 10.19 and
incorporated herein by reference)*
10.20 Master Equipment Lease, dated June 14, 1995, between
Fleet Credit Corporation and the Registrant (filed with
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 as Exhibit 10.22 and
incorporated herein by reference)
10.21 Master Lease Agreement, dated July 11, 1995, between
Bankers Leasing Association, Inc. and the Registrant
(filed with the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 as Exhibit 10.23
and incorporated herein by reference)
10.22 Toastmaster Inc. Supplemental Executive Retirement Plan
II (filed with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 as Exhibit
10.24 and incorporated herein by reference)*
<PAGE>
10.23 Master Equipment Lease Agreement, dated August 12, 1996,
between AT&T Systems Leasing Corporation and the
Registrant (filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 as
Exhibit 10.23 and incorporated herein by reference)
10.24 Toastmaster Inc. 1997 Non-Employee Directors Stock
Option Plan (filed with the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 as
Exhibit 10.24 and incorporated herein by reference)
10.25 Toastmaster Inc. Incentive Program - 1998*
13 The Registrant's 1997 Annual Report to Shareholders
(only those portions of such Annual Report to
Shareholders which are specifically incorporated by
reference into this Annual Report on Form 10-K shall be
deemed to be filed with the Commission)
21 List of Subsidiaries (filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994
as Exhibit 21 and incorporated herein by reference)
23 Consent of KPMG Peat Marwick LLP with regard to the
Registrant's Registration Statements on Form S-8 (File
Nos. 33-78516 and 33-80208)
27 Financial Data Schedule
* Management contracts or compensatory plans or arrangements
required to be identified by Item 14(a)(3).
Item 14 (continued)
(b) Reports on Form 8-K:
None.
(c) Exhibits:
See Exhibits identified above under Item 14(a)3.
(d) Financial Statement Schedules:
See Financial Statement Schedules identified above
under Item 14(a)2.
<PAGE>
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.
TOASTMASTER INC.
By /s/ Robert H. Deming
Robert H. Deming
Chairman of the Board and
Chief Executive Officer
Dated: March 26, 1998
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:
Signature and Title Date
/s/ Robert H. Deming March 26, 1998
Robert H. Deming
Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Daniel J. Stubler March 26, 1998
Daniel J. Stubler
President,
Chief Operating Officer and Director
/s/ John E. Thompson March 26, 1998
John E. Thompson
Executive Vice President -- Chief Financial Officer,
Treasurer and Director (Principal
Financial and Accounting Officer)
/s/ Edward J. Williams March 26, 1998
Edward J. Williams
Director
/s/ S B. Rymer, Jr. March 26, 1998
S B. Rymer, Jr.
Director
/s/ James L. Hesburgh March 26, 1998
James L. Hesburgh
Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Toastmaster Inc.:
Under date of February 25, 1998, we reported on the consolidated
balance sheets of Toastmaster Inc. as of December 31, 1997 and
1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997 as contained in the
1997 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference
in the annual report on Form 10-K for the year 1997. In
connection with our audits of the aforementioned financial
statements, we also have audited the related financial statement
schedule as listed under Item 14 of Form 10-K. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, this financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
February 25, 1998
<PAGE>
Schedule I
TOASTMASTER INC.
Valuation and Qualifying Accounts
Column A Column B Column C Column D
Balance at Charged to
beginning of costs and Charged to
Classification period expenses other accounts
Year ended
December 31, 1995:
Allowance for
sales discounts,
returns and
doubtful
accounts $ 2,434,000 3,036,000 -
Accrued warranty
expense $ 2,200,000 9,734,000 -
Year ended
December 31, 1996:
Allowance for
sales discounts,
returns and
doubtful
accounts $ 2,672,000 1,902,000 -
Accrued warranty
expense $ 2,400,000 8,754,000 -
Year ended
December 31, 1997:
Allowance for
sales discounts,
returns and
doubtful
accounts $ 2,674,000 1,455,000 -
Accrued warranty
expense $ 2,400,000 6,482,000 -
/1/ Sales discounts and accounts considered uncollectible
Column A Column E Column F
Balance
at end
Classification Deductions of period
Year ended
December 31, 1995:
Allowance for
sales discounts,
returns and
doubtful
accounts $(2,798,000) /1/ 2,672,000
Accrued warranty
expense (9,534,000) 2,400,000
Year ended
December 31, 1996:
Allowance for
sales discounts,
returns and
doubtful
accounts (1,900,000) /1/ 2,674,000
Accrued warranty
expense (8,754,000) 2,400,000
Year ended
December 31, 1997:
Allowance for
sales discounts,
returns and
doubtful
accounts (1,415,000) /1/ 2,714,000
Accrued warranty
expense (5,882,000) 3,000,000
/1/ Sales discounts and accounts considered uncollectible
See accompanying independent auditors' report
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
3.1 Articles of Incorporation (filed with the *
Registrant's Registration Statement on Form
8-B (File No. 1-11007) as Exhibit 3.1 and
incorporated herein by reference)
3.1.1 Articles of Merger (in which the Registrant's *
Articles of Incorporation were amended to
change the name of the Registrant) (filed
with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 as
Exhibit 3.1.1 and incorporated herein by
reference)
3.2 Bylaws (filed with the Registrant's Registration *
Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.2 and incorporated herein by
reference)
4.1 Specimen Definitive Common Stock Certificate *
(filed with the Registrant's Registration
Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.3 and incorporated herein by
reference)
4.2 Promissory Note, dated November 21, 1989 *
(filed with the Registrant's Registration
Statement on Form S-1 (File No. 33-43932) as
Exhibit 4.4 and incorporated herein by
reference)
4.3 Loan and Security Agreement, dated as of *
November 19, 1993, between Barclays Business
Credit, Inc. and the Registrant (filed with
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 as
Exhibit 10.1 and incorporated herein by
reference)
4.3.1 First Amendment to Loan and Security Agreement, *
dated as of March 7, 1994, between Barclays
Business Credit, Inc. and the Registrant
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1993 as Exhibit 10.1.1 and incorporated
herein by reference)
4.3.2 Second Amendment to Loan and Security Agreement, *
dated as of April 20, 1994, between the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Registration
Statement on Form S-8 (File No. 33-80208) as
Exhibit 4.3.2 and incorporated herein by
reference)
4.3.3 Assignment, Assumption and Third Amendment *
to Loan Agreement, dated as of June 23, 1994,
among the Registrant's predecessor, the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Registration
Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.5.3 and incorporated herein by
reference)
4.3.4 Fourth Amendment to Loan and Security Agreement, *
dated as of October 24, 1994, between the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994 as Exhibit 10.1.4 and incorporated
herein by reference)
4.3.5 Fifth Amendment to Loan and Security Agreement, *
dated as of November 17, 1994, between the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994 as Exhibit 10.1.5 and incorporated
herein by reference)
4.3.6 Sixth Amendment to Loan and Security Agreement, *
dated as of December 31, 1994, between the
Registrant and Shawmut Capital Corporation
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994 as Exhibit 10.1.6 and incorporated
herein by reference)
4.3.7 Seventh Amendment to Loan and Security Agreement, *
dated as of April 24, 1995, between the
Registrant and Shawmut Capital Corporation
(filed with the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1995 as Exhibit 10 and incorporated herein by
reference)
4.3.8 Eighth Amendment to Loan and Security Agreement, *
dated as of July 18, 1995, between the
Registrant and Shawmut Capital Corporation
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995 as Exhibit 10.1.8 and incorporated
herein by reference)
<PAGE>
4.3.9 Ninth Amendment to Loan and Security Agreement, *
dated as of March 28, 1996, between the
Registrant and Fleet Capital Corporation
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995 as Exhibit 10.1.9 and incorporated
herein by reference)
4.3.10 Tenth Amendment to Loan and Security Agreement, *
dated as of July 12, 1996, between the
Registrant and Fleet Capital Corporation
(filed with the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1996 as Exhibit 10.1.10 and incorporated
herein by reference)
4.3.11 Eleventh Amendment to Loan and Security *
Agreement, dated as of October 22, 1996,
between the Registrant and Fleet Capital
Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 as Exhibit 10.1.11
and incorporated herein by reference)
4.3.12 Waiver and Twelfth Amendment to Loan and *
Security Agreement, dated as of February 21,
1997, between the Registrant and Fleet
Capital Corporation (filed with the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996 as Exhibit
10.1.12 and incorporated herein by reference)
4.3.13 Thirteenth Amendment to Loan and Security __
Agreement, dated as of March 11, 1998,
between the Registrant and Fleet Capital
Corporation (filed as Exhibit 10.1.13)
10.1 Loan and Security Agreement, dated as of November *
19, 1993, between Barclays Business Credit,
Inc. and the Registrant (filed with the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993 as Exhibit
10.1 and incorporated herein by reference)
10.1.1 First Amendment to Loan and Security Agreement, *
dated as of March 7, 1994, between Barclays
Business Credit, Inc. and the Registrant
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1993 as Exhibit 10.1.1 and incorporated
herein by reference)
10.1.2 Second Amendment to Loan and Security Agreement, *
dated as of April 20, 1994, between the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Registration
Statement on Form S-8 (File No. 33-80208) as
Exhibit 4.3.2 and incorporated herein by
reference)
10.1.3 Assignment, Assumption and Third Amendment to *
Loan Agreement, dated as of June 23, 1994,
among the Registrant's predecessor, the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Registration
Statement on Form 8-B (File No. 1-11007) as
Exhibit 3.5.3 and incorporated herein by
reference)
10.1.4 Fourth Amendment to Loan and Security Agreement, *
dated as of October 24, 1994, between the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994 as Exhibit 10.1.4 and incorporated
herein by reference)
10.1.5 Fifth Amendment to Loan and Security Agreement, *
dated as of November 17, 1994, between the
Registrant and Barclays Business Credit, Inc.
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994 as Exhibit 10.1.5 and incorporated
herein by reference)
10.1.6 Sixth Amendment to Loan and Security Agreement, *
dated as of December 31, 1994, between the
Registrant and Shawmut Capital Corporation
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994 as Exhibit 10.1.6 and incorporated
herein by reference)
10.1.7 Seventh Amendment to Loan and Security Agreement, *
dated as of April 24, 1995, between the
Registrant and Shawmut Capital Corporation
(filed with the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1995 as Exhibit 10 and incorporated herein by
reference)
<PAGE>
10.1.8 Eighth Amendment to Loan and Security Agreement, *
dated as of July 18, 1995, between the
Registrant and Shawmut Capital Corporation
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995 as Exhibit 10.1.8 and incorporated
herein by reference)
10.1.9 Ninth Amendment to Loan and Security Agreement, *
dated as of March 28, 1996, between the
Registrant and Fleet Capital Corporation
(filed with the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1995 as Exhibit 10.1.9 and incorporated
herein by reference)
10.1.10 Tenth Amendment to Loan and Security Agreement, *
dated as of July 12, 1996, between the
Registrant and Fleet Capital Corporation
(filed with the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1996 as Exhibit 10.1.10 and incorporated
herein by reference)
10.1.11 Eleventh Amendment to Loan and Security *
Agreement, dated as of October 22, 1996,
between the Registrant and Fleet Capital
Corporation (filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 as Exhibit 10.1.11
and incorporated herein by reference)
10.1.12 Waiver and Twelfth Amendment to Loan and *
Security Agreement, dated as of February 21,
1997, between the Registrant and Fleet
Capital Corporation (filed with the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996 as Exhibit
10.1.12 and incorporated herein by reference)
10.1.13 Thirteenth Amendment to Loan and Security __
Agreement, dated as of March 11, 1998,
between the Registrant and Fleet Capital
Corporation
10.2 Master Agreement of Lease, dated October 1, *
1991, between St. Louis Leasing Corporation
and the Registrant (filed with Amendment No.
1 to the Registrant's Registration Statement
on Form S-1 (File No. 33-43932) as Exhibit
10.2 and incorporated herein by reference)
10.3 Stockholders' Agreement, dated November 13, 1991, *
among the Registrant and the shareholders of
the Registrant identified therein (filed with
the Registrant's Registration Statement on
Form S-1 (File No. 33-43932) as Exhibit 10.3
and incorporated herein by reference)
10.3.1 Amendment to Stockholders' Agreement, dated *
December 30, 1993, among the Registrant and
the shareholders of the Registrant identified
therein (filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993 as Exhibit 10.3.1 and
incorporated herein by reference)
10.4 Form of Employment Agreement between the *
Registrant and Robert H. Deming (filed with
the Registrant's Registration Statement on
Form S-1 (File No. 33-43932) as Exhibit 10.4
and incorporated herein by reference)*
10.5 Form of Employment Agreement between the *
Registrant and Daniel J. Stubler (filed with
the Registrant's Registration Statement on
Form S-1 (File No. 33-43932) as Exhibit 10.5
and incorporated herein by reference)**
10.6 Form of Employment Agreement between the *
Registrant and John E. Thompson (filed with
the Registrant's Registration Statement on
Form S-1 (File No. 33-43932) as Exhibit 10.6
and incorporated herein by reference)**
10.7 Form of Indemnification Agreement and Schedule *
of Parties Thereto (filed with the
Registrant's Registration Statement on Form
S-1 (File No. 33-43932) as Exhibit 10.7 and
incorporated herein by reference)**
10.7.1 Revised Schedule of Parties to *
Indemnification Agreements (filed with
Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 10.7.1 and
incorporated herein by reference)**
<PAGE>
10.8 Toastmaster Inc. Incentive Stock Option Plan *
(filed with the Registrant's Registration
Statement on Form S-1 (File No. 33-43932) as
Exhibit 10.8 and incorporated herein by
reference)
10.9 Toastmaster Inc. Non-Statutory Stock Option Plan *
(filed with the Registrant's Registration
Statement on Form S-1 (File No. 33-43932) as
Exhibit 10.9 and incorporated herein by
reference)
10.10 Toastmaster Inc. Incentive Program - 1994 (filed *
with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993 as
Exhibit 10.13 and incorporated herein by
reference)**
10.11 Toastmaster Inc. Savings and Investment Plan *
(filed with Registrant's Registration
Statement on Form S-1 (File No. 33-43932) as
Exhibit 10.11 and incorporated herein by
reference)**
10.12 Toastmaster Inc. Pension Plan for Salaried *
Employees (filed with the Registrant's
Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 10.12 and
incorporated herein by reference)**
10.13 Toastmaster Inc. Supplemental Insurance Plan *
(filed with the Registrant's Registration
Statement on Form S-1 (File No. 33-43932) as
Exhibit 10.13 and incorporated herein by
reference)**
10.14 Directors and Officers Insurance and *
Company Reimbursement Policy (filed with
Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File
No. 33-43932) as Exhibit 10.14 and
incorporated herein by reference)
10.15 Toastmaster Inc. Non-Employee Directors Stock *
Option Plan (filed with the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1992 as Exhibit 10.16 and
incorporated herein by reference)
10.16 Toastmaster Inc. Supplemental Executive Retirement *
Plan (filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 10.19 and
incorporated herein by reference)**
10.17 Toastmaster Inc. Incentive Program - 1995 (filed *
with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994 as
Exhibit 10.20 and incorporated herein by
reference)**
10.18 Toastmaster Inc. Incentive Program - 1996 (filed *
with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995 as
Exhibit 10.21 and incorporated herein by
reference)**
10.19 Toastmaster Inc. Incentive Program - 1997 (filed *
with the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996 as
Exhibit 10.19 and incorporated herein by
reference)**
10.20 Master Equipment Lease, dated June 14, 1995, *
between Fleet Credit Corporation and the
Registrant (filed with the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 10.22 and
incorporated herein by reference)
10.21 Master Lease Agreement, dated July 11, 1995, *
between Bankers Leasing Association, Inc. and
the Registrant (filed with the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 10.23 and
incorporated herein by reference)
10.22 Toastmaster Inc. Supplemental Executive Retirement *
Plan II (filed with the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1995 as Exhibit 10.24 and
incorporated herein by reference)**
10.23 Master Equipment Lease Agreement, dated August *
12, 1996, between AT&T Systems Leasing
Corporation and the Registrant (filed with
the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996 as
Exhibit 10.23 and incorporated herein by
reference)
<PAGE>
10.24 Toastmaster Inc. 1997 Non-Employee Directors *
Stock Option Plan (filed with the
Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996 as Exhibit
10.24 and incorporated herein by reference)
10.25 Toastmaster Inc. Incentive Program - 1998** __
13 The Registrant's 1997 Annual Report to __
Shareholders(only those portions of such
Annual Report to Shareholders which are
specifically incorporated by reference into
this Annual Report on Form 10-K shall be
deemed to be filed with the Commission)
21 List of Subsidiaries (filed with the Registrant's *
Annual Report on Form 10-K for the year ended
December 31, 1994 as Exhibit 21 and
incorporated herein by reference)
23 Consent of KPMG Peat Marwick LLP with regard to __
the Registrant's Registration Statements on
Form S-8 (File Nos. 33-78516 and 33-80208)
27 Financial Data Schedule __
* Incorporated herein by reference.
** Management contracts or compensatory plans or arrangements
required to be identified by Item 14(a)(3).
THIRTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
(this "Amendment") is made as of March 11, 1998, by and between
TOASTMASTER INC., a Missouri corporation ("Borrower") and FLEET
CAPITAL CORPORATION, a Rhode Island corporation ("Lender").
PRELIMINARY STATEMENTS:
A. Borrower and Lender are parties to that certain Loan
and Security Agreement dated as of November 19, 1993, (as amended
from time to time, the "Loan Agreement"). Capitalized terms used
but not defined herein shall have the meanings given them in the
Loan Agreement.
B. Borrower and Lender now desire to amend certain
provisions of the Loan Agreement on and subject to the terms
hereof.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual promises and agreements hereinafter set forth, the parties
hereto agree as follows:
1. Defined Terms. Section 1.1 of the Loan Agreement
[RELATING TO DEFINED TERMS] is hereby amended by replacing the
definitions of LIBO Rate, LIBO Rate Loan, LIBO Rate-Term Loan,
and Term Loan with the following:
"LIBO Rate" - With respect to the Revolving Credit
Loans (other than Fixed Rate Loans), means a fluctuating
interest rate per annum equal on each day to the sum of:
(i) the rate of interest per annum (adjusted to
reflect reserve, deposit insurance or other similar
requirements to which the Bank may be subject) at which
deposits in United States dollars are offered by the
principal office of the Bank, in London, England, to
prime banks in the London interbank market at or about
11:00 a.m. (London time) on such day (or if such day is
not a Business Day, on the next preceding Business day)
for a thirty (30) day period in an amount approximately
equal to the principal amount of such Revolving Credit
Loans, plus
(ii) one and three-quarters percent (1.75%) per
annum.
As used in this Agreement, the LIBO Rate is a fluctuating
interest rate determined daily by Lender and is not fixed for any
period. The LIBO Rate shall be increased or decreased, as the
case may be, by an amount equal to any increase or decrease in
the rate computed in accordance with clause (i) above, with such
adjustments to be effective as of the opening of business on the
<PAGE>
day that any such change in such rate becomes effective. The
LIBO Rate in effect on the date hereof shall be the LIBO Rate
effective as of the opening of business on the date hereof, but
if this Agreement is executed on a day that is not a Business
Day, the LIBO Rate in effect on the date hereof shall be the LIBO
Rate effective as of the opening of business on the last Business
Day immediately preceding the date hereof. If the Bank ceases to
offer deposits in U.S. Dollars in the London interbank market,
then the Lender will determine the LIBO Rate based on the 30-day
LIBO rates quoted by Reuters or in The Wall Street Journal or
other financial newspaper or electronic market information
service of recognized standing.
LIBO Rate-Term Loan - A fluctuating interest rate per annul
equal to the sum of:
(i) the rate of interest per annum (adjusted to
reflect reserve, deposit insurance or other similar
requirements to which the Bank may be subject) at which
deposits in United States dollars are offered to Lender
by prime banks in the London interbank market at or
about 11:00 a.m. (London time) on such day (or if such
day is not a Business Day, on the next preceding
Business Day) for a thirty (30), sixty (60), ninety
(90) or one hundred-eighty (180) day period, as
applicable, in an amount approximately equal to the
principal amount of the LIBO Rate Term Loan Portion,
plus
(ii) two percent (2.00%) per annum.
2. Interest on Equipment Loans. The Loan Agreement is
hereby amended as necessary to provide that, for purposes of
computing interest, the Equipment Loans shall be treated the same
as the Term Loan.
3. Debt Service Coverage. A new Section 9.3(E) of the
Loan Agreement [RELATING TO DEBT SERVICE COVERAGE] is hereby
added as follows:
9.3(E) Debt Service Coverage Maintain, as of
December 31, 1998, for the immediately preceding twelve
months, a ratio of Net Cash Flow to Debt Service of not less
than 0.75 to 1.0, and as of December 31st of each year
thereafter (in each case for the immediately preceding
twelve months), a ratio of Net Cash Flow to Debt Service of
not less than 1.0 to 1.0.
4. Minimum Availability. Section 9.3(BB) of the Loan
Agreement [RELATING TO MINIMUM AVAILABILITY] is hereby deleted.
5. No Claims; Liens Unimpaired. Borrower acknowledges
that, as of the date hereof, it has no actual knowledge of any
existing claims, defenses (personal or otherwise) or rights of
setoff or recoupment whatsoever with respect to the Loan
Agreement or any of the other Loan Documents. Borrower agrees
that this Amendment in no way acts as a release or relinquishment
of any Liens in favor of the Lender securing payment of any of
the Obligations.
<PAGE>
6. No Other Amendments or Waivers. Except as expressly
set forth herein, there are no other agreements or
understandings, written or oral, between Borrower and Lender
relating to the Loan Agreement and/or the other Loan Documents
that are not fully and completely set forth or described herein.
Except to the extent specifically amended hereby, all terms and
provisions of the Loan Agreement and the other Loan Documents
shall remain in full force and effect in accordance with their
respective terms, and no provisions thereof have been waived,
except as specifically set forth herein.
7. Further Assurances. Borrower agrees to execute such
other and further documents and instruments as Lender may request
to implement the provisions of this Amendment.
8. Amendments. No provision of this Amendment may be
amended, modified or waived, except by an instrument in writing
signed by the Lender.
9. Counterparts; Faxed Signatures. This Amendment may be
executed in one or more counterparts and by different parties on
different counterparts, each of which shall be deemed an original
instrument and all of which taken together shall constitute one
and the same agreement. A signature of a party delivered by
telecopy or other electronic communication shall constitute an
original signature of such party.
10. Incorporation by Reference; Statement Required by
Section 432.045, Mo. Rev. Stat.
(a) Each of the Notes and the other Loan Documents is
incorporated herein in full by this reference, provided,
however, that if there is any inconsistency between this
Amendment and such other Loan Documents (as amended by this
Amendment), this Amendment shall govern.
(b) ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A
DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT
ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR)
FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE
REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN
WRITING TO MODIFY IT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed on the date specified at the
beginning hereof.
TOASTMASTER INC.
By:_______________________________
Name:
Title:
FLEET CAPITAL CORPORATION
By:_______________________________
Name:
Title:
TOASTMASTER INC.
TOASTMASTER INCENTIVE PROGRAM
1998
<PAGE>
TOASTMASTER INCENTIVE PROGRAM
PURPOSE AND BASIS OF INCENTIVE COMPENSATION
The purpose of the Toastmaster Inc. Incentive Compensation Plan
is to motivate and reward outstanding performance on the part of
key management employees who are in a position to influence
results and the level of profits in a direct, measurable and
significant way. It is the intent of the Plan to stimulate
greater initiative, resourcefulness, teamwork and concentrated
effort on the part of this key management group, to attain and
thereafter maintain, upper quartile performance in return on
investment and growth in earnings when measured against the
performance of the industries in which the company participates.
The Management will annually establish the upper quartile levels
of return on investment and earnings growth, along with general
objectives for the corporation and each of its operating units.
All individual goals that provide the basis for incentive
compensation will be related to these corporate goals and
objectives. Form I sets forth the objectives approved by the
President.
ELIGIBILITY AND PARTICIPATION
Eligibility for participation in the Plan is limited to those who
can truly impact profits in a material way. Among other
considerations, this determination will be based upon the
evaluated level of each position and the position's impact on
profitability. Determination of participation will be the
responsibility of the Operating Committee, approved by the
President. In order to be eligible, each position must have a
position description and evaluation completed under the
Compensation Program. The evaluation will be conducted by the
Vice President of Human Resources and must be approved by the
President.
LIMITATION OF AMOUNTS PAID AS INCENTIVE COMPENSATION
The aggregate of all incentive compensation payment, excluding
salesman's commissions but including any bonus paid under this
Plan, cannot exceed 5 percent of the total consolidated profit of
the Company, before provisions for income taxes and interest.
<PAGE>
ESTABLISHMENT OF INCENTIVE FUNDS AND THE DETERMINATION OF
DISCRETIONARY INDIVIDUAL AWARDS
An incentive fund for performance and discretionary individual
achievement awards shall be established following the end of each
fiscal year as soon as practicable after the auditors have
completed their audit and appropriate authorization is received
(i.e. Barclays financial institution).
PERFORMANCE FUND
A Performance Fund will be established to reward the participants
for attainment of the desired Corporate target for return on
investment and the earnings growth necessary to sustain that
return. Such a fund will be established when earnings exceed the
predetermined minimum earnings goal. The Performance Fund will
be the sum of the individual participants' performance awards
that are earned. The individual performance awards will be
automatically determined as a percentage by which the Incentive
Base Target (hereinafter the "Incentive Base"), was achieved.
Administrative Rule 4 sets forth participant's target performance
awards based upon position evaluation points and Administrative
Rule 5 establishes the percentage of those targets that become
payable according to the percent of Incentive Base achievement.
The Performance Fund will be accrued as earned in the accounting
records.
THE DISCRETIONARY ACHIEVEMENT FUND
While the Performance Fund is designed to recognize performance
within range of the profit targets desired by the Corporation,
the continuing progress of the Corporation as a whole also
depends on outstanding achievements by participants. The
Discretionary Individual Achievement Fund is provided as a means
of recognizing outstanding individual performance.
Individual goals will, to the extent possible, have been
established prior to the beginning of the year. These goals will
have become an integral part of the operation plan. Achievement
will be measured in terms of meeting the degree overall operating
plan and the individual goals. In no case, can a participant's
discretionary individual achievement award exceed 50% of his or
her maximum payout target that would be applicable for his or her
position.
<PAGE>
Administrative Rule 9 sets forth the manner in which individual
performance will be evaluated and defines "outstanding
performance," which is the level of performance essential to the
determination of an award.
INDIVIDUAL ACHIEVEMENT AWARDS NOT AUTOMATIC
While all program participants have the opportunity to earn a
discretionary individual achievement award, no commitment can be
made that such an award will be made. These awards are not
determinable until the President has evaluated all performance
data against individual and Corporate objective and the amount of
the fund available.
APPROVAL REQUIRED
The performance and the discretionary individual achievement
award recommendations will be submitted to the President who
shall have final determination of incentive awards.
PAYMENT OF INCENTIVE AWARDS
All incentive awards will be paid by check and will be
distributed as soon as possible after the end of the year
involved. In order to receive an award, an eligible participant
must be a working employee on the Company payroll on December 31
in the year involved and also on the date of distribution.
ADMINISTRATION OF THE PLAN
Overall administration and records maintenance shall be the
responsibility of the Vice President of Human Resources. All
documents provided for in the Administrative Rules will be
forwarded to the Vice President of Human Resources.
The Vice President of Human Resources will cause this information
to be summarized, along with appropriate data on cost, and
presented to the President for consideration.
<PAGE>
Upon his approval, the President will cause, through levels of
management, a continuing communication of goals and the
evaluation and communication of performance throughout the year
to maximize the Plan's effectiveness.
AUTHORITY FOR STATEMENT OF THE PLAN AND CONDITIONS GOVERNING ITS
ADMINISTRATION
This Plan and the Administrative Rules shall be subject to all
provisions of law from time to time applicable thereto. Neither
the Plan nor the Rules may be construed to give rise to a
contract for the retention of any employee; nor shall an employee
have any right whatsoever against the Company or its
subsidiaries, the directors, the officers, or other employees,
except the right to receive payment in accordance with the terms
and conditions of the Plan and the Rules thereunder.
The President of Toastmaster Inc. has the authority to interpret
the Plan and the right to make all other determinations deemed
necessary or advisable for the administration of the Plan.
<PAGE>
TOASTMASTER INCENTIVE PROGRAM
ADMINISTRATIVE RULES
The following rules have been established to insure fairness in
the administration of the Plan. Additional rules will be defined
by the President as occasions require.
RULE 1 - GOVERNMENTAL REGULATIONS
Any incentive payouts under the terms of this plan will be
limited by any governmental regulations in effect at the time of
the incentive payouts.
RULE 2 - CORPORATE OBJECTIVES RELATING TO RETURN ON INVESTMENT
AND EARNINGS GROWTH
The upper quartile levels of return on investment and earnings
growth have been established by the President as a guide in
administering the Incentive Compensation Program and are set
forth in Form I.
RULE 3 - ELIGIBILITY FOR PARTICIPATION
A properly administered job evaluation program is basic to the
Plan. No employee can be named a participant until after a
position description has been prepared and an evaluation of the
position has been completed by the Vice President of Human
Resources. The position will then be eligible for participation
on a pro-rata basis as of the date of approval by the President.
Individuals may not be named a participant in the current year's
plan after September 30, and if named in the 3rd quarter, will
not participate in a performance award.
RULE 4 - LEVEL OF PARTICIPATION
Each participant will be assigned a level of participation based
upon the following:
Incentive Target as a Percentage
Position Evaluation Point of Base Earnings
500 - 674 10%
675 - 774 12.5%
775 - 899 15%
<PAGE>
900 - 1019 20%
1020 - 1224 30%
1225 - 1624 45%
1625 - 1924 50%
1925 - 2399 60%
2400 - over 65%
The assignment of evaluation points and incentive targets is the
responsibility of the Vice President of Human Resources with the
approval of the President.
RULE 5 - PAYOUT TABLE FOR PERFORMANCE AWARDS
The payout table that relates the percent of incentive target
payout to the percent attainment of Incentive Base will be the
following:
Actual earnings and return on investment performance as a percent
of the established "trend line" goal will be rounded to the
nearest 1/10th percent in determining the percent attainment of
the goal.
RULE 6 - TARGET AND PAYOUT TABLE FOR PERFORMANCE AWARDS
A target and payout table substantially in compliance with Form I
appended hereto, will serve as the basis for communication of the
established "trend line" goals and the manner in which the
Performance Award will be automatically determined.
RULE 7 - CALCULATION SHEET FOR PERFORMANCE AWARDS
Performance awards will be calculated by completing Corporate
Form II entitled "Calculation Sheet," which form is made part of
and is the substance of this Administrative Rule.
RULE 8 - GOAL SETTING AND PERFORMANCE APPRAISAL FOR DISCRETIONARY
INDIVIDUAL ACHIEVEMENT AWARD PURPOSES
The establishment of discretionary individual achievement
objectives must be a two-way communication process between the
individual and the manager. The goals must be quantifiable so
that performance can be measured against them. Although the
goals will include the <PAGE> achievement of profit targets, they should
specifically relate to the individual's area of responsibility
and reflect the results that the individual must accomplish as a
part of the group effort to accomplish the overall profit goals -
both short-term and longer range.
In setting goals, it should be kept in mind that unattainable
goals quickly discourage motivation for achievement while
unrealistically easy goals also lack motivational value.
Additionally, goals in each basic function, i.e., manufacturing,
finance, sales, marketing etc., should be specific, measurable,
and relate to correcting deficiencies in performance or
motivating improvement in already acceptable performance. Goals
should be perceived as being attainable but, nonetheless, cause
individuals to reach. Goals, therefore, by definition go beyond
successful execution of all job responsibilities.
The purpose of establishing individual goals and rewarding
accomplishment of those goals is to establish a common direction
toward achievement of the broader Corporate goals and to motivate
individuals to accomplish those goals.
If all of the individual goals fit together toward accomplishing
Corporate objectives, individuals have a clearer understanding of
their roles in that achievement in addition to having their own
action-oriented plan.
A complete assessment of the current year's achievement of
objectives and assessment of overall performance must be
forwarded to the Vice President of Human Resources before January
15th. The current year's assessment of goal achievement
performance will then be used in determining individual
achievement awards for the year, and the coming year's objectives
will be reviewed with the President for approval.
<PAGE>
RULE 9 - DETERMINATION OF DISCRETIONARY INDIVIDUAL ACHIEVEMENT
The determination of discretionary individual achievement and the
amount of any discretionary individual achievement award will be
based upon the degree of attainment of Corporate targets and the
assessment of individual goals and overall performance using the
Performance/Potential Appraisal Form III, appended hereto. Each
manager will be responsible for completing a total assessment of
each participant's performance and submitting that assessment to
the Operating Committee for review prior to year-end.
The amount of the discretionary award will be related to the
position's evaluated level with a proportionately greater amount
being awarded to individuals demonstrating outstanding
performance. Only individuals with at least a one hundred
twenty-seven percent (127%) or better performance rating will be
eligible to receive a discretionary achievement award.
RULE 10 - PAYMENT OF AWARDS
In order to receive an award, an eligible employee must be a
working employee on the Company payroll on December 31 of the
year involved and also on the date of incentive distribution.
RULE 11 - TERMINATION OF EMPLOYMENT
Termination of employment during the year for reasons other than
retirement, death, or disability will remove the individual as a
participant and for purposes of determining the Performance Fund.
Termination for other than retirement, death, or disability after
the year-end and prior to the time incentive payouts are made
shall result in the forfeiture of any award which might otherwise
be payable.
RULE 12 - RETIREMENT, DEATH, DISABILITY
A participant who retires, dies, or is judged disabled during the
year will be entitled to a performance award prorated to the date
of such event. Illness of two months or less will not affect the
determination of an individual's performance award; however,
where illness involves more than two months, the performance
award payment will be prorated to cover only the portion <PAGE> of the
year actually worked. If an employee is judged disabled for the
purpose of administering other Company benefit programs, he will
be judged disabled for the purpose of this plan.
An Individual Achievement award will only be made in unusual
circumstances in these situations.
RULE 13 - SALARIES ABOVE ASSIGNED GRADE
It is recognized that there may be situations where salaries
exceed the participant's salary range. Where this occurs, the
difference between the maximum of that range and the incumbent's
salary will be deducted from the total of any award granted. A
discretionary individual achievement award may be granted but
must take into consideration the general circumstances at the
time, including the over-range salary level.
RULE 14 - GENERAL OBJECTIVES FOR INCLUSION IN THE GOALS OF ALL
PARTICIPANTS
The Company has initiated a continuing program to maximize its
effectiveness as a single unit. While the Management Incentive
Plan is designed to motivate the development of each unit as a
single business, it is essential that the good of the Company as
a whole is always in the forefront of such motivation.
Accordingly, each participant will be judged according to the
following general criteria:
a) His/Her effectiveness in communicating and evaluating
the goals of the unit, including how well this Plan and
other policies of the Company are used to motivate
others in accomplishing the Company's goal;
b) His/Her acceptance and assistance in refining
organization concepts of the Company, including
training and developing a competent organization and
the identification of successor management;
c) His/Her fostering of attitudes that improve the
effectiveness of the total Company and contributing to
areas outside his/her own unit that contribute to the
growth, quality, image, and well being of the Company;
<PAGE>
d) His/Her success in helping the unit provide a safe
operation;
e) His/Her contribution in developing and conveying
reliable information about his/her area of
responsibility;
f) His/Her participation and support of Corporate programs
that relate to social responsibility;
g) His/Her creativity in developing and implementing new
concepts and ideas in his/her area of expertise as well
as the overall organizational unit;
h) His/Her success in meeting the objectives of projects
attuned to individual skills or those otherwise
assigned. An individual is expected to be a self-
starter and alert to how trained competence can make a
contribution to the unit's operation and to volunteer
this effort where it is needed. To participate in an
individual achievement award, one must be the type of
employee who is more than just being on call, and must
seek out the areas in which he believes his/her
expertise is needed.
RULE 15 - ACCOUNTING PRINCIPLES
Accounting Principles applied in this Plan will be those used in
stating the annual accounts of the Company as certified by its
independent public accountants. Earnings will be based on
profits before payouts under the Plan, interest and income taxes
but after eliminating extraordinary items as shown in the
Financial Statements. Return on investment will be based on
earnings as defined above the average investments of the unit
(total assets less accounts payable and accrued expenses)
determined by averaging the investment at the beginning of the
year and the investment at each of the twelve month-ends during
the year.
Profits that are non-operating, or clearly windfall in nature if
sizable, may be eliminated at the direction of the President in
making the final unit profit determination for the year.
Losses not economic in nature (ordinarily acts of God) which are
concluded by the President to be beyond control, may at his
direction be eliminated to the extent they are not recoverable.
<PAGE>
All other elements of operating income and expenses, regardless
of timing differences, will be treated in the same manner as they
are treated in arriving at the profits certified by the
independent accountants and in accordance with internal
accounting procedures.
<TABLE>
FORM I
Incentive Compensation Performance Fund
Targets and Payout Table For 1998
(000's omitted)
PAYOUT TABLE
Return on Investment
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% Attainment
of Incentive Income
Base Range 9.3% 9.2% 9.1% 8.9% 8.7% 8.6% 8.4% 8.2% 8.1% 7.9% 7.7% 7.6% 7.4%
100.0% 7637 50 47 44 41 38 35 32 29 26 23 20 17 15
99.5% 7600 47 44 41 38 35 32 29 26 23 20 17 15
97.7% 7465 44 41 38 35 32 29 26 23 20 17 15
95.9% 7325 41 38 35 32 29 26 23 20 17 15
94.1% 7190 38 35 32 29 26 23 20 17 15
92.4% 7055 35 32 29 26 23 20 17 15
90.6% 6920 32 29 26 23 20 17 15
88.8% 6785 29 26 23 20 17 15
87.1% 6650 26 23 20 17 15 Performance
85.3% 6515 23 20 17 15 Award as a %
83.5% 6380 20 17 15 of Incentive
81.8% 6245 17 15 Target
80.0% 6110 15
*Income before Interest,
miscellaneous income
and taxes Approved__________________________
President
<TABLE\>
</TABLE>
Toastmaster Inc.
1997
Annual Report
<PAGE>
LETTER TO SHAREHOLDERS
Dear Fellow Shareholders:
Toastmaster continued to face the challenges presented by the
counter-top appliance industry in 1997 with encouraging results.
Introduction of new product lines, collaboration with high-end
familiar brands, market and manufacturing restructuring and
consolidation all worked to improve financial performance
throughout the year. Third and fourth quarter financial results
improved overall for the Company, and Toastmaster ended the year
with a $.25 per share profit.
OFFSHORE PRODUCTION
Toastmaster continues to shift its manufacturing base from
domestic to international sources with anticipated savings of 10
percent to 30 percent on the cost of producing each item. In 1997
we discontinued production of cool touch wafflebakers at the
company-owned plant in Boonville, Missouri and outsourced
production with lower-cost vendors overseas. These strategic
initiatives were recorded in the restructuring adjustments during
the fourth quarter 1996. Although delayed launch of wafflebaker
production in China kept the product from store shelves longer
than anticipated, production is currently at desired levels.
Additional products will be outsourced in 1998, particularly
griddles and some countertop ovens.
Toastmaster's Mexican subsidiary, Toastmaster de Mexico S.A. de
C.V., continued a strong showing begun in 1996, with 1997 sales
showing a 61percent increase over the previous year.
CHANGING MARKET TRENDS
Breadmaker sales achieved a 50 percent increase over the previous
year. But those gains were offset by a decline in sales of
toasters, countertop ovens and other appliances, especially in
the second quarter, a sign of the maturing market for more
traditional countertop appliances.
The introduction of Toastmaster's new Breadmaker's HearthTM, a
breadmaker/countertop oven combination appliance demonstrates our
ability to adapt to emerging consumer trends by providing our
customers with innovative products designed to meet their
ever-rising standards and changing tastes.
The trend toward "speed scratch" cooking is a case in point.
Consumers, ever busy with careers and families still want
home-cooked meals prepared with fresh ingredients. Toastmaster is
well-positioned in this market segment, not only with the new
Breadmaker's Hearth, but also with the Corner BakeryTM which
makes a wide array of fresh desserts. Toastmaster has led the
industry in bringing innovative features to bread machines
including breadstick makers and a fresh butter cycle.
ALLIANCES EXPAND MARKET REACH
Last year Toastmaster forged alliances with several consumer
product firms, including Faultless Starch and Timex, to jointly
bring products to the market. These companies recognize that
Toastmaster is an effective distribution vehicle within the
countertop appliance industry and we are able to provide the high
quality products that their brand names demand.
<PAGE>
The Toastmaster alliance with Faultless has helped raise the
profile of our iron line. The Faultless steam and dry iron comes
with new innovative technology from Toastmaster, the patented
Touch SensorTM, a touch-sensitive safety shut-off system that
reduces scorching compared with competitive designs.
In the time products category, Toastmaster improved market
penetration and expanded distribution by signing Home Depot as a
retail outlet. Sales of time products grew in the final two
quarters of the year.
GOING UPSCALE
Attention has been well-spent in researching the trends and
tastes of the increasingly important upscale market segment.
Product enhancements for the upcoming year include an agreement
with Bosch-Siemens Hausgerate GMBH of Germany, one of Europe's
leading appliance manufacturers and fifth largest in the world.
Toastmaster has exclusive rights to sell Siemens products in the
United States, including a line of kitchen products designed by
F. A. Porsche Design. The Porsche products will include a
toaster, thermal carafe coffeemaker and electric kettle - all
three of very high quality and unique design. Other Siemens
products include a stand mixer, electric kettle, toaster, deep
fryer and egg cooker. Sales of these products are targeted to
upscale retailers, including department stores, gourmet specialty
stores and high-end catalogs. Toastmaster's collaboration with
German product designer Wolfgang Jonsson has resulted in the
high-end OperaTM Collection, consisting of a toaster, hand-mixer
and blender. These products are targeted for finer retailers in
North America and Europe. Toastmaster will handle the North
American distribution.
In addition, Toastmaster will continue to develop relationships
with our outsourcing suppliers. For 1998, this includes an
additional smaller version of the Breadmaker's Hearth that will
require less countertop space, but still produce a 1-pound loaf
of bread and perform all the standard countertop oven functions.
Also, the iron line introduced in 1997 will be expanded with
additional feature-rich models.
Consumers in our target markets are maturing and their needs for
countertop appliances are changing. Plus, the competition in our
industry continues to be fierce which creates more aggressive
margins. Toastmaster weathers these challenges with an eye toward
innovation, efficiency and providing consumers with the products
that make sense for their lifestyles. That's been our business
for 71 years. That's what we continue to do.
/s/ Robert H. Deming /s/ Daniel J. Stubler /s/ John E.
Thompson
Robert H. Deming Daniel J. Stubler John E. Thompson
Chairman & President & Executive Vice
Chief Executive Chief Operating President & Chief
Officer Officer Financial Officer
<PAGE>
BUSINESS DESCRIPTION
Toastmaster Inc. ("Toastmaster" or the "Company") designs,
manufactures, markets and services a wide array of electrical
consumer appliances and time pieces under the brand names of
Toastmaster [Registered Trademark] and Ingraham [Registered
Trademark]. These products may be classified into two principal
categories: kitchen countertop appliances and time products. A
third category, consisting of environmental comfort products, was
discontinued in 1997 as part of the Company's overall
restructuring. Kitchen countertop appliances account for most of
Toastmaster's revenues. Although the Company has historically
been best known for its complete line of toasters, including the
Bagel Perfect [Registered Trademark] toasters, its kitchen
countertop appliances consist of a wide variety of other popular
electric products, such as the Breadmaker's Hearth [Trademark], a
combination breadmaker/countertop oven, the Corner Bakery
[Trademark] breadmaker with dessert function, the Bread Box
[Registered Trademark] breadmaker, the Cool Edge Grill
[Trademark], the Speed Grill [Trademark] indoor contact grill,
Snackster [Registered Trademark] snack and sandwich makers,
countertop ovens, dessert and waffle bakers, griddles, buffet
ranges, Handi-Pan [Registered Trademark] mini-fry pans, carving
knives, hand mixers, can openers, blenders, food slicers, coffee
makers and grinders, tea kettles and clothes irons. The Company's
time products consist of an extensive line of clocks and timers,
including battery wall clocks, electric analog alarm clocks,
decorator wall clocks and mechanical and electronic household
timers. The Toastmaster [Registered Trademark] brand name has
been in continuous use since the invention of the automatic
pop-up toaster by a predecessor of the Company in 1926, and the
Ingraham [Registered Trademark] brand name has been used on time
products manufactured by the Company or its predecessors since
1831.
Year ended December 31
1997 1996 1995
Revenues Percent Revenues Percent Revenues Percent
(Dollars in Thousands)
Kitchen countertop
appliances $126,019 78.1% $130,712 76.6% $158,080 79.5%
Time products 33,673 20.9 34,918 20.5 33,221 16.7%
Environmental
products 1,490 1.0 5,009 2.9 7,663 3.8%
Total $161,182 100.0% $170,639 100.0% $198,964 100.0%
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
STATEMENTS MADE IN THIS ANNUAL REPORT ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS, FINANCIAL CONDITION OR BUSINESS COULD DIFFER
MATERIALLY FROM ITS HISTORICAL RESULTS, FINANCIAL CONDITION OR
BUSINESS, OR THE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR
BUSINESS CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE CAPTION "FACTORS
THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION
OR BUSINESS," IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
1997, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S
REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated,
the percentage of net sales represented by certain items in the
Company's Consolidated Statements of Operations. Net sales
reflect a reduction from revenues of amounts related to sales
discount programs, including absorption of out-bound freight and
certain allowances for advertising, the latter of which are
accounted for by certain competitors as "advertising" expense.
The Company views these amounts as price reductions, thereby
reducing net sales and lowering gross profit as well as selling,
general and administrative expense. As used in this Annual
Report, revenues are recorded net of product returns and are
before deduction of the items referred to above that are used in
computing net sales. During the periods indicated, net sales
averaged approximately 95% of revenues.
Year ended December 31
1997 1996 1995
Net sales 100.0% 100.0% 100.0%
Cost of sales 81.3 87.4 82.9
Gross profit 18.7 12.6 17.1
Selling, general and
administrative expense 14.7 14.5 13.3
Operating income (loss) 4.0 (1.9) 3.8
Interest expense 2.6 2.7 2.6
Interest income .4 -- --
Income (loss) before taxes 1.8 (4.6) 1.2
Income tax expense (benefit) .6 (1.7) 0.5
Net income (loss) 1.2% (2.9)% 0.7%
YEAR ENDED DECEMBER 31, 1997 COMPARED TO 1996
Net sales for the year ended December 31, 1997 decreased
5.3% to $154.3 million from $163 million for the year ended
December 31, 1996. Kitchen appliance revenues decreased 3.6% from
$130.7 million for the year ended December 31, 1996 to $126
million for the year ended December 31, 1997. A decrease in
toaster and countertop oven revenues was substantially offset by
shipments of Breadmaker's Hearth [Trademark], a combination
breadmaker/countertop oven, and other breadmakers and the
successful introduction of clothes irons. The decline in toaster
revenue was primarily from the loss of models with a major
customer. Time products revenues decreased 3.4% from $34.9
million for the year ended December 31, 1996 to $33.7 million for
the year ended December 31, 1997. The loss of wall clock business
with a major customer was significantly offset with timer
shipments to new and existing customers and the introduction of a
line of table alarm clocks under a license agreement utilizing
the Timex [Registered Trademark] and Indiglo [Registered
Trademark] brand names. Environmental products revenues
decreased 70% to $1.5 million for the year ended December 31,
1997 from $5 million for the year ended December 31, 1996 as a
result of the discontinuance of the environmental products
category.
The Company's top five customers sell a variety of
Toastmaster products. Shipments to these customers increased to
44% of revenues for the year ended December 31, 1997 from 42.8%
of revenues for the top five customers for the year ended
December 31, 1996. It is expected that the Company's dependence
on these major retailers will continue.
Gross profit as a percentage of net sales increased from
17.3% in 1996 (12.6% before a one-time pre-tax special charge of
approximately $7.6 million against cost of sales, related to the
restructuring of its product lines) to 18.7% in 1997. The
increase as a percentage of net sales was primarily due to
product mix and lower fixed manufacturing costs, resulting from
the restructuring implemented during the fourth quarter of 1996.
Selling, general and administrative expenses as a percentage
of net sales increased slightly from 14.5% in 1996 to 14.7% in
1997.
Interest income of $639 thousand in 1997 was from an
expected income tax refund from prior years.
Interest expense decreased from $4.4 million in 1996 to $4.1
million for the year ended December 31, 1997. This decrease was
primarily due to a lower average balance on borrowings under the
revolving line of credit. The decreased borrowings were due to
carrying lower accounts receivable from lower sales and shorter
terms of sale during the year, as well as lower inventories from
the restructuring. Should market rates rise, the Company could
expect future increases in interest expense.
The Company will be required to adopt Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income,"
in 1998. The adjustments that are now made through stockholders'
equity for the minimum pension liability and foreign currency
translation adjustments will be included in comprehensive income
which must be reported in the basic financial statements (not the
footnotes). The dollar amounts of the adjustments from net income
to comprehensive income have not been significant for the Company
in recent years.
The Company will be required to adopt SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related
Information," in 1998. This Statement establishes standards for
the way that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and
major customers. The primary effect on the Company will be in the
form of expanded disclosures with respect to foreign operations.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO 1995
Net sales for the year ended December 31, 1996 decreased
13.5% to $163 million from $188.5 million for the year ended
December 31, 1995. Kitchen appliance revenues decreased 17.3%
from $158.1 million for the year ended December 31, 1995 to
$130.7 million for the year ended December 31, 1996. A decrease
in breadmaker shipments due to the anticipated maturation of that
product, a decrease in wafflebaker shipments due to price
competition and a decrease in blender shipments due to the
discontinuance of a private label manufacturing contract were the
primary reasons for the reduction in appliance revenues. These
decreases were partially offset by a modest increase in revenues
from toaster and other appliance revenues. Time products revenues
increased 5.1% from $33.2 million for the year ended December 31,
1995 to $34.9 million for the year ended December 31, 1996 due to
increased placement of wall clocks with two major retailers.
Environmental products sales decreased 35% to $5 million for the
year ended December 31, 1996 from $7.7 million for the year ended
December 31, 1995 as a result of the Company's decision to
de-emphasize that product line.
Shipments to the Company's top five customers decreased to
42.8% of revenues for the year ended December 31, 1996 from 45.7%
of revenues for the top five customers for the year ended
December 31, 1995.
The Company recorded a one-time pre-tax special charge of
approximately $7.6 million to cost of sales related to the
restructuring of its product lines. Gross profit as a percentage
of net sales before the one-time charge increased slightly from
17.1% in 1995 to 17.3% in 1996 due primarily to lower raw
material prices and cost reductions implemented during the year.
These reduced costs were partially offset by higher merchandise
returns in the first half of 1996 on reduced shipments when
compared to the first half of 1995 and increased manufacturing
inefficiencies related to longer production shutdowns during the
first half of 1996 when compared to production shutdowns incurred
during the first half of 1995.
Selling, general and administrative expenses as a percentage
of net sales increased from 13.3% in 1995 to 14.5% in 1996.
Increases in engineering and research and development spending
and additional advertising promotions related to time products
revenues were partially offset by reduced advertising promotions
on lower kitchen appliance revenues. Administrative costs as a
percentage of sales were relatively unchanged.
Interest expense decreased from $4.9 million in 1995 to $4.4
million for the year ended December 31, 1996. This decrease was
primarily due to a lower average balance on borrowings under the
revolving line of credit. The decreased borrowings were due to
carrying lower accounts receivable from lower sales during the
year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations require substantial working
capital. The Company has used available cash flows from
operations and borrowings under its revolving credit agreement to
finance additional working capital, to retire long-term debt and
to fund capital expenditures.
Net cash flows provided by operating activities were $7.1
million in 1997. Such cash flows were provided by a decrease in
inventory of $1.8 million, depreciation and amortization of $3.6
million and net income of $1.9 million. Increased accounts
receivable from sales to customers with extended sales terms,
increased inventories required to support higher sales levels and
increased customer demand for "Just-in-time" shipments may
require greater working capital. Without additional borrowing,
future cash flows provided by operations may not be adequate to
support future seasonal working capital requirements. The Company
believes it will be able to obtain additional borrowings on
similar terms as current credit arrangements.
Net cash flows used for additions to plant, property and
equipment were $4.4 million for the year ended December 31, 1997.
Capital expenditures in 1997 were primarily used to develop and
produce new products, as well as other facility improvements.
Net cash flows used by financing activities were $2.7
million in 1997 primarily for repayment of long-term debt.
Amounts outstanding under the revolving credit agreement
were $35.3 million at December 31, 1997.
The Company could borrow an additional $10.3 million under
the revolving credit agreement at December 31, 1997. Other
long-term debt was $9.4 million at December 31, 1997, including
the current portion of $2.1 million. The terms of and collateral
for the revolving credit agreement and long-term debt are
described in Note 3 of the Notes to Consolidated Financial
Statements. Under the terms of the agreement, as amended,
borrowings under the revolving credit arrangement are generally
limited to the lesser of $85 million from June 1 through January
31 or $60 million from February 1 through May 31, or the sum of
eligible accounts receivable and inventory, as defined in the
agreement. The revolving credit agreement was amended in March
1998, reducing the interest rate under the LIBOR option on all
borrowings by 1/2%. The amendment also increased available
borrowing by $5 million.
Principal payments on the long-term debt are expected to be
funded from internally generated cash flows and future
borrowings. The revolving credit agreement expires in November,
2001.
EFFECTS OF FOREIGN CURRENCY FLUCTUATIONS AND INFLATION
The Company established Toastmaster de Mexico S.A. de C.V.,
a wholly-owned subsidiary in 1994. Mexican currency exchange
fluctuations were not material in 1997. The devaluation of the
peso could have a negative effect on the Company's future
operations in Mexico. Sales to certain customers in Canada are
invoiced in Canadian dollars. The fluctuation of the Canadian
dollar in 1997 negatively affected the Company's earnings by $150
thousand. At December 31, 1997 accounts receivable included $2.7
million denominated in Canadian dollars and $1.3 million
denominated in Mexican pesos. Collection of these amounts is
expected to occur within 90 days. The results of other operations
of the Company for the periods discussed have not been
significantly affected by inflation or foreign currency
fluctuations. The Company generally negotiates its purchase
orders with its foreign manufacturers in United States dollars.
In 1998, new agreements with foreign manufacturers may require
purchase orders on some transactions to be denominated in foreign
currencies. Notwithstanding any fluctuation in foreign currency
exchange rates, the Company's cost under purchase orders in
dollars is not subject to change after the time the order is
placed due to exchange rate fluctuations. A weakening of the
United States dollar against local currencies could, however,
result in certain manufacturers increasing the United States
dollar prices for future product purchases. Any such increases
are not expected to have a material adverse effect on the
Company's results of operations. On the other hand, a
strengthening of the United States dollar will reduce the cost of
imported products and benefit the Company relatively less than
those of its competitors who rely more heavily on imported
products.
YEAR 2000 COMPLIANCE
In 1997, the Company began to address the issues and
exposures related to the Year 2000 which may affect key
financial, operational and information systems. Modifications to
the key operating and financial software have been received from
the Company's vendor, who has represented it to be Year 2000
compliant. The Company has plans to test these modifications in
1998. In addition, other system updates have been received or
will be received by late 1998 and all testing of Year 2000
compliance should be complete by early 1999. The costs, which are
expensed as incurred, have not been material to date and are not
expected to have a material impact on the Company's earnings in
the future.
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information presented below for
Toastmaster for each of the years in the five-year period ended
December 31, 1997 are derived from the Company's consolidated
financial statements which have been audited by KPMG Peat Marwick
LLP, independent public accountants. The following selected
financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," the audited consolidated financial
statements, related notes thereto and other information included
elsewhere in this Annual Report.
Year ended December 31
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA
Net sales $154,347 $163,049 $188,509 $192,387 $163,895
Cost of
sales/1/ 125,465 142,458 156,310 157,564 133,591
Gross profit 28,882 20,591 32,199 34,823 30,304
Selling, general
and
administrative
expenses 22,669 23,641 25,011 24,955 21,362
Operating income
(loss)/2/ 6,213 (3,050) 7,188 9,868 8,942
Interest expense 4,063 4,393 4,923 4,129 3,558
Interest income 639 32 25 -- --
Income (loss)
before income
taxes 2,789 (7,411) 2,290 5,739 5,384
Income tax expense
(benefit) 899 (2,720) 956 2,203 1,978
Net income
(loss) $ 1,890 $ (4,691) $ 1,334 $ 3,536 $ 3,406
Weighted average
shares used
in computation:
Basic earnings
per common
share 7,538 7,538 7,560 7,589 7,591
Diluted earnings
per common
share 7,546 7,538 7,560 7,589 7,639
Basic earnings
(loss) per
share $ 0.25 $ (0.62) $ 0.18 $ 0.47 $ 0.45
Diluted earnings
(loss) per
share $ 0.25 $ (0.62) $ 0.18 $ 0.47 $ 0.45
BALANCE SHEET DATA
Working capital $ 59,735 $ 61,870 $ 79,764 $ 75,946 $ 62,639
Total assets 106,291 104,854 129,995 129,552 112,669
Current
Installments
--LTD 2,104 2,145 2,176 2,142 2,172
Long-term debt 42,597 44,611 58,190 57,023 44,830
Stockholders'
equity 41,318 40,164 45,422 44,905 41,876
Dividends paid
per share $ 0.08 $ 0.08 $ 0.08 $ 0.08 --
/1/ Restructuring charges totalling $7,600,000 are reflected in cost of
sales for the year ended December 31, 1996
/2/ Operating income (loss) is net of depreciation and amortization for each
of the five years ended December 31, 1997 of approximately $3,901,000,
$4,078,000, $4,372,000, $4,148,000 and $3,622,000, respectively.
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
Current assets:
Cash $ 178,030 $ 97,466
Accounts receivable, less
allowances for doubtful accounts,
sales discounts and returns of
$2,714,000 in 1997 and $2,674,000
in 1996 (note 3 and 7) 42,396,253 42,703,845
Inventories (notes 2 and 3) 31,825,621 34,476,696
Deferred income taxes (note 4) -- 2,279,741
Prepaid expenses and other current
assets 2,144,645 794,104
Income taxes receivable 4,070,503 768,428
Total current assets 80,615,052 81,120,280
Property, plant and
equipment, at cost (note 3):
Land 927,584 926,282
Buildings 9,884,855 9,057,296
Machinery and equipment 45,660,717 42,327,069
56,473,156 52,310,647
Less accumulated depreciation 37,210,559 33,785,477
Net property, plant and
equipment 19,262,597 18,525,170
Goodwill, net of accumulated
amortization of $1,283,192 in 1997
and $1,170,572 in 1996 3,265,499 3,378,119
Other assets 3,148,340 1,830,134
$106,291,488 $104,853,703
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt (note 3) $ 2,104,149 $ 2,144,643
Accounts payable 4,382,729 3,755,131
Accrued advertising 2,528,768 2,970,125
Accrued warranty and product
liability 4,630,160 4,200,000
Accrued vacation 1,161,698 1,379,717
Other accrued liabilities 4,616,748 4,800,785
Deferred income taxes (note 4) 1,455,992 --
Total current liabilities 20,880,244 19,250,401
Long-term debt, excluding current
installments (note 3) 42,597,072 44,611,075
Deferred income taxes (note 4) 800,607 579,466
Other liabilities 695,448 249,111
Total liabilities 64,973,371 64,690,053
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
none issued -- --
Common stock, $.10 par value;
20,000,000 shares authorized,
7,596,775 shares issued 759,677 759,677
Additional paid-in capital 25,343,543 25,339,958
Retained earnings 15,877,723 14,591,056
Minimum pension liability
adjustment (356,854) (227,321)
Foreign currency translation (18,457) (11,666)
41,605,632 40,451,704
Treasury stock, at cost,
57,325 shares in 1997 and
58,525 in 1996 (287,515) (288,054)
Total stockholders' equity 41,318,117 40,163,650
Commitments and contingencies
(note 6)
$106,291,488 $104,853,703
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
Net sales $154,346,785 $163,049,140 $188,509,337
Cost of sales (note 9) 125,464,731 142,458,084 156,310,057
Gross profit 28,882,054 20,591,056 32,199,280
Selling, general and
administrative
expenses 22,669,161 23,640,864 25,011,365
Operating income
(loss) 6,212,893 (3,049,808) 7,187,915
Other expense
- interest 4,062,561 4,392,994 4,923,160
Other income
- interest 638,669 32,247 25,055
Income (loss)
before income
taxes 2,789,001 (7,410,555) 2,289,810
Income tax
expense
(benefit) (note 4) 889,251 (2,719,913) 956,066
Net income (loss) $1,889,750 $(4,690,642) $1,333,744
Basic and diluted
earnings (loss)
per common share $ .25 $ (.62) $ 0.18
Weighted average
shares used in
computation
Basic earnings
per common share 7,538,455 7,538,250 7,560,267
Diluted earnings
per common share 7,545,794 7,538,250 7,560,267
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Common stock:
Beginning and end of year $ 759,677 $ 759,677 $ 759,677
Additional paid-in capital:
Beginning of year 25,339,958 25,339,958 25,339,958
Sale of 1,200 shares of
treasury stock 3,585 -- --
End of year 25,343,543 25,339,958 25,339,958
Retained earnings:
Beginning of year 14,591,056 19,885,776 19,159,164
Net income (loss) 1,889,750 (4,690,642) 1,333,744
Cash dividends ($.08,
$.08 and $.08 per share) (603,083) (604,078) (607,132)
End of year 15,877,723 14,591,056 19,885,776
Minimum pension liability
adjustment (note 5):
Beginning of year (227,321) (267,078) (281,456)
Adjustment (129,533) 39,757 14,378
End of year (356,854) (227,321) (267,078)
Foreign currency translation:
Beginning of year (11,666) (8,649) (54,725)
Adjustment (6,791) (3,017) 46,076
End of year (18,457) (11,666) (8,649)
Treasury stock:
Beginning of year (288,054) (288,054) (17,695)
Purchase of 50,900 shares -- -- (270,359)
Sales of 1,200 shares of
treasury stock 539 -- --
End of year (287,515) (288,054) (288,054)
Total end of year $41,318,117 $40,163,650 $45,421,630
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities:
Net income (loss) $ 1,889,750 $ (4,690,642) $ 1,333,744
Adjustments to reconcile
net income (loss) to net
cash from operating activities:
Depreciation and
amortization 3,621,668 4,148,456 4,372,493
Gain on sale of property,
plant and equipment (25,209) (13,671) (241,825)
Deferred income taxes 4,029,737 (1,933,677) (397,817)
Restructuring charge 122,547 7,600,000 --
Changes in assets and liabilities:
Accounts receivable 307,592 21,800,263 (57,756)
Inventories 1,797,453 (1,137,300) (2,005,928)
Prepaid expenses and
other current assets (1,350,541) (207,460) 30,851
Other assets (120,081) (65,033) 197,044
Accounts payable 627,598 (2,188,267) (2,495,509)
Accrued advertising and
other liabilities (513,815) (2,475,806) 741,637
Income taxes (3,302,075) (2,109,089) 476,437
Total adjustments 5,194,874 23,418,416 619,627
Net cash flows provided by
operating activities 7,084,624 18,727,774 1,953,371
Cash flows from investing activities:
Additions to property,
plant and equipment (4,372,380) (4,484,999) (3,248,827)
Proceeds from sale of
property, plant and equipment 28,567 29,895 943,372
Net cash flows used in
investing activities (4,343,813) (4,455,104) (2,305,455)
Cash flows from financing activities:
Proceeds from revolving
credit agreements 155,588,324 172,649,840 193,441,044
Repayments of revolving
credit agreements (155,505,295)(188,213,336) (190,149,814)
Proceeds from long-term debt -- 4,119,052 55,353
Repayments of long-term debt(2,137,526) (2,165,933) (2,145,965)
Dividends on common stock (603,083) (604,078) (607,132)
Sale (purchase) of treasury
stock 4,124 -- (270,359)
Net cash flows provided by
(used in) financing
activities (2,653,456)(14,214,455) 323,127
Foreign currency translation
adjustment (6,791) (3,018) 46,076
Net increase in cash 80,564 55,197 17,119
Cash at beginning of year 97,466 42,269 25,150
Cash at end of year $ 178,030 $ 97,466 $ 42,269
Cash paid during the year for:
Interest $ 3,996,000 $4,393,000 $ 4,861,000
Income taxes $ 222,000 $1,323,000 $ 877,000
See accompanying notes to consolidated financial statements.
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Statement Presentation
The consolidated financial statements include the
accounts of Toastmaster Inc. and its wholly-owned
subsidiary, Toastmaster de Mexico S.A. de C.V., referred to
collectively herein as the "Company." All significant
intercompany transactions and balances have been eliminated
in the accompanying consolidated financial statements.
(b) Operations
The Company manufactures small electrical kitchen and
household appliances and time products sold under the
Toastmaster [Registered Trademark] and Ingraham [Registered
Trademark] labels. The Company has manufacturing facilities
in Missouri and North Carolina. Although the Company has
long-established relationships with many of its customers,
the Company does not have long-term contracts with any of
its customers. A significant concentration of the Company's
business activity is with entities whose ability to meet
their obligations with the Company is dependent upon
prevailing economic conditions within the retail industry.
The Company recognizes sales revenue when products are
shipped. Net sales reflect a reduction of amounts related
to product returns, sales discount programs, outbound
freight and certain allowances for advertising, the latter
of which are accounted for by certain competitors as
"advertising" expense. The Company views these amounts as
price reductions, thereby reducing net sales and lowering
gross profits, as well as selling, general and
administrative expense.
(c) Inventories
Inventories are valued at the lower of cost, determined
by the last-in, first-out (LIFO) method, or market.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost of
acquisition or construction. Maintenance and repairs are
charged to operations as incurred. Renewals and betterments
are capitalized as additions to the appropriate asset
accounts. Upon sale or retirement of assets, the cost and
related accumulated depreciation applicable to such assets
are removed from the accounts and any resulting gain or loss
is reported in the statements of operations.
(e) Depreciation
The Company depreciates property, plant and equipment
over the useful lives of the various assets which range from
three to forty years, using principally the straight-line
method for financial reporting purposes and accelerated
methods for income tax purposes.
(f) Income Taxes
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
bases using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities for subsequent changes in tax
rates is recognized in income in the period that includes
the tax rate change.
(g) Research and Development
Research and development costs, which are included in
selling, general and administrative expenses, aggregated
$457,000, $573,000 and $399,000 in 1997, 1996 and 1995,
respectively.
<PAGE>
(h) Intangible Assets
The excess of the cost of the acquisition of the
Company over the estimated fair value of the net assets
acquired (goodwill) is being amortized on a straight-line
basis over forty years.
Costs associated with obtaining financing arrangements
are included in other assets and are being amortized over
the term of the related borrowings.
(i) Employee Benefit Plans
The Company has noncontributory retirement plans
covering salaried and hourly employees. The policy of the
Company is to fund retirement costs in amounts sufficient to
satisfy the minimum funding requirements under Employee
Retirement Income Security Act (ERISA) guidelines.
(j) Product Warranties
The Company provides for estimated future costs that
will be incurred under product warranties presently in
force.
(k) Self-insurance
The Company maintains a self-insurance program for
health claims and workers' compensation claims of all
covered employees. The Company accrues estimated future
costs that will be incurred for existing employee claims.
The Company does not provide any post-retirement health care
benefits.
(l) Product Liability Claims
The Company is involved in product liability litigation
arising in the normal course of business and purchases
product liability insurance coverage. A liability is
recognized for product liability claims when payment for
such claims is determined to be probable and the amount can
be reasonably estimated, after consideration of the
applicable insurance coverages and deductibles.
(m) Fair Value of Financial Instruments
Estimates of fair values are subjective in nature and
involve uncertainties and matters of significant judgment
and therefore can not be determined with precision. Changes
in assumptions could effect the estimates. The fair market
value of the Company's financial instruments approximates
the carrying value.
(n) Foreign Currency Translation
Assets and liabilities in foreign currencies are
translated into dollars at rates prevailing at the balance
sheet date. The net exchange differences resulting from
these translations are reported in stockholders' equity.
Revenues and expenses are translated at average rates for
the year. Gains and losses resulting from foreign currency
transactions are included in the consolidated statements of
operations. The net losses resulting from foreign currency
transactions were $269,000, $64,000 and $189,000 in 1997,
1996 and 1995, respectively.
(o) Use of Estimates
Management of the Company has made a number of
estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent
assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from
those estimates.
(p) Advertising Costs
Advertising costs are expensed as incurred and amounted
to $7,714,000, $8,491,000 and $8,918,000 in 1997, 1996 and
1995, respectively.
<PAGE>
(q) Stock Option Plans
Prior to January 1, 1996 the Company accounted for its
stock option plan in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market
price of underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which permits
entities to recognize as expense, over the vesting period,
the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants made in
1995 and future years as if the fair value-based method
defined in SFAS No. 123 had been applied. The Company has
elected to continue to apply the accounting provisions of
APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(r) Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of
Long-lived assets and intangibles are reviewed for
impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by
which the carrying amount of the asset exceed the fair value
of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value of the assets.
(s) Earnings per Common Share
Prior to December 31, 1997 the Company computed
earnings per share (EPS) in accordance with the provisions
of Accounting Principles Board ("APB") Opinion No. 15,
Earnings per Share and related interpretations. As such,
primary earnings per common share was based on the weighted
average number of common shares outstanding, giving effect
to common stock equivalents (stock options), if dilutive.
On December 31, 1997 the Company adopted SFAS No. 128,
Earnings per Share, which replaces the presentation of
primary and fully diluted EPS with a presentation of basic
and diluted EPS. Previously reported EPS information has
been restated to reflect the adoption of SFAS No. 128. Basic
EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if
securities or other contracts to issue stock were exercised
or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the
Company.
For the years ended December 31, 1997, 1996 and 1995
there are no differences between the numerator used in
computing basic and diluted earnings per share which
represents the net earnings of the Company. For the years
ended December 31, 1997, 1996 and 1995 the denominator used
in computing basic earnings per share represents the
weighted average number of common shares outstanding
(7,538,455 shares-1997, 7,538,250 shares-1996, 7,560,267
shares-1995). The denominator used in computing diluted
earnings per share represents the weighted average number of
common shares outstanding used for purposes of the basic
earnings per share computation increased to reflect the
potential dilution under the treasury stock method of the
outstanding stock options (7,339 shares in 1997 and 0 shares
in 1996 and 1995).
(t) Environmental Remediation Liabilities
Environmental remediation liabilities are accrued when
probable and reasonably estimable.
<PAGE>
(u) Reclassifications
Certain prior year amounts have been reclassified to
conform with the current year presentation.
(2) INVENTORIES
A summary of inventories is as follows:
1997 1996
Raw materials $ 5,143,145 $ 4,329,623
Work-in-process 1,813,409 2,500,575
Finished goods 24,869,067 27,646,498
Total $31,825,621 $34,476,696
If the first-in, first-out (FIFO) method of inventory
valuation had been used, inventories at December 31, 1997
and 1996 would have been approximately $652,000 and
$1,800,000 higher than reported. Net income for the year
ended December 31, 1997 would have been approximately
$738,000 lower than reported and net income for the years
ended December 31, 1996 and 1995 would have been
approximately $71,000 and $173,000 higher than reported,
respectively.
During 1997 and 1996, LIFO inventory layers were
reduced. These reductions resulted in charging lower
inventory costs prevailing in previous years to cost of
goods sold in 1997 and 1996, thus reducing cost of goods
sold by $114,000 and $344,000, respectively, below the
amount that would have resulted from liquidating inventory
recorded at December 31, 1997 and 1996 prices, respectively.
(3) LONG-TERM DEBT
A summary of long-term debt is as follows:
1997 1996
Borrowings under revolving
credit agreements $35,286,620 $35,203,495
Term note, monthly payments of
$154,762 plus interest,
balance of $1,798,000
due in November 2001 7,369,046 9,226,190
Other 2,045,555 2,326,034
Total long-term debt 44,701,221 46,755,719
Less current portion 2,104,149 2,144,643
$42,597,072 $44,611,076
The Company has a revolving credit and term loan
agreement which expires in November 2001. The agreement, as
modified, provides for borrowings of up to $85,000,000
(including the balance of the term loan) from June 1 through
January 31 or $60,000,000 from February 1 through May 31, or
eligible accounts receivable and inventory, as described
therein. At December 31, 1997, the Company could borrow an
additional $10,300,000 under the agreement.
Borrowings under the revolving credit agreement
generally bear interest at prime plus .75% (9.25% at
December 31, 1997), with the option to elect the London
Interbank Offering Rate (LIBOR) plus 2.25% (8.1875% at
December 31, 1997). The Company had borrowings of
$35,286,620 at December 31, 1997 under the LIBOR option. The
Company may elect to pay interest on a specified amount of
borrowings (not less than $4,000,000 or more than
$12,000,000) at a fixed rate based on the U.S. treasury note
yield to maturity plus 2.5%. The interest period for any
fixed rate loan must be no less than one year.
At December 31, 1997, the Company had borrowed
$7,369,046 under the term loan provisions of the agreement,
$469,046 of which bears interest at 9.50% and $6,900,000 of
which bears interest at 8.3125%.
The annual interest rate on any loan under the
agreement shall not be less than 5%. The Company must also
pay a 1/2% annual fee, paid monthly on the unused portion of
the revolving credit agreement. Advances under the revolving
credit agreement are secured by accounts receivable,
inventory and property, plant and equipment. The agreement
contains restrictions as to maintenance of net worth and
certain financial ratios, minimum levels of income and
working capital, payment of cash dividends or purchases of
treasury stock, additions to property, plant and equipment
and incurrence of additional indebtedness. At December 31,
1997, the Company is in compliance with these covenants and
has retained earnings available for dividends of $1,247,000.
Aggregate long-term debt maturities at December 31,
1997, including the revolving credit agreement which expires
in 2001, are as follows:
YEAR AMOUNT
1998 $ 2,104,149
1999 3,655,694
2000 1,857,144
2001 37,084,234
$44,701,221
The Company has obtained guarantees for letter of
credit, primarily for importing purposes, up to $8,000,000.
Outstanding letters of credit at December 31, 1997 and 1996
aggregated approximately $982,000 and $709,000,
respectively.
The fair market value of the Company's revolver and
term notes approximated their carrying value at December 31,
1997. Other long-term debt with a carrying amount of
$2,045,555 had a fair value of $2,057,329 at December 31,
1997.
(4) INCOME TAXES
The components of income tax expense (benefit) are
shown below:
1997 1996 1995
Current:
Federal $(2,903,272) $ (735,825) $1,238,132
State (237,297) (72,774) 107,664
Total current (3,140,569) (808,599) 1,345,796
Deferred:
Federal 3,727,294 (1,757,303) (361,945)
State 312,526 (154,011) (27,785)
Total deferred 4,039,820 (1,911,314) (389,730)
Total income
tax expense $ 899,251 $ (2,719,913) $ 956,066
The actual income tax expense differs from the expected
expense computed by applying the statutory federal rate of
34% to pre tax income for the following reasons:
1997 1996 1995
Computed "expected"
expense (benefit) $ 948,260 $ (2,519,589) $ 778,539
Amortization of goodwill 38,291 38,291 38,291
State income tax
expense (benefit), net 49,651 (112,702) 47,190
(Income) loss of
foreign subsidiary (138,720) (79,214) 86,700
Other 1,769 (46,699) 5,346
Actual income tax
expense (benefit) $ 899,251 $ (2,719,913) $ 956,066
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1997 and 1996 are
presented below:
1997 1996
Deferred income tax assets:
Inventories $ 1,102,290 $ 1,482,408
Accrued liabilities 2,082,141 2,710,118
Allowances for doubtful
accounts, sales discounts
and returns -- 602,992
Other 348,998 --
Total gross
deferred assets 3,533,429 4,795,518
Deferred income tax liabilities:
Property, plant and equipment (800,607) (579,466)
Inventories (3,389,671) (2,515,777)
Allowances for doubtful
accounts, sales discounts
and returns (1,393,652) --
Interest receivable (206,098) --
Total gross deferred
liabilities (5,790,028) (3,095,243)
Net deferred tax
asset (liability) $ (2,256,599) $ 1,700,275
A valuation allowance for deferred tax assets was not
necessary at December 31, 1997 or 1996. Management believes
it is more likely than not that the results of future
operations will generate sufficient taxable income to
realize the deferred tax assets.
<PAGE>
(5) EMPLOYEE BENEFIT PLANS
Substantially all of the Company's employees are
covered by two defined benefit pension plans.
The following items are components of net pension cost:
1997 1996 1995
Service cost - benefits
earned during the year $ 632,271 $ 555,874 $ 550,436
Interest cost on
projected benefit
obligation 675,117 612,287 548,626
Actual return on plan
assets (1,244,075) (788,136) (1,323,955)
Net amortization and
deferral 493,786 124,964 799,328
Net pension cost $ 557,099 $ 504,989 $ 574,435
The following table sets forth the plans' funded status:
1997 1996
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$8,018,907 and $6,630,660 $ 8,998,156 $ 7,476,284
Additional benefits based on
future salary levels 1,130,555 908,352
Projected benefit obligation 10,128,711 8,384,636
Plan assets at fair market value 9,119,571 7,564,007
Plan assets less than
projected benefit obligation 1,009,140 820,629
Unrecognized net loss (gain)
from experience different
from that assumed (246,146) 134,977
Unrecognized net transition asset
being amortized over
approximately fifteen years 323,288 397,922
Additional pension liability in
excess of unrecognized
prior service cost 565,817 364,792
Accrued pension cost recorded
in other accrued liabilities
in the accompanying balance
sheets $ 1,652,099 $ 1,718,320
Under the requirements of Statement of Financial
Accounting Standards No. 87, "Employers' Accounting for
Pensions," an additional minimum pension liability for one
plan, representing the excess of accumulated benefits over
plan assets and accrued pension costs, was recognized at
December 31, 1997 and 1996.
The plans' assets consist of a balanced portfolio of
investments in money market, common stock, bond and real
estate funds. The discount rate and the rate of increase in
future compensation levels used to determine the actuarial
present value of the projected benefit obligation were 7.0%
and 5% for 1997 and 7.5% and 5% for 1996. The expected
long-term rate of return on plan assets was 9%.
The Company has a cash incentive program for certain
key employees. Under the terms of the plan, cash awards are
made based upon the achievement of certain corporate and
individual performance goals. Awards in total are limited to
not more than 5% of the Company's earnings before interest
and taxes. No awards were earned under the program in 1997
or 1996.
The Company maintains a defined contribution savings
plan covering substantially all employees. The plan is
funded through employee and voluntary employer
contributions. The Company accrued contributions of
$140,000, $140,000 and $125,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
The Company has adopted an incentive stock option plan
(the ISO Plan), a Nonemployee Director Stock Option Plan
(the Directors' Plan) and a Non-Statutory Stock Option Plan
(the Non-Statutory Plan). Under the ISO Plan, options to
acquire a total of 111,000 shares of the Company's common
stock were granted to certain employees, 46,000 in 1993,
52,500 in 1994 and 12,500 in 1997. The <PAGE> options vest over
five years, with 20% cumulative vesting each year and expire
six years after the date of grant. The options granted in
1997 allow the holders to acquire stock for $3.4375 per
share, which was the fair market value of the stock when the
options were granted. In 1997, the exercise price and
exercise period for options granted in 1993 and 1994 and
still held by active employees were amended. The exercise
price was reduced to $3.4375 per share, which was the fair
market value of the stock on the effective date of the
amendment, and the exercise period was extended an
additional year to six years. Under the Directors' Plan,
options to acquire a total of 15,000 shares of common stock
were granted to nonemployee directors in 1993. The options
vest immediately, expire five years after the date of grant
and allow the holders to acquire stock for $7.375 per share,
which was the fair market value of the stock when the
options were granted. Also under the Directors' Plan,
options to acquire a total of 15,000 additional shares of
common stock were granted to nonemployee directors in 1997.
The options vest immediately, expire five years after the
date of grant and allow the holders to acquire stock for
$3.4375 per share, which was the fair market value of the
stock when the options were granted. At December 31, 1997
and 1996, there were options on 93,000 shares and 88,000
shares, respectively, outstanding of which 55,700 shares and
43,300 shares, respectively, were exercisable at $3.4375 and
$7.375 per share, respectively under the ISO Plan. At
December 31,1997 there were options on 30,000 shares,
outstanding and exercisable 15,000 at $3.4375 per share and
15,000 at $7.375 per share) under the Directors' Plan. At
December 31, 1996 there were 15,000 shares outstanding and
exercisable at $7.375 per share under the Director's Plan.
No options have been granted under the Non-Statutory Plan.
In 1994, the Company adopted a supplemental executive
retirement plan ("SERP") for certain officers of the Company
who were unable to participate in the Company's qualified
defined benefit plan beginning January 1, 1989, because of
changes in the tax laws which imposed certain
antidiscrimination requirements upon qualified plans. The
SERP provides for a normal retirement benefit for each of
the officers. Early retirement benefits under the SERP would
be actuarially adjusted to reflect the earlier commencement
of the benefit. The SERP is funded by the purchase of life
insurance policies to be held in trust. The Company
reimburses the participants for the current tax recognition
resulting from insurance policy purchases. The respective
costs are being amortized over a five year vesting
employment period of the participants. The expense for this
plan was approximately $407,000, $401,000 and $484,000 for
1997, 1996 and 1995, respectively.
(6) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases certain equipment under operating
lease agreements. Rent expense was approximately $1,250,000,
$1,139,000 and $853,000 for the years ended December 31,
1997, 1996 and 1995.
Future lease commitments under long-term, noncancelable
operating leases are as follows:
YEAR AMOUNT
1998 $ 817,000
1999 631,000
2000 488,000
2001 445,000
2002 436,000
Thereafter 540,000
$3,357,000
It is expected that in the normal course of business,
leases that expire will be renewed or replaced by leases on
other properties; thus, it is anticipated that future
minimum lease commitments will not be less than the amounts
shown for 1998.
<PAGE>
(b) Contingencies
The Company is involved in various claims and legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the
Company's consolidated financial statements.
The Company is a party to environmental proceedings at
two sites and is investigating the need for remediation at
two additional facilities of the Company. The Company has
accrued approximately $200,000 for the anticipated future
costs of investigation and remediation. Although such costs
could exceed that amount, the Company believes that any such
excess will not have a material impact on the Company's
financial position or results of operations.
(7) SIGNIFICANT CUSTOMER AND FOREIGN OPERATIONS
One customer accounted for approximately 27%, 27% and
29% of net sales for the years ended December 31, 1997,
1996 and 1995, respectively. As of December 31, 1997
accounts receivable from a single customer comprised 19% of
total accounts receivable and accounts receivable
denominated in foreign currencies amounted to approximately
$4.0 million.
Income (loss) before income taxes attributable to
Toastmaster de Mexico S.A. de C.V. amounted to $408,000 in
1997, $236,000 in 1996 and ($255,000) in 1995.
(8) UNAUDITED QUARTERLY FINANCIAL DATA
Unaudited quarterly financial data is as follows
(amounts in thousands, except for per share data:)
Quarter
First Second Third Fourth
1997:
Net sales $26,315 $27,757 $44,209 $56,066
Gross profit 4,134 4,967 8,639 11,142
Income (loss)
before income
taxes (1,782) (1,131) 2,123 3,579
Net income
(loss) (1,141) (712) 1,410 2,333
Basic and diluted
earnings (loss) per
common share (0.15) (0.09) 0.19 0.30
1996:
Net sales $26,738 $32,634 $49,321 $54,356
Gross profit 3,359 4,282 9,573 3,377
Income (loss)
before income
taxes (2,605) (2,042) 1,481 (4,245)
Net income
(loss) (1,654) (1,312) 950 (2,675)
Basic and diluted
earnings (loss) per
common share (.22) (.17) .13 (.36)
1995:
Net sales $30,827 $36,528 $56,356 $64,798
Gross profit 4,196 5,267 9,759 12,977
Income (loss)
before income
taxes (1,559) (939) 1,550 3,238
Net income (loss) (1,091) (608) 962 2,071
Basic and diluted
earnings (loss) per
common share (.14) (.08) .13 .27
<PAGE>
(9) RESTRUCTURING
The Company completed the process of restructuring its
product lines and operations in 1997. The Company disposed of its
environmental products line and discontinued the production of
certain kitchen countertop appliances and time products. The
inventory and manufacturing equipment related to these products
will be disposed of through normal channels of distribution and
sale and abandonment, respectively.
Restructuring charges incurred in the fourth quarter of 1996
consisted of inventory valuation charges of $5,666,000,
anticipated losses on the disposal of fixed assets of $1,684,000
and accrued expenses of $250,000. Total restructuring charges in
1996 amounted to $7,600,000 before income taxes and are recorded
in cost of sales.
Additional restructuring charges of $123,000 were incurred
in 1997 for anticipated losses on the disposal of fixed assets
and are recorded in cost of sales. At December 31, 1997, accrued
restructuring expenses amounted to $127,000.
(10) ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock-based
compensation plans. Had compensation cost for the Company's
stock option plans been determined based upon the fair value at
the grant date for 1997 awards and amendments under these plans
consistent with the methodology presented in Statement of
Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, the Company's net income would have
been reduced by approximately $47,500 in 1997 or $0.01 for basic
and diluted earnings per common share. The fair value of the
options granted and amended during 1997 is estimated at values
ranging from $0.62 to $1.03, on the dates of grant or amendment
using the Black-Scholes option-pricing model with the following
assumptions: dividend rate of $0.02 per share, volatility of
33.47%, risk-free interest rate ranging between 5.88% and 6.31%
and an expected life ranging between 1.5 and 4.0 years.
Pro forma net income reflects only options granted or
amended since December 31, 1994. Therefore, the full impact of
calculating compensation cost for stock options under SFAS No.
123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the
options vesting period and compensation cost for options granted
prior to January 1, 1995 is not considered.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Toastmaster Inc.:
We have audited the accompanying consolidated balance sheets
of Toastmaster Inc. as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Toastmaster Inc. at December 31, 1997 and
1996 and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
February 25, 1998
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Common Stock of Toastmaster is listed on the New York
Stock Exchange and has been traded on that exchange since
Toastmaster became a publicly held company on March 3, 1992. As
of March 10, 1998, there were approximately 271 holders of record
of Toastmaster's Common Stock. The following table sets forth the
range of high and low sales prices of the Company's stock by
quarter, and the quarterly cash dividends paid by the Company,
for each quarter of 1997 and 1996.
MARKET PRICE AND DIVIDENDS PER SHARE
1997 1996
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
First quarter $4 1/4 $2 7/8 $.02 $5 1/2 $3 3/4 $.02
Second quarter $4 1/4 $3 1/8 $.02 $6 1/4 $4 1/4 $.02
Third quarter $5 9/16 $3 5/16 $.02 $4 5/8 $3 5/8 $.02
Fourth quarter $5 3/8 $4 1/16 $.02 $4 $2 7/8 $.02
It is the Company's intention to continue to pay quarterly
dividends, although the payment and amount of any future
dividends will be determined by the Board of Directors, from time
to time, after taking into account various factors such as the
Company's financial condition, results of operations, current and
anticipated cash needs and plans for expansion. The Company's
agreement with its revolving credit lender contains certain
provisions which restrict the payment of cash dividends generally
to an amount not to exceed $500,000 per quarter, provided that
the amount of such dividends and all prior cash distributions
does not exceed 30% of the Company's net earnings after January
1, 1992. See Note 3 to Consolidated Financial Statements.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
NAME POSITION AND OFFICES HELD
Robert H. Deming Chairman, Chief Executive Officer and
Director
Daniel J. Stubler President, Chief Operating Officer and
Director
John E. Thompson Executive Vice President--Chief
Financial Officer, Treasurer and
Director
Scott R. Thrasher Senior Vice President--Sales and
Marketing
Ralph J. Ronalter, Jr. Vice President/General Manager--Time
Products
Linda G. Arnold Vice President--Human Resources and
Secretary
Edward J. Williams Director--Consultant to Various
Organizations
S B. Rymer, Jr. Director--Retired
James L. Hesburgh Director--President of James L. Hesburgh
International, Inc.
CORPORATE INFORMATION
Corporate Headquarters
1801 North Stadium Boulevard
Columbia, Missouri 65202
INTERNET
www.toastmaster.com
REGISTRAR AND TRANSFER AGENT
Boatmen's Trust Company
Post Office Box 14737
St. Louis, Missouri 63178
314-231-9300
STOCK LISTING
The Company's stock is traded on the New York Stock Exchange
under the symbol TM.
INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
Kansas City, Missouri
LEGAL COUNSEL
Stinson, Mag & Fizzell, P.C.
Kansas City, Missouri
ANNUAL REPORT ON FORM 10-K
A copy of Toastmaster's Annual Report on Form 10-K for the year
ended December 31, 1995, as filed with the Securities and
Exchange Commission, excluding exhibits, will be furnished
without charge to stockholders entitled to vote at the 1996
annual meeting of stockholders upon written request to Investor
Relations, Toastmaster Inc., 1801 North Stadium Boulevard,
Columbia, Missouri 65202. The annual meeting of stockholders is
scheduled for 10 a.m. local time on May 14, 1996 at the corporate
headquarters of Toastmaster Inc.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Toastmaster Inc.:
We consent to incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-78516 and 33-80208) of Toastmaster Inc. of our report
dated February 25, 1998 relating to the consolidated balance sheets of
Toastmaster Inc. and subsidiary as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December
31, 1997, which report appears in the December 31, 1997 annual report of
Toastmaster Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
March 25, 1998
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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