-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OLdHOnoWeaOTPd1YW2npjTA8OeZnZIWCmydRz3dPtSdqckN6BzEEhtYWUQ6gAvfr gg5xgzIdLiBgJ0V5B8EZpA== 0000040643-96-000009.txt : 19960320 0000040643-96-000009.hdr.sgml : 19960320 ACCESSION NUMBER: 0000040643-96-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL HOUSEWARES CORP CENTRAL INDEX KEY: 0000040643 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 410919772 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07117 FILM NUMBER: 96536087 BUSINESS ADDRESS: STREET 1: P O BOX 4066 1536 BEECH STREET CITY: TERRE HAUTE STATE: IN ZIP: 47804 BUSINESS PHONE: 8122321000 MAIL ADDRESS: STREET 2: P O BOX 4066 1536 BEECH STREET CITY: TERRE HAUTE STATE: IN ZIP: 47804 10-K 1 1995 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission file number 1-7117 GENERAL HOUSEWARES CORP. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of 41-0919772 incorporation or organization) (I.R.S. Employer Identification No.) 1536 Beech Street 47804 Terre Haute, Indiana (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (812) 232-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Stock, $.33 1/3 par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) On March 18, 1996, 3,762,928 shares of the registrant's Common Stock, $.33-1/3 par value, were outstanding. The aggregate market value of the Common Stock (based upon the closing price of the Common Stock on the New York Stock Exchange -- Composite Transactions) held by non-affiliates of the registrant at March 18, 1996 was $35,277,450. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement for 1996 Annual Meeting of Stockholders, which will be filed on or prior to March 31, 1996, to the extent stated in this report. Part III PART I Item 1. Business (Dollars in thousands unless otherwise indicated) General Housewares Corp. (hereinafter referred to as the "Company") manufactures and markets consumer durable goods. The Company limits itself to product categories in which, through market share, product innovation or brand image, it is considered a leader. Through the acquisition and/or development of products that "delight and excite" the consumer, (i.e., deliver unexpected value, simplify and enhance a task or redefine a task) the Company believes that it is able to establish such a leadership position. The Company currently enjoys such a position in the following product categories: cookware, cutlery, kitchen tools and precision cutting tools. Cookware, cutlery and kitchen tools are grouped into the Housewares reportable segment, while precision cutting tools also constitute a reportable segment. For financial information related to the two reportable segments, see Note 12 in the financial statements included in this report. HOUSEWARES Approximately 71% of this segment's products sold by the Company during 1995 were produced domestically, primarily in factories owned and operated by the Company. The remaining products are obtained from seven foreign sources (some of which buy from sub-contractors) primarily located in the Far East. The Company believes that a loss of any individual foreign source would not have a material impact on future results of operations. COOKWARE In 1995, the Company was one of the country's largest manufacturers and marketers of cookware, distributing its products throughout the United States, Canada and selected European markets. The Company's collection of leading, brand name cookware products has enabled it to deliver, to both retailers and consumers, products which satisfy a complete range of functional, aesthetic and value requirements. The Company competed in four main cookware product categories in 1995, covering a broad range of materials, designs, colors and prices. The categories included cast aluminum, cast iron, stamped and spun aluminum and enamelware. In January of 1996, the Company announced its intention to exit the cast aluminum and cast iron product categories during the first half of 1996 in an effort to focus on faster growing, more profitable product categories. The Company is in discussions with buyers possibly interested in acquiring the associated product lines and the related manufacturing facility located in Sidney, Ohio. The cast iron and cast aluminum product lines include Magnalite(R), Magnalite Professional(R), Magnalite Professional(R) with Eclipse(R) and Wagner's(R) 1891 Original Cast Iron brand names. Gross revenues derived from the categories to be exited were $18,927 in 1995. Remaining cookware lines include enamelware and stamped and spun aluminum. The Company is the only domestic manufacturer of enamelware and has developed a leading market share. Ceramic on Steel(TM) cookware products produced by the Company are sold under the Columbian and Graniteware brand names. As of September 1, 1994, the Company acquired the Normandy line of enamelware from National Housewares, Inc. Normandy enamelware products, similar to the Company's Ceramic on Steel(TM) cookware products, were, at the time, manufactured in Mexico. In 1995, the Normandy line of enamelware was discontinued and sourcing to service the Normandy customers was transitioned to the Company's Ceramic on Steel (TM) manufacturing operations. Enamelware is in demand because of its easy cleanup and popular price. It is particularly popular for roasting and specialty top-of-stove uses (e.g., spaghetti cookers and vegetable steamers). Products in this category are primarily sold in discount stores, mass merchandise outlets and warehouse clubs. Heavy gauge, large capacity stamped and spun aluminum products are marketed under the brand name Leyse Professional(TM) and distributed through department stores, mass merchants and specialty shops. Leyse products are purchased from a domestic manufacturer. Gross revenues derived from enamelware and stamped and spun aluminum were $25,577 in 1995. The total United States market for cookware, defined as metal pots and pans used for top-of-stove and oven cooking, is estimated by the Cookware Manufacturers Association at approximately $1.9 billion in terms of annual sales. Domestic industry unit sales have remained relatively flat during the past five years and, as a result, domestic manufacturers have lost market share to imports, which the Association estimates have grown from 42% of the market in 1990 to 47% in 1995. Imported merchandise, principally from Korea, Taiwan, Mexico and the Peoples Republic of China, has been successful in penetrating the market through comparable quality products at lower prices. The cookware industry is highly competitive and fragmented. In addition, it is characterized by little product differentiation. The Company believes that known brand names, price-value relationships, product design, quality and creative merchandising programs, as well as responsive, superior customer service, are key factors contributing to success. CUTLERY AND ASSOCIATED PRODUCTS The Company is a manufacturer and marketer of quality kitchen cutlery with the leading domestic brand name (Chicago Cutlery(R)) and market share in its industry. The Company markets for consumers, under the Chicago Cutlery(R) brand umbrella, three complete lines of kitchen knives for consumers, sharpening tools, storage units and cutting boards. Its most popular household cutlery line is The Walnut Tradition(R), which features a solid American walnut handle with a Taper Grind(R) edge on the blade. The Company manufactures and sells a popular priced knife under the Cherrywood(TM) brand name. For the consumer that prefers a synthetic handled knife, the Company manufactures and sells the Metropolitan(TM) product line which features a durable high-impact plastic handle and a Taper Grind(R) edge. All Chicago Cutlery(R) blades are made from high carbon stainless steel that resists rusting, pitting and staining. The Taper Grind(R) edge provides a uniform and smooth taper, thereby facilitating the blade's movement through the object being cut. The Company also sells a line of promotionally priced cutlery under the banner "Designed and Marketed by Chicago Cutlery(R)". These products compete in both the fine edge and "never-needs-sharpening" segments of the cutlery industry and are purchased from suppliers in the Far East. Promotional cutlery "Designed and Marketed by Chicago Cutlery(R)" consists of thirteen separate cutlery brands, seven of which are sold exclusively through department stores, and the remaining lines are distributed through department stores, mass merchandisers and catalog showrooms. While the overall market for kitchen cutlery in the United States has remained relatively unchanged in recent years, foreign products, including the Company's promotionally priced imported cutlery, have made significant inroads. The Company believes that imports in 1995 accounted for more than half of domestic sales in dollars and 75% of domestic sales in units. As a result of its widely recognized brand name and reputation for high quality at a good price, the Company has gained market share in the kitchen cutlery industry by marketing a combination of the promotionally priced imports and the traditional Chicago Cutlery(R) products. The Company also manufactures a full line of knives for the commercial poultry processing market. These molded handle knives are designed to meet the special needs of professionals and have specialized blade shapes for specific cutting jobs. The handles are textured to be slip-resistant and feature a finger guard for safety, as well as, in some cases, ergonomic handles. Under the Idaho Woodworks(TM) and Chicago Cutlery(R) names, the Company manufactures and markets cutting boards made of wood, polyethylene, and combinations of wood and acrylic, marble or polyethylene. Gross revenues derived from cutlery and associated products were $39,251 in 1995. KITCHEN TOOLS Effective October 1, 1992, the Company purchased all of the partnership interests in OXO International L.P. ("OXO"), a New York limited partnership, marketing a broad line of kitchen tools under the Good Grips(R), Prima(R) Plus(TM) and Basics brand names. The purchase price was $6,250 and consisted of a cash payment of $5,500 and Subordinated Promissory Note in the principal amount of $750 bearing interest at 8% per annum. The OXO products are primarily made by manufacturers located in the Far East according to OXO's designs and specifications. The kitchen tools sold by OXO generally utilize a proprietary handle which is covered by patents owned by the Company which run through 2002. OXO(R) kitchen tools are distributed primarily in the United States through department stores, gourmet and specialty outlets and mass merchandisers. OXO also sells a line of garden tools that utilizes its proprietary handle. Garden tools are primarily distributed through specialty outlets. The OXO product category has experienced significant growth since acquisition. Gross revenues derived from the kitchen tool category were $16,262 in 1995. PRECISION CUTTING TOOLS Effective October 1, 1994, the Company purchased certain assets of Walter Absil Company Limited and Olfa Products Corp. (collectively referred to as the "Olfa Products Group"). The purchase price was $13,576 and consisted of a cash payment of $6,843, Subordinated Promissory Notes in the principal amount of $2,233 bearing interest at 6% per annum and 400,000 restricted shares (valued at $4,500) of the Company's common stock. The Olfa Products Group is the exclusive distributor, in the United States and Canada, of precision cutting tools and accessories manufactured by Olfa Corporation of Osaka, Japan. The Company believes that relations with Olfa Corporation are strong and that a long-term relationship will continue. Products of the Olfa Products Group are sold both to distributors and direct to hobby, craft, hardware and fabric stores. The North American hobby and craft market is both large and diverse with sales exceeding $10 billion. Products distributed through the Olfa Products Group compete in small selected segments in this market. Typically, these products compete on the basis of performance and value. Gross revenues derived from the precision cutting tool segment were $16,605 in 1995. DISTRIBUTION Housewares products are sold by the Company to most major retail and wholesale distribution organizations in the United States and Canada through its direct sales force and through independent commissioned sales representatives. The Olfa Products Group utilizes a combination of a direct sales force and independent commissioned sales representatives. In addition, the Company sells products through a chain of manufacturers' retail outlet stores operating under the name "Chicago Cutlery etc., Inc." Gross revenues derived from the stores were $9,248 in 1995. MAJOR CUSTOMERS During 1995, the ten largest customers of the Company accounted for 46% of the Company's gross sales. Sales to the Company's largest customer, Wal-mart, were $13.0 million or approximately 10% of total gross sales. The Company has had good long-term relationships with its major customers. EMPLOYEES The Company employs approximately 845 persons, of whom 480 are involved in manufacturing with the balance serving in sales, general and administrative capacities. The Company believes that its relations with employees are good. Approximately 390 employees are represented by three different labor organizations, which have contracts expiring in February, March and July of 1996. Included in these Company totals are approximately 220 people employed at the Sidney, Ohio, manufacturing facility, 200 of which are represented by two labor organizations. It is anticipated that the sale of product lines manufactured at the plant and possibly the facility itself, will reduce headcount at the Company by these amounts. EXPORT SALES Exports account for less than 10% of the Company's total sales. RAW MATERIALS The principal raw materials used in manufacturing the Company's housewares products are steel, iron, aluminum, ceramic compounds, plastic compounds and hardwood products. All of these materials are generally available from numerous suppliers, and the Company believes that the loss of any one supplier would not have a significant impact on its operations. The Company's precision cutting tool products are imported as finished goods. SEASONALITY Shipments of cookware, cutlery and kitchen tools are higher in the second half of the year and highest in the fourth quarter due to the seasonality of housewares retail sales. Shipments of precision cutting tools vary little from quarter to quarter. WORKING CAPITAL The Company is increasingly forced to meet rapid delivery requirements from customers, and increased inventory levels have resulted. The Company believes that increased technological and supply chain initiatives, for which implementation began in 1995, will position it well for the heightened customer requirements. While the Company normally sets payment terms at net 30 days, industry practice has dictated an occasional extension of such terms. Accordingly, certain customers have been given extensions of payment terms. FOREIGN OPERATIONS The Company operates a wholly owned subsidiary located in Montreal, Canada. Revenues, Operating Income and Assets of the subsidiary are all less than 10% of total Company Revenues, Operating Income and Assets. Item 2. Properties The following table sets forth the location and size of the Company's principal properties. OPERATING FACILITIES Property Owned:
APPROXIMATE FLOOR AREA LOCATION NATURE OR USE OF PROPERTY (Square Feet) HOUSEWARES SEGMENT: Terre Haute, IN Manufacturing, distribution and 469,000 administrative (Ceramic on Steel(TM) cookware and distribution of cutlery and kitchen tool products) Sidney, OH Manufacturing (cast iron, cast 186,500 aluminum cookware) Wauconda, IL Manufacturing (cutlery) 65,000
Property Leased: [CAPTION] APPROXIMATE EXPIRATION NATURE OR FLOOR AREA DATE LOCATION USE OF PROPERTY (Square Feet) OF LEASE HOUSEWARES SEGMENT: Sidney, OH Warehouse 32,000 July 31, 1999 Terre Haute, IN Warehouse 172,800 July 1, 1998 New York, NY Administrative 3,850 Sept. 30, 1998 Antioch, IL Manufacturing 50,000 May 1, 1998 (cutlery associated products) PRECISION CUTTING TOOL SEGMENT: St. Laurent, Administrative Quebec, CD and Warehouse 16,230 Nov. 30, 1997 Plattsburgh, NY Warehouse 27,700 Oct. 1, 1997
In addition, the Company leases an average of 2,700 square feet of retail space in 27 factory outlet malls with initial lease terms ranging from 3 to 7 years. In the opinion of the Company's management, the properties and plants described above are in good condition and repair and are adequate for the particular operations for which they are used. NON-OPERATING FACILITIES Property Owned: (Reported as "other assets" in the financial statements in this Report) [CAPTION] APPROXIMATE FLOOR AREA LOCATION NATURE OF USE OF PROPERTY (Square Feet) New Hope, MN Manufacturing/ Distribution facility (leased to third parties) 65,280 New Hope, MN Manufacturing/ Distribution facility (leased to third party) 21,500 Antrim, NH Manufacturing facility 55,400
In addition, at December 31, 1995, the Company owned a candle manufacturing facility located in Hyannis, Massachusetts which it leased to a third party. The 74,600 square feet facility was sold on January 17, 1996. The Company received cash consideration that approximated net book value. Item 3. Legal Proceedings The Company and its wholly owned subsidiary, Chicago Cutlery, Inc., instituted an action on February 2, 1995, against the personal representatives of the Estate of Ronald J. Gangelhoff in the United States District Court for the District of Minnesota, Fourth Division. The action was instituted in order to comply with Minnesota probate practices for settling claims against estates. The action seeks indemnity and/or contribution for all losses and expenses suffered and incurred, and to be suffered and incurred, by the plaintiffs arising from the New Hampshire Department of Environmental Services mandated clean-up of hazardous substances generated at the Antrim, New Hampshire, manufacturing site owned by Chicago Cutlery, Inc. and arising from the remediation of the site and the landfill at which some of the substances were disposed. The action also seeks a declaratory judgement that the defendants are liable to the Company. The action is brought on the basis of the breach of representations and warranties in the 1988 Stock Purchase Agreement pursuant to which the Company purchased the stock of Chicago Cutlery, Inc. from Ronald J. Gangelhoff. It is also brought under the provisions of the Comprehensive Environmental Response, Compensation, and Liability Act, the provisions of the New Hampshire Hazardous Waste Clean-up and Contribution statutes and under common law causes of action. It is the opinion of the Company's in-house legal counsel that adequate support exists in favor of the Company in the case. Before the death of Mr. Gangelhoff, Chicago Cutlery, Inc. had instituted an action on October 8, 1993, against David D. Hurlin in the United States District Court for the District of New Hampshire, seeking damages and a declaratory judgement that Mr. Hurlin is liable to plaintiff for losses and expenses suffered and incurred, and to be suffered and incurred, arising from the mandated clean-up of hazardous substances generated at the Antrim, New Hampshire, manufacturing site during the period it was owned by Goodell Company and arising from remediation of the site. The basis of the action against Mr. Hurlin is that as chief executive officer, a director and substantial stockholder of the Goodell Company he was in control of, or in a position to control and direct, hazardous substances handling and disposal practices at the site when hazardous substances were improperly released to the environment. The action is brought under the provisions of the Comprehensive Environmental Response, Compensation, and Liability Act, the provisions of the New Hampshire Hazardous Waste Clean-up and Contribution statutes and under common law causes of action. To the extent that recovery is made against David D. Hurlin, the amount of the Company's claim against the assets of the late Ronald J. Gangelhoff will be reduced. For information concerning various environmental matters with which the Company is involved, see Notes to Consolidated Financial Statements on page 20 of this Report. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. EXECUTIVE OFFICERS OF THE COMPANY The following individuals are executive officers of the Company, each of whom will serve in the capacities indicated until May 2, 1996, or until the election and qualification of a successor.
Name Position with Company Age Paul A. Saxton Chairman of the Board, President, 57 and Chief Executive Officer John C. Blackwell Vice President, Sales and Marketing 58 Gordon H. Brown Vice President, Supply Chain Management and Logistics 56 Stephen M. Evans Vice President, Administration 54 Robert L. Gray Vice President, Finance and 45 Treasurer Raymond J. Kulla Vice President, Secretary and 49 General Counsel Mark S. Scales Controller, Chief Accounting Officer 36
Messrs. Saxton, Evans and Gray have been executive officers of the Company for more than five years. Mr. Kulla has been employed with the Company since November 14, 1995, and an executive officer since January 1, 1996. Prior thereto, he was Vice President, General Counsel and Secretary of AXIA Incorporated. Mr. Blackwell has been employed with the Company and an executive officer since March 20, 1995. Prior thereto, he served as Vice President, Sales and Marketing, for EMX Corporation, Executive Vice President, Sales and Marketing of Moulinex Appliances, Inc. and President and General Manager of Oster Housewares, a division of Sunbeam/Oster Company. Mr. Brown has been employed with the Company and an executive officer since July 3, 1995. Prior thereto, he served as Managing Director of Bottom Line Logistics, a management consulting firm. Mr. Scales has been employed with the Company and an executive officer since July 10, 1995. Prior thereto, he served as Controller at Cosco, Inc. and Hoosier Energy Rural Electric Cooperative, Inc. and as a Senior Audit Manager at Price Waterhouse. PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters The market on which the Company's Common Stock is traded is the New York Stock Exchange, Inc. The high and low sales prices of the Company's Common Stock and the cash dividends declared for each quarterly period during the last two fiscal years is disclosed in quarterly financial information presented in Item 8. The approximate number of holders of Common Stock as of March 18, 1996, including beneficial owners of shares held in nominee accounts of whom the Company is aware, was 1,000. Item 6. Selected Financial Data SELECTED CONSOLIDATED FINANCIAL DATA (in thousands except per share amounts)
Year Ended December 31, 1995 1994 1993 1992 1991 Net sales $119,340 $97,729 $88,529 $81,593 $74,752 Operating income 7,080 6,637 6,415 8,342 8,379 Interest expense, net 3,115 1,699 1,299 1,319 1,590 Income before income taxes 3,965 4,938 5,116 7,023 6,789 Income taxes 1,679 2,188 2,080 2,599 2,919 Net income $2,286 $2,750 $3,036 $4,424 $3,870 Average number of common shares outstanding including common stock equivalents 3,769 3,440 3,340 3,295 3,217 Net income per common share $0.61 $0.80 $0.91 $1.34 $1.20 Dividends per common share $0.32 $0.32 $0.32 $0.32 $0.32 Financial Summary: Total assets $104,610 $98,358 $72,017 $72,001 $61,832 Total debt 39,201 34,313 17,000 20,053 14,824 Net worth 51,848 50,255 43,929 41,696 37,252
VALUATION AND QUALIFYING ACCOUNTS (in thousands except per share amounts) Additions Balance at Charged to Deductions Balance beginning costs and net of at end Description of period expenses recoveries of period - ------------------------------------------------------------------------------ Reserves deducted from assets to which they apply: Allowances for possible losses and discounts - accounts receivable: Years Ended December 31,: 1995: $5,312 $8,908 $10,191 $4,029 1994: $3,379 $7,649 $5,716 $5,312 1993: $4,099 $11,795 $12,515 $3,379
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Dollars in Thousands Except per Share Amounts) Year Ended December 31, 1995 versus 1994 Net sales for 1995 were $119,340, an increase of 22% over net sales of $97,729 in 1994. The increase stems primarily from acquisitions made in the third and fourth quarters of 1994, as well as market penetration in the Company's kitchen tool product line. Revenue increases resulting from acquisitions represent approximately $14,660 or 15% of the growth in total sales. The sales increase in the kitchen tool product line was driven primarily by volume with modest price increases also a contributing factor. Gross profit increased from $35,010 in 1994 to $40,312 in 1995 as a result of increased sales volume. As a percentage of net sales, gross profit decreased 2% from 1994. Gross profit percentage was adversely affected by an increased cost of aluminum, an unfavorable change in sales mix as well as inventory balancing that resulted in adjustments to inventory and cost of sales. Selling, general and administrative expenses increased to $33,232 from $28,373 in 1994. As a percentage of sales, selling, general and administrative expenses decreased from 29.0% in 1994 to 27.8% in 1995. Of the gross dollar increase, approximately $3,500 was directly attributable to 1994 acquisitions. In addition, significant personnel changes were made in 1995 resulting in approximately $450 of increased severance and employment costs. Increases in contractual incentive payments to the former owners of the kitchen tool product line and royalty payments related to the design of the kitchen tool product line driven by increased sales accounted for $516 of the increase. A restructuring of distribution activities and the move of a manufacturing facility resulted in an increase of $269. The decrease as a percentage of sales is a result of increased sales activity covering fixed selling, general and administrative costs. Operating income for 1995 was $7,080, representing a $443 increase over operating income of $6,637 in the prior year. Interest expense increased from $1,699 in 1994 to $3,115 in 1995. Increased debt related to the 1994 acquisitions and working capital needs to support improved customer service were primarily responsible for the increases in interest expense. Net income for the year was $2,286 as compared to $2,750 in 1994; related earnings per share dropped from $0.80 in 1994 to $0.61 in 1995. Earnings per share were calculated on 3,769 weighted average shares as compared to 3,440 for 1994, reflecting additional shares issued in connection with the 1994 acquisition activity. Year Ended December 31, 1994 versus 1993 Net sales for 1994 were $97,729, an increase of 10% when compared to net sales of $88,529 for 1993. Sales increased as a result of growth in the Company's kitchen tool and retail outlet store businesses and as a result of acquisitions. The increase in total net sales tied to acquisitions was $7,274. Of the remaining increase, the spread between the kitchen tool and retail outlet store businesses varied little. These increases were driven primarily by volume with slight increases in price. While the dollar amount of gross profit increased modestly, gross profit margins declined, reflecting competitive pricing pressures and increased raw material costs. Selling, general and administrative expense increased slightly. Increased costs related to the higher sales volume and a partial year's amortization of goodwill (related to the purchases of the assets of Walter Absil Company Limited, Olfa Products Corp. and National Housewares, Inc.) were offset by reduced general and administrative costs. Included in operating expense were additions of $391 to bad debt reserves to cover customer bankruptcies during the year and $153 (exclusive of amounts for which recovery from third parties is expected) to the reserve provisions for environmental remediation. The increase in environmental remediation estimates was a result of updated communications from environmental authorities. Net income was $2,750 or $0.80 per share in 1994 compared to $3,036 or $0.91 per share in 1993. The effective tax rate applied to pre-tax income increased to 44% in 1994, compared to 41% in 1993. The effective tax rate increase was attributable to provision for potential assessments with regard to ongoing review by the Internal Revenue Service of years 1991-1993. Seasonality Sales are higher in the second half of the year (and highest in the fourth quarter) due to the seasonality of housewares retail sales. Capital Resources and Liquidity Inventories increased from $20,841 in 1994 to $26,867 in 1995. The increase was due to Company-wide goals of improving customer service coupled with a soft retail holiday buying season that resulted in below forecast sales in the fourth quarter of 1995. Inventories increased from $11,765 in 1993 to $20,841 in 1994. Of this increase, $5,292 was directly attributable to acquisitions. The remaining increase was a result of aggressive sales plans for 1995 that required an increase in inventory levels. On November 30, 1994, the Company completed a financing package consisting of a $30,000 three-year bank loan agreement and the private placement of $20,000 of 8.41% Senior Notes. Proceeds from the new financing package were used to refinance existing bank loans incurred to support working capital requirements and for acquisitions. As a result of the new financing, the Company believes that it has sufficient liquidity to fund existing operations and to continue to make acquisitions. Substantially all of the expenditures made by the Company to comply with environmental regulations were for the remediation of previously contaminated sites. The Company has established a reserve to cover such expenses (see Note 11 to the Consolidated Financial Statements). In addition to the amounts provided for in the reserve, the Company may be required to make certain additional capital expenditures which, in aggregate, are not expected to be material. Subsequent to the completion of the remediation contemplated in setting the reserve, the Company believes that the ongoing costs of compliance with environmental regulation, including the cost of monitoring, pollution abatement and disposal of hazardous materials, will not be material. On January 4, 1996, the Company announced its intention to exit its cast iron and cast aluminum cookware businesses during the first half of 1996. The proceeds from such disposition and the concomitant reduction in ongoing working capital requirements will result in a reduction of debt outstanding and improved liquidity. Effect of Inflation For the year ended December 31, 1995, price increases in certain commodities used by the Company (e.g., aluminum ingot (44%), steel (5%) and packaging materials (10%)) had an adverse effect on the operations of the Company. The impact of the aluminum ingot increase adversely impacted operating income by approximately $800. For the years ended December 31, 1993 and 1994, there were no significant effects related to price increases. Effect of New Accounting Principles Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long Lived Assets and Long Lived Assets to be Disposed of," establishes the financial accounting and reporting standards for the recognition of impairments to long lived assets. The implementation of this statement, which will be required in 1996, is not expected to have a material effect on the Company's consolidated financial position or cash flow. Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," establishes a fair-value based method of accounting for stock options and other equity instruments. The Company has not identified the financial reporting effect of the implementation of this statement, which will be required in 1996. Item 8. Financial Statements and Supplementary Data Index to Financial Statements Financial Statements: Report of Independent Accountants Consolidated Statement of Income for the three years ended December 31, 1995 Consolidated Statement of Changes in Stockholders' Equity for the three years ended December 31, 1995 Consolidated Balance Sheet at December 31, 1995 and 1994 Consolidated Statement of Cash Flows for the three years ended December 31, 1995 Notes to Consolidated Financial Statements Quarterly Financial Information Financial Statement Schedule: For the three years ended December 31, 1995 VII - Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS Price Waterhouse LLP To the Board of Directors and Stockholders of General Housewares Corp. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of General Housewares Corp., and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Indianapolis, Indiana February 2, 1996 CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 1995 1994 1993 (in thousands except per share amounts) Net sales $119,340 $97,729 $88,529 Cost of goods sold 79,028 62,719 53,875 Gross profit 40,312 35,010 34,654 Selling, general and administrative expenses 33,232 28,373 28,239 Operating income 7,080 6,637 6,415 Interest expense, net 3,115 1,699 1,299 Income before income taxes 3,965 4,938 5,116 Income taxes 1,679 2,188 2,080 Net income $2,286 $2,750 $3,036 Earnings per common share, primary and fully diluted: $0.61 $0.80 $0.91
See notes to consolidated financial statements. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Common Capital Cumulative Balances Stock Stock Excess of Translation (in thousands) Shares Amount Par Value Adjustment - ------------------------------------------------------------------------------ December 31, 1992 3,531 1,177 17,357 - Restricted Stock activity - - 49 - Shares issued upon exercise of options 30 10 254 - Shares issued for employee stock purchase plan 6 2 91 - Tax benefit from exercise of stock options - - 283 - Minimum pension liability - - - - Dividends - - - - Net Income - - - - - ------------------------------------------------------------------------------ December 31, 1993 3,567 1,189 18,034 - Restricted Stock activity (23) (5) 82 - Shares issued upon exercise of options 16 5 141 - Shares issued for employee stock purchase plan 7 2 70 - Tax benefit from exercise of stock options - - 14 - Shares issued for acquisition 400 133 4,367 - Translation adjustments - - - (215) Minimum pension liability - - - - Dividends - - - - Net Income - - - - - ------------------------------------------------------------------------------ December 31, 1994 3,967 1,324 22,708 (215) Restricted Stock activity 11 4 72 - Shares issued upon exercise of options 21 7 205 - Shares issued for employee stock purchase plan 4 1 67 - Shares issued to treasury 34 11 422 - Tax benefit from exercise of stock options - - 54 - Translation adjustments - - - 176 Minimum pension liability - - - - Dividends - - - - Net Income - - - - - ------------------------------------------------------------------------------ December 31, 1995 4,037 1,347 23,528 ( 39)
Minimum Retained Treasury Pension Earnings Stock Liability Total - ------------------------------------------------------------------------------ December 31, 1992 $26,377 ($3,215) $- $41,696 Restricted Stock activity - (1) - 48 Shares issued upon exercise of options - - - 264 Shares issued for employee stock purchase plan - - - 93 Tax benefit from exercise of stock options - - - 283 Minimum pension liability - - (446) (446) Dividends (1,045) - - (1,045) Net Income 3,036 - - 3,036 - ------------------------------------------------------------------------------ December 31, 1993 28,368 (3,216) (446) 43,929 Restricted Stock activity - - - 77 Shares issued upon exercise of options - - - 146 Shares issued for employee stock purchase plan - - - 72 Tax benefit from exercise of stock options - - - 14 Shares issued for acquisition - - - 4,500 Translation adjustments Minimum pension - - - (215) liability - - 71 71 Dividends (1,089) - - (1,089) Net Income 2,750 - - 2,750 - ------------------------------------------------------------------------------ December 31, 1994 30,029 (3,216) (375) 50,255 Restricted Stock activity - - - 76 Shares issued upon exercise of options - - - 212 Shares issued for employee stock purchase plan - - - 68 Shares issued to treasury - (433) - - Tax benefit from exercise of stock options - - - 54 Translation adjustments - - - 176 Minimum pension liability - - (83) (83) Dividends (1,196) - - (1,196) Net Income 2,286 - - 2,286 - ------------------------------------------------------------------------------ December 31, 1995 $31,119 ($3,649) ($458) $51,848
See notes to consolidated financial statements CONSOLIDATED BALANCE SHEET
December 31, 1995 1994 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 3,414 $ 2,993 Accounts receivable, less allowances of $4,029 ($5,312 in 1994) 16,152 16,854 Inventories 26,867 20,841 Deferred tax assets 2,743 2,184 Other current assets 661 905 -------- ------- Total current assets 49,837 43,777 Property, plant and equipment, net 14,613 13,001 Other assets 7,565 7,455 Patents and other intangible assets 3,830 4,294 Cost in excess of net assets acquired 28,765 29,831 -------- ------- $104,610 $98,358 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 12,000 $- Current maturities of long-term debt 2,163 1,122 Deferred payment obligation - 2,382 Accounts payable 3,579 3,544 Salaries, wages and related benefits 2,487 2,525 Accrued liabilities 1,957 2,729 Income taxes payable 1,312 1,141 -------- ------- Total current liabilities 23,498 13,443 Long-term debt 25,038 30,809 Deferred liabilities 4,226 3,851 Commitments and contingent liabilities (Note 11) Stockholders' Equity: Preferred stock - $1.00 par value: Authorized - 1,000,000 shares Common stock - $.33-1/3 par value: Authorized - 10,000,000 shares Outstanding - 1995 - 4,036,334 and 1994 - 3,966,705 shares 1,347 1,324 Capital in excess of par value 23,528 22,708 Treasury stock at cost - 1995 - 277,760 and 1994 - 243,760 shares (3,649) (3,216) Retained earnings 31,119 30,029 Cumulative translation adjustment (39) (215) Minimum pension liability (458) (375) --------- -------- Total stockholders' equity 51,848 50,255 --------- -------- $104,610 $98,358
See notes to consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 1995 1994 1993 (in thousands) Cash flows from operating activities: Net income $2,286 $2,750 $3,036 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 4,486 3,623 3,240 Foreign exchange loss (gain) 85 (95) - Compensation related to stock awards 77 76 48 Increase in deferred tax assets (452) (546) (333) (Increase) decrease in operating assets: Accounts receivable 713 (2,636) 1,177 Inventory (5,985) (2,761) 755 Other assets 34 (482) (719) Increase (decrease) in operating liabilities: Accounts payable (1,094) 1,585 (993) Salaries, wages and related benefits, accrued and deferred liabilities 542 109 1,687 Income taxes payable 171 408 187 Net cash provided by ------- ------ ------ operating activities 863 2,031 8,085 Cash flows used for investing activities: Additions to property, plant and equipment, net (4,345) (2,545) (2,823) Payment for acquisitions - (8,643) (609) Net cash used for investing ------- -------- ------- activities (4,345) (11,188) (3,432) Cash flows from financing activities: Collection of notes receivable - 1,018 242 Long-term debt (repayment) borrowings 4,803 (8,783) (3,488) Issuance of senior notes - 20,000 - Proceeds from stock options and employee stock purchases 280 219 357 Dividends paid (1,196) (1,089) (1,045) Net cash provided by (used for) ------ ------ ------ financing activities 3,887 11,365 (3,934) Net increase in cash and cash equivalents 405 2,208 719 Cash and cash equivalents at beginning of year 2,993 785 66 Effect of exchange rate on cash 16 - - ------ ------ ------ Cash and cash equivalents at end of year $3,414 $2,993 $785 See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands except per share amounts) 1. Nature of Operations The Company manufactures and markets consumer durable goods with principal lines of business consisting of housewares (cookware, cutlery and kitchen tools) and precision cutting tools. In addition, the Company sells products through a chain of manufacturer's retail outlet stores. The majority of the Company's sales are derived from the cookware and cutlery lines, with these two lines approximately equal in size. Substantially all of the remaining sales are in the kitchen tool and precision cutting tool lines which are approximately equal in size. 2. Accounting Policies Principles of Consolidation - The Consolidated Financial Statements include the accounts of General Housewares Corp. and its subsidiaries, all of which are wholly-owned. Inventories - Inventories are stated at the lower of cost or market and at December 31 were comprised of the following: 1995 1994 Raw Materials $4,635 $4,293 Work in Process 2,884 2,292 Finished Goods 21,417 16,064 ------- ------- 28,936 22,649 LIFO Reserve (2,069) (1,808) ------- ------- $26,867 $20,841
Cost, at December 31, 1995, is determined on a last-in, first-out (LIFO) basis for approximately 74% (80% at December 31, 1994) of the Company's inventories. The remaining inventories are determined on a first-in, first-out (FIFO) basis. During 1993, inventory quantities were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 1993 purchases, the effect of which decreased cost of goods sold by approximately $285 and increased net income by approximately $170. There were no significant liquidations in 1994 or 1995. Property, Plant and Equipment - Property, plant and equipment is recorded at cost and depreciated using the straight-line method on useful lives of 20 to 45 years for buildings and 3 to 15 years for machinery and equipment. Property, Plant and Equipment is as follows:
1995 1994 Land $684 $674 Buildings 4,378 4,245 Machinery and Equipment 30,795 28,129 ------- ------- 35,857 33,048 Less Depreciation 21,244 20,047 ------- ------- $14,613 $13,001
Other Current Assets - Included in other current assets is a receivable related to an anticipated recovery of $150 ($400 in 1994) of estimated environmental costs (See Note 11) and other miscellaneous receivables and prepaid expenses. Other Assets - Included in other assets are three manufacturing facilities (Land and Buildings - cost of $5,857 with accumulated depreciation of $1,546) that the Company no longer operates. The Company sold one of these facilities in January 1996 (see Note 13). The other two facilities are currently being leased to unaffiliated third parties under non-cancelable leases. Income generated by these leases is not significant to the consolidated operations of the Company. Each of these facilities is being depreciated over its estimated useful life using the straight-line method. Other assets also include prepaid pension expense. Intangible Assets - The cost in excess of net assets acquired is amortized using the straight-line method over periods ranging from 10 to 40 years. Other intangible assets arising from acquisitions are included in patents and other intangible assets and are amortized using the straight-line method over periods of 5 to 15 years. Amortization of intangible assets was approximately $1,793 in 1995 ($1,179 in 1994 and $1,008 in 1993) and accumulated amortization was $6,561 and $4,768 at December 31, 1995 and 1994, respectively. The Company assesses the recoverability of costs in excess of net assets acquired based on undiscounted future cash flows. No write-downs to such costs were incurred for the periods ended December 31, 1995, 1994 or 1993. At December 31, 1995 and 1994, the Company recognized an intangible asset related to the recording of a minimum pension liability in accordance with Statement of Financial Accounting Standards No. 87. Advertising - The Company participates in cooperative advertising programs with certain customers. Advertising expense related to the programs is matched with associated revenues and was $3,675, $5,366, and $5,245 for the periods ended December 31, 1995, 1994 and 1993, respectively. Deferred Liabilities - Deferred liabilities include a minimum pension liability, deferred income taxes and deferred compensation. Earnings per Share - Earnings per share are computed using the weighted average number of shares of common stock and common stock equivalents outstanding during the year. Sales to Significant Customers - During 1995 and 1994, the Company had gross sales to a single customer of $12,980 and $13,278, respectively, which represented approximately 10% and 13% of total sales for 1995 and 1994, respectively. Accounts Receivable - Substantially all accounts receivable are uncollateralized and arise from sales to the retail industry. Accounts receivable allowances include reserves for doubtful accounts, returns, adjustments and cooperative advertising allowances to customers. Reclassification - Certain 1994 and 1993 amounts have been reclassified to conform with the 1995 presentation. Cash Equivalents - The Company considers all highly liquid temporary cash investments with low interest rate risk to be cash equivalents. Temporary cash investments are stated at cost, which approximates market value. Currency Translation - The net assets of foreign operations are translated into U.S. dollars using year-end exchange rates. Revenue and expenses are translated at average exchange rates during the reporting period. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets - FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," is applicable for financial statements for fiscal years beginning after December 15, 1995. The Company does not expect the standard to have a significant impact on its 1996 financial statements. Stock Based Compensation - FAS No. 123, "Accounting for Stock Based Compensation," is applicable for financial statements for fiscal years beginning after December 15, 1995. The standard establishes a fair value based method of accounting for stock options and other equity instruments with such fair value recognized in the income statement or disclosed in the footnotes to the financial statements. The Company has not selected the accounting treatment to be used, as defined by FAS No. 123, and therefore is not in a position to identify the possible related financial statement impact. 3. Acquisitions Effective October 1, 1994, the Company purchased the assets of Walter Absil Company Limited and Olfa Products Corp. (collectively referred to as "Olfa Products Group"). The Olfa Products Group is the exclusive distributor, for the United States and Canada, of precision cutting tools and accessories manufactured by Olfa Corporation of Osaka, Japan. Assets acquired included accounts receivable, inventories and equipment. The purchase price was $13,576 and consisted of a cash payment of $6,843, Subordinated Promissory Notes in the principal amount of $2,233 bearing interest at 6% per annum and 400,000 restricted shares (valued at $4,500) of the Company's common stock. The common stock issued in connection with this acquisition is restricted as to both sale and voting rights. All such restrictions will expire no later than September 30, 1999. The acquisition was accounted for as a purchase and the net assets and results of operations are included in the Company's Consolidated Financial Statements beginning October 1, 1994. The purchase price was allocated to the assets acquired and liabilities assumed of the Olfa Products Group based on their estimated respective fair values. Cost in excess of net assets acquired was $6,349 and is being amortized over 20 years. In connection with the issuance of restricted common stock related to the acquisition of Olfa Products Group, the Company has agreed, under certain circumstances, to make payments of up to $600 to the former owners upon sale of the restricted common stock. In addition, the Company has agreed to make payments of up to approximately $3,565 to the management of the Olfa Products Group based upon the achievement of a specific aggregate financial target for the three-year period ending December 31, 1997. Effective September 1, 1994, the Company purchased the assets of Normandy, the enamel on steel cookware business of National Housewares, Inc., for a cash consideration of $1,800 and deferred payments equal to $3,767 plus an incentive payment of $382 based upon operational performance for the remainder of 1994. The cash payment was equivalent to the fair market value of the inventories acquired. Cost in excess of net assets acquired was $4,149 and is being amortized over 10 years. The following unaudited pro forma information combines the consolidated results of operations of the Company, the Olfa Products Group and Normandy as if the acquisitions had occurred at the beginning of 1994 and 1993. The pro forma information is not necessarily indicative of the results of operations which would have actually occurred during such periods. (Unaudited)
1994 1993 Net sales $114,184 $110,057 Income before taxes 5,831 6,971 Net income 3,277 4,137 Earnings per average common share $0.88 $1.11
4. Debt Long-term and short-term debt includes the following:
December 31, 1995 1994 Bank Credit Agreement $12,000 $3,000 8.41% senior notes payable in equal annual installments commencing 1998 through 2004 20,000 20,000 12% subordinated note payable in equal annual installments commencing 1996 through 2000 4,368 5,000 Deferred payment obligation due in quarterly installments of $125 from January, 1995 through September, 1998 (discounted at 6%) 1,363 1,793 6% subordinated notes payable in equal annual installments in Canadian dollars commencing 1995 through 1997 1,470 2,138 ------- ------- 39,201 31,931 Less current maturities and short-term debt 14,163 1,122 ------- ------- Long-term debt $25,038 $30,809
At December 31, 1995 and 1994, all of the Company's debt outstanding was unsecured. The bank debt outstanding at December 31, 1995, relates to a Credit Agreement with two banks with an aggregate commitment of $30,000 of which $5,000 is reserved for letters of credit at December 31, 1995. The commitment will expire on November 30, 1997, but may be renewed, under certain circumstances, for two additional one-year periods. Amounts outstanding under such Credit Agreement are classified as short-term debt as of December 31, 1995, as the Company intends to repay such outstanding amounts from current working capital and the proceeds from the sale of assets disclosed in Note 13. Drawings under the Credit Agreement are priced based on the banks' Prime or LIBOR with spreads calculated on an incentive formula. At December 31, 1995, the Company could borrow under the Credit Agreement at Prime or LIBOR + 1%. The interest rates on outstanding amounts on December 31, 1995, range from 6.93% to 8.75%. Commitment fees of .25% of the unused balance on the line of credit are included in interest expense. In addition, during 1994, the Company sold $20,000 of 8.41% Senior Notes payable to a group of institutional investors. Terms of the Credit Agreement and the Senior Notes require, among other things, that the Company maintain certain minimum financial ratios. In addition, the agreements provide for limits on dividends, certain investments and lease commitments. The 12% subordinated note payable is due the estate of the former principal owner of Chicago Cutlery, Inc., a wholly-owned subsidiary of the Company. The estate is a significant stockholder of the Company. The principal balance of the note was reduced by $632 in 1995 as an offset to payments made with regard to the environmental remediation program discussed in Note 11. The deferred payment obligation was incurred in connection with the acquisition of the assets of the Normandy enamel on steel cookware business of National Housewares, Inc. In addition to the obligation listed in the above table, the Company had additional obligations related to the transaction of $2,382, all of which were paid in January, 1995. Terms of the Deferred Payment Obligation and all of the Subordinated Notes provide for the right of offset upon the occurrence of certain events. Aggregate principal payments for the five years subsequent to December 31, 1995, are as follows: 1996 $14,163 1997 2,196 1998 4,956 1999 4,592 2000 and thereafter 13,294
Cash paid during 1995 for interest, net of cash received, was $2,798 (1994 - $1,614; 1993 - $1,361). Of this amount, $562, $450 and $615 consisted of amounts paid related parties in 1995, 1994 and 1993, respectively. As of January 1, 1996, the Company was not in compliance with one of the covenants in the Bank Credit Agreement. This non-compliance has been waived through March 31, 1996. Based on the disposition of assets discussed in Note 13 and the Company's current operating performance, it is likely that the Company will not be in compliance with certain covenants contained in the Bank Credit Agreement at the end of the first quarter of 1996. Management intends to seek waivers for any such non-compliance at such time as the impact of the disposition of assets becomes determinable. The Company believes that such waivers will be obtained. 5. Common Stock and Rights Common stock reserved at December 31, 1995, included 303,770 shares reserved for outstanding stock options. In February 1989, the Company effected a dividend distribution of one Right for each outstanding share of common stock. Under certain circumstances, each Right may be exercised to purchase 1/100th of a share of Series A Junior Participating Preferred Stock, at a purchase price of $25, subject to adjustment to prevent dilution. Each preferred share fraction is designed to be equivalent in voting and dividend rights to one share of common stock. The Rights may only be exercised after a person acquires, or has the right to acquire, 21% or more of the common stock or makes an offer for 30% or more of the common stock. The Rights, which do not have voting rights and do not entitle the holder to dividends, expire on February 27, 1999, and may be redeemed by the Company prior to their being exercisable at a price of $.01 per Right. 6. Stock Plans The Company maintains a stock plan for key employees which provides for the granting of options or awards of restricted stock until January 31, 2003. A summary of transactions under the plan follows:
Restricted Stock Stock Options Outstanding December 31, 1992 45,400 216,669 Granted during 1993 - 68,000 Canceled during 1993 (3,400) (1,335) Released or exercised during 1993 (4,000) (29,596) Outstanding December 31, 1993 38,000 253,738 Granted during 1994 10,500 5,000 Canceled during 1994 (34,000) (11,035) Released or exercised during 1994 (4,000) (16,299) Outstanding December 31, 1994 10,500 231,404 Granted during 1995 10,500 106,000 Canceled during 1995 - (13,000) Released or exercised during 1995 (3,500) (20,634) Outstanding December 31, 1995 17,500 303,770
Options granted under the plan provide for the issuance of common stock at not less than 100% of the fair market value on the date of grant. When options are exercised, proceeds received are credited to common stock and capital in excess of par value. Stock options were exercised at prices ranging from $7.125 to $13.750 in 1995. Options outstanding at December 31, 1995, were granted at prices ranging from $7.125 to $14.00 per share. Options for 179,069 shares were exercisable at December 31, 1995. Restricted stock granted under the plan is subject to restrictions relating to earnings targets of the Company and/or continuous employment or other relationships. On July 1, 1992, the Company introduced its Employee Stock Purchase Plan. The plan, administered by a Committee appointed by the Board of Directors, is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code. The Employee Stock Purchase Plan provides that shares of the Company's Common Stock will be purchased at the end of each calendar quarter with funds deducted from the payroll of eligible employees. Employees receive a bargain purchase price equivalent to 90% of the lower of the opening or closing stock price of each calendar quarter. Dividends paid to the Employee Stock Purchase Plan fund are reinvested in the fund to buy additional shares. At December 31, 1995, the balance in the plan consisted of 17,951 shares of General Housewares Corp. Common Stock (13,072 shares in 1994). 7. Employee Benefit Plans The Company sponsors four defined benefit pension plans which cover substantially all salaried and hourly employees. Pension benefit formulas are related to final average pay or fixed amount per year of service. It is the Company's policy to fund at least the minimum amounts required by applicable regulations. Net periodic pension cost included the following components:
1995 1994 1993 Service cost-benefits earned during the period $459 $458 $410 Interest cost on projected benefit obligation 1,226 1,166 1,079 Actual return on plan assets (2,632) (34) (1,180) Net amortization and deferral 1,561 (919) 168 ------ ------ ------ Net periodic pension cost $614 $671 $477
The funded status of the plans as of December 31 was as follows: 1995 1994 Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets Accumulated benefit obligation - vested $14,193 $2,650 $12,315 $2,233 - non vested 304 51 220 47 ------- ------ ------- ------ 14,497 2,701 12,535 2,280 Effect of projected salary increases 1,220 - 953 - Projected benefits ------- ------ ------- ------ obligation 15,717 2,701 13,488 2,280 Plan assets at fair value 15,677 2,395 13,090 2,172 Plan assets less ------- ------ ------- ------ than projected benefits obligation (40) (306) (398) (108) Unrecognized net transition (asset) liability (823) 95 (960) 111 Unrecognized net loss from experience differences 2,246 793 2,131 672 Unrecognized prior service cost 814 311 920 336 Adjustment to recognize minimum liability - (1,199) - (1,119) ------- ------ ------- ------ Prepaid (accrued) pension cost recognized in balance sheet $2,197 ($ 306) $1,693 ($ 108)
In accordance with the provisions of Statement of Financial Accounting Standards No. 87 - "Employers' Accounting for Pensions," the Company has recorded an additional minimum liability at December 31, 1995 and 1994, representing the excess of the accumulated benefit obligation over the fair value of plan assets and prepaid pension asset. The minimum liability for plans with accumulated benefits in excess of assets of $1,199 at December 31, 1995, has been included in the Company's consolidated balance sheet as a deferred liability with an offset in other intangible assets and equity. In addition, a deferred tax asset of $336 has been recognized for the minimum liability charge to equity. The actuarial present value of the projected benefit obligation at December 31, 1995 and 1994, was determined using a weighted average discount rate of 7.25% and 8.0%, respectively, and a rate of increase in future compensation levels of 4%. The weighted average expected long-term rate of return on assets was 9% at December 31, 1995 and 1994. As of December 31, 1995, approximately 32% (1994 - 59%) of the plan's assets were invested in fixed income funds. In addition to the defined benefit plans described above, the Company also sponsors a 401(K) plan for all full-time employees. The Company matches a portion of each employee contribution. The Company's contribution expense was $316 in 1995 ($302 in 1994 and $335 in 1993). The Company maintains a non-qualified, unfunded deferred compensation plan for certain key executives providing payments upon retirement. The present value of the deferred compensation is included in deferred liabilities. 8. Income Taxes The components of the provision for income taxes were as follows:
1995 1994 1993 Current income tax expense: Federal $1,624 $2,382 $2,043 State 251 352 370 Foreign 219 - - ------ ------ ------ Total current income tax expense 2,094 2,734 2,413 Deferred income tax expense (benefit): Federal (389) (546) (333) State (57) - - Foreign 31 - - Total income tax ------ ------ ------ expense: $1,679 $2,188 $2,080
A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:
Percent of pre-tax income 1995 1994 1993 Federal statutory rate 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit 3.2 4.7 4.8 Amortization of excess purchase price 5.0 4.0 3.9 Prior years accrual adjustment - 1.4 (2.5) Miscellaneous items .2 .2 .5 ---- ---- ---- 42.4% 44.3% 40.7%
Deferred tax assets (liabilities) are comprised of the following at December 31:
1995 1994 Gross deferred tax assets: Accounts receivable allowances $1,079 $849 Inventory reserves 487 - Vacation 240 210 Self-insurance 117 119 Environmental reserve 150 539 Other, miscellaneous 449 355 ------ ------- Gross deferred tax assets $2,522 $2,072 Gross deferred tax liabilities: Property, plant and equipment ($1,239) ($1,296) Pension (552) (403) Other current receivables (56) (136) Other, miscellaneous (250) (264) Gross deferred tax -------- -------- liabilities ($2,097) ($2,099) ------- -------- Net deferred tax assets (liabilities) $425 ($27)
Cash paid for income taxes during 1995 was $318 (1994 - $1,659; 1993 - $1,939). The Company reached a settlement with the Internal Revenue Service in 1995 relating to the review of the Company's tax returns for the years ended December 31, 1991, 1992 and 1993. The settlement did not have a significant effect on the results of operations for the year ended December 31, 1995. 9. Operating Leases The Company leases warehouses, administrative offices, computer equipment and retail outlet store space. Certain of the retail store leases provide for contingent rental payments, generally based on the sales volume of the applicable retail unit. All leases in which the Company is engaged are classified as operating leases. Future minimum annual lease payments under these operating leases, the majority of which have initial or remaining non-cancelable lease terms in excess of one year, were as follows at December 31, 1995: 1996 $1,837 1997 1,690 1998 1,080 1999 634 2000 343 Later Years 236
Certain leases require payments of real estate taxes, insurance, repairs and other charges. Total rental expense was $2,098 in 1995 (1994 - $1,455; 1993 - $1,106). 10. Fair Value of Financial Instruments FAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of information about the fair value of certain financial instruments for which it is practical to estimate that value. The Company has performed fair value calculations on its financial instruments (principally debt obligations) and has determined that fair value approximates carrying value. 11. Commitments and Contingent Liabilities The Company is currently involved in the review and evaluation, or remediation, of seven sites posing potential or identified environmental contamination problems. Based on information currently available, management's best estimate of probable remediation costs, recorded as a liability, is $403 at December 31, 1995 ($1,549 at December 31, 1994) which aggregate amount management believes will be paid out during the course of the next five years. Based on provisions in the stock purchase agreement related to the acquisition of Chicago Cutlery, Inc., the Company has recovered $932 through an offset to amounts owed to the holders of the 12% subordinated note (see Note 4) and based on the opinion of legal counsel, considers it probable that it will retain such amounts. Additional amounts are also expected to be recovered from the subordinated note holder as a result of environmental remediation activities at a Chicago Cutlery facility. The holders of the 12% subordinated note have not agreed to such offset. Within a range of reasonably possible environmental cleanup liabilities established on the basis of current information, the recorded liability represents approximately 68% of the currently estimable maximum loss that has been identified by the Company and its environmental advisors. While neither the timing nor the amount of the ultimate costs associated with environmental matters can be accurately determined, management does not expect that these matters will have a material effect on the Company's consolidated financial position and cash flow. 12. Segment Information The Company's principal business involves the manufacture and marketing of consumer durable goods. These operations are classified into two reportable segments: Housewares - Included in this segment are the Company's cookware, cutlery and kitchen tool products, as well as a chain of manufacturer's retail outlet stores with sales derived primarily from these products. These products are used primarily in commercial and residential food preparation and are distributed primarily through mass merchandisers, department stores and specialty shops. Precision Cutting Tools - Included in this segment is the Company's Olfa Products Group. Products in this segment are designed and marketed for diverse commercial and residential use including hobby, craft, sewing and construction. The goods are sold both directly and through distributors, primarily to hardware stores and sewing/hobby/craft stores. Financial information by reportable segments is as follows:
Precision Housewares Cutting Tools - ----------------------------------------------------------------------------- 1995 Net sales $103,370 $15,970 Operating income 5,606 1,474 Identifiable assets 97,254 7,285 Depreciation and amortization 4,135 351 Capital expenditures 4,325 20 - ------------------------------------------------------------------------------ 1994 Net sales $93,973 $3,756 Operating income 6,613 24 Identifiable assets 93,314 5,044 Depreciation and amortization 3,530 93 Capital expenditures 2,545 - - ------------------------------------------------------------------------------ 1993 Net sales $88,529 $- Operating income 6,415 - Identifiable assets 72,017 - Depreciation and amortization 3,240 - Capital expenditures 2,823 - - ------------------------------------------------------------------------------
The Precision Cutting Tools segment was added in October of 1994 as a result of an acquisition of assets. As such, 1994 results for this segment represent only three months of activity. During 1995, the Housewares segment had gross sales to one customer of $12,577, which represents approximately 11% of total Housewares segment gross sales for 1995. During 1994 and 1993, the Company had gross sales to that same customer of $13,046 and $11,130, representing 14% and 13% of total Housewares segment gross sales. 13. Subsequent Events On January 4, 1996, the Company announced its intention to exit its cast iron and cast aluminum cookware businesses during the first half of 1996. The Company is in discussions with buyers interested in acquiring the associated product lines and possibly the related manufacturing facility located in Sidney, Ohio. A charge related to this transaction and other restructuring efforts, including the closure of certain of the Company's retail outlet stores, will be recorded in 1996. At this time, the Company is unable to determine the financial statement impact related to these transactions that will be recorded in 1996. On January 17, 1996, the Company sold a non-operating facility located in Hyannis, Massachusetts. The Company received cash consideration of $1,300 for the facility, which represented an amount slightly above net book value. The book gain and related tax liability will be reflected in first quarter 1996 financial statements. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table summarizes the 1995 and 1994 unaudited interim financial information: (in thousands of dollars except per share amounts - reclassifications have been made to conform with income statement presentation for the periods ended December 31, 1995 and 1994)
Quarter Ended Dec. 31, Sep. 30, June 30, Mar. 31, 1995 1995 1995 1995 Net sales $36,467 $30,630 $24,882 $27,361 Gross profit 11,715 10,006 8,898 9,693 Net income 1,342 605 127 212 Earnings per common share: Net income $0.36 $0.16 $0.03 $0.06 Earnings per common share assuming full dilution: Net income $0.36 $0.16 $0.03 $0.06 Dividends per common share $0.08 $0.08 $0.08 $0.08 Market price range: High 11-5/8 14 14 16-3/8 Low 8-1/2 10-7/8 11-3/8 11-1/4 Quarter Ended Dec. 31, Sep. 30, June 30, Mar. 31, 1994 1994 1994 1994 Net sales $34,728 $26,298 $18,173 $18,530 Gross profit 12,387 9,487 6,301 6,835 Net income 1,515 1,034 108 93 Earnings per common share: Net income $0.43 $0.31 $0.03 $0.03 Earnings per common share assuming full dilution: Net income $0.43 $0.31 $0.03 $0.03 Dividends per common share $0.08 $0.08 $0.08 $0.08 Market price range: High 16-3/8 12-5/8 14-1/4 15-1/4 Low 12-3/8 9-3/4 11 12-7/8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no changes in or disagreements with the Company's independent accountants on accounting and financial disclosure. PART III The information required by Part III, Items 10, 11, 12 and 13 with respect to the directors and executive officers of the Company has been omitted because this information appears on pages 1 to 9 of the Company's definitive proxy statement which the Company expects to file with the Securities and Exchange Commission on or prior to March 31, 1996, and which is incorporated herein by reference, except with respect to the identification and business experience of executive officers required by Item 10, which is set forth under the caption "Executive Officers of the Company" in Part I of this Report. The Report of the Compensation Committee and the Performance Graph, which begin on page 9 and on page 12, respectively, of the Company's definitive proxy statement, are not incorporated by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements - See item 8 - index to financial statements. (a) 2. Financial Statement Schedule - See item 8 - index to financial statements. (a) 3. Exhibits 3. (i) Restated Certificate of Incorporation, filed May 7, 1987 (filed as Exhibit 3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated herein by reference). (ii) By-laws as amended February 7, 1995 (filed as Exhibit 3. (i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference). 5. Rights Agreement dated as of February 22, 1989 (filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A, and incorporated herein by reference). 10. Material Contracts 10.1 Note Purchase Agreement, dated November 30, 1994 among the Company and certain institutional investors (filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference). 10.2 Credit Agreement, dated November 30, 1994, between the Company and Harris Trust and Savings Bank as agent, and The First National Bank of Chicago (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference). *10b. Employment and Consulting Agreement, dated July 1, 1990, between the Company and John H. Muller, Jr. (filed as Exhibit 10b to the Company's Annual Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by reference). *10c. Compensation Agreement, dated August 7, 1987, between the Company and Paul A. Saxton relating to retirement and termination agreements (filed as Exhibit 10c to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference). *10e. Employment Agreement, dated April 12, 1990, between the Company and Robert L. Gray, relating, among other matters, to termination arrangements (filed as Exhibit 10e to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated herein by reference). *10f. The Company's Severance Compensation Plan, as amended and restated August 6, 1985, in which all of the named executive officers participate, and form of designation of participation (filed as Exhibit 10f to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference). *10g. Employment Agreement, dated March 20, 1995, between the Company and John C. Blackwell, relating, among other matters, to retirement and termination agreements. *10h. Employment Agreement, dated July 3, 1995, between the Company and Gordon H. Brown, relating, among other matters, to retirement and termination agreements. *10i. Employment Agreement, dated November 11, 1995, between the Company and Ray J. Kulla, relating, among other things, to retirement and termination agreements. 11. Computation of primary earnings per share. 21. Subsidiaries of the registrant. 23. Consent of Price Waterhouse, independent accountants, to the incorporation by reference constituting part of Registration Statements on Form S-8 (Nos. 33-33328, 2-77798 and 33-48336) of their report dated February 2, 1996. 99. Audited financial statements of the Company's Employee Stock Purchase Plan. * Represents a contract, plan or arrangement pursuant to which compensation or benefits are provided to certain Executive Officers or Directors of the Company. (b) Reports on Form 8-K No reports on Form 8-K were filed during the period ended December 31, 1995. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. GENERAL HOUSEWARES CORP. By /s/ Robert L. Gray 3/18/96 Robert L. Gray Date Vice President, Finance and Treasurer Principal Financial Officer By /s/ Mark S. Scales 3/18/96 Mark S. Scales Date Controller Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Paul A. Saxton 3/18/96 Paul A. Saxton Date Chairman of the Board President and Chief Executive Officer /s/ Charles E. Bradley 3/18/96 Charles E. Bradley - Director Date /s/ John S. Crowley 3/18/96 John S. Crowley - Director Date /s/ Thomas L. Francis 3/18/96 Thomas L. Francis - Director Date /s/ Joseph Hinsey IV 3/18/96 Joseph Hinsey IV - Director Date /s/ Ann Manix 3/18/96 Ann Manix - Director Date /s/ John H. Muller, Jr. 3/18/96 John H. Muller, Jr. - Director Date /s/ Phillip A. Ranney 3/18/96 Phillip A. Ranney - Director Date INDEX TO EXHIBITS Exhibit No. 10g. Employment Agreement 10h. Employment Agreement 10i. Employment Agreement 11. Computation of primary earnings per share 21. Subsidiaries of the registrant 23. Consent of Price Waterhouse 27. Financial Data Schedule 99. Financial statements of the Company's Employee Stock Purchase Plan EX-10 2 (G) J BLACKWELL EMPLOYMENT AGREEMENT EXHIBIT 10G March 6, 1995 Mr. John C. Blackwell 14510 Thornfield Court Tampa, FL 33624 Dear John: This is the formal offer of employment that I spoke to you about today on the telephone. I am particularly pleased to be sending this to you because I think you represent a very good fit for General Housewares Corp. at this time in our corporate history and that we represent a very good opportunity for you at this time in your personal history. Your background and skills are clearly superior, but I also feel the chemistry is right between General Housewares Corp. and you for a good relationship. I don't think I need to provide much more data about the Company in this letter. I think you have studied it and looked into it carefully. I should say -- even if it's merely a refresher of what you already know -- that we have a somewhat unique organization here. Going beyond the lack of formality in terms of attire, I think we have begun to cultivate an atmosphere without negative boundaries between parts of the organization. That is not to say that nobody here has a structured job to do, because clearly there are many of those. But it is to say that at the top levels of the Company there is a strategic and collegial atmosphere that prevails. In practical terms, what this means is that we want everybody involved at the staff level to be familiar with and contributory to other functions than their own. I would hope you would find this stimulating and exciting. The following outlines the compensation package offered you at General Housewares: TITLE: Corporate Vice President, Sales and Marketing REPORTING RELATIONSHIP: Reports to the President and Chief Executive Officer of General Housewares Corp. SCOPE OF RESPONSIBILITY: Management responsibility for sales and marketing functions of the Company. BASE SALARY: $160,000 per year. INCENTIVE COMPENSATION: Participate in corporate-wide incentive compensation plan with top-end awards of 68% of base salary assuming corporate goals are met.* For 1995, you will be included in the incentive compensation plan now in effect on a pro-rated basis. Assuming your start date is March 20, 1995, and the maximum goals were achieved, you would receive 68% of your salary earned from March 20, until December 31, 1995. STOCK OPTIONS: An option of 10,000 shares at the market value on your date of employment will be granted by the Compensation Committee of the Board of Directors. RESTRICTED STOCK: 3,000 shares of restricted stock at no cost to you which will vest 2/3 twelve months from your date of employment and 1/3 twelve months later. LIFE INSURANCE: Group Life and Accidental Death and Dismemberment insurance coverage, both at 3 1/2 times your base salary, plus an additional $500,000 death benefit for Travel Accident Coverage and a scheduled portion thereof for dismemberment. LONG-TERM DISABILITY: Insured coverage for 60% of base salary up to a maximum of $5,000 per month to age 65, effective six months after disability occurs. Yearly premiums to be paid by you. MEDICAL PLAN/ DENTAL PLAN: Between regular group and supplemental key management plans, we pay 100% of medical and dental expenses for you and your eligible dependents. In your case, we will waive all prior condition restrictions regarding medical insurance for you and your dependents. 401K SAVINGS PLAN: After one year of employment, you are eligible to join our 401K, matching contributions savings plan. * 1995 Plan attached. PENSION PLAN: 2% of salary and incentive compensation, for each year of service, with the average of five highest consecutive calendar years in the last ten years of employment, up to a maximum of 25 years or 50% of salary, subject to IRS requirements. The GHC pension plan vests in five years. MOVING EXPENSES: The Company will pay 100% of all moving costs and up to three months of interim personal living expenses associated with your move to Terre Haute. This includes personal commuting costs as well as housing in Terre Haute prior to your move. AUTOMOBILE: You are entitled to a car lease allowance of $550.00 per month, to applied in full or in part to a car of your choice. The prior incumbent in your position leased a Mercedes-Benz. That lease has one year to run and the lease allowance will apply to that car until the end of its lease. All maintenance expenses, replacement parts (tires, etc.), gasoline and oil, and automobile insurance, are paid for by GHC. CLUB MEMBERSHIPS: You are entitled to initiation fees and dues to the Country Club of Terre Haute and to the MVP Club in the Boston Connection. SEVERANCE: If we part company at any time during the first six months of your employment at GHC, you will be eligible for six months of severance well as any portion of management bonus accruing to officers of the Company. In the event that the Company decides to terminate your employment after six months, you would receive severance payments (as defined below) equalling your tenure at GHC, up to one full year. For example if we part company after seven months, you would receive seven months of severance; eight months, eight months, etc., up to a full year. After one full year, the severance is capped at one year of salary and whatever portion of the management bonus is applicable. Acceptance of this arrangement constitutes an agreement by you not to pursue further remedies against GHC in the event of your termination by the Company. You are also covered under our severance compensation plan which provides longer term severance in the event of certain circumstances related to a takeover of the Company. A copy of the present plan is attached. EFFECTIVE DATE: March 20, 1995. John, this offer is essentially what we discussed on the telephone. Hope it is acceptable. Kathy and I look forward to seeing you on March 12, and having you join us for dinner at The Country Club of Terre Haute. Sincerely, /s/ Paul A. Saxton ACCEPTED: /s/ John C. Blackwell Date EX-10 3 (H) G BROWN EMPLOYMENT AGREEMENT EXHIBIT 10H May 17, 1995 Mr. Gordon Brown 1853 Winfield Drive Lakewood, CO 80215 Dear Gordon: Details of the specifications for the position of V.P. Supply Chain Management and Logistics which I plan to propose to our Board of Directors is outlined below. Prior to its finalization, I would schedule, in addition to the Management interviews, at least two interviews with members of our Board. The Board, primarily as a formality, but one which I put a high value on, will need to approve the compensation package outlined below, and while I would anticipate their enthusiastic approval, I like to have the input of a couple of key members before the fact. The following outlines the compensation package for the position we discussed at General Housewares: TITLE: Corporate Vice President, Supply Chain Management and Logistics REPORTING RELATIONSHIP: Reports to the President and Chief Executive Officer of General Housewares Corp. SCOPE OF RESPONSIBILITY: Management responsibility for supply chain and logistics functions of the Company. BASE SALARY: $160,000 per year. INCENTIVE COMPENSATION: Participate in corporate-wide incentive compensation plan with top-end awards of 68% of base salary assuming corporate goals are met.* For 1995, you will be included in the incentive compensation plan now in effect on a pro-rated basis. Assuming your start date is July 1, 1995, and the maximum goals were achieved, you would receive 68% of your salary earned from July 1, until December 31, 1995. STOCK OPTIONS: An option of 10,000 shares at the market value on your date of employment will be granted by the Compensation Committee of the Board of Directors. RESTRICTED STOCK: 3,000 shares of restricted stock at no cost to you which will vest 2/3 twelve months from your date of employment and 1/3 twelve months later. LIFE INSURANCE: Group Life and Accidental Death and Dismemberment insurance coverage, both at 3 1/2 times your base salary, plus an additional $500,000 death benefit for Travel Accident Coverage and a scheduled portion thereof for dismemberment. LONG-TERM DISABILITY: Insured coverage for 60% of base salary up to a maximum of $5,000 per month to age 65, effective six months after disability occurs. Yearly premiums to be paid by you. MEDICAL PLAN/ DENTAL PLAN: Between regular group and supplemental key management plans, we pay 100% of medical and dental expenses for you and your eligible dependents. In your case, we will waive all prior condition restrictions regarding medical insurance for you and your dependents. If your present medical plan, or your spouses, cannot be extended either through COBRA or some other means, the Company will reimburse for private short-term health coverage until you are eligible for coverage under the Company Plan. * 1995 Plan attached. 401K SAVINGS PLAN: After one year of employment, you are eligible to join our 401K, matching contributions savings plan. PENSION PLAN: 2% of salary and incentive compensation, for each year of service, with the average of five highest consecutive calendar years in the last ten years of employment, up to a maximum of 25 years or 50% of salary, subject to IRS requirements. The GHC pension plan vests in five years. For purposes of your pension calculation, each year of service will be credited to your pension at 1.4 years for both the vesting period and credited service. MOVING EXPENSES: The Company will pay 100% of all moving costs and up to three months of interim personal living expenses associated with your move to Terre Haute. This includes personal commuting costs as well as housing in Terre Haute prior to your move. AUTOMOBILE: You are entitled to a car lease allowance of $575.00 per month, to be applied in full or in part to a car of your choice. All maintenance expenses, replacement parts (tires, etc.), gasoline and oil, and automobile insurance, are paid for by GHC. CLUB MEMBERSHIPS: You are entitled to initiation fees and dues to the Country Club of Terre Haute and to the MVP Club in the Boston Connection. SEVERANCE: If we part company at any time during the first six months of your employment at GHC, you will be eligible for six months of severance as well as any portion of management bonus accruing to officers of the Company. In the event that the Company decides to terminate your employment after six months, you would receive severance payments (as defined below) equalling your tenure at GHC, up to one full year. For example if we part company after seven months, you would receive seven months of severance; eight months, eight months, etc., up to a full year. After one full year, the severance is capped at one year of salary and whatever portion of the management bonus is applicable. Acceptance of this arrangement constitutes an agreement by you not to pursue further remedies against GHC in the event of your termination by the Company. You are also covered under our severance compensation plan which provides longer term severance in the event of certain circumstances related to a takeover of the Company. A copy of the present plan is attached. EFFECTIVE DATE: July 1, 1995. Gordon, as I mentioned above, this offer is conditioned upon the approval of the GHC Board of Directors which, were you to accept, I would anticipate being granted. Sincerely, /s/ Paul A. Saxton ACCEPTED: /s/ Gordon H. Brown Date EX-10 4 (I) R KULLA EMPLOYMENT AGREEMENT EXHIBIT 10 September 6, 1995 Mr. Raymond J. Kulla 130 Michaux Riverside, IL 60546 Dear Ray: After what has been a very professionally handled interview process through Tucker Olson, I feel very positive and I am very enthused about the chemistry between you and me, between you and the board members you have spoken to and between you and the other officers of the company. It is very clear to me that your background, experience, cultural outlook, character, and style provide for an almost ideal fit into the situation described by the employment package below. And based on all of the above, I believe you have a longer-term opportunity here, if all goes as I think it will, to move into areas of management that go beyond the parameters of the position outlined below, at some point in the future. The immediate opportunity, however, is, in my opinion, exciting in and of itself. The company is growing, of course, but that growth is not without challenges that we encounter continually. We are in a relatively stable industry, -- certainly in terms of technology -- but also regarding the key marketing elements: product, price, promotion. But the challenges in a business such as ours center around intellectual property, acquisition of new businesses, techno-legal relationships with large customers, governmental intervention and regulation of various kinds, human resource issues -- in particular those related to acquired business --contract creation, and SEC/NYSE relationships. These demands have increased in volume and intensity over the past few years, and the importance of the legal function in our business has increased accordingly. As you evaluate the offer below, I know you will be cognizant of your experience at GHC, brief as it has been, and the opportunities, the fit, and the chemistry. I am personally delighted to send you this letter and will be even more so when you join GHC. TITLE: Corporate Vice President, General Counsel, and Secretary REPORTING RELATIONSHIP: Reports to the President and Chief Executive Officer of General Housewares Corp. SCOPE OF RESPONSIBILITY: Management responsibility for legal affairs of the Company. BASE SALARY: $160,000 per year. INCENTIVE COMPENSATION: Participate in corporate-wide incentive compensation plan with top-end awards of 68% of base salary assuming corporate goals are met.* For 1995, you will be included in the incentive compensation plan now in effect on a pro-rated basis. Assuming your start date is October 1, 1995, and the maximum goals were achieved, you would receive 68% of your salary earned from October 1, until December 31, 1995. STOCK OPTIONS: An option of 10,000 shares at the market value on your date of employment will be granted by the Compensation Committee of the Board of Directors. RESTRICTED STOCK: 3,000 shares of restricted stock at no cost to you which will vest 2/3 twelve months from your date of employment and 1/3 twelve months later will be granted by the Compensation Committee of the Board of Directors. LIFE INSURANCE: Group Life and Accidental Death and Dismemberment insurance coverage, both at 3 1/2 times your base salary up to $500,000 maximum, plus an additional $500,000 death benefit for Travel Accident Coverage and a scheduled portion thereof for dismemberment. * 1995 Plan attached. LONG-TERM DISABILITY: Insured coverage for 60% of base salary up to a maximum of $5,000 per month to age 65, effective six months after disability occurs. Yearly premiums to be paid by you.** MEDICAL PLAN/ DENTAL PLAN: Between regular group and supplemental key management plans, we pay 100% of medical and dental expenses for you and your eligible dependents. In your case, we will waive all prior condition restrictions regarding medical insurance for you and your dependents. If your present medical plan, or your spouse's, cannot be extended either through COBRA or some other means, the Company will reimburse for private short-term health coverage until you are eligible for coverage under the Company Plan. 401(K) SAVINGS PLAN: After one year of employment, you are eligible to join our 401(K) plan at the beginning of the first quarter following your one year anniversary. Company matches 50% of contribution up to 6% of salary, subject to government cap. PENSION PLAN: Per Plan. Retirement income after 25 years of service approximates 50% of five highest consecutive years of salary out of the last ten years of employment, including social security benefits. The GHC pension plan vests in five years. For purposes of your pension calculation, each year of service will be credited to your pension at 1.5 years for both the vesting period and credited service with a portion of your benefit being provided for through a Company sponsored Supplemental Executive Retirement Plan (SERP). MOVING EXPENSES: The Company will pay 100% of all moving costs and up to three months of interim personal living expenses associated with your move to Terre Haute. This includes personal commuting costs as well as housing in Terre Haute prior to your move. ** At the present time, this program is under review and will be improved. AUTOMOBILE: You are entitled to a car lease allowance of $575.00 per month, to be applied in full or in part to a car of your choice. All maintenance expenses, replacement parts (tires, etc.), gasoline and oil, and automobile insurance, are paid for by GHC. CLUB MEMBERSHIPS: You are entitled to initiation fees and dues to the Country Club of Terre Haute and to the MVP Club in the Boston Connection. SEVERANCE: If the Company terminates your employment at any time during the first six months of your employment at GHC, you will be eligible for six months of severance as well as any portion of management bonus accruing to officers of the Company. In the event that the Company decides to terminate your employment after six months, you would receive severance payments (as defined below) equalling your tenure at GHC, up to one full year. For example if we part company after seven months, you would receive seven months of severance; eight months, eight months, etc., up to a full year. After one full year, the severance is capped at one year of salary and whatever portion of the management bonus is applicable. Acceptance of this arrangement constitutes an agreement by you not to pursue further remedies against GHC in the event of your termination by the Company. You are also covered under our severance compensation plan which provides longer term severance in the event of certain circumstances related to a takeover of the Company. A copy of the present plan is attached. EFFECTIVE DATE: __________ 1, 1995. GHC would be delighted to have you join the Company as soon as you can. Personally, I will be out of the country until October 7, returning to the office on Monday, October 9. If you began on October 1, you could begin working with Gordon Erickson, but, we really want you to begin at your convenience. The trip I am taking does have another significance however, and that is that we'd like to get our answer from you by September 15, if possible. If you agree to join GHC, obviously we can wind down our search. But if you do not, we need to know as soon as possible so we can rekindle our efforts to find a General Counsel. Ray, since you have been interviewed and approved by five out of eight Board Members, the following is almost moot, but this offer is conditioned upon the final approval of the GHC Board of Directors, which, were you to accept, would be granted expeditiously. If there are any questions about this letter, or any suggestions, I would be delighted to respond to them. Sincerely, /s/ Paul A. Saxton ACCEPTED: /s/ Raymond J. Kulla Date EX-11 5 PRIMARY EARNINGS PER SHARE EXHIBIT 11 COMPUTATION OF PRIMARY EARNINGS PER SHARE
1995 1994 1993 Net income $2,286,000 $2,750,000 $3,036,000 Shares: Weighted average number of shares of common stock outstanding 3,744,309 3,406,115 3,265,896 Shares assumed issued (less shares assumed purchased for treasury) on stock options 21,341 34,156 74,442 Outstanding shares for primary earnings per share calculation 3,765,650 3,440,271 3,340,338 Earnings per common share $0.61 $0.80 $0.91
EX-21 6 SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Subsidiary State Incorporated General Housewares Export Corporation U.S. Virgin Islands Chicago Cutlery, Inc. Florida Chicago Cutlery etc., Inc. Indiana General Housewares of Canada Inc. Quebec, Canada EX-23 7 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-33328, 2-77798, 33-48336 and 33-82136) of General Housewares Corp., of our report dated February 2, 1996, appearing on pages 12-13 of this Annual Report on Form 10-K. We also consent to the application of such report to the Financial Statement Schedule for the three years ended December 31, 1995, listed under Item 8 of this Annual Report on Form 10-K when such schedule is read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included the Financial Statement Schedule. PRICE WATERHOUSE LLP Indianapolis, Indiana March 19, 1996 EX-27 8 ART. 5 FDS FOR 10-K
5 0 0000040643 0 1,000 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1993 DEC-31-1995 1 3,414 0 20,181 4,029 26,867 49,837 35,857 21,244 104,610 23,498 0 1,347 0 0 50,501 104,610 119,340 119,340 79,028 79,028 33,232 212 3,115 3,965 1,679 2,286 0 0 0 2,286 .61 .61
EX-99 9 STATEMENT OF FINANCIAL CONDITION ESPP EXHIBIT 99 Employee Stock Purchase Plan Financial Statements December 31, 1995 and 1994 Price Waterhouse LLP REPORT OF INDEPENDENT ACCOUNTANTS February 2, 1996 To the Participants and Administrative Committee of General Housewares Corp. Employee Stock Purchase Plan In our opinion, the accompanying statements of financial condition and of income and changes in plan equity present fairly, in all material respects, the financial condition of General Housewares Corp. Employee Stock Purchase Plan at December 31, 1995 and 1994, and the changes in its financial condition for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP STATEMENT OF FINANCIAL CONDITION
December 31, 1995 1994 PLAN ASSETS Investments in employer's securities (cost, 1995 - $196,947; 1994 - $159,750) $154,827 $183,016 LIABILITIES AND PLAN EQUITY Liabilities - - Plan Equity $154,827 $183,016
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY Year Year Ended Ended December 31, December 31, 1995 1994 Dividend income $4,584 $3,213 Administrative expenses (216) (149) Net dividend income 4,368 3,064 Realized loss on investments (4,344) (421) Unrealized appreciation (depreciation) in investments (68,425) 23,994 Participant contributions 61,465 68,905 Participant distributions (21,253) (25,626) -------- -------- Net increase (decrease) in plan equity (28,189) 69,916 Plan equity at beginning of period 183,016 113,100 --------- --------- Plan equity at end of period $154,827 $183,016
NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF THE PLAN The following description of the General Housewares Corp. Employee Stock Purchase Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. ELIGIBILITY All full time employees of General Housewares Corp. (the Company) who have completed three months of service will be eligible to participate and be a participant in the Plan at the beginning of the next calendar quarter subsequent to their completion of three months of service. STOCK PURCHASES First Chicago Trust Company of New York, the Custodian for the Plan, will purchase the Company's common stock either (1) in the open market, (2) from an employee desiring to dispose of his/her shares pursuant to the Plan or (3) from the Company. The Company will pay all brokerage fees on all purchases of common stock under the Plan. The price at which shares of common stock will be purchased will be the lesser of: (a) 90% of the market value of the common stock on the first business day of the applicable calendar quarter, or (b) 90% of the market value of the common stock on the last business day of such calendar quarter. The number of shares of common stock that will generally be purchased in each calendar quarter will be equal to the amount of payroll deductions made during such quarter plus any accumulated dividends divided by the purchase price of the common stock. Dividend reinvestments are subject to a 5% administration fee paid by the Plan. WITHDRAWALS An employee may withdraw part or all of his/her account balance at any time by giving written notice to the Plan. PARTICIPANT ACCOUNTS A stock purchase account shall be maintained by the Custodian in the name of each participant. Authorized payroll deductions shall be held by the Company and credited to the participant's stock purchase account at the end of each calendar quarter. Interest will not accrue or be paid on available funds or any other cash held in a participant's stock purchase account. All dividends paid on Company's common stock held in a participant's stock purchase account shall be used to purchase additional shares of the Company's common stock. 2. SUMMARY OF ACCOUNTING POLICIES Quoted market prices are used to value investments. 3. INVESTMENTS At December 31, 1995 and 1994 investments were comprised of 17,951 and 13,073 shares, respectively, of General Housewares Corp. Common Stock. The closing market price on December 31, 1995 and 1994 was $8.625 and $14 per share, respectively. Net unrealized appreciation (depreciation) of investments was $(68,425) and $23,994 in 1995 and 1994, respectively. Realized gain (loss) for 1995 and 1994 is calculated as follows:
Year Ended Year Ended Dec. 31, 1995 Dec. 31, 1994 Cost (using FIFO basis) $27,378 $24,800 Unrealized appreciation (depreciation) recognized in prior years (1,781) (1,247) ------- ------- 25,597 26,047 Sales proceeds 21,253 25,626 ------- ------- Realized loss recognized in current year ($4,344) ($421)
4. FEDERAL INCOME TAXES The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code. As a result, participants are not subject to any tax at the time of the purchase of the Company's common stock at a discount. A favorable letter of determination has not been requested or obtained from the Internal Revenue Service. -----END PRIVACY-ENHANCED MESSAGE-----