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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER 333-57099
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WKI HOLDING COMPANY, INC.
(Registrant)
DELAWARE 16-1403318
(State of incorporation) (I.R.S. Employer Identification No.)
ONE PYREX PLACE, P.O. BOX 1555, ELMIRA, 14902-1555
NEW YORK
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: 607-377-8000
Securities registered pursuant to Section 12 (b) of the Act: None
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 and (2) has been subject to the filing
requirements for at least 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 any information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
67,397,028 shares of WKI Holding Company, Inc.'s, $0.01 Par Value, were
outstanding as of April 13, 2001.
Documents incorporated by reference in this annual report--See the Exhibit
index in Item 14.
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PART I
ITEM 1--BUSINESS
GENERAL
WKI Holding Company, Inc. (the Company or WKI), is a leading manufacturer
and marketer of housewares, including bakeware, dinnerware, rangetop cookware,
kitchen and household products, cutlery and precision cutting tools. The Company
believes that its brands, including Corningware-Registered Trademark-,
Pyrex-Registered Trademark-, Corelle-Registered Trademark-, Revere
Ware-Registered Trademark-, Visions-Registered Trademark-,
EKCO-Registered Trademark-, Via-Registered Trademark-, Baker's
Secret-Registered Trademark-, Chicago Cutlery-Registered Trademark-,
OLO-Registered Trademark-, OXO-Registered Trademark- and Grilla
Gear-Registered Trademark- constitute one of the broadest and best recognized
collection of brands in the housewares industry.
The Company's business began as an unincorporated division of Corning
Incorporated (Corning) in 1915 with the invention of the heat-resistant glass
that has become known as Pyrex-Registered Trademark- glassware. In 1958, Corning
introduced Corningware-Registered Trademark- bakeware, a versatile glass-ceramic
cookware product evolved from materials originally developed for a U.S.
ballistic missile program. Corelle-Registered Trademark- dinnerware, a
proprietary three-layer, two-glass product with high mechanical strength
properties and designed for everyday use was launched in 1970.
Visions-Registered Trademark- cookware, a lower cost, clear glass-ceramic
cookware line was introduced in 1982. In 1988 Corning supplemented its cookware
product lines with the acquisition of the Revere business, which distributes
stainless steel and aluminum cookware and rangetop products known as Revere
Ware-Registered Trademark-.
The Company was formed in 1991 when Corning, in an effort to expand the
international sales of its consumer products, entered into a joint venture with
Vitro S.A., the leading glass manufacturer in Mexico. In connection with that
joint venture (which was unwound in 1993 when it did not achieve its strategic
and financial objectives), Corning contributed or licensed to the Company
substantially all of its assets used in Corning's consumer products business. In
November 1994, Corning and the Company sold their European, Russian, Middle
Eastern and African consumer products businesses to Newell, a significant
competitor of the Company. Currently Newell serves as the exclusive distributor
for certain of the Company's products in the stated regions. These sales
represent less than 1% of the Company's net sales in 2000.
On March 2, 1998, Corning, the Company, Borden, Inc. (Borden), and CCPC
Acquisition Corp. (CCPC Acquisition) entered into a Recapitalization Agreement
pursuant to which on April 1, 1998 (Closing Date) CCPC Acquisition acquired 92%
of the outstanding shares of common stock, par value $0.01 per share of WKI from
Corning for $110.4 million (Recapitalization). The stock acquisition was
financed by an equity investment in CCPC Acquisition by BW Holding LLC, an
affiliate of Kohlberg, Kravis Roberts & Co., L.P. (KKR), the parent company of
Borden and CCPC Acquisition. Pursuant to the Recapitalization, WKI paid a cash
dividend to Corning of $472.6 million prior to the consummation of the
Recapitalization. On July 10, 1998, post-closing adjustments to the cash
dividend were agreed upon by WKI and Corning, and the Company distributed
$10.2 million to Corning. As a result of the Recapitalization, Corning continues
to hold 2.8% of the outstanding shares of common stock of WKI.
In 1999, the Company initiated a plan to restructure its manufacturing and
supply organization as part of a program designed to reduce costs through the
elimination of under-utilized capacity, unprofitable product lines and increased
utilization of the remaining facilities. The restructuring included the
discontinuation of the commercial tableware product line and closure of the
related portion of the Company's manufacturing facility in Charleroi,
Pennsylvania. Additionally, the Company has discontinued manufacturing and
distributing rangetop cookware at its facility in Clinton, Illinois. The supply
of rangetop cookware is being sourced from third party manufacturers.
In addition, in 1999, the Company completed the acquisition of EKCO
Group, Inc. effective September 13,1999 (EKCO) and General Housewares Corp.
(GHC) on October 21, 1999 in two separate transactions. The acquisitions were
accounted for under the purchase method of accounting.
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The results of operations of the acquired companies have been included in
results of operations for the Company from their dates of acquisition.
The EKCO transaction was closed by the Company on October 24, 1999 following
EKCO's initial purchase by CCPC Acquisition Corp (the Company's parent), on
September 13, 1999. Throughout this filing the Company's purchase is considered
to have occurred on September 13, 1999. The Company acquired EKCO for
approximately $239 million, including the assumption of debt, transaction fees
and a purchase price adjustment. The Company financed this acquisition through
the issuance of $150 million in common stock to the Company's parent and a short
term borrowing from an affiliate of the Company's parent.
EKCO is a manufacturer and marketer of branded consumer products. EKCO's
products include household items such as bakeware, kitchen and household tools,
cleaning products, brooms, brushes and mops. The Company exited its cleaning
product line in 2000.
The Company acquired GHC for approximately $159 million, including the
repayment of debt and transaction fees. The Company financed the acquisition
through the issuance of $50 million Junior Cumulative Preferred Stock to Borden
and additional borrowings under the Company's existing credit facilities.
GHC manufactures and markets consumer durable goods with principal lines of
business consisting of kitchen and household tools, precision cutting tools,
kitchen cutlery and cookware.
During 2000, the Company dedicated extensive resources to the integration of
the acquired businesses of EKCO and GHC. The integration included the
consolidation of acquired distribution facilities into a new 700,000 square foot
distribution center in Monee, Illinois, redesigning the Company's
enterprise-wide computer system to accommodate the acquired facilities and new
business lines, combining sales, marketing, finance, executive administration,
human resources and information technology efforts. By the end of 2000, most
integration activities were complete. The integration process contributed to the
Company's substantial indebtedness in 2000, and for the period ended
December 31, 2000, the Company failed to satisfy certain covenants under its
existing credit facility.
In order to meet its funding requirements and comply with its financial
covenants in the senior credit facility, the Company amended and restated its
senior credit facility effective April 12, 2001 (the Amended and Restated Credit
Agreement) and, has extended its $40.0 million short-term line of credit from
Borden until the date 91 days after the perfection of the collateral under the
Amended and Restated Credit Agreement after which Borden will provide to the
Company a $25.0 million revolving credit facility. These actions have resulted
in an additional $50.0 million in long-term financing commitments, which expire
on March 30, 2004. The Amended and Restated Credit Agreement also waived the
financial covenants for the quarter ended December 31, 2000 and amended the
future financial covenants beginning March 31, 2001. (See Item 7--Management's
Discussion and Analysis).
In addition, in April 2001, the Company announced a restructuring of certain
manufacturing and distribution operations led by the Company's new President and
Chief Executive Officer, Steven G. Lamb.
Mr. Lamb joined the Company in January 2001, bringing to the Company his
extensive experience in acquisition integration, supply chain optimization,
operational restructurings, customer focus and continuous improvement.
PRODUCTS
The Company's products are sold primarily in the bakeware, dinnerware,
rangetop cookware, kitchen and household tools, cleaning products, cutlery and
precision cutting tools categories under
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core brand names. The following table sets forth the sales of the Company's
products in their primary categories from 1998 through 2000.
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
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2000 1999 (4) 1998
-------- -------- --------
NET SALES (1)
Bakeware.................................................... $286,278 $234,889 $202,649
Dinnerware.................................................. 174,692 178,598 182,938
Kitchen/Household Tools..................................... 138,666 36,013 --
Rangetop Cookware........................................... 102,380 99,349 103,231
Cutlery..................................................... 32,678 10,091 --
Precision Cutting Tools..................................... 21,202 3,684 --
Cleaning Products (2)....................................... 13,834 6,674 --
Other (3)................................................... 57,851 64,236 54,623
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Total....................................................... $827,581 $633,534 $543,441
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(1) Certain 1999 and 1998 amounts have been reclassified to conform with 2000
presentation. In addition, net sales have been reclassified to exclude
shipping and handling costs in accordance with newly issued accounting
standards. The impact of this change increased net sales by $22.1 million,
$16.0 million and $10.4 million for the years ended December 2000, 1999 and
1998, respectively. (See Note 2 to the financial statements.)
(2) Product line was exited in 2000.
(3) "Other" sales include selected kitchen accessories manufactured by third
parties, which are principally sold through the Company-operated factory
stores.
(4) Reflects net sales for EKCO and GHC from September 13, 1999 and October 21,
1999, respectively.
BAKEWARE
CORNINGWARE-Registered Trademark-. Corningware-Registered Trademark-
cookware was introduced in 1958 as the cookware that "does it all," going from
freezer to oven to stovetop to refrigerator to table. This versatility results
from the Corningware-Registered Trademark- manufacturing process, which creates
a glass-ceramic material with high resistance to thermal shock. This
glass-ceramic material was originally fabricated for missile nose cones due to
its ability to withstand thermal extremes. Corningware-Registered Trademark-
products are available in a variety of sizes and shapes including round, oval,
square and rectangle. They are appropriate for microwaving as well as serving.
Glass and plastic covers are included with the following product lines:
Corningware-Registered Trademark- French White-TM-,
Corningware-Registered Trademark- Classics-TM- and
Corningware-Registered Trademark- Pop-Ins-TM-.
PYREX-Registered Trademark-. Pyrex-Registered Trademark- products are made
of borosilicate and tempered soda lime glass and are available in a number of
colors, shapes and sizes for a variety of cooking functions. The Company's
Pyrex-Registered Trademark- products comprise six sub-brands:
Pyrex-Registered Trademark- Bakeware, Pyrex-Registered Trademark- Prepware,
Pyrex-Registered Trademark- Storage, Pyrex-Registered Trademark- Storage
Deluxe-TM-, Pyrex-Registered Trademark- Portables-Registered Trademark- and
Pyrex-Registered Trademark- Servware.
EKCO-REGISTERED TRADEMARK-. EKCO-Registered Trademark- products consist of
a broad line of uncoated bakeware products including cookie sheets, muffin tins,
brownie pans, loaf pans and similar items.
BAKER'S SECRET-Registered Trademark-. Baker's Secret-Registered Trademark-
products consist of a broad line of non-stick coated and insulated "no burn"
bakeware items.
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FARBERWARE-Registered Trademark-. Farberware-Registered Trademark- brand
name products consist of non-stick coated and uncoated bakeware items, which are
sourced and sold under a sublicense with Meyer Marketing Co. Ltd.
CUISINART-Registered Trademark-. Cuisinart-Registered Trademark- brand name
products consist of premium non-stick coated bakeware items, which are sourced
and sold under a license with Conair Corporation.
VIA-Registered Trademark-. Via-Registered Trademark- products include
baking equipment such as cooling racks, cookie cutter sets and cast aluminum
ovenware.
DINNERWARE
CORELLE-Registered Trademark-. Corelle-Registered Trademark-, the Company's
dinnerware product line developed in 1971, is produced using a proprietary
manufacturing process. This manufacturing process combines three layers of glass
and allows the Company to manufacture a dinnerware that is durable and
break/chip resistant, as well as light, thin and stackable.
OTHER DINNERWARE. Corelle-Registered Trademark- cups and mugs are produced
in a process which involves pressing and glazing the shapes.
The Company also manufactures a glass tableware product through a pressing
process that is sold in similar channels as the Corelle-Registered Trademark-
line. Corelle-Registered Trademark- mugs are also produced from a glass ceramic
substrate through a pressing process to yield a durable and aesthetically
pleasing product.
RANGETOP COOKWARE
REVERE WARE-Registered Trademark-. The Company's Revere
Ware-Registered Trademark- brand products include stainless steel, hard anodized
and aluminum non-stick cookware that is sourced from global manufacturers.
The Company's Revere Ware-Registered Trademark- stainless steel cookware
products are comprised of a number of lines including the traditional
Revere-Registered Trademark- Copper Clad-TM- and TriPly Bottom-TM-,
Revere-Registered Trademark- Copper Cuisine-TM-, Revere-Registered Trademark-
Chef's Supreme-TM-, Revere-Registered Trademark- Gourmet Solutions-TM-and
ProLine-TM- by Revere-Registered Trademark- sub brands. Certain
Revere-Registered Trademark- Gourmet Solutions-TM- products feature patented
double pour spouts and colander covers for convenient pouring and straining.
ProLine-TM- by Revere-Registered Trademark- Cookware is a professional quality,
stainless steel product which competes at higher price points. Other
Revere-Registered Trademark- product lines include: ProLine Limited-TM- by
Revere-Registered Trademark-, which features hard anodized aluminum exteriors,
stainless steel interiors and glass lids; Revere-Registered Trademark- Chef's
Preference-TM-, Revere-Registered Trademark- Liberation-TM-, and
Revere-Registered Trademark- Culinary Advantage-TM- which all include non-stick
aluminum construction, pour spouts and straining lids; and Ultra Glide-TM- by
Revere-Registered Trademark- which is a line of non-stick aluminum skillets.
EKCO-Registered Trademark-. EKCO-Registered Trademark- brand products
include stainless steel and aluminum cookware that is made by other
manufacturers. The Company's EKCO-Registered Trademark- brand of stainless steel
products are comprised of the EKCO-Registered Trademark- Endura-TM-, the
EKCO-Registered Trademark- Enterna-Registered Trademark- line,
EKCO-Registered Trademark- Copperelle-TM- and EKCO-Registered Trademark-. The
Company's EKCO-Registered Trademark- brand of non-stick aluminum products are
comprised of the EKCO-Registered Trademark- Resolutions-TM- line, the
EKCO-Registered Trademark- Radiance-TM- line and the EKCO-Registered Trademark-
Generations-TM- line. The EKCO product lines are marketed through all channels
of distribution.
VISIONS-Registered Trademark-. Introduced in the United States in 1982,
Visions-Registered Trademark- products are made with a translucent pyroceram
material that allows customers to see what they are cooking. The Company manages
Visions-Registered Trademark- as a specialty line focused on promotional
programs and markets Visions-Registered Trademark- products in areas where
water-based cooking and simmering are relevant to a market's or community's
culture.
KITCHEN AND HOUSEHOLD TOOLS
EKCO-Registered Trademark- AND VIA-Registered Trademark-. The Company
markets and sells a broad line of kitchenware products which it sources from
third parties, including the following: kitchen tools and gadgets such as
spoons, spatulas,
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ladles and other cooking accessories, and peelers, corkscrews, whisks, can
openers and similar items, marketed under the EKCO-Registered Trademark-, EKCO
PRO-TM-, Baker's Secret-Registered Trademark- and Via-Registered Trademark-
trademarks; stainless steel and porcelain-on-steel kettles and carafes under the
EKCO-Registered Trademark- and Via-Registered Trademark- trademarks; cookware
under the EKCO-Registered Trademark- trademark; and more than 130 tools, gadgets
and bakeware items under the Cuisinart-Registered Trademark- brand name, which
is licensed from Conair Corporation. The Company also markets stainless steel
flatware, mixing bowls and colanders. The Company markets more than 1000
kitchenware items, including multiple colors of the same item and various
packaging combinations particularly in its line of kitchen tools and gadgets,
using what the Company believes to be one of the most extensive merchandising
and promotional programs in the industry. The program employs a "good, better,
best" strategy, which the Company feels, clearly defines packaging and product
design. EKCO-Registered Trademark- products are classified as good, EKCO PRO
products (including the sub-brands, Fresh Catch and Barworks) are classified as
better and Softsides-TM- products are classified as best.
OXO-Registered Trademark-. The Company markets a broad line of kitchen and
household tools under the OXO Good Grips-Registered Trademark-, OXO
Softworks-TM-, OXO Touchables-TM- and OXO Basics-TM- brand names. The OXO brand
products are developed in the United States and produced by Original Equipment
Manufacturers (OEM) in Asia according to WKI's specifications. WKI has been
expanding its assortment of OXO brand products from kitchen tools to household
cleaning tools, gardening tools, hand tools and automotive cleaning tools. Many
of the kitchen/household tools sold by WKI under the OXO brand utilize a
proprietary handle which is covered by patents owned by the Company that run
through December 2007. OXO brand products are distributed primarily in the
United States through department stores, gourmet and specialty outlets and mass
merchants.
GRILLA GEAR-Registered Trademark-. Grilla Gear is a line of barbecue tools
and accessories under the Grilla Gear-TM- brand. This product line consists of
high quality, design-oriented products related to outdoor dining and home
entertainment, such as grilling tools, aprons, mitts, timers, magnets, etc.
CLEANING PRODUCTS
EKCO-Registered Trademark- AND CLEAN RESULTS-Registered Trademark-. The
Company marketed a line of cleaning products for home use, including brooms,
brushes and mops, marketed under the EKCO-Registered Trademark- and Clean
Results-Registered Trademark- trademarks. The Company exited the product line in
2000.
CUTLERY
CHICAGO CUTLERY-Registered Trademark-. The Company markets under the Chicago
Cutlery-Registered Trademark- brand, fifteen retail product lines and three
commercial product lines. Eight of these product lines, including the commercial
lines, are manufactured in the Wauconda, Illinois manufacturing facility and
feature the exclusive Taper Grind-Registered Trademark- edge for maximum
sharpness. These knives, individually crafted by hand, are made with special
high-carbon stainless steel making them easy to re-sharpen and better able to
maintain a sharp edge. The Company's Chicago Cutlery-Registered Trademark-
product lines include Walnut Tradition-TM--Registered Trademark-, 440A-TM-,
Legacy-TM-, Precedent-TM-, American Pride-TM-, Cherrywood-TM-, Walnut
Forged-TM-, Basics-TM-, Performa-TM-, Premier-TM-, Paradigm-TM-, Essentials-TM-,
Classic Chef-TM-, American Carver-TM-, and Chef's Professional-TM-. Commercial
product lines marketed to the meat and poultry processing industries include
Chicago Blue-TM-, Straight Molded-TM- and Biocurve-TM-lines.
REGENT SHEFFIELD-REGISTERED TRADEMARK-. Regent
Sheffield-Registered Trademark- and Wiltshire-Registered Trademark- are licensed
brand names from Regent Sheffield LTD and McPherson's LTD for distribution in
the United States, South America and Canada. The product lines are positioned
up-market and distributed to both traditional retail and department stores trade
channels. All product lines except for Infinity Edge and Titanium Edge, are
manufactured in Asia. The Company markets under the Regent
Sheffield-Registered Trademark- name in the United States and South America and
the Wiltshire-Registered Trademark- and Regent Sheffield-Registered Trademark-
names in Canada. The Company markets nine complete lines of knives for
consumers. The Company's Regent Sheffield-Registered Trademark- and
Wiltshire-Registered Trademark- product lines
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include Laser-TM-, Classic Series, StaySharp-TM-, SoftSides-TM-, Titanium
Edge-TM-, Forged, Forged Commercial, Infinity Edge-TM- and Forme-TM-.
PRECISION CUTTING TOOLS
OLFA. The Company and OLFA Corporation of Osaka, Japan, executed a ten-year
agreement naming the Company's OLFA Products Group as the exclusive distributor,
in the United States and Canada, of precision cutting tools and accessories
manufactured by OLFA Corporation. The agreement expires in 2004. The Company
believes that relations with OLFA Corporation are strong and that a long-term
relationship will continue. Products of the OLFA Products Group are sold to
industrial users, and through distributors as well as directly to hobby, craft,
hardware and fabric stores.
OLO. The OLO business consists of rolling scissors and carton openers. The
OLO products are manufactured domestically by a third party and are purchased as
finished goods by the Company. OLO products are sold to industrial users, and
distributors as well as directly to hobby, craft, hardware and fabric stores.
OTHER
ACCESSORIES. The Company's "Other" sales include selected kitchen
accessories manufactured by third parties. These products are sold primarily in
the Company--operated factory stores.
NEW PRODUCT DEVELOPMENT
New products are developed using a disciplined development process adopted
by the Company. This process is designed to reduce the risk associated with new
product development projects through the early assessment of a product's market
viability, and to compress product development cycle time through the use of the
Company's proprietary design and modeling software. This new product development
process leverages the Company's extensive qualitative and quantitative research
knowledge and has reduced development time, focused resources on projects with
high market potential and decreased large expenditures on product concepts with
low market viability.
MARKETING AND DISTRIBUTION
The Company's products are sold in the United States and in over 60 foreign
countries. In the United States (which accounted for approximately 80% of the
Company's net sales in 2000), the Company sells both on a wholesale basis to
retailers, distributors and other accounts that resell the Company's products
and on a retail basis through Company-operated outlet stores.
DOMESTIC WHOLESALE
In the United States, the Company sells to approximately 2,800 customers
made up primarily of mass merchants, department stores and specialty retailers,
as well as through other channels, including retail food stores, hardware
stores, drug stores and catalog showrooms.
DOMESTIC RETAIL
The Company operates 170 outlet stores in 40 states, located primarily in
outlet malls. The Company's outlet stores, which carry an extensive range of the
Company's products, enable the Company to participate in broader distribution
and to profitably sell slower-moving inventory. The Company believes that its
outlet stores, which also sell complementary kitchen accessories, have developed
marketing and pricing strategies that generate sales which supplement, rather
than compete with, its wholesale customers. The Company-operated outlet stores
also promote and strengthen the
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Company's brands, enabling the Company to provide customers a broader assortment
of products beyond those that are commonly stocked by third party retailers.
INTERNATIONAL
The Company's 60-person international sales force, together with localized
distribution and marketing capabilities, have allowed the Company to become an
established marketer of bakeware and dinnerware in Canada, Korea, Australia,
Japan, Singapore, Taiwan, Hong Kong, Mexico, Brazil, and the United Kingdom. In
addition to the direct sales forces, products are exported from the United
States through distributors and agents who provide marketing support to
supermarkets, mass merchandising stores, specialty stores and department stores.
EUROPEAN, RUSSIAN, MIDDLE EASTERN AND AFRICAN CONSUMER PRODUCTS BUSINESS
In November 1994, Corning and the Company sold to Newell all of the
outstanding stock of Corning Consumer Limited (CC Limited), Corning Consumer
GmbH (CC GmbH) and Corning Consumer S.A (CCSA), subsidiaries of Corning and the
Company through which the Company's consumer products business was conducted in
Europe, Russia, the Middle East, and Africa (collectively, the Territory).
Corning and the Company granted to Newell, CC Limited, CC GmbH and CCSA the
exclusive right to use certain trademarks within the Territory. Newell has the
exclusive right to use the Pyrex-Registered Trademark- and Visions trademarks
within the Territory.
CUSTOMER SERVICE: SALES AND MARKETING SUPPORT
Management believes that service is a key part of the Company's product
offering. The close relationships and frequent contact with large customers
provide the Company with sales opportunities and application ideas. The Company,
through its sales team, provides its customers with sales and marketing support.
In addition, as of October 1999, the Company contracted its consumer information
center responsibilities with Modern Marketing Concepts, Inc. Modern Marketing
Concepts, Inc. has a team dedicated to the Company's business that responds to
consumer complaints, product liability claims, warranty claims, rebate programs,
store referrals and special order fulfillment offers.
SALES
The Company's domestic customers are served by a combination of Company
salespeople and independent, commissioned representatives. The Company's top 100
accounts are serviced by the Company's direct sales force teams, each consisting
of four or five salespeople which are organized (i) by account, for the
Company's most significant customers and (ii) by four channel teams, focusing on
department stores, specialty stores, regional mass merchandisers, and clubs,
hardware and food/ continuity. The teams are directly accountable for revenues,
allowances and promotional spending. The Company's sales teams dedicate their
primary focus to the largest customers. Members of the sales teams regularly
call on the Company's customers to develop an in-depth understanding of each
customer's competitive environment and opportunities. Smaller wholesale accounts
are serviced by approximately 40 independent, commissioned sales
representatives. The Company's 60-person international sales force, with
personnel located in twelve countries, work with local retailers and
distributors to optimize product assortment, consumer promotions and advertising
for local preferences.
MARKETING SUPPORT
The Company provides its customers with extensive marketing support. The
Company conducts extensive research on housewares industry trends, including
consumer color and design preferences.
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COMPETITION
The market for the Company's products is highly competitive and the
housewares industry is trending toward consolidation. Competition in the United
States is affected not only by domestic manufacturers but also by the large
volume of foreign imports. Recently the Company has experienced increased
competition in the U.S. from low-cost Far-Eastern competitors and expects this
trend to continue in the future. The market for housewares outside the U.S. and
Europe is relatively fragmented and differs by country and region.
Internationally, depending on the country or region, the Company competes with
other U.S. companies operating abroad, locally manufactured goods and
international companies competing in the worldwide bakeware, dinnerware and
rangetop cookware categories.
A number of factors affect competition in the sale of the Company's
products, including, but not limited to quality, price competition and price
point parameters established by the Company's various distribution channels.
Shelf space is a key factor in determining retail sales of bakeware, dinnerware
and rangetop cookware products. A competitor that is able to maintain or
increase the amount of retail space allocated to its product may gain a
competitive advantage for that product. In addition, new product introductions
are an important factor in the categories in which the Company's products
compete. Other important competitive factors are brand identification, style,
design, packaging and the level of service provided to customers.
The Company has, from time to time, experienced price and market share
pressure from certain competitors in certain product lines, particularly in the
bakeware category where metal products of competitors have created retailer
price and margin pressures, and in the rangetop cookware category where
non-stick aluminum products have increased their share of rangetop cookware
sales at the expense of stainless steel products due to the durability and ease
of cleaning of new non-stick coatings.
The importance of these competitive factors varies from customer to customer
and from product to product.
CUSTOMERS
In the United States, the Company sells to approximately 2,800 customers
made up primarily of mass merchants, department stores and specialty retailers,
as well as through other channels, including retail food stores, hardware
stores, drug stores, catalog showrooms and its Company-operated factory stores.
In 2000, 1999 and 1998, one customer, Wal-Mart Stores, Inc. accounted for
approximately 15%, 16% and 15%, respectively, of the Company's gross sales.
MANUFACTURING AND RAW MATERIALS
Sand, soda ash, borax, limestone, lithia-containing spars, alumina, cullet,
stainless steel, plastic compounds, hardwood products, tin plate steel-copper
and corrugated packaging materials are the principal raw materials used by the
Company. The Company purchases its raw materials on the spot market and through
long-term contracts with suppliers. All of these materials are available from
various suppliers and the Company is not limited to any single supplier for any
of these materials. Management believes that adequate quantities of these
materials are and will continue to be available from various suppliers. The
Company's molded plastic products and certain components of its kitchenware and
household tools products are manufactured from plastic resin, which is produced
from petroleum-based raw materials. Plastic resin prices may fluctuate as a
result of changes in natural gas and crude oil prices and the capacity, supply
and demand for resin and the petrochemical intermediates from which it is
produced. The Company sources certain products from third party suppliers. The
Company believes that alternative sources of supply at competitive prices are
available from other manufacturers of substantially identical products.
9
The melting units operated by the Company require either electric or natural
gas energy input. Back-up procedures and systems to replace the primary source
of these energy inputs are in place in each of the Company's relevant
facilities. Ongoing programs exist within each of the Company's glass melting
facilities to reduce energy consumption. Furthermore, rates for electric and
natural gas energy have been fixed contractually in many of the Company's plants
to avoid the negative impact of market fluctuations in prices. The Company does
not engage in any hedging activities for commodity trading relating to its
supply of raw materials.
However, the replacement of certain raw material suppliers has in the past,
and may in the future, have an adverse effect on the Company's operations and
financial performance and significant increases in the cost of any of the
principal raw materials used by the Company could have a material adverse effect
on its results of operations.
PATENTS AND TRADEMARKS
The Company owns numerous United States and foreign trademarks and trade
names and has applications for the registration of trademarks and trade names
pending in the United States and abroad. The Company's most significant owned
trademarks and/or trade names include Corelle-Registered Trademark-,
Revere-Registered Trademark-, Revere Ware-Registered Trademark-,
Visions-Registered Trademark-, EKCO-Registered Trademark-, Baker's
Secret-Registered Trademark-, Via-Registered Trademark-, Good
Grips-Registered Trademark- and OXO-Registered Trademark-. Other significant
trademarks used by the Company are Corningware-Registered Trademark-,
Pyrex-Registered Trademark- Chicago Cutlery-Registered Trademark-,
Farberware-Registered Trademark-, Regent Sheffield-Registered Trademark-,
Wiltshire-Registered Trademark-, OLO-Registered Trademark-, and Grilla
Gear-Registered Trademark-. Upon the consummation of the Recapitalization on
April 1, 1998, Corning granted to the Company fully paid, royalty-free licenses
to use the Corningware-Registered Trademark- trademark, servicemark and
tradename and the Pyroceram-Registered Trademark- trademark in the field of
housewares and to use the Pyrex-Registered Trademark- trademark in the fields of
housewares and durable consumer products. These licenses are exclusive licenses,
subject to the prior exclusive licenses granted to Newell and certain of its
subsidiaries and provide for renewable ten-year terms, which the Company may
renew indefinitely. In addition, in connection with the Recapitalization, the
Company entered into an agreement with Corning under which the Company is
licensed to continue to use "Corning" in connection with the Company's business
until April 1, 2001 (or up to five years in the case of certain molds used in
the manufacturing process). The Company has extended this license for one year,
expiring April 1, 2002, as it relates to the use of the name "Corning Revere
Factory Stores".
The Company also owns and has the exclusive right to use numerous United
States and foreign patents, and has patent applications pending in the United
States and abroad. In addition to its patent portfolio, the Company possesses a
wide array of un-patented proprietary technology and knowledge. The Company also
licenses certain intellectual property rights to or from third parties.
Concurrent with the Recapitalization, Corning granted to the Company a fully
paid, royalty-free license of patents and know-how (including evolutionary
improvements) owned by Corning that pertain to or have been used in the
Company's business. Furthermore, the Company and Corning entered into a
five-year technology support agreement (renewable at the option of the Company
for an additional five years), pursuant to which Corning will provide to the
Company (at the Company's option) engineering, manufacturing technology, and
research and development services, among others, at Corning's standard internal
rates.
The Company believes that its patents, trademarks, trade names, service
marks and other proprietary rights are important to the development and conduct
of its business and the marketing of its products. As such, the Company
vigorously protects its intellectual property rights.
10
ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to certain federal,
state, local and foreign laws and regulations relating to environmental
protection and human health and safety, including those governing wastewater
discharges, air emissions, and the use, generation, storage, treatment,
transportation and disposal of hazardous and non-hazardous materials and wastes
and the remediation of contamination associated with such disposal. Because of
the nature of its business, the Company has incurred, and will continue to
incur, capital and operating expenditures and other costs in complying with and
resolving liabilities under such laws and regulations.
Certain of the Company's facilities have lengthy manufacturing histories
and, over such time, have used or generated and disposed of substances, which
are or may be considered hazardous. Pursuant to the terms and conditions of the
Recapitalization, Corning has agreed to indemnify the Company for certain costs
and expenses that may be incurred in the future by the Company arising from
pre-Recapitalization environmental events, conditions or matters and as to which
notice is provided within specified time periods. Corning has agreed to
indemnify the Company for (i) 80% of such costs and expenses up to an aggregate
of $20.0 million and (ii) 100% of such costs and expenses in excess of
$20.0 million. The indemnification agreement expires on April 1, 2005.
The Company is also aware that at several EKCO facilities, hazardous
substances and/or oil have been detected and that additional investigation will
be and remedial action will or may be required. American Home Products, the
prior owner of two locations, has provided indemnification to EKCO for pre-1984
conditions at those sites. The Company is also aware that three former GHC
facilities are involved with private parties and state agencies in the review
and evaluation, or remediation, of identified environmental contamination
problems.
In addition, in 1999 the Ohio Environmental Protection Agency (Ohio EPA)
notified the Company that its Massillon, Ohio manufacturing facility was in
violation of certain federal and state clean air act regulations. In
December 2000, the Company submitted a proposal listing pollution control
alternatives for review by the state. The proposal is currently under review.
Should the Company be required to implement the control regulations proposed by
the Ohio EPA, the Company estimates the cost of certain capital improvements to
be approximately $1.2 million.
Accruals for environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated. Environmental accruals are routinely reviewed on an interim basis.
The Company has accrued approximately $2 million at December 31, 2000 for
probable environmental remediation and restoration liabilities. This is
management's best estimate of these liabilities. Based on currently available
information and analysis, the Company believes that it is reasonably possible
that costs associated with such liabilities may exceed current reserves by
amounts that may prove insignificant, or by amounts, in the aggregate, of up to
approximately $2 million.
GOVERNMENTAL REGULATIONS
The Company is subject to various federal, state and local laws affecting
its business, including various environmental, health, fire and safety
standards. See "Environmental Matters." The Company is also subject to the Fair
Labor Standards Act and various state laws governing such matters as minimum
wage requirements, overtime and other working conditions and citizenship
requirements. The Company believes that its operations are in material
compliance with applicable laws and regulations.
EMPLOYEES
At December 31, 2000, the Company had approximately 5,200 employees,
approximately one-third of which were covered by collective bargaining
agreements. The agreement with the International
11
Association of Machinists, which affects approximately 185 employees, expires
September 29, 2001. All other collective bargaining agreements expire after
December 31, 2002.
OTHER
Additional information in response to Item 1 is found in Item 6, Five-Year
Selected Financial Data, appearing on page 15, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations, appearing on
pages 16 through 31, and Note 13 to the Consolidated Financial Statements
appearing on pages 56 through 58.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed below,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report, including without
limitation, in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in the Company's related press releases and in oral
statements made by authorized officers of the Company. When used in this report,
any press release or oral statement, the words "looking forward," "estimate,"
"project," "anticipate," "expect," "intend," "believe" and similar expressions
are intended to identify a forward-looking statement. Forward-looking statements
are not guarantees of future performance and are subject to risks, uncertainties
and other factors (many of which are beyond the Company's control) that could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. The forward-looking statements
regarding such matters are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. Whether actual results and
developments will conform with the Company's expectations and predictions,
however, is subject to a number of risks and uncertainties, in addition to the
risk factors discussed above, including: integration of the Company's
acquisitions of General Housewares Corp. and EKCO Group, Inc.; Company's ability
to comply with the terms of its existing credit facilities; a global economic
slowdown in any one, or all, of the Company's sales categories; loss of sales as
the Company streamlines and focuses on strategic accounts; unpredictable
difficulties or delays in the development of new product programs; increasing
reliance on third party manufacturers, increased difficulties in obtaining a
consistent supply of basic raw materials such as sand, soda ash, steel or copper
and energy inputs such as electrical power or natural gas at stable pricing
levels; development by the Company of an adequate administrative infrastructure;
technological shifts away from the Company's technologies and core competencies;
unforeseen interruptions to the Company's business with its largest customers
resulting from, but not limited to, financial instabilities or inventory
excesses; the effects of extreme changes in monetary and fiscal policies in the
United States and abroad, including extreme currency fluctuations and unforeseen
inflationary pressures such as those recently experienced by certain Asian
economies; drastic and unforeseen price pressures on the Company's products or
significant cost increases that cannot be recovered through price increases or
productivity improvements; significant changes in interest rates or in the
availability of financing for the Company or certain of its customers; loss of
any material intellectual property rights; any difficulties in obtaining or
retaining the management or other human resource competencies that the Company
needs to achieve its business objectives; and other factors, many of which are
beyond the control of the Company. Consequently, all of the forward-looking
statements made in this Form 10-K are qualified by these cautionary statements,
and there can be no assurance that the actual results or developments
anticipated by the Company will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on the Company and
its subsidiaries or their business or operations.
12
ITEM 2--PROPERTIES
WKI utilizes six primary manufacturing facilities (five in the United States
and one outside of the United States) and ten principal packaging and
distribution centers (four in the United States and six outside of the United
States). The Company's facilities are generally well maintained.
The table below summarizes certain data for each of the Company's principal
properties, including its manufacturing and distribution facilities:
FACILITY
-----------------------
LOCATION (1) PRIMARY USE SQ. FEET OWN/LEASE
- ------------ ------------------------------------- --------- -----------
DOMESTIC:
Bolingbrook, Illinois Distribution/Warehouse 260,000 Leased
Charleroi, Pennsylvania Manufacturing 585,710 Own
Clinton, Illinois (2) Dormant 660,000 Own
Corning, New York Manufacturing 434,000 Own/Leased
Elmira, New York Corporate Offices 60,000 Leased
Franklin Park, Illinois Administrative 150,000 Leased
Greencastle, Pennsylvania Distribution 1,365,500 Own/Leased
Hamilton, Ohio (3) Dormant 100,000 Leased
Indianapolis, Indiana Distribution/Warehouse 131,000 Leased
Martinsburg, West Virginia (4) Manufacturing 451,000 Own
Massillon, Ohio Manufacturing 230,000 Own
Monee, Illinois Distribution/Warehouse 700,000 Leased
Monroe, Ohio (5) Dormant 158,000 Leased
New York, New York Administrative 25,000 Leased
Terre Haute, Indiana Administrative 20,000 Leased
Wauconda, Illinois Manufacturing 69,400 Own/Leased
Waynesboro, Virginia (4) Distribution 88,000 Own
INTERNATIONAL:
Chepstow, Gwent, U.K. Administrative/Warehouse/Distribution 35,000 Leased
Johor, Malaysia (6) Manufacturing/Distribution 58,000 Own
Johor, Malaysia Warehouse 68,672 Own/Leased
Mexico City, Mexico Administrative 500 Leased
Niagara Falls, Ontario, Canada Administrative/Warehouse/Distribution 122,000 Own
Niagara Falls, Ontario, Canada Distribution 66,000 Leased
Sao Paulo, Brazil Distribution 2,000 Leased
Seoul, Korea Administrative 6,000 Leased
Singapore Administrative/Warehouse 16,440 Leased
St. Laurent, Quebec, Canada Administrative/Warehouse 36,000 Leased
Sydney, Australia Distribution 70,000 Leased
Taipei, Taiwan Administrative 1,313 Leased
Tokyo, Japan Administrative 2,000 Leased
- ------------------------
(1) In addition, the Company leases 880,426 sq. ft. of retail space in
approximately 170 factory outlet malls with initial lease terms ranging from
3 to 7 years.
(2) The Company closed this facility during 1999 and expects to sell it during
2001.
(3) The Company expects to sell this property in 2001.
(4) The Company announced that the facility will be closing in early 2002.
(5) The Company is currently subleasing a portion of this facility to a third
party.
(6) The building housing the Malaysia facility is owned by CIM, a subsidiary
that is 80% owned by the Company. The land on which the facility is located
is leased pursuant to a 60-year lease expiring in 2048.
13
ITEM 3--LEGAL PROCEEDINGS
LITIGATION
There are no pending legal proceedings, which are material in relation to
the consolidated financial statements of WKI.
WKI has been engaged in, and will continue to be engaged in, the defense of
product liability claims related to its products, particularly its bakeware and
cookware product lines. The Company maintains product liability coverage,
subject to certain deductibles and maximum coverage levels that the Company
believes is adequate and in accordance with industry standards.
In addition to product liability claims, from time to time the Company is
involved in various legal actions in the ordinary course of business. The
Company is not currently involved in any legal actions, which in the belief of
management could have a material adverse impact on the Company's financial
statements.
ENVIRONMENTAL MATTERS
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters relating to the
generation or handling of hazardous substances by the Company or its
predecessors, and the Company has incurred obligations for investigations or
remedial actions with respect to certain of these matters. The Company does not
believe that any such claims asserted or obligations incurred to date will
result in a material adverse effect upon the Company's financial position,
results of operations or liquidity. The Company has accrued approximately
$2 million at December 31, 2000 for probable environmental remediation and
restoration liabilities. This is management's best estimate of these
liabilities. Based on currently available information and analysis, the Company
believes that it is reasonably possible that costs associated with such
liabilities may exceed current reserves by amounts that may prove insignificant,
or by amounts, in the aggregate, of up to approximately $2 million. There can be
no assurance that activities at these or any other facilities or future
facilities may not result in additional environmental claims being asserted
against the Company or additional investigations or remedial actions being
required.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual Shareholders Meeting was held April 25, 2000. The
Company's Board of Directors was elected in its entirety by unanimous vote of
the Company's shareholders.
PART II
ITEM 5--MARKET FOR THE REGISTRANTS' COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's authorized common stock consists of 80,000,000 shares with a
par value of $0.01 per share, 67,397,028 of which were issued and outstanding at
December 31, 2000 and controlled by affiliates of KKR. No shares of such common
stock trade on any exchange. No dividends were declared on common stock during
2000.
14
ITEM 6--SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY OF OPERATIONS
Net sales (1)........................ $ 827,581 $ 633,534 $ 543,441 $ 584,538 $ 647,173
(Loss) income before extraordinary
charge (1) (2)..................... (150,088) (28,058) (33,312) 13,694 3,122
Net (loss) income applicable to
common stock (1) (2)............... (163,472) (40,099) (36,094) 13,694 3,122
----------- ----------- ----------- ----------- -----------
Net (loss) income from before
extraordinary charge per common
share (1) (2)...................... $ (2.45) $ (1.08) $ (1.50) $ 0.57 $ 0.13
Net (loss) income per common share
(1) (2)............................ (2.45) (1.29) (1.50) 0.57 0.13
Preferred dividends per preferred
share.............................. $ 4.18 $ 3.68 $ 2.32 $ N/A $ N/A
----------- ----------- ----------- ----------- -----------
Average number of common shares
outstanding during the year (3).... 66,827,488 31,142,857 24,000,000 24,000,000 24,000,000
----------- ----------- ----------- ----------- -----------
CASH FLOW INFORMATION
EBITDA (1) (2) (4)................... $ 25,098 $ 7,434 $ 35,016 $ 70,910 $ 55,900
Adjusted EBITDA (1) (5).............. 71,781 85,575 68,654 70,910 58,046
Cash flow from operating
activities......................... (46,141) (32,396) 58,841 67,419 55,566
Cash flow from investing
activities......................... (58,424) (421,509) (23,237) (26,208) (35,629)
Cash flow from financing
activities......................... 104,110 453,216 (30,892) (44,957) (22,500)
FINANCIAL POSITION
Total assets......................... $ 929,220 $ 979,679 $ 495,259 $ 480,623 $ 512,768
Long-term debt....................... 766,528 669,253 433,656 8,285 13,474
- ------------------------
(1) (Loss) income, EBITDA, Adjusted EBITDA and per share data for 1997 and 1996,
have been reclassified to reflect the change from LIFO to FIFO method of
accounting for inventories. The reclassification increased (decreased)
earnings by $1,502, and ($3,256) for 1997 and 1996, respectively. In
addition, net sales have been reclassified to exclude shipping and handling
costs in accordance with newly issued accounting standards. The impact of
this change increased net sales by $22.1 million, $16.0 million and
$10.4 million for the years ended December 2000, 1999 and 1998, respectively
(see Note 2 in the financial statements).
(2) Includes integration and transaction related expenses of $26,643, $9,157 and
$28,866 in 2000, 1999 and 1998 respectively, and restructuring costs of
$68,984, $4,772 and $2,146 in 1999, 1998 and 1996.
(3) Share data for 1996 and 1997 reflect the 24,000-for-1 stock split in
March 1998.
(4) EBITDA represents operating income (loss) plus depreciation and
amortization. EBITDA is presented because management understands that such
information is considered by certain investors to be an additional basis for
evaluating the Company's ability to pay interest and repay debt. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income, as a measure of the Company's operating results and
cash flows or as a measure of the Company's
15
ITEM 6--SELECTED FINANCIAL DATA (CONTINUED)
liquidity. Because all companies do not calculate EBITDA identically, the
presentation herein may not be comparable to other similarly titled measures
of other companies.
(5) Adjusted EBITDA represents EBITDA less restructuring costs, integration and
transaction related expenses, and provision for closeout of inventories.
Adjusted EBITDA is calculated for 2000 through 1996 below.
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
EBITDA......................... $25,098 $ 7,434 $35,016 $70,910 $55,900
Restructuring cost
(see Note 13)................ -- 68,984 4,772 -- 2,146
Integration and transaction
related expenses (see Note
13).......................... 26,643 9,157 28,866 -- --
Provision for close-out of
inventories.................. 20,040 -- -- -- --
------- ------- ------- ------- -------
Adjusted EBITDA.............. $71,781 $85,575 $68,654 $70,910 $58,046
======= ======= ======= ======= =======
ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere herein.
BACKGROUND
WKI Holding Company Inc. (WKI or the Company) is a leading manufacturer and
marketer of bakeware, rangetop cookware, kitchen and household tools, tabletop
dinnerware, cutlery, and precision cutting tools. The Company has strong
positions in major channels of distribution for its products in North America
and has also achieved a significant presence in certain international markets,
primarily Asia, Australia, Latin America and the United Kingdom. In North
America the Company sells both on a wholesale basis to retailers, distributors
and other accounts that resell the Company's products, and on a retail basis,
through Company-operated factory stores. In the international market the Company
has established its presence on a wholesale basis through an international sales
force along with localized distribution and marketing capabilities.
In the first quarter of 1999, the Company initiated a plan to restructure
its manufacturing and supply organization as part of a program designed to
reduce costs through the elimination of under-utilized capacity, unprofitable
product lines and increased utilization of the Company's remaining facilities.
The Company recorded a $69.0 million charge in 1999 for this restructuring.
Effective September 13, 1999 and October 21, 1999 the Company acquired the
outstanding stock of the EKCO Group Inc. (EKCO) and General Housewares
Corporation (GHC), respectively. The acquisitions were accounted for under the
purchase method of accounting. Accordingly, the respective purchase prices have
been allocated to the assets acquired and liabilities assumed based on the fair
value at the date of acquisition. The financial statements include the results
of EKCO's and GHC's operations from the respective dates of these acquisitions.
The allocation of purchase price for EKCO and GHC was finalized in 2000. The
Company acquired EKCO for approximately $239 million, including the assumption
of debt, transaction fees and the purchase price adjustment (see Note 4 to the
Consolidated Financial Statements). The Company financed this acquisition
through the issuance of $150 million in common stock to CCPC Acquisition Corp.
(the Company's Parent) and borrowings under the Company's existing credit
facility. The Company acquired GHC for approximately
16
ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
$159 million, including the repayment of debt, transaction fees and contingent
consideration. The Company financed the acquisition through the issuance of
$50 million in cumulative junior preferred stock to an affiliate of the
Company's Parent, an additional $100 million tranche of term loans and
additional borrowings under the Company's existing revolving credit facilities.
The Company had cash outlays of approximately $60.0 million during 2000 relating
to the integration of the EKCO and GHC businesses into the Company. The cash
outlays include approximately $19.7 million of capital expenditures relating to
systems implementation and a new distribution center, approximately
$14.4 million of severance and other employee compensation arrangements,
approximately $10.9 million in charges relating to the systems implementation
and the start-up of the new distribution center and $15.0 million relating to
other integration costs.
The Company has incurred substantial losses applicable to common shares in
each of the last three years, has had negative cash flow from operations in each
of the last two years, and has a stockholders' deficit at December 31, 2000.
These losses and cash flow deficiencies reflect interest expenses on substantial
indebtedness, adjustments to deferred tax asset valuations as a result of the
cumulative losses incurred, integration and transaction related expenses
resulting from the 1999 acquisitions of EKCO and GHC and the 1998
Recapitalization from Corning, issues arising from the 1999 enterprise-wide
systems implementation and consolidation of distribution centers, restructuring
programs, and a weak U.S. economy in the fourth quarter of 2000.
The Company's outstanding borrowings have increased substantially over the
last three years principally in connection with funding the Recapitalization,
financing and completing the integration of its recent acquisitions, funding net
losses, servicing debt obligations, and funding capital expenditures. In order
to meet its funding requirements and comply with its financial covenants in the
senior credit facility, the Company amended and restated its senior credit
facility effective April 12, 2001 (the Amended and Restated Credit Agreement)
and, has extended its $40.0 million short-term line of credit from Borden until
the date 91 days after the perfection of the collateral under the Amended and
Restated Credit Agreement after which Borden will provide to the Company a
$25.0 million revolving credit facility. These actions have resulted in an
additional $50.0 million in long-term financing commitments, which expire on
March 30, 2004. The Amended and Restated Credit Agreement also waived the
financial covenants for the quarter ended December 31, 2000 and amended the
future financial covenants beginning March 31, 2001. (See page 25 Liquidity and
Capital Resources).
On January 18, 2001 the Company announced Steven G Lamb as its new President
and Chief Executive Officer. Mr. Lamb's strong customer focus and operating
results orientation, coupled with his experience in acquisition integration,
supply chain optimization, operational restructurings and continuous improvement
led to the management change.
On March 28, 2001, the WKI Board of Directors approved a plan to restructure
several aspects of the Company's manufacturing and distribution operations, a
measure that will result in a restructuring charge of approximately $35 million
in 2001, approximately $16 million of such charges will be for cash items over
the life of the plan. It is also likely that additional restructuring actions
and charges will be taken in 2001 as the Company completes its transformation
The current program includes three major components; (i) exit from
manufacturing at the Martinsburg, West Virginia facility for the
CorningWare-Registered Trademark- and Visions-Registered Trademark- product
lines and secure alternative sources of production by the end of the first
quarter 2002, (ii) consolidation of distribution operations at Waynesboro,
Virginia into World Kitchen's existing distribution centers at Monee, Illinois
and Greencastle, Pennsylvania by the end of the first quarter 2002 and
(iii) significant restructuring of metal bakeware manufacturing at Massillon,
Ohio.
17
ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Management is continuing to evaluate the necessity of additional
restructuring measures on top of the measures described above.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
% OF NET % OF NET % OF NET
2000 SALES 1999 SALES 1998 SALES
--------- -------- -------- -------- -------- --------
($ IN THOUSANDS)
Net Sales........................... $ 827,581 100.0% $633,534 100.0% $543,441 100.0%
Cost of sales....................... 601,460 72.7 424,370 67.0 360,326 66.3
--------- ------ -------- ------ -------- ------
Gross Profit........................ 226,121 27.3 209,164 33.0 183,115 33.7
Selling, general and administrative
expense........................... 210,630 25.5 160,857 25.4 146,927 27.0
Provision for restructuring costs... -- -- 68,984 10.9 4,772 0.9
Integration and transaction related
expenses.......................... 26,643 3.2 9,157 1.4 28,866 5.3
Other expense (income), net......... 12,237 1.5 (2,870) (0.5) 926 0.2
--------- ------ -------- ------ -------- ------
Operating (loss) income............. (23,389) (2.8) (26,964) (4.3) 1,624 0.3
Interest expense.................... 74,981 9.1 48,136 7.6 34,290 6.3
--------- ------ -------- ------ -------- ------
Loss before taxes on income......... (98,370) (11.9) (75,100) (11.9) (32,666) (6.0)
Income tax expense (benefit)........ 51,456 6.2 (47,254) (7.5) 947 0.2
--------- ------ -------- ------ -------- ------
Loss before minority interest....... (149,826) (18.1) (27,846) (4.4) (33,613) (6.2)
Minority interest in losses
(earnings) of subsidiary.......... (262) -- (212) -- 301 0.1
--------- ------ -------- ------ -------- ------
Net loss before extraordinary
charge............................ $(150,088) (18.1) $(28,058) (4.4) $(33,312) (6.1)
Early extinguishments of debt....... -- -- (6,393) (1.0) -- --
--------- ------ -------- ------ -------- ------
Net loss............................ $(150,088) (18.1)% $(34,451) (5.4)% $(33,312) (6.1)%
========= ====== ======== ====== ======== ======
EBITDA.............................. $ 25,098 3.0% $ 7,434 1.2% $ 35,016 6.4%
--------- ------ -------- ------ -------- ------
Restructuring....................... -- 68,984 4,772
Integration and transaction related
expenses.......................... 26,643 9,157 28,866
Provision for close-out
inventories....................... 20,040 -- --
--------- ------ -------- ------ -------- ------
Adjusted EBITDA..................... $ 71,781 8.7% $ 85,575 13.5% $ 68,654 12.6%
========= ====== ======== ====== ======== ======
18
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
NET SALES
PRO FORMA
YEAR ENDED YEAR ENDED
2000 1999 $ CHANGE % CHANGE
---------- ---------- -------- --------
(IN THOUSANDS)
U.S. trade, excluding OXO....................... $445,281 $473,498 $(28,217) (6.0)%
Company-operated factory stores................. 146,246 153,350 (7,104) (4.6)
International, excluding Canada................. 94,268 90,839 3,429 3.8
Canada.......................................... 75,260 71,458 3,802 5.3
OXO............................................. 66,526 56,881 9,645 17.0
-------- -------- -------- -----
$827,581 $846,026 $(18,445) (2.2)%
======== ======== ======== =====
On a pro forma basis, assuming the acquisitions of EKCO and GHC occurred on
January 1, 1999, net sales decreased $18.4 million to $827.6 million in 2000
from $846.0 million in 1999. Decreases in net sales in the Company's U.S. trade
channel and Company-operated factory stores were partially offset by increases
in net sales of its OXO brand and international sales.
U.S. TRADE, EXCLUDING OXO
2000 net sales for U.S. trade, excluding OXO, were $445.3 million,
representing a $28.2 million or 6.0% decrease from 1999 pro forma U.S. trade net
sales of $473.5 million. Successful new product introductions most notably
Pyrex-Registered Trademark- Storage Deluxe-TM-, were offset by the following
factors. Approximately $12 million of the reduction is attributable to the
Company's exit of its cleaning products and commercial tableware businesses in
2000 and 1999, respectively. Additionally, the Company's
Corelle-Registered Trademark- products experienced a loss of shelf space with
certain key customers leading to a reduction in sales of approximately
$12 million. Also, the Company experienced pricing pressures, particularly in
EKCO-Registered Trademark-, which led to a decrease of sales of approximately
$4 million. A weak U.S. economy in the fourth quarter of 2000 also contributed
to the decline.
COMPANY-OPERATED FACTORY STORES
2000 net sales for the Company-operated factory stores were $146.2 million
representing a $7.1 million or 4.6% decrease from 1999 pro forma net sales of
$153.4 million. The decline in net sales was the result of a number of factors.
During 2000, the Company closed several under performing stores. In addition,
the Company experienced supply shortages in two product lines:
Corelle-Registered Trademark- and Revere-Registered Trademark-. As a result of
these constraints, the Company made a decision to prioritize shipping capacity
in favor of third party customers rather than Company-operated factory stores.
During 2001, the Company plans to close additional stores and remerchandize
all of its remaining stores in an effort to improve its value proposition and
increase customer traffic.
INTERNATIONAL, EXCLUDING CANADA
2000 net sales for the Company's international operations excluding Canada
were $94.3 million, a $3.4 million or 3.8% increase over 1999 pro forma net
sales of $90.8 million as improvements in sales in Asia offset declines in Latin
America and Europe. Net sales in Asia increased $11.2 million or 24.5% as a
result of two factors. First, the Company has benefited from the recent
improvements in Asian economies. Asian results have steadily improved since the
late 1998 currency crisis in Asia. Second, in 1999 and early in 2000, Asian
sales also suffered from the same Corelle-Registered Trademark- supply
constraint and disruptions in 1999 related to the implementation of an
enterprise-wide computer system noted
19
above. Increased product availability has led to the recovery. The increase in
Asian net sales was partially offset by an $8.9 million or 27.0% reduction in
net sales primarily in Latin America and Europe. The reduction is principally
attributable to the Company redefining its international distribution strategies
in Mexico and Europe. The Company is at an early stage in this process and sales
have temporarily decreased as the Company exits some distribution relationships
as a result of this change in strategy.
CANADA
2000 net sales in Canada were $75.3 million, representing a $3.8 million or
5.3% increase over 1999 pro forma net sales of $71.5 million. Sales of
kitchenware, cutlery and precision cutting tools product lines outpaced the
reduction in cleaning product line sales. The integration of two Canadian
distribution centers into one allowed the Company to grow its business by better
servicing its customers by offering additional product lines throughout Canada
which had previously been offered in only certain regions.
OXO
OXO brand net sales in 2000 were $66.5 million, a $9.6 million, or 17.0%,
increase over 1999 pro forma net sales of $56.9 million. The growth was fueled
by the introduction of new lines of OXO brand stainless steel kitchen tools, a
hardware line and a MV Cutlery line utilizing OXO's Good Grips technology, which
together contributed $10.5 million to year-to-date gross sales.
GROSS PROFIT
Gross profit for the year ended December 31, 2000 was $226.1 million, or
27.3% of net sales, compared to gross profit during the same period in 1999 of
$209.2 million, or 33.0% of net sales. The fluctuation is primarily attributable
to inventory close out programs resulting in a $20.1 million charge,
$9.0 million in distribution and manufacturing-related costs which were not
capitalized into inventory due to their non-recurring nature, start-up
operational inefficiencies relating to a new distribution center and pricing
pressures experienced with certain EKCO-Registered Trademark- products.
The Company, as part of an overall plan to increase cash flow and reduce
warehousing costs, discontinued a significant number of its stock-keeping units
(SKU's) throughout all of its product lines. Additionally, the Company also
accumulated a significant amount of excess inventories in certain of the
Company's active SKU's which it intends to liquidate in 2001. The Company
recorded a provision amounting to $17.2 million, or 2.1% of net sales to adjust
inventory to the lower of cost or market.
Also in 2000, the Company closed out a significant portion of the remaining
inventories of its discontinued cleaning product line as part of an overall plan
to exit its cleaning product line. This resulted in a $2.9 million charge to
reduce the inventory to market value, which was recorded in the second quarter
of 2000.
Distribution costs, included in cost of sales, also increased as a
percentage of net sales as a result of higher inventory levels, operational
inefficiencies, start up costs and higher operating costs primarily at the
Company's Greencastle, Pennsylvania and Monee, Illinois distribution centers. In
the third quarter of 2000, the Company consolidated all of the EKCO domestic
distribution centers into one center in Monee. The Monee facility experienced
operational inefficiencies in the third quarter of 2000, which required
additional shifts, temporary labor costs and professional services needed to
meet shipping requirements. In July 1999, the Company experienced difficulties
implementing a new enterprise-wide computer system at Greencastle. The
distribution inefficiencies resulting from the implementation of the new
computer system together with higher fuel costs and higher levels of finished
goods inventory resulted in higher distribution costs as a percentage of sales.
20
Additionally, the Company's gross margin, primarily with its EKCO products,
declined as a result of pricing pressures from competitors. The Company has
lowered its selling prices on certain of these products in order to remain
competitive with these brands. The lower sales prices have resulted in decreased
margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $210.6 million for the
year ended December 31, 2000, an increase of $49.7 million over selling, general
and administrative expenses for the comparable period in 1999 of $160.9 million
primarily as a result of the acquisition of the EKCO and GHC businesses. As a
percentage of net sales, 2000 selling, general and administrative expenses were
25.5% compared to 25.4% in 1999. Synergies realized from the integration of the
EKCO and GHC businesses into the Company were offset by increases in brand
development expenses and expenses associated with severance and benefit-related
expenses for former WKI employees.
Through the Company's efforts to integrate EKCO and GHC into WKI's
operations, the Company has been able to gain administrative efficiencies
primarily from combining sales and marketing operations and consolidating
certain other operations, including finance, executive administration and
information technology. The synergy savings were more than offset by expenses
arising from the Company's continued emphasis and associated expenditures on new
product development, product introductions and extensions of existing products.
Costs offsetting these synergies in 2000 included advertising expenses
associated with new product launches and brand revitalization projects. The
Company's product development process enhances the Company's ability to bring
new products to market quickly and successfully and to extend existing product
categories. The Company demonstrated this in 2000 with the successful
introductions of Pyrex-Registered Trademark- Storage Deluxe-TM- and new lines of
OXO-Registered Trademark- brand stainless steel kitchen tools, hardware and
automotive accessories. In addition, the Company supported existing products
with an advertising campaign focused on revitalizing
Corningware-Registered Trademark-. Finally, the Company incurred expenses
associated with severance and benefit-related expenses in the third and fourth
quarters of 2000.
RESTRUCTURING
In 1999, the Company recorded a $69.0 million charge related to the
restructuring of the Company's manufacturing and supply organization, which was
designed to reduce costs through the elimination of under-utilized capacity and
unprofitable product lines.
INTEGRATION AND TRANSACTION RELATED EXPENSES
Integration and transaction related expenses consist of cash and non-cash
charges related to the integration of EKCO's and GHC's operations into those of
the Company. Integration related expenses were $26.6 million in 2000. These
expenses primarily consist of systems implementation costs, employee
compensation arrangements and other benefits (such as severance, retention,
out-placement, etc.), consulting services and other integration costs.
Integration and transaction related expenses were $9.2 million in 1999.
These expenses primarily consist of legal fees, accounting and tax services,
employee compensation arrangements and other benefits, facility consolidation
and other integration costs.
OTHER
Other operating expense was $12.2 million in 2000 compared to income of
$2.9 million in 1999. The $15.1 million change is primarily due to the
amortization of trademarks, patents and goodwill resulting from the acquisitions
of EKCO and GHC. In addition, royalty expenses increased as a result
21
of pre-existing royalty agreements in the newly acquired EKCO business. The 1999
income included a $3.5 million state grant that the Company did not receive in
2000.
INTEREST
2000 interest expense increased $26.9 million to $75.0 million from
$48.1 million for the comparable period in 1999. The increase is primarily
attributable to higher debt levels related to the acquisitions of EKCO and GHC
late in 1999 and an increase in variable rate interest costs.
INCOME TAXES
As a result of the factors noted above, the Company has cumulative losses
over the three most recent years ended December 31, 2000. The Company cannot
conclude that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the net deferred tax assets.
As a result, the Company increased its valuation allowance by $48.9 million to
fully reserve deferred tax assets. In addition, the Company has suspended
recognizing additional deferred tax benefits until more conclusive evidence
exists to support its recognition.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
NET SALES
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
1999 1998 $ CHANGE % CHANGE
---------- ---------- -------- ---------
(IN THOUSANDS)
U.S. trade, excluding OXO......................... $473,498 $522,278 $(48,780) (9.3)%
Company-operated factory stores................... 153,350 175,707 (22,357) (12.7)
International, excluding Canada................... 90,839 82,681 8,158 9.9
Canada............................................ 71,458 69,521 1,937 2.8
OXO............................................... 56,881 37,743 19,138 50.7
-------- -------- -------- -----
$846,026 $887,930 $(41,904) (4.7)%
======== ======== ======== =====
On a pro forma basis, assuming the acquisitions of EKCO and GHC occurred on
January 1, 1998, net sales decreased $41.9 million to $846.0 million in 1999
from $887.9 million in 1998. Decreases in the Company's U.S. trade channel and
Company-operated factory stores were partially offset by increases in its OXO
brand and international sales.
U.S. TRADE, EXCLUDING OXO
1999 pro forma net sales for U. S. trade, excluding OXO, were
$473.5 million, a $48.8 million or 9.3% decrease over 1998. In July 1999, the
Company implemented an enterprise-wide computer system. The Company experienced
difficulties implementing the computer system at its Greencastle, Pennsylvania
assembly and distribution center. As a result, significant inefficiencies were
experienced and the volume of shipments, across all the Company's channels of
business, were substantially curtailed in July and to a lesser degree in August.
Management has addressed the shipping issues and believes that it has
re-established shipping capabilities to pre-implementation levels. The shipping
problems also resulted in significant unplanned sales allowances in the fourth
quarter of 1999. In addition, in 1999 the Company exited its commercial
tableware product line accounting for $6.5 million of the decrease from 1998.
22
COMPANY-OPERATED FACTORY STORES
1999 pro forma net sales for the Company-operated factory stores were
$153.4 million, representing a $22.4 million or 12.7% decrease from 1998 pro
forma sales of $175.7 million. The factory store performance was driven by two
factors. During 1999, the Company experienced supply constraints with two
product lines, Corelle, due to strong U.S. wholesale sales and a faster than
anticipated recovery in international sales, and Revere, due to transitional
issues associated with transferring production to a third party supplier. The
Company also encountered difficulties in implementing a new enterprise-wide
computer system, which restricted its ability to ship. As a result of these
factors, the Company made a decision to prioritize shipping capacity in favor of
third party customers rather than the Company-operated factory stores. Thus, the
factory stores experienced severe out of stock conditions.
INTERNATIONAL, EXCLUDING CANADA
1999 pro forma net sales for the Company's international operations
excluding Canada and the OXO brand were $90.8 million, an $8.2 million or 9.9%
increase over 1998 pro forma net sales of $82.7 million. Despite the supply
constraints noted above, 1999 net sales in Asia far exceeded 1998. 1999 net
sales to Asia were $45.7 million, an increase of $16.9 million over 1998 net
sales of $28.8 million. The significant improvement resulted primarily from the
recovery of the Asian economies. The successful introduction of new Corelle
patterns and new distribution channels for Corningware also contributed to the
increased sales. Partially offsetting this was an $8.9 million reduction in pro
forma net sales, primarily in Latin America. The reduction is also attributable
to supply issues noted above and the economic weakness of the Latin America
economy.
CANADA
1999 pro forma net sales in Canada, excluding the OXO brand were
$71.5 million, representing a $2.0 million or 2.8% increase over 1998 pro forma
net sales of $69.5 million. The growth is entirely attributable to a strong
performance by its OLFA precision cutting tool product line.
OXO
OXO brand pro forma net sales in 1999 were $56.9 million, a $19.1 million or
50.7% increase over 1998 pro forma net sales of $37.7 million. The exceptional
growth in the brand was a result of numerous new product introductions utilizing
the Good Grips technology.
GROSS PROFIT
Gross profit for 1999 was $209.2 million or 33.0% of net sales, compared to
the 1998 gross profit of $183.1 million or 33.7% of net sales. The decreased
margin as a percentage of sales is primarily attributable to the significant
reduction in higher margin factory store sales. As noted above, shipping and
supply issues limited the amount of product allocated to the factory stores
resulting in a substantial decrease in 1999 sales when compared to 1998. The
shipping issues also resulted in service costs during the third and fourth
quarters of 1999. The Company added additional shifts in its distribution center
to re-establish the Company's ability to ship orders at pre-systems
implementation levels. Unplanned sales allowances in the fourth quarter of 1999
also depressed gross margin percentages in 1999. The incremental costs were
partially offset by improved manufacturing efficiencies and cost reductions
achieved through the manufacturing rationalization announced in the first
quarter of 1999 and discussed below.
23
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $160.9 million in 1999, an
increase of $14.0 million over the 1998 selling, general and administrative
expenses of $146.9 million. The recently acquired EKCO and GHC businesses
contributed $17.2 million to this increase and Year 2000 remediation and the
enterprise-wide system implementation added $3.6 million to the increase. This
increase was partially offset by approximately $7.0 million in savings from a
full year effect of the Company's independence from its prior owner, Corning.
Throughout 1999 the Company operated as an independent Company versus a wholly
owned subsidiary of Corning. In an independent state the Company was able to
perform many of the administrative tasks at a significantly lower cost than
previously performed by Corning.
RESTRUCTURING
In the first quarter of 1999, the Company initiated a plan to restructure
its manufacturing and supply organization as part of a program designed to
reduce costs through elimination of under-utilized capacity, unprofitable
product lines and increased utilization of the remaining facilities.
The restructuring includes the discontinuation of the commercial tableware
product line and closure of the related portion of the Company's manufacturing
facility in Charleroi, Pennsylvania. In order to optimize the utilization of the
Charleroi facility, the Company has moved Corelle cup production to its
Martinsburg, West Virginia facility and third party suppliers. In addition, the
Company terminated its supply contract with Corning's Greenville, Ohio facility
and Pyrex-Registered Trademark- production was consolidated at the Charleroi
facility. Additionally, the Company has discontinued manufacturing and
distributing rangetop cookware at its facility in Clinton, Illinois. Future
supply of rangetop cookware will be sourced from third party manufacturers.
The Company recorded a charge of $69.0 million to cover the cost of this
reorganization. The majority of the charge related to asset disposals, however,
cash charges are expected to approximate $15.2 million over the life of the
plan. In the fourth quarter of 1999, the Company reversed $7.2 million of its
original $76.2 million restructuring charge taken in the first quarter of 1999.
The reversal results from an increase in the anticipated proceeds from the idle
equipment, land and buildings and lower than expected costs associated with the
shutdown of the facility.
In 1998 restructuring reflects $4.8 million in charges relating to the
consolidation and rationalization of Asian operations and the consolidation of
U.S. and Canadian distribution facilities.
INTEGRATION AND TRANSACTION RELATED EXPENSES
Integration and transaction related expenses were $9.2 million in 1999.
These expenses primarily consist of legal fees, accounting and tax services,
employee compensation arrangements and other benefits, facility consolidation
and other integration costs.
Integration and transaction related expenses of $28.9 million recorded in
1998 were associated with the Recapitalization. These costs primarily consist of
cash and non-cash compensation, financing costs and other cash expenses.
OTHER
Other operating income was $2.9 million in 1999 compared to other operating
expense of $0.9 million in 1998. The $3.8 million increase in income is
primarily a result of a $3.5 million state grant. The remaining increase is a
result of a $2.1 million increase in royalty income partially offset by the
amortization of trademarks and goodwill resulting from the business combination.
24
INTEREST
Interest expense increased $13.8 million to $48.1 million from
$34.3 million in 1998. The increase is attributable to higher debt levels
related to the acquisitions in 1999 and the timing of the Recapitalization
related debt, which occurred on April 1, 1998.
INCOME TAX
The $47.3 million income tax benefit results from the pre-tax loss and the
reversal of a portion of the valuation reserve on the Company's deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements arise principally in connection with
financing working capital needs, servicing debt obligations, funding
manufacturing restructuring costs, financing its recent acquisitions and
completing the integration of such acquisitions, and funding capital
expenditures. In the third quarter of 2000, the Company's existing $275 million
revolving credit facility was fully utilized and the Company received a
temporary $40.0 million credit facility from Borden to meet its working capital
and liquidity requirements. The original maturity date of the Borden facility
was December 31, 2000 and was subsequently extended into April 2001. At
December 31, 2000, $6.1 was outstanding under this agreement. In addition, for
the period ended December 31, 2000, the Company failed to satisfy the levels of
debt to EBITDA and EBITDA to cash interest expense required by the financial
covenants under its credit agreement dated April 9, 1998.
In order to meet its funding requirements and comply with its financial
covenants in the senior credit facility, the Company amended and restated its
senior credit facility effective April 12, 2001 (the Amended and Restated Credit
Agreement) and, has extended its $40.0 million short-term line of credit from
Borden until the date 91 days after the perfection of the collateral under the
Amended and Restated Credit Agreement after which Borden will provide to the
Company a $25.0 million revolving credit facility. These actions have resulted
in an additional $50.0 million in long-term financing commitments, which expire
on March 30, 2004. The Amended and Restated Credit Agreement also waived the
financial covenants for the quarter ended December 31, 2000 and amended the
future financial covenants beginning March 31, 2001. In addition, the Amended
and Restated Credit Facility provides for a first priority lien on substantially
all of the Company's assets and its subsidiaries' assets; a pledge of 100% of
the stock of all of the Company's domestic subsidiaries and 65% of the stock of
certain foreign subsidiaries; increased pricing on the credit facilities; and
changes in the restrictions affecting indebtedness, investments, acquisitions,
dispositions and prepayment of subordinated indebtedness. The Company believes
that these facilities and cash generated from operations will be sufficient to
fund operations and capital expenditures.
Borden has extended its line of credit to the Company to up to $40.0 million
of revolving commitments until the date that is 91 days after the perfection of
the collateral under the Amended and Restated Credit Agreement, after which
Borden will provide to the Company a $25.0 million revolving credit facility,
maturing on March 30, 2004, and the additional $25.0 million revolving credit
facility from Senior Credit Facility Lenders will become available to the
Company. The Borden credit facility will have substantially the same terms as
the Borden facility dated as of August 25, 2000, and, in addition, will be
secured by a security interest on the Company's assets that is second in
priority behind the security interests securing the Amended and Restated Credit
Agreement.
The Company's credit facilities contain numerous financial and operating
covenants that limit the discretion of the Company's management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends and other distributions, prepay subordinated indebtedness, enter
into sale and leaseback transactions create liens or other encumbrances, make
capital expenditures, make certain
25
investments or acquisitions, engage in certain transactions with affiliates,
sell or otherwise dispose of assets and merge or consolidate with other entities
and otherwise restrict corporate activities. In addition, the credit facilities
also require the Company to meet certain financial ratios and tests, including a
minimum EBITDA, a ratio of debt to EBITDA and EBITDA to cash interest expense
(where EBITDA represents adjusted cash flow as described more fully in the
credit facilities). The credit facilities and the indenture contain customary
events of default.
The Company has incurred substantial losses applicable to common shares in
each of the last three years, has had negative cash flow from operations in each
of the last two years, and has a stockholders' deficit at December 31, 2000. The
Company's ability to fund its operations, capital expenditures and debt service
will depend upon its future financial and operation performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, some of which are beyond its control.
To address the operational issues of the Company, on March 28, 2001, the WKI
Board of Directors approved a plan to restructure several aspects of the
Company's manufacturing and distribution operations, a measure that will result
in a restructuring charge of approximately $35 million in 2001, approximately
$16 million of such charge will be for cash items over the life of the plan. See
"Background." It is also likely that additional restructuring actions and
charges will be taken in 2001 as the Company completes its transformation.
The Company had cash outlays of approximately $60.0 million during 2000
relating to the integration of the EKCO and GHC businesses into the Company. The
cash outlays include approximately $19.7 million of capital expenditures
relating to systems implementation and a new distribution center, approximately
$14.4 million of severance and other employee compensation arrangements,
approximately $10.9 million in charges relating to the systems implementation
and the start-up of the new distribution center and $15.0 million relating to
other integration costs.
The Company anticipates cash outlays of approximately $44.0 million for
capital expenditures in 2001, approximately $13 million of which is attributable
to the Company's 2001 restructuring plan.
26
ACQUISITIONS
Effective September 13, 1999 and October 21, 1999, the Company acquired the
stock of EKCO and GHC. The financial statements include the results of EKCO and
GHC operations since those dates.
The EKCO transaction was initially valued at approximately $239 million,
including the assumption of $3.4 million in 9 1/4% series B senior notes due in
2006, $2.1 million of industrial revenue bonds and other debt, transaction fees
and the purchase price adjustment (see Note 4 to the Consolidated Financial
Statements). The Company financed this acquisition through the issuance and sale
of $150 million in common stock of the Company to the Company's Parent, a loan
from an affiliate of the Company and borrowings under the Company's credit
facility. The borrowing from an affiliate to finance the acquisition of EKCO was
refinanced in 1999 using funds advanced under a new $100 million term loan
facility. The new term loan matures in 2007. Both the EKCO and GHC acquisitions
were accounted for under the purchase method of accounting. Accordingly, the
purchase prices have been allocated to the assets acquired and liabilities
assumed based on the fair values at the dates of acquisition. The Company paid
an additional contingent consideration of $10.6 million for the EKCO business in
December 2000 pursuant to an agreement with the Company's Parent relating to the
Company's parent's sale of a portion of the EKCO businesses that were not
originally sold to the Company.
The GHC transaction was valued at $159 million, including the repayment of
debt and transaction fees. The Company financed the acquisition through the
issuance of $50 million in cumulative junior preferred stock to an affiliate of
the Company's Parent and borrowings under the Company's existing revolving
credit facilities.
The purchase price allocations for EKCO and GHC have been finalized in 2000.
CASH FLOWS
2000
OPERATING ACTIVITIES
In 2000, the Company's operating activities used cash of $46.1 million
compared to $32.4 million used by operating activities in 1999. The increase of
$13.7 million is primarily attributable to an increase in interest paid and cash
spent on the integration of the EKCO and GHC businesses into the Company,
partially offset by improvements in working capital.
In June and September 2000, the Company sold $50.0 million and
$40.0 million of accounts receivable to Borden. The Company incurred
$0.8 million of costs associated with these transactions.
INVESTING ACTIVITIES
Investing activities of the Company used cash of $58.4 million in 2000
compared to cash used in investing activities of $421.5 in 1999. Cash used in
2000 and 1999 reflects the cash required to purchase the EKCO and GHC
businesses. Capital expenditures in 2000 increased by $12.1 million over 1999 as
a result of the implementation of WKI's enterprise-wide business system into the
EKCO and GHC businesses as well as the start up of a new distribution center in
Monee, Illinois.
FINANCING ACTIVITIES
Net cash provided by financing activities totaled $104.1 million in 2000
compared to $453.2 million in 1999. The decrease of $349.1 million primarily
represents the absence of long-term debt borrowings and the issuance of
preferred and common stock associated with the 1999 acquisitions of EKCO and
GHC.
27
1999
OPERATING ACTIVITIES
In 1999, the Company's operating activities used cash of $32.4 million
compared to cash generated of $58.8 million during the same period in 1998. The
decrease is primarily associated with cash charges related to the acquisitions,
including professional fees and compensation costs, cash spent on the
manufacturing consolidation and rationalization project and the implementation
of the enterprise-wide business system. In addition, cash management activities
deferred certain 1998 cash payments to 1999.
INVESTING ACTIVITIES
Investing activities used cash of $421.5 million in 1999 compared to
$23.2 million in 1998. In 1999, the Company spent $228.0 million and
$158.1 million, net of cash acquired, on the acquisitions of EKCO and GHC,
respectively. In addition, capital expenditures were $35.7 million, an increase
of $12.5 million over the 1998 total of $23.2 million. EKCO and GHC contributed
$3.8 million of capital expenditures in 1999. The remainder of the increase is
attributable to the manufacturing consolidation and rationalization project and
the implementation of the enterprise-wide computer system.
FINANCING ACTIVITIES
Cash generated from financing activities was $453.2 million in 1999 compared
to cash used of $30.9 million in 1998. The fluctuation is entirely attributable
to the acquisitions of EKCO and GHC. To finance the acquisitions, the Company
issued common stock of $150.0 million to its parent and cumulative junior
preferred stock of $50.0 million to Borden. In addition the Company added a
$100.0 million term loan to its credit facilities. The remainder of the
acquisition, approximately $88 million, was funded through borrowings on the
Company's revolving credit facility.
RESTRUCTURING
In 1999, the Company initiated a plan to restructure its manufacturing and
supply organization to reduce costs through the elimination of under-utilized
capacity, unprofitable product lines and increased utilization of the remaining
facilities. The changes improved the Company's ability to compete by opening up
diverse sources of supply both in the United States and internationally. The
1999 restructuring included the discontinuation of the commercial tableware
product line and closure of the related portion of the Company's manufacturing
facility in Charleroi, Pennsylvania. In order to improve the utilization of the
Charleroi facility the Company moved Corelle cup production to its Martinsburg,
West Virginia facility and to third party suppliers. The Company terminated its
supply contract with Corning's Greenville, Ohio facility and
Pyrex-Registered Trademark- production was consolidated at the Charleroi
facility. Additionally, the Company discontinued manufacturing and distributing
rangetop cookware and closed its manufacturing and distribution center in
Clinton, Illinois. Future supply will be sourced from third party manufacturers.
The cash and non-cash elements of the restructuring charge approximated
$18.2 million and $50.8 million, respectively. The Company has spent
$6.9 million in 2000 and $10.2 million in 1999 on the program. The remaining
$1.1 million in cash outlays will primarily be incurred in 2001.
On January 18, 2001, the Company announced Steven G. Lamb as its new
President and Chief Executive Officer. Mr. Lamb's strong customer focus and
operating results orientation, coupled with his experience in acquisition
integration, supply chain optimization, corporate restructurings and continuous
improvement led to the management change.
On March 28, 2001, the WKI Board of Directors approved a plan to restructure
several aspects of the Company's manufacturing and distribution operations, a
measure that will result in a restructuring charge of approximately $35 million
in 2001, approximately $16 million of such charge will be for cash items over
the life of the plan. It is also likely that additional restructuring actions
and charges will be taken in 2001 as the Company completes its transformation.
28
The current program includes three major components: (i) exit from
manufacturing at the Martinsburg, West Virginia facility for the
CorningWare-Registered Trademark- and Visions-Registered Trademark- product
lines and secure alternative sources of production by the end of the first
quarter 2002, (ii) consolidation of distribution operations at Waynesboro,
Virginia into World Kitchen's existing distribution centers at Monee, Illinois
and Greencastle, Pennsylvania by the end of the first quarter of 2002 and
(iii) significant restructuring of metal bakeware manufacturing at Massillon,
Ohio.
Management is continuing to evaluate the necessity of additional
restructuring measures in addition to the measures described above.
RISK MANAGEMENT
The Company primarily has market risk in the areas of foreign currency and
variable interest rate debt. The Company invoices most of its international
sales in U.S. dollars, minimizing the effect of foreign exchange gains or losses
on its earnings. As a result, the Company's foreign sales are affected by
currency fluctuations versus U.S. dollar invoicing.
Currency exchange fluctuations significantly affect the Company's foreign
sales and earnings. The increased strength of the U.S. dollar has, in 2000, and
may in future periods, increase the effective price of the Company's products
sold in U.S. dollars with the result of materially adversely affecting sales.
The Company's costs are primarily denominated in U.S. dollars. Thus, with
respect to sales conducted in foreign currencies, increased strength of the U.S.
dollar decreases the Company's reported revenues and margins with respect to
such sales to the extent the Company is unable or determines not to increase
local sales prices.
The Company reduces foreign currency cash flow exposure due to exchange rate
fluctuations by entering into forward foreign currency exchange contracts. The
use of these contracts protects cash flows against unfavorable movements in
exchange rates, to the extent of the amount under contract. At December 31,
2000, the Company had $2.6 million of notional value of forward foreign currency
exchange contracts outstanding. There is no associated unrealized gain or loss
on the contracts.
The Company enters into interest rate swaps to lower funding costs or to
alter interest rate exposures between fixed and floating rates on long-term
debt. Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed rate and floating
rate interest amounts calculated by reference to an agreed upon notional
principal amount. At December 31, 2000, the Company had a $15.0 million notional
amount interest rate swap outstanding with a fair value of $(0.2). A 1% increase
or decrease in market interest rates would result in a $0.4 million
increase/(decrease) in the fair value of the interest rate swap.
A summary of all the Company's outstanding debt follows. Fair values are
determined from quoted market prices or quoted market interest rates at
December 31, 2000 and 1999.
2000 1999 (1)
--------------------------------------- ---------------------------------------
WEIGHTED FAIR WEIGHTED FAIR
DEBT AVERAGE VALUE DEBT AVERAGE VALUE
YEAR (IN 000'S) INTEREST RATE (IN 000'S) (IN 000'S) INTEREST RATE (IN 000'S)
- ---- ---------- ------------- ---------- ---------- ------------- ----------
2001....................................... $ 9,735 11.15% $ 8,492 $ 3,615 9.3% $ 3,648
2002....................................... 3,643 8.82 2,425 3,639 8.3 3,674
2003....................................... 3,537 9.00 2,325 3,537 8.5 3,571
2004....................................... 3,150 9.73 1,959 3,152 9.1 3,186
2005....................................... 271,860 9.09 183,471 171,060 8.8 171,096
2006 and thereafter........................ 484,338 9.76 217,766 484,250 9.2 497,355
-------- -------- -------- --------
$776,263 $416,438 $669,253 $682,530
Current Maturities......................... (9,735) (8,492)
-------- --------
$766,528 $407,946
======== ========
- --------------------------
(1) December 31, 1999 amounts reflect outstanding debt for years shown.
29
RECENTLY ISSUED ACCOUNTING STANDARDS
Since June 1998, the Financial Accounting Standards Board (FASB) has issued
SFAS Nos. 133, 137 and 138 related to "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133, as amended or Statements). These Statements
establish accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. The Statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met, in which case the gains or losses would
offset the related results of the hedged item. These Statements require that, as
of the date of initial adoption, the impact of adoption be recorded as a
cumulative effect of a change in accounting principle. To the extent that these
amounts are recorded in other comprehensive income, they will be reversed into
earnings in the period in which the hedged transaction occurs.
The Company currently has freestanding derivative instruments. Management
has performed a review to identify potential derivatives embedded in other
contracts. No embedded derivatives were identified as a result of this review.
The Company adopted these statements as of January 1, 2001 with no material
impact to the Company's financial statements.
In May 2000, the Emerging Issues Task Force (EITF), a subcommittee of the
FASB, issued EITF No. 00-10 "Accounting for Shipping and Handling Fees and
Costs." EITF No. 00-10 addresses the income statement classification of shipping
and handling fees and costs. The Company historically has not billed all of it's
shipping and handling costs, and has included direct freight costs as a
deduction to net sales. The net sales and cost of sales have been reclassified
to reflect these expenses in cost of sales, consistent with the classification
of other shipping and handling related costs. The impact of this change
increased net sales and costs of sales by $22.1 million, $16.0 million and
$10.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively. There is no impact on results of operations resulting from this
change.
In 2000, the EITF issued EITF No. 00-14 "Accounting for Certain Sales
Incentives." The EITF subsequently amended the transition provisions of this
issue in November 2000 to require application no later than the fiscal quarter
beginning after March 15, 2001. EITF No. 00-14 prescribes guidance regarding
timing of recognition and income statement classifications of costs incurred for
certain sales incentive programs. This guidance requires certain coupons, rebate
offers and free products offered concurrently with a single exchange transaction
to be recognized at the later of the date at which the revenue is recorded or
the date at which the sales incentive is offered and reported as a reduction of
revenue. The Company's current accounting and classification of these amounts
are in compliance with the consensuses reached in this issue.
In January 2001, the EITF issued EITF No. 00-22, "Accounting for Points and
Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to be Delivered in The Future." EITF No. 00-22
prescribes guidance regarding timing of recognition and income statement
classification of costs incurred in connection with offers of "free" products or
services that are exercisable by an end consumer as a result of a single
exchange transaction with the retailer which will not be delivered by the vendor
until a future date. This guidance requires certain rebate offers and free
products that are delivered subsequent to a single exchange transaction to be
reported as a reduction of revenue and recognized based on systematic allocation
of the costs to the underlying revenue transactions that result in the consumer
earning the rebate or refund. The guidance in this EITF should be applied no
later than quarters ending after February 15, 2001. The Company's current
accounting and classification of these types of costs are in compliance with the
consensuses reached in this issue.
30
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed below,
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this report, including without
limitation, in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in the Company's related press releases and in oral
statements made by authorized officers of the Company. When used in this report,
any press release or oral statement, the words "looking forward," "estimate,"
"project," "anticipate," "expect," "intend," "believe" and similar expressions
are intended to identify a forward-looking statement. Forward-looking statements
are not guarantees of future performance and are subject to risks, uncertainties
and other factors (many of which are beyond the Company's control) that could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. The forward-looking statements
regarding such matters are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. Whether actual results and
developments will conform with the Company's expectations and predictions,
however, is subject to a number of risks and uncertainties, in addition to the
risk factors discussed above, including: integration of the Company's
acquisitions of General Housewares Corp. and EKCO Group, Inc.; the Company's
ability to comply with the terms of its existing credit facilities; significant
indebtedness of the Company, a global economic slowdown in any one, or all, of
the Company's sales categories; loss of sales as the Company streamlines and
focuses on strategic accounts; unpredictable difficulties or delays in the
development of new product programs; increasing reliance on third party
manufacturers, increased difficulties in obtaining a consistent supply of basic
raw materials such as sand, soda ash, steel or copper and energy inputs such as
electrical power or natural gas at stable pricing levels; development by the
Company of an adequate administrative infrastructure; technological shifts away
from the Company's technologies and core competencies; unforeseen interruptions
to the Company's business with its largest customers resulting from, but not
limited to, financial instabilities or inventory excesses; the effects of
extreme changes in monetary and fiscal policies in the United States and abroad,
including extreme currency fluctuations and unforeseen inflationary pressures
such as those recently experienced by certain Asian economies; drastic and
unforeseen price pressures on the Company's products or significant cost
increases that cannot be recovered through price increases or productivity
improvements; significant changes in interest rates or in the availability of
financing for the Company or certain of its customers; loss of any material
intellectual property rights; any difficulties in obtaining or retaining the
management or other human resource competencies that the Company needs to
achieve its business objectives; and other factors, many of which are beyond the
control of the Company. Consequently, all of the forward-looking statements made
in this Form 10-K are qualified by these cautionary statements, and there can be
no assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company and its subsidiaries or their
business or operations.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the "Risk Management" section included in Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations.
31
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WKI HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Net sales................................................ $ 827,581 $ 633,534 $ 543,441
Cost of sales............................................ 601,460 424,370 360,326
Selling, general and administrative expenses............. 210,630 160,857 146,927
Provision for restructuring costs........................ -- 68,984 4,772
Integration and transaction related expenses............. 26,643 9,157 28,866
Other expense (income), net.............................. 12,237 (2,870) 926
---------- ---------- ----------
Operating (loss) income.................................. (23,389) (26,964) 1,624
Interest expense, net.................................... 74,981 48,136 34,290
---------- ---------- ----------
Loss before taxes on income.............................. (98,370) (75,100) (32,666)
Income tax expense (benefit)............................. 51,456 (47,254) 947
---------- ---------- ----------
Loss before minority interest............................ (149,826) (27,846) (33,613)
Minority interest in losses (earnings) of subsidiary..... (262) (212) 301
---------- ---------- ----------
Net loss before extraordinary charge..................... (150,088) (28,058) (33,312)
Extraordinary charge-early extinguishments of debt, net
of $4,298 tax benefit.................................. -- (6,393) --
---------- ---------- ----------
Net loss................................................. (150,088) (34,451) (33,312)
Preferred stock dividends................................ (13,384) (5,648) (2,782)
---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON STOCK...................... $ (163,472) $ (40,099) $ (36,094)
========== ========== ==========
BASIC AND DILUTED LOSS BEFORE EXTRAORDINARY CHARGE PER
COMMON SHARE........................................... $ (2.45) $ (1.08) $ (1.50)
========== ========== ==========
BASIC AND DILUTED LOSS PER COMMON SHARE.................. $ (2.45) $ (1.29) $ (1.50)
========== ========== ==========
Weighted average number of common shares outstanding
during the period...................................... 66,827,488 31,142,857 24,000,000
The accompanying notes are an integral part of these statements.
32
WKI HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 7,913 $ 8,368
Accounts receivable, net of allowances of $25,567 in 2000
and $17,657 in 1999..................................... 146,040 141,308
Inventories:
Finished and in-process goods........................... 188,011 195,200
Raw materials and supplies.............................. 18,571 27,411
Deferred income taxes..................................... -- 25,303
Other current assets...................................... 17,017 20,816
-------- ---------
Total current assets.................................... 377,552 418,406
-------- ---------
OTHER ASSETS
Deferred income taxes..................................... -- 23,583
Other assets (net of accumulated amortization 23,399 in
2000 and $14,499 in 1999)............................... 44,032 43,495
-------- ---------
44,032 67,078
-------- ---------
PROPERTY AND EQUIPMENT
Land...................................................... 4,076 4,996
Buildings................................................. 89,789 86,873
Machinery and equipment................................... 317,250 303,949
-------- ---------
411,115 395,818
Less accumulated depreciation............................. (257,985) (241,788)
-------- ---------
153,130 154,030
-------- ---------
INTANGIBLES
Trademarks and patents (net of accumulated amortization of
$9,280 in 2000 and $3,384 in 1999)...................... 148,708 165,487
Goodwill (net of accumulated amortization of $14,373 in
2000 and $8,740 in 1999)................................ 205,798 174,678
-------- ---------
354,506 340,165
-------- ---------
TOTAL ASSETS................................................ $929,220 $ 979,679
======== =========
The accompanying notes are an integral part of these statements.
33
WKI HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 62,418 $ 56,346
Debt payable within one year.............................. 3,635 3,650
Note payable Borden....................................... 6,100 --
Other current liabilities................................. 104,085 111,800
--------- ---------
176,238 171,796
--------- ---------
OTHER LIABILITIES
Long-term debt............................................ 766,528 669,253
Non-pension post-employment benefit obligations........... 42,545 37,113
Other long-term liabilities............................... 17,041 14,134
--------- ---------
826,114 720,500
--------- ---------
MINORITY INTEREST IN SUBSIDIARY............................. 1,219 956
STOCKHOLDERS' (DEFICIT) EQUITY
Preferred Stock--5,000,000 shares authorized; 3,200,000
shares issued............................................. 91,527 88,430
Common Stock--$0.01 par value, 80,000,000 and 75,000,000
shares authorized in 2000 and 1999, respectively;
67,397,028 and 66,857,143 shares issued and outstanding in
2000 and 1999, respectively............................... 674 669
Treasury stock--280,000 shares in 2000...................... (940) --
Contributed capital......................................... 604,911 603,226
Accumulated deficit......................................... (767,584) (604,112)
Accumulated other comprehensive income...................... (2,939) (1,786)
--------- ---------
Total stockholders' (deficit) equity.................... (74,351) 86,427
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY........ $ 929,220 $ 979,679
========= =========
The accompanying notes are an integral part of these statements.
34
WKI HOLDING COMPANY, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------
CASH FLOWS (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net loss.................................................. $(150,088) $(34,451) $(33,312)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................... 48,487 34,398 33,392
Amortization of deferred financing fees................. 2,164 1,744 3,214
Minority interest in (earnings) losses of subsidiary.... 262 211 (301)
Loss on disposition of plant and equipment.............. -- -- 791
Deferred tax provision (benefit)........................ 48,886 (49,418) 2,329
Provision for restructuring costs, net of cash paid..... -- 58,800 4,281
Provision for post-retirement benefits, net of cash
paid................................................... 4,135 3,125 4,438
Provision for close-out inventories..................... 20,040 -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (4,732) (20,409) 9,920
Inventories............................................. (4,011) 3,754 1,082
Prepaid expenses and other current assets............... 3,799 (13,002) (2,202)
Accounts payable and accrued expenses................... (1,641) (6,019) 29,174
Other assets/liabilities................................ (13,442) (11,129) 6,035
--------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES..... (46,141) (32,396) 58,841
--------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment and other assets...... (47,824) (35,694) (23,237)
Acquisition of businesses, net of cash acquired........... (10,600) (385,815) --
--------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES................... (58,424) (421,509) (23,237)
--------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Issuance of long-term debt................................ -- 100,000 400,000
Borrowing on revolving credit facility, net............... 100,800 160,344 27,177
Borrowings on Borden revolving credit facility, net....... 6,100 -- --
Borrowing from affiliate.................................. -- 71,500 --
Payments to affiliate..................................... -- (71,500) --
Repayment of long-term debt, other than revolving credit
facility................................................ (3,540) (4,031) (1,806)
Interim financing......................................... -- -- 471,600
Repayment of interim financing............................ -- -- (471,600)
Dividend to Corning Incorporated.......................... -- -- (482,760)
Decrease in net amounts due to Corning Incorporated....... -- -- (87,142)
Shareholder capital contribution.......................... -- -- 100,736
Issuance of preferred stock............................... -- 50,000 30,000
Issuance of common stock and stock subscriptions.......... 1,690 150,000 240
Purchase of treasury stock................................ (940) -- --
Deferred financing fees................................... -- (3,097) (17,337)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES..... 104,110 453,216 (30,892)
--------- -------- --------
Net change in cash and cash equivalents..................... (455) (689) 4,712
Cash and cash equivalents at beginning of year.............. 8,368 9,057 4,345
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 7,913 $ 8,368 $ 9,057
========= ======== ========
SUPPLEMENTAL DATA:
Cash paid during the year for:
Income taxes, net......................................... $ 1,282 $ 4,290 $ 850
Interest.................................................. 70,662 41,099 32,860
Details of acquisition:
Fair value of assets...................................... 10,600 525,851 --
Liabilities............................................... -- 138,130 --
--------- -------- --------
Cash paid................................................. 10,600 387,721 --
Less: cash acquired....................................... -- 1,906 --
--------- -------- --------
Net cash paid for acquisitions.............................. $ 10,600 $385,815 $ --
========= ======== ========
Non-cash activity:
Net increase to deferred taxes resulting from the re-
capitalization.......................................... $ -- $ -- $ 13,471
Adjustment to postretirement liability for amounts assumed
by Corning.............................................. -- -- 31,998
Adjustment to pension liability for amounts assumed by
Corning................................................. -- -- 17,669
Adjustment to accounts payable for liabilities retained by
Corning................................................. -- -- 7,913
Preferred stock dividends................................. 13,384 5,648 2,782
Note issued for shares sold............................... 200 -- --
The accompanying notes are an integral part of these statements.
35
WKI HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
ACCUMULATED TOTAL
OTHER STOCKHOLDERS
PREFERRED COMMON TREASURY CONTRIBUTED ACCUMULATED COMPREHENSIVE (DEFICIT)
STOCK STOCK STOCK CAPITAL DEFICIT INCOME EQUITY
--------- -------- -------- ----------- ----------- ------------- ------------
Balance, December 31,
1997..................... $ -- $ -- $ -- $274,070 $ (45,159) $(1,798) $ 227,113
Net loss................... (33,312) (33,312)
Foreign currency
translation adjustment... (363) (363)
---------
Total comprehensive
income................... (33,675)
24,000-for-one stock
split....................
Issuance of preferred
stock.................... 30,000 240 (240) 30,000
Preferred stock
dividends................ 2,782 (2,782) --
Capital contribution....... 179,825 179,825
Dividend to Corning
Incorporated............. (482,760) (482,760)
------- ---- ----- -------- --------- ------- ---------
Balance, December 31,
1998..................... $32,782 $240 $ -- $453,655 $(564,013) $(2,161) $ (79,497)
Net loss................... (34,451) (34,451)
Foreign currency
translation adjustment... 375 375
---------
Total comprehensive
income................... (34,076)
Issuance of common stock... 429 149,571 150,000
Issuance of preferred
stock.................... 50,000 50,000
Preferred stock
dividends................ 5,648 (5,648) --
------- ---- ----- -------- --------- ------- ---------
Balance, December 31,
1999..................... $88,430 $669 $ -- $603,226 $(604,112) $(1,786) $ 86,427
Net loss................... (150,088) (150,088)
Foreign currency
translation adjustment... (1,153) (1,153)
---------
Total comprehensive
income................... (151,241)
Issuance of common stock... 5 1,885 1,890
Repurchase of common
stock.................... (940) (940)
Notes receivable for shares
sold..................... (200) (200)
Preferred stock
dividends................ 3,097 (13,384) (10,287)
------- ---- ----- -------- --------- ------- ---------
Balance, December 31,
2000..................... $91,527 $674 $(940) $604,911 $(767,584) $(2,939) $ (74,351)
======= ==== ===== ======== ========= ======= =========
The accompanying notes are an integral part of these statements.
36
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
WKI Holding Company, Inc. (the Company or WKI), is a leading manufacturer
and marketer of housewares, including bakeware, dinnerware, rangetop cookware,
kitchen and household products, cutlery and precision cutting tools. The Company
believes that its brands, including Corningware-Registered Trademark-,
Pyrex-Registered Trademark-, Corelle-Registered Trademark-, Revere
Ware-Registered Trademark-, Visions-Registered Trademark-,
EKCO-Registered Trademark-, Via-Registered Trademark-, Baker's
Secret-Registered Trademark-, Chicago Cutlery-Registered Trademark-,
OLO-Registered Trademark-, OXO-Registered Trademark-, Grilla
Gear-Registered Trademark-, Farberware-Registered Trademark- and
Cuisinart-Registered Trademark- constitute one of the broadest and best
recognized collection of brands in the housewares industry.
Effective September 13, 1999 and October 21, 1999, the Company acquired the
outstanding stock of EKCO Group Inc. (EKCO) and General Housewares Corp. (GHC),
respectively. The acquisitions were accounted for under the purchase method of
accounting and the 1999 financial statements include the results of EKCO's and
GHC's operations from the dates of the acquisitions (see Note 4).
The EKCO transaction closed on October 24, 1999, following EKCO's initial
purchase by CCPC Acquisition Corp. (CCPC Acquisition), the Company's parent, on
September 13, 1999.
The Company has incurred substantial losses applicable to common shares in
each of the last three years, has had negative cash flow from operations in each
of the last two years, and has a stockholders' deficit at December 31, 2000.
Additionally, the Company's outstanding borrowings have increased substantially
over the last three years principally in connection with funding the
Recapitalization, financing and completing the integration of its recent
acquisitions, funding net losses, servicing debt obligations, and funding
capital expenditures. The Company's credit facilities contain numerous financial
and operating covenants. For the period ended December 31, 2000, the Company
failed to satisfy the levels of debt to EBITDA and EBITDA to cash interest
expense required by the covenants under its credit agreement dated April 9,
1998.
To address these issues, management's plan includes entering into an amended
and restated credit agreement to provide for additional financing of $25.0
million, and to provide for a waiver of the covenant noncompliance in the fourth
quarter of 2000 (see Note 8), an extension of the line of credit with Borden to
March 30, 2004, providing for $25.0 million of financing (see Note 8), and a
restructuring of certain manufacturing and distribution operations (see
Note 15).
The Company's ability to fund its operations, capital expenditures and debt
service will depend upon its future financial and operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, some of which are beyond its control. The Company believes that
the amended credit facilities and cash generated from operations will be
sufficient to fund the Company's operations and capital expenditures.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, the
most significant of which include:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all entities
controlled by the Company. All significant intercompany accounts and
transactions are eliminated.
37
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
RECLASSIFICATIONS
Certain 1999 and 1998 amounts have been reclassified to conform with the
2000 presentation.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated at current
exchange rates and income statement accounts are translated at average exchange
rates for the year. Translation gains and losses are accumulated in a separate
component of stockholders' equity. Foreign currency transaction gains and losses
affecting cash flows are included in current earnings.
CASH EQUIVALENTS
Cash equivalents consist of government securities with original maturities
of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
The Company, as part of an overall plan to increase cash flow and reduce
warehousing costs, discontinued a significant number of its stock-keeping units
(SKU's) throughout all of its product lines. Additionally, the Company also
accumulated a significant amount of excess inventories in certain of the
Company's active SKU's which it intends to liquidate in 2001. The Company
recorded a provision estimated market value amounted to $17.2 million, or 2.1%
of net sales to adjust inventory to the lower of cost or market.
Also in 2000, the Company closed out a significant portion of the remaining
inventories of its discontinued cleaning product line as part of an overall plan
to exit its cleaning product line. This resulted in a $2.9 million charge to
reduce the inventory to market value, which was recorded in the second quarter
of 2000.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
using straight-line and accelerated methods based on the estimated useful lives
of the assets as follows: buildings, 8-30 years; equipment 3-25 years; and
leasehold improvements, over the lease periods. Precious metals are recorded at
cost and consist of platinum, rhodium, and palladium. Precious metals are used
in the Company's manufacturing processes and are expensed to operations based on
utilization. Capitalized interest costs relate to the purchase and construction
of long-term assets and are amortized over the respective useful lives of the
related assets. The Company capitalized interest of $0.7 million, $1.9 million
and $1.9 million in 2000, 1999 and 1998, respectively.
38
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL, TRADEMARKS AND PATENTS
The cost of goodwill represents the excess of cost over identifiable net
assets of businesses acquired. The amortization period assigned to goodwill is
40 years. Trademarks and patents are amortized over the estimated economic
useful life, which range from 20 to 35 years. Amortization expense of
$9.6 million, $1.5 million and $1.7 million for 2000, 1999, and 1998,
respectively, is included in other expense (income).
IMPAIRMENT ACCOUNTING
The Company reviews the recoverability of its long-lived assets, including
goodwill and other intangible assets, when events or changes in circumstances
occur that indicate that the carrying value of the asset may not be recoverable.
The assessment of possible impairment is based on the Company's ability to
recover the carrying value of the asset from the expected future pre-tax cash
flows (undiscounted and without interest charges) of the related operations. If
the expected undiscounted pre-tax cash flows are less than the carrying value of
such assets, an impairment loss is recognized for the difference between
estimated fair value and carrying value. The measurement of impairment requires
management to make estimates of expected future cash flows related to long-lived
assets. It is at least reasonably possible that future events or circumstances
may differ from these estimates.
STOCK BASED COMPENSATION
Certain employees of the Company participate in the stock compensation plans
of the Company. The Company accounts for compensation cost under these plans
using the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees."
Compensation expense is recorded for awards of shares over the period earned.
The Company follows the disclosure provisions of Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS
No. 123) which defines a fair value-based method of accounting for stock-based
compensation.
REVENUE RECOGNITION
Revenues are recognized when products are shipped to customers and when all
substantial risks of ownership transfer.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, which clarified the existing accounting rules
for revenue recognition. SAB No. 101 was adopted by the Company in the fourth
quarter of 2000. The Company's revenue recognition policy did not change with
the adoption of SAB No. 101.
ADVERTISING AND PROMOTION COSTS
Production costs of future media advertising are deferred until the
advertising first occurs. Advertising costs, other than cooperative advertising,
are charged to selling, general and administrative expenses as incurred.
Cooperative advertising is accrued at the time of sale in the financial
statements as a reduction of sales because it is viewed as part of the
negotiated price of its products sold. Advertising and promotional expenses for
2000, 1999 and 1998 were $15.8 million, $13.4 million and $10.0 million,
respectively.
39
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Such costs were
$1.3 million, $0.6 million and $0.4 million in 2000, 1999 and 1998,
respectively.
INCOME TAXES
The Company uses the asset and liability approach to account for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the expected future tax consequences of differences between the carrying amounts
of assets and liabilities and their respective tax bases using enacted tax rates
in effect for the year in which the differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period when the change is enacted. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company primarily uses two types of derivatives: interest rate swaps
(which effectively convert a portion of the Company's variable rate obligations
to fixed) and forward exchange contracts (which reduce the Company's cash flow
exposure to changes in foreign exchanges rates). The Company enters into
interest rate swaps to lower funding costs or to alter interest rate exposures
between fixed and floating rates on long-term debt. Under interest rate swaps,
the Company agrees with other parties to exchange, at specific intervals, the
difference between fixed rate and floating rate interest amounts calculated by
reference to an agreed notional principal amount. Interest rate swaps that are
in excess of outstanding obligations are marked to market through other income
and expenses. At December 31, 2000, the Company had $15.0 million notional
amount of an interest rate swap outstanding with a fair value of $(0.2). The
fair value of forward exchange contracts that hedge firm third party commitments
are deferred and recognized as part of the underlying transactions as they
occur, while those that hedge existing assets and liabilities are recognized in
income currently and offset gains and losses of transactions being hedged. At
December 31, 2000, the Company had $2.6 million of notional value of forward
exchange contracts outstanding with no associated unrealized gain or loss on the
contracts. See the discussion which follows regarding the impact of the adoption
of SFAS No.133 on the future accounting for derivative financial instruments.
(LOSS) EARNINGS PER SHARE
Basic (loss) earnings per share is computed by dividing net income, less
dividends on preferred stock, by the weighted average number of common shares
outstanding during each period. Diluted (loss) earnings per share is computed by
dividing net income, less dividends on preferred stock, by the weighted average
number of common shares outstanding during the period after giving effect to
dilutive stock options.
CAPITALIZED COMPUTER SOFTWARE COSTS
Capitalized computer software costs, included in other assets, consist of
costs to purchase and develop software. The Company capitalizes internally
developed software costs based on a project-by-project analysis of each
project's significance to the Company and its estimated useful life.
40
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All capitalized software costs are amortized on a straight-line basis over a
period between three and seven years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of short-term instruments approximates their
recorded values due to the nature of the instruments.
RECENTLY ISSUED ACCOUNTING STANDARDS
Since June 1998, the Financial Accounting Standards Board (FASB) has issued
SFAS Nos. 133, 137 and 138 related to "Accounting for Derivative Instruments and
Hedging Activities" (SFAS No. 133, as amended or Statements). These Statements
establish accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured as its fair value. The Statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met, in which case the gains or losses would
offset the related results of the hedged item. These Statements require that, as
of the date of initial adoption, the impact of adoption be recorded as a
cumulative effect of a change in accounting principle. To the extent that these
amounts are recorded in other comprehensive income, they will be reversed into
earnings in the period in which the hedged transaction occurs.
The Company currently has freestanding derivative instruments. Management
has performed a review to identify potential derivatives embedded in other
contracts. No embedded derivatives were identified as a result of this review.
The Company adopted these statements as of January 1, 2001 with no material
impact to the Company's financial statements.
In 2000, the Emerging Issues Task Force (EITF), a subcommittee of the FASB,
issued EITF No. 00-10 "Accounting for Shipping and Handling Fees and Costs."
EITF No. 00-10 addresses the income statement classification of shipping and
handling fees and costs. The Company historically has not billed customers for
shipping and handling costs and has included direct freight costs as a deduction
to net sales. The nets sales and cost of sales have been reclassified to reflect
these expenses in cost of sales consistent with the classification of other
shipping and handling related costs. The impact of this change increased net
sales and costs of sales by $22.1 million, $16.0 million and $10.4 million for
the years ended December 2000, 1999 and 1998, respectively. This change had no
impact on results of operations.
Also in 2000, the EITF issued EITF No. 00-14 "Accounting for Certain Sales
Incentives." The EITF subsequently amended the transition provisions of this
issue in November 2000 to require application no later than the fiscal quarter
beginning after March 15, 2001. EITF No. 00-14 prescribes guidance regarding
timing of recognition and income statement classifications of costs incurred for
certain sales incentive programs. This guidance requires certain coupons, rebate
offers and free products offered concurrently with a single exchange transaction
to be recognized at the later of the date at which the revenue is recorded or
the date at which the sales incentive is offered and reported as a reduction of
revenue. The Company's current accounting and classification of these amounts
are in compliance with the consensuses reached in this issue.
41
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In January 2001, the EITF issued EITF No. 00-22, "Accounting for Points and
Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to be Delivered in The Future." EITF No. 00-22
prescribes guidance regarding timing of recognition and income statement
classification of costs incurred in connection with offers of "free" products or
services that are exercisable by an end consumer as a result of a single
exchange transaction with the retailer which will not be delivered by the vendor
until a future date. This guidance requires certain rebate offers and free
products that are delivered subsequent to a single exchange transaction to be
reported as a reduction of revenue and recognized based on systematic allocation
of the costs to the underlying revenue transactions that result in the consumer
earning the rebate or refund. The guidance in this EITF should be applied no
later than quarters ending after February 15, 2001. The Company's current
accounting and classification of these types of costs are in compliance with the
consensuses reached in this issue.
(3) RECAPITALIZATION
On March 2, 1998, Corning Incorporated (Corning), the Company, Borden, and
CCPC Acquisition entered into a Recapitalization Agreement (the
Recapitalization).
On March 16, 1998, the Company's Board of Directors approved a 24,000-for-1
common stock split. This increased the common shares outstanding from 1,000 to
24,000,000. In addition, the Board of Directors approved an increase in the
number of authorized shares from 1,000 to 45,000,000 and an increase in the par
value from $0.00 to $0.01 per share. Share amounts have been restated for all
periods presented.
On April 1, 1998, pursuant to the Recapitalization, CCPC Acquisition
acquired 22,080,000, or 92%, of the outstanding shares of common stock of the
Company from Corning for $110.4 million. The Company then borrowed
$471.6 million and paid a cash dividend to Corning of $472.6 million. Corning
retained 1,920,000, or 8%, of the outstanding shares of common stock of the
Company. Also on April 1, 1998, the Company issued and sold 1,200,000 shares of
cumulative junior preferred stock to CCPC Acquisition for $30.0 million. The
Company paid an additional $10.2 million to Corning in July 1998 relating to
certain provisions of the Recapitalization.
42
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) ACQUISITIONS
Effective September 13, 1999 and October 21, 1999, the Company acquired the
outstanding stock of EKCO and GHC, respectively. The financial statements
include the results of EKCO's and GHC's operations from the dates of the
acquisitions.
The Company acquired EKCO for an initial value of approximately
$229 million, including the assumption of $3.4 million in 9 1/4% series B senior
notes due in 2006, $2.1 million of industrial revenue bonds and other debt and
transaction fees. The Company financed this acquisition through the issuance of
$150 million in common stock from the Company's parent, a $71.5 million
short-term borrowing from an affiliate of the Company's parent and borrowing
under the Company's existing credit facility. The Company paid to its parent an
additional $10.6 million for the EKCO business in December 2000 pursuant to an
agreement with the Company's parent relating to the Company's parent's sale of a
portion of the EKCO businesses that were not originally sold to the Company.
The Company acquired GHC for approximately $159 million, including the
repayment of debt and transaction fees. The Company financed the acquisition
through the issuance of $50 million in cumulative junior preferred stock to an
affiliate of the Company's parent and borrowings under the Company's existing
revolving credit facilities. The addition of GHC expanded the Company's product
offerings to include cutlery, precision cutting tools and innovative, high
quality kitchen and household tools.
The acquisitions were accounted for under the purchase method of accounting.
Accordingly, the purchase prices have been allocated to the assets acquired and
liabilities assumed based on the fair values at the dates of acquisitions. The
final allocation of the purchase price to the net assets acquired was completed
for both EKCO and GHC in 2000. The Company adjusted goodwill by approximately
$36 million in 2000 in conjunction with the finalization of the purchase price
allocation. Goodwill associated with the purchase of EKCO and GHC was
$115.9 million and $51.5 million, respectively, which is being amortized over
40 years.
The following unaudited pro forma results of operations give effect to the
EKCO and GHC acquisitions as if they had occurred on January 1, 1998.
(UNAUDITED)
---------------------
1999 1998
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net sales............................................... $846,026 $887,930
Loss before extraordinary losses........................ (47,897) (54,711)
Net loss applicable to common stock..................... (68,046) (65,927)
Loss per share before extraordinary losses.............. (0.72) (0.82)
Loss per share after extraordinary losses............... (1.02) (0.99)
The pro forma information provided does not purport to be indicative of
actual results of operations if the EKCO and GHC acquisitions had occurred on
January 1, 1999, and is not intended to be indicative of future results or
trends.
43
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SUPPLEMENTAL BALANCE SHEET DATA
OTHER CURRENT LIABILITIES
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Wages and employee benefits............................. $ 30,254 $ 30,935
Accrued advertising and promotion....................... 28,277 21,884
Accrued interest........................................ 11,601 10,063
Other accrued expenses.................................. 33,953 48,918
-------- --------
$104,085 $111,800
======== ========
(6) RELATED PARTY TRANSACTIONS
The following transactions with related parties are included in the
consolidated statements of operations for the years ended December 31, 2000,
1999, and 1998:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Services provided by Corning, Inc.................. $4,078 $7,210 $14,194
Interest expense to Corning........................ -- -- 1,296
Interest expense to Borden and an affiliate of the
Company's parent................................. 1,489 358 2,368
Management fees to Corning......................... -- -- 437
Management fees and services to Borden............. 3,847 1,500 1,125
Loss on sale of receivables and related fees paid
to Borden........................................ 823 -- --
Prior to April 1, 1998, the Company operated as a wholly-owned subsidiary of
Corning Inc. (Corning). In connection with the Recapitalization, Corning and the
Company entered into several agreements relating to the provision by Corning of
goods and services to the Company and the sharing of certain facilities with the
Company at terms specified in the contracts. As of December 31, 2000, the
Company has assumed or outsourced a significant portion of the functions
previously performed by Corning. Management believes that the methodology used
to allocate the costs is reasonable, but may not necessarily be indicative of
the costs that would have been incurred had these functions been performed by
the Company.
See Note 9 regarding Corning's agreement to indemnify the Company for
certain environmental liabilities.
Prior to the Recapitalization, amounts due to and from Corning resulting
from intercompany transactions carried interest at a rate based on the 30-day
London Interbank Offered Rate (LIBOR) plus 3/8%.
Prior to the Recapitalization, sales were made by the Company to certain
Corning subsidiaries, which subsequently resold the products to third parties.
The Company paid these subsidiaries a sales
44
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
commission for sales made on the Company's behalf. In addition, Corning utilized
the Company's Canadian operations as a sales office and paid the Company
commissions on Corning sales.
See Note 4 regarding the Company's issuance of $150 million in common stock
to the Company's parent, payment of $10.6 million to the Company's parent
relating to the parent's sale of a portion of the EKCO businesses that were not
originally sold to the Company, and a $71.5 million short-term borrowing from an
affiliate of the Company's parent to finance the EKCO acquisition.
During the third quarter of 2000, the Company negotiated with Borden to
provide a $40.0 million temporary credit facility to assist in meeting working
capital and liquidity requirements. At December 31, 2000, the Company had
$6.1 million drawn on the facility.
Borden has extended its line of credit to the Company of up to
$40.0 million of revolving commitments until the date that is 91 days after the
perfection of the collateral under the Amended and Restated Credit Agreement,
after which Borden will provide to the Company a $25.0 million revolving credit
facility, maturing on March 30, 2004. This credit facility will have
substantially the same terms as the Borden Capital Facility dated as of
August 25, 2000, and, in addition, will be secured by a security interest on the
Company's assets that is second in priority behind the security interests
securing the Amended and Restated Credit Agreement (see Note 8).
On June 29, 2000, the Company entered into a receivables purchase agreement
with Borden. Under the agreement, the Company sold $50.5 million and
$40.3 million of net receivables in June and September, respectively, to Borden.
The Company recognized a loss on the sale of receivables and transaction related
fees in the amount of $0.8 million.
In the fourth quarter of 1999, the Company issued $50 million in 16%
cumulative junior preferred stock to Borden. The cumulative junior preferred
stock consists of two million shares with each share having a liquidation
preference of $25.00. The cumulative junior preferred stock provides for the
payment of cash dividends of $1.00 per share per quarter whether or not declared
by the Company and if certain financial ratios are satisfied. At December 31,
2000 and 1999, the Company had accrued $10.3 million and $1.5 million,
respectively, in preferred stock dividends. The dividends payable is recorded in
other long-term liabilities.
The 1999 interest expense due to Borden related to short-term interim
financing of $71.5 million at 9.4%, which was borrowed and repaid in the fourth
quarter of 1999. The 1998 interest expense due to Borden and affiliates of the
Company's parent related to interim financing of $0.5 million at 9.5%, which was
borrowed and repaid during the second quarter of 1998.
The Company paid Borden a management fee at an annual rate of $1.5 million
for the period April 1, 1998 through December 31, 1999. Effective January 1,
2000, the Borden management fee increased to $2.5 million annually. At
December 31, 2000 and 1999, $1.7 million and $0.1 million, respectively, were
outstanding.
The Company and/or affiliates of the Company, including entities related to
KKR, from time to time have purchased, and may in the future purchase, depending
on market conditions, senior subordinated notes previously issued by the Company
in the open market or by other means. As of December 31, 2000, affiliates have
purchased an aggregate of $39.4 million of senior subordinated notes in open
market transactions.
45
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
The senior subordinated notes were purchased at a discount causing the
Company to incur cancellation of indebtedness income, for tax purposes only, of
approximately $28.4 million ($10.0 million tax effected). This income was fully
offset by current period losses in the Company's income tax expense.
(7) STOCKHOLDERS' (DEFICIT) EQUITY
2000
In the third quarter of 2000, 540,000 additional shares of common stock were
issued to the Company's management. The $0.01 par common shares were issued at
$3.50 resulting in proceeds of $1.9 million. At December 31, 2000, the Company
had 67.4 million shares of common stock outstanding.
The Company sold shares of common stock to certain members of the Company's
management in exchange for notes secured by the shares. The outstanding
principal balances of these notes amounted to $0.2 million at December 31, 2000
and are recorded as a reduction of stockholders' equity.
The Company repurchased 280,000 common shares for $0.9 million from prior
members of the Company's management upon their termination of employment. The
shares were repurchased at rates as defined by the management stock option plan.
At December 31, 2000, the Company had 3.2 million shares of preferred stock
outstanding and had recorded $13.4 million in preferred stock dividends, none of
which have been paid. The dividends, which are required to be settled in cash,
are accrued in other long-term liabilities, and dividends that will be paid in
preferred stock have been accrued in preferred stock.
1999
In the fourth quarter of 1999, the Company's Board of Directors approved an
increase to the number of common shares authorized from 45 million to
75 million.
To finance the acquisition of EKCO and GHC the Company issued 42.9 million
additional shares of common stock in the fourth quarter of 1999. The $0.01 par
common shares were issued at $3.50 to CCPC Acquisition resulting in proceeds of
$150 million. At December 31, 1999, the Company had 66.9 million shares of
common stock outstanding.
See Note 6 regarding cumulative junior preferred stock issued to Borden. At
December 31, 1999, the Company recorded preferred stock dividends which have
been accrued in preferred stock.
1998
On March 2, 1998, Corning, WKI, Borden, and CCPC Acquisition entered into a
Recapitalization. On March 16, 1998, the WKI Board of Directors approved a
24,000-for-1 common stock split. This increased the common shares outstanding
from 1,000 to 24,000,000. In addition, the Board of Directors approved an
increase in the number of authorized shares from 1,000 to 45,000,000 and an
increase in the par value from $0.00 to $0.01 per share.
On April 1, 1998, pursuant to the Recapitalization, CCPC Acquisition
acquired 22,080,000, or 92%, of the outstanding shares of common stock of the
Company from Corning for $110.4 million. Also on
46
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)
April 1, 1998, the Company issued and sold 1,200,000 shares of cumulative junior
preferred stock to CCPC Acquisition for $30.0 million. The Company then borrowed
$471.6 million and paid a cash dividend to Corning of $472.6 million. Corning
retained 1,920,000, or 8%, of the outstanding shares of common stock of the
Company. The Company paid an additional $10.2 million dividend to Corning in
July 1998 relating to certain provisions of the Recapitalization.
As a result of the Recapitalization, contributed capital increased by
$179.8 million. The net capital contribution consisted of the assumption of
certain indebtedness, certain post-retirement medical and life insurance
liabilities, certain pension liability obligations, workers' compensation, and
product liability obligations by Corning.
Each share of cumulative junior preferred stock contains a liquidation
preference of $25. Accrued and unpaid dividends are recorded in the amount of
$0.75 per share per calendar quarter, whether or not declared by the Company.
Dividends can be settled in cash or additional shares of cumulative junior
preferred stock, or a combination of the two. The Company intends to pay these
dividends with additional shares of cumulative junior preferred stock.
At December 31, 1998, the Company recorded $2.8 million of preferred stock
dividends, which will be paid through the issuance of additional preferred
stock.
(8) BORROWINGS
Debt outstanding at December 31, 2000 and 1999 is as follows:
2000 1999
---------------------- ----------------------
DUE WITHIN DUE WITHIN
LONG-TERM ONE YEAR LONG-TERM ONE YEAR
--------- ---------- --------- ----------
(IN THOUSANDS)
Senior credit facility, term loan
at an average rate of 9.88% and
8.96%, $196,000 due 2006, $99,000
due 2007......................... $292,000 $3,000 $295,000 $3,000
Senior credit facility, revolving
line of credit, at an average
rate of 9.13% and 8.79% due
2005............................. 264,800 -- 164,000 --
Borden temporary credit facility at
an average rate of 12.5%......... -- 6,100 -- --
9 5/8% Series B Senior Subordinated
Notes due 2008................... 200,000 -- 200,000 --
9 1/4% Senior Series B Subordinates
Notes due 2006................... 2,877 -- 2,962 --
Industrial Revenue Bonds (at an
average rate of 5.69% and
5.5%)............................ 6,848 571 7,259 541
Other debt......................... 3 64 32 109
-------- ------ -------- ------
Total Debt......................... $766,528 $9,735 $669,253 $3,650
======== ====== ======== ======
The Company's capital requirements arise principally in connection with
working capital needs, servicing debt obligations, completing its manufacturing
restructuring, financing its recent acquisitions and completing the integration
of such acquisitions, as well as funding capital expenditures. To meet these
requirements, on April 12, 2001, the Company entered into an amended and
restated credit
47
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) BORROWINGS (CONTINUED)
agreement (Amended and Restated Credit Agreement), which amended and restated
the senior credit agreement dated April 9, 1998 (1998 Credit Agreement), and
under which the $295.0 million of term loans remain outstanding and the
$275.0 million revolving credit facility remains in effect. In the fourth
quarter of 2000, the revolving credit facility was fully utilized (including
$10.2 million of letters of credit). The Amended and Restated Credit Agreement
also provides for the following significant changes from the 1998 Credit
Agreement: a first priority lien on substantially all of the Company's assets
and its subsidiaries' assets; a pledge of 100% of the stock of all of the
Company's domestic subsidiaries and 65% of the stock of certain foreign
subsidiaries; an additional secured revolving credit facility of $25.0 million,
maturing on March 30, 2004; amended financial covenants and an additional
financial covenant; increased pricing on the credit facilities; and changes in
the restrictions affecting indebtedness, investments, acquisitions, dispositions
and prepayment of subordinated indebtedness.
The Company's credit facilities contain numerous financial and operating
covenants that limit the discretion of the Company's management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends and other distributions, prepay subordinated indebtedness, enter
into sale and leaseback transactions, create liens or other encumbrances, make
capital expenditures, make certain investments or acquisitions, engage in
certain transactions with affiliates, sell or otherwise dispose of assets and
merge or consolidate with other entities and otherwise restrict corporate
activities. In addition, the credit facilities also require the Company to meet
certain financial ratios and tests, including a minimum EBITDA, a ratio of debt
to EBITDA and EBITDA to cash interest expense (where EBITDA represents adjusted
cash flow as described more fully in the credit facilities). The credit
facilities and the indenture contain customary events of default.
In the Amended and Restated Credit Agreement, the Company obtained a waiver
for the period of noncompliance with the financial covenants, without which the
lenders would have been entitled to accelerate the maturity of the loans under
the 1998 Credit Agreement.
During the third quarter of 2000, the Company negotiated with Borden to
provide a $40.0 million temporary credit facility to assist in meeting working
capital requirements, capital expenditures, interest payments and scheduled
principal payments. Amounts outstanding under this agreement bear interest at
either (a) a variable rate based on the greatest of the Prime Rate, the Federal
Reserve Bank Three-Month CD Rate plus 1% or the Federal Funds Effective Rate
plus 0.5% plus (b) 3% or (c) the Eurodollar rate plus 4%. The original maturity
date of the agreement was December 31, 2000 and was extended into April 2001. At
December 31, 2000, $6.1 was outstanding under this agreement.
Borden has extended its line of credit to the Company of up to
$40.0 million of revolving commitments until the date that is 91 days after the
perfection of the collateral under the Amended and Restated Credit Agreement,
after which Borden will provide to the Company a $25.0 million revolving credit
facility, maturing on March 30, 2004. This credit facility will have
substantially the same terms as the Borden Capital Facility dated as of
August 25, 2000, and, in addition, will be secured by a security interest on the
Company's assets that is second in priority behind the security interests
securing the Amended and Restated Credit Agreement.
On October 25, 1999, the Company borrowed $71.5 million from Borden to
assist in the financing of the acquisitions of EKCO and GHC. On November 15,
1999, the Company added a term loan of $100 million to its senior credit
facilities. The proceeds of which were used to refinance the indebtedness,
including that with Borden, incurred in connection with these acquisitions.
48
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) BORROWINGS (CONTINUED)
In connection with the acquisition of EKCO, the Company assumed
$3.4 million in 9 1/4 series B senior notes and $2.1 million in industrial
revenue bonds. At December 31, 2000, the balance of the EKCO 9 1/4 series B
senior notes and industrial revenue bonds were $2.9 million and $1.8 million,
respectively. With the exception of the asset sale covenant, each of the
principal covenants in the senior notes relating to the EKCO senior notes are no
longer in effect.
Long-term debt maturing in each of the years subsequent to December 31, 2000
(in thousands) is as follows:
2001........................................................ $ 9,735
2002........................................................ 3,643
2003........................................................ 3,537
2004........................................................ 3,150
2005........................................................ 271,860
2006--2009.................................................. 484,338
--------
$776,263
Less: current maturities.................................... (9,735)
--------
$766,528
========
Based on quoted market interest rates and quoted market prices currently
available to the Company for loans with similar terms and maturities, the fair
value of loans payable beyond one year was $407.9 million at December 31, 2000.
(9) COMMITMENTS
The Company is a defendant or plaintiff in various claims and lawsuits
arising in the normal course of business. The Company believes, based upon
information it currently possesses, and taking into account established reserves
for estimated liabilities and its insurance coverage, that the ultimate outcome
of the proceedings and actions is unlikely to have a material adverse effect on
the Company's financial statements.
The Company is a party to certain non-cancelable lease agreements, which
expire at various dates through 2010. Minimum rental commitments outstanding at
December 31, 2000 (in thousands) are as follows:
OPERATING CAPITAL
LEASES LEASES
--------- --------
2001...................................................... $21,031 $ 493
2002...................................................... 15,955 1,672
2003...................................................... 11,429 --
2004...................................................... 7,627 --
2005...................................................... 5,513 --
2006--2010................................................ 29,862 --
------- ------
Net minimum lease commitments............................. $91,417 $2,165
======= ======
49
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) COMMITMENTS (CONTINUED)
Rental expense was $25.1 million, $27.0 million, and $25.0 million for the
years ended December 31, 2000, 1999, and 1998, respectively. The liability for
capital lease obligations is recorded in other current and other long-term
liabilities in the Company's financial statements.
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters relating to the
generation or handling of hazardous substances by the Company or its
predecessors, and the Company has incurred obligations for investigations or
remedial actions with respect to certain of these matters. The Company does not
believe that any such claims asserted or obligations incurred to date will
result in a material adverse effect upon the Company's financial position,
results of operations or liquidity. The Company has accrued approximately
$2.0 million at December 31, 2000, for probable environmental remediation and
restoration liabilities. This is management's best estimate of these
liabilities. Based on currently available information and analysis, the Company
believes that it is reasonably possible that costs associated with such
liabilities may exceed current reserves by amounts that may prove insignificant,
or by amounts, in the aggregate, of up to approximately $2 million. There can be
no assurance that activities at these or any other facilities or future
facilities may not result in additional environmental claims being asserted
against the Company or additional investigations or remedial actions being
required.
Certain of the Company's facilities have lengthy manufacturing histories
and, over such time, have used or generated and disposed of substances, which
are or may be considered hazardous. Pursuant to the terms and conditions of the
Recapitalization, Corning has agreed to indemnify the Company for certain costs
and expenses that may be incurred in the future by the Company arising from
pre-Recapitalization environmental events, conditions or matters and as to which
notice is provided within specified time periods. Corning has agreed to
indemnify the Company for (i) 80% of such costs and expenses up to an aggregate
of $20.0 million and (ii) 100% of such costs and expenses in excess of
$20.0 million. The indemnification agreement expires on April 1, 2005.
(10) EMPLOYEE RETIREMENT PLANS
Most U.S. employees of the Company are covered under a non-contributory
defined benefit plan. Pension plan benefits are generally based on years of
service and/or compensation. The Company's funding policy is to contribute
annually an amount determined jointly by management and its consulting actuaries
that is not less than the minimum amount required by the Employee Retirement
Income Security Act of 1974. Plan assets are comprised principally of publicly
traded debt and equity securities.
The Company participates in Borden's non-qualified Supplemental Pension Plan
(Supplemental Plan), pursuant to which it will pay to certain executives,
including each of the named executive officers, amounts approximately equal to
the difference between the benefits provided for under the WKI pension plan and
benefits which would have been provided notwithstanding the limitations on
benefits which may be provided under tax-qualified plans, as set forth in the
Internal Revenue Code.
The Company's postretirement benefit plan provides certain medical and life
insurance benefits for retired employees. Substantially all U.S. employees of
the Company may become eligible for these benefits if they fulfill eligibility
requirements as specified by the plan.
50
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) EMPLOYEE RETIREMENT PLANS (CONTINUED)
Certain of the Company's employees also participate in a Borden sponsored
retirement savings plan. Charges to WKI's operations for matching contributions
in 2000, 1999, and 1998 amounted to $3.3 million, $3.0 million and
$2.2 million, respectively.
Relevant data for the Company's pension and postretirement medical benefit
plans at September 30, 2000 and 1999, respectively, is as follows:
OTHER
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
year................................. $54,979 $18,431 $ 36,897 $ 31,185
Service cost........................... 5,037 4,562 2,995 1,809
Interest cost.......................... 4,229 2,633 2,864 2,148
Plan participants' contributions....... 250 280 86 70
Actuarial (gain) loss.................. (828) 312 957 (9)
Benefits paid.......................... (5,125) (1,338) (874) (712)
Amendments............................. 12,615 -- -- --
Acquisitions........................... -- 28,099 -- 2,006
Change in plan year-end................ 85 -- (11) --
Divestitures and settlements........... (229) -- 78 --
Special termination benefit............ -- 2,000 -- 400
------- ------- -------- --------
Benefit obligations at end of year..... $71,013 $54,979 $ 42,992 $ 36,897
======= ======= ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of year.............................. $58,895 $14,156 $ -- $ --
Actual return on plan assets........... 4,750 2,861 -- --
Employer contributions................. 4,265 3,326 788 642
Plan participants' contributions....... 250 280 86 70
Benefits paid.......................... (5,125) (1,234) (874) (712)
Acquisitions........................... -- 39,506 -- --
Change in plan year-end................ 3,548 -- -- --
Divestitures and settlements........... (396) -- -- --
------- ------- -------- --------
Fair value of plan assets at end of
year................................. $66,187 $58,895 $ -- $ --
======= ======= ======== ========
Funded status.......................... $(4,826) $ 3,916 $$(42,992) $(36,897)
Unrecognized net actuarial
(gain)/loss.......................... (4,858) (9,135) 717 (216)
Unrecognized prior service cost........ 12,314 95 -- --
Unrecognized initial net benefit
asset................................ -- (297) -- --
------- ------- -------- --------
Net amount recognized.................. $ 2,630 $(5,421) $(42,275) $(37,113)
======= ======= ======== ========
51
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) EMPLOYEE RETIREMENT PLANS (CONTINUED)
WEIGHTED AVERAGE ASSUMPTIONS:
OTHER
PENSION POSTRETIREMENT
BENEFITS BENEFITS
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Discount rate.................................. 7.73% 7.50% 7.70% 7.50%
Expected return on plan assets................. 8.51 8.50 N/A N/A
Rate of compensation increase.................. 4.54 4.25 4.50 4.25
COMPONENTS OF NET PERIODIC BENEFIT COST:
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
Service cost................................ $5,037 $4,562 $2,995 $1,809
Interest cost............................... 4,229 2,633 2,864 2,148
Expected return on plan assets.............. (5,278) (4,513) -- --
Amortization of unrecognized transition
obligation................................ -- 1,691 -- --
Amortization of prior service cost.......... 300 55 -- --
Recognized net actuarial gain............... (13) -- -- --
Special termination benefit................. -- 2,000 -- 400
------ ------ ------ ------
Net periodic benefit cost................... $4,275 $6,428 $5,859 $4,357
====== ====== ====== ======
The consolidated balance sheet includes prepaid pension cost for plans in
which assets exceed accumulated benefits and accrued benefit costs for plans in
which accumulated benefits exceed assets. The funded status of the Company's
plans and the amounts of prepaid and accrued pension cost as of September 30,
2000 and 1999 are provided below.
PLANS IN WHICH PLANS IN WHICH
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Accumulated benefit obligation........ $ 8,515 $ 22,484 $ 62,498 $ 30,441
Fair value of plan assets............. (8,804) (32,812) (57,383) (24,029)
------- -------- -------- --------
(Prepaid) accrued pension cost........ $ (289) $(10,328) $ 5,115 $ 6,412
======= ======== ======== ========
The consolidated postretirement benefit obligation attributable to the
Company's workforce is determined by application of the terms of health care and
life insurance plans, together with relevant actuarial assumptions and health
care cost trend rates. The annual rate of medical inflation used to determine
the year-end results was assumed to be 7.75% for 2000, decreasing gradually to a
net of 5.75% per year at 2005 and remaining at that level thereafter. Assumed
health care cost trend rates
52
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) EMPLOYEE RETIREMENT PLANS (CONTINUED)
have a significant effect on the amounts reported for health care plans. A
one-percentage point change in the assumed health care cost trend rates would
have the following effects:
ONE-PERCENTAGE ONE-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
Effect on total service cost and interest cost
components of postretirement benefit expense... $1,029 $(1,029)
Effect on postretirement benefit obligation...... $9,157 $(9,157)
(11) STOCK COMPENSATION PLANS
Certain members of management were granted options to purchase common stock
in WKI. Fixed stock options were granted to purchase shares at a $3.50 and a
$5.00 exercise price. The options were issued at fair value, vest over five
years and expire ten years from the date of the grant. There are 3,661,500
options outstanding at December 31, 2000 and 1,164,000 options available for
future grants. Options were granted at April 1, 1998, October 1, 1998 and
October 1, 2000. There were 603,200 options exercisable at December 31, 2000.
Options were forfeited upon the termination of employment of certain prior
members of the Company's management.
WKI adopted the disclosure-only provisions of SFAS No. 123. Had compensation
cost for WKI's stock option plan been determined based on the fair value at the
grant date consistent with the provisions of SFAS No. 123, WKI's net loss
applicable to common stock for the year ended December 31, 2000 would not have
been significantly effected. WKI's net loss applicable to common stock for 1999
would have been $40.8 million or $1.31 per basic and diluted share.
The fair values were calculated using the Black-Scholes option-pricing model
for purposes of the pro forma disclosure. The risk-free interest rates used in
the model range from 4.8% to 5.7%. The expected life of the options is seven
years. The volatility used in the model is 23%. WKI common stock is not publicly
traded and does not declare dividends on a regular basis.
2000 1999
--------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- --------- --------------
Options outstanding,
beginning of year.......... 2,532,000 $5.00 2,672,000 $5.00
Options granted.............. 2,153,500 3.50 -- --
Options forfeited............ (1,024,000) 5.00 (140,000) 5.00
---------- ----- --------- -----
Options outstanding, end of
year....................... 3,661,500 $4.12 2,532,000 $5.00
========== ===== ========= =====
The following table summarizes information about fixed-price stock options
at December 31, 2000:
NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING REMAINING LIFE EXERCISE PRICE
- -------------- ----------- ---------------- ----------------
$5.00 1,508,000 7.23 Years $5.00
3.50 2,153,500 9.75 Years 3.50
53
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) INCOME TAXES
Prior to April 1, 1998, the Company was included in the consolidated U.S.
federal income tax return filed by Corning. The Company and its subsidiaries had
a tax sharing arrangement with Corning pursuant to which the Company was
required to compute its provision for income taxes on a separate return basis
and pay to, or receive from Corning the separate U.S. federal income tax return
liability or benefit so computed, if any.
Subsequent to April 1, 1998, the Company files a consolidated U.S. federal
tax return with its parent and certain of its domestic subsidiaries.
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------
(IN THOUSANDS)
(LOSS) INCOME BEFORE TAXES ON INCOME:
U.S. companies.............................. $(101,795) $(77,545) $(30,124)
Foreign companies........................... 3,425 2,445 (2,542)
--------- -------- --------
Loss before taxes on income............... $ (98,370) $(75,100) $(32,666)
========= ======== ========
The components of income tax expense (benefit) consist of the following
items:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
CURRENT AND DEFERRED TAX EXPENSE (BENEFIT):
Current:
U.S............................................ $ -- $ -- $126
State and municipal............................ -- 1,072 --
Foreign........................................ 2,570 1,092 969
Deferred:
U.S............................................ 41,732 (37,775) --
State and municipal............................ 7,154 (11,895) --
Foreign........................................ -- 252 (148)
------- -------- ----
Net tax expense (benefit)........................ $51,456 $(47,254) $947
======= ======== ====
54
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) INCOME TAXES (CONTINUED)
The income tax provision (benefit) at the effective tax rate differs from
the income tax provision at the U.S. federal statutory tax rate in effect during
the years ended December 31, 2000, 1999, and 1998 for the following reasons:
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
EFFECTIVE TAX RATE RECONCILIATION:
Taxes at U.S. statutory tax rate of 35%........ $(34,429) $(26,285) $(11,433)
Increase (reduction) in income taxes resulting
from:
State taxes, net of federal benefit.......... (5,902) (4,481) --
Goodwill..................................... 2,109 -- --
Disallowed interest expense.................. 10,026 -- --
Non-deductible transactions related
expenses................................... -- -- 6,464
Other........................................ -- 862 453
Reserve for current year income tax
benefit.................................... 28,196 -- --
Taxes on foreign subsidiary and FSC
earnings................................... 2,570 488 947
Net change in deferred tax assets due to
valuation allowance........................ 48,886 (17,838) 4,516
-------- -------- --------
Income tax expense (benefit)............... $ 51,456 $(47,254) $ 947
======== ======== ========
For U.S. federal income tax purposes, the Company has elected to treat the
Recapitalization as an asset acquisition by making a Section 338(h)(10)
election. As a result, there is a difference between the financial reporting and
tax basis of the Company's assets. The difference results in future deductible
amounts for tax purposes, which creates a deferred tax asset for financial
reporting purposes. These assets have been fully reserved as of December 31,
2000.
Affiliates of the Company purchased a portion of the Company's senior
subordinated notes on the open market at a discount. This purchase caused the
Company to incur cancellation of indebtedness income of approximately
$28.4 million ($10.0 million tax effected, included in disallowed interest
expense) in 2000.
As discussed in Note 4, for financial reporting purposes, the acquisitions
of EKCO and GHC were accounted for using the purchase method of accounting. As a
result, there is a difference between the financial reporting and tax basis of
the assets acquired in these companies.
55
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) INCOME TAXES (CONTINUED)
The tax effects of temporary differences and carry forwards that give rise
to the deferred tax assets and liabilities at December 31, 2000 and 1999 are
comprised of the following:
DECEMBER 31,
--------------------
2000 1999
--------- --------
(IN THOUSANDS)
Property and equipment and intangible assets........... $ 40,228 $ 44,796
Postretirement, pension and other employee benefits.... 16,966 17,756
Loss and tax credit carry forwards..................... 66,153 38,693
Inventory reserves..................................... 21,852 7,731
Other.................................................. 30,383 14,249
--------- --------
Gross deferred tax assets............................ 175,582 123,225
Deferred tax assets valuation allowance................ (175,582) (74,339)
--------- --------
Deferred tax assets.................................. $ -- $ 48,886
========= ========
The net change in the total valuation allowance for years ended
December 31, 2000 and 1999 is an increase of $101.2 million and a decrease of
$17.8 million, respectively. A valuation allowance is recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. Negative evidence, such as cumulative losses in recent years, suggests
that a valuation allowance is needed. Based upon cumulative losses in the
current and immediate two proceeding years, the Company determined that a full
valuation allowance of $175.6 million was warranted.
Net operating loss carryforwards of approximately $161.2 million are
available to offset domestic taxable income, if any, in future years. These net
operating losses begin to expire in 2018. The net operating losses have been
fully reserved at December 31, 2000.
The Company currently provides income taxes on the earnings of foreign
subsidiaries and associated companies to the extent they are currently taxable
or expected to be remitted. Taxes have not been provided on approximately
$13.5 million of accumulated foreign unremitted earnings, which are expected to
remain invested indefinitely. If remitted, the additional tax liability on these
earnings would be approximately $0.7 million.
(13) RESTRUCTURING, INTEGRATION AND TRANSACTION RELATED EXPENSES
2000 AND 1999
Integration related expenses were $26.6 million and $9.2 million in 2000 and
1999, respectively. The 2000 expenses primarily consist of system implementation
costs, employee compensation arrangements and other benefits, consulting
services and other integration costs. The 1999 expenses related to the
integration of the EKCO and GHC businesses and primarily consist of legal fees,
accounting and tax services, employee compensation arrangements and other
benefits, facility consolidation and other integration costs.
In the first quarter of 1999, the Company initiated a plan to restructure
its manufacturing and supply organization as part of a program designed to
reduce costs through elimination of under-utilized capacity, unprofitable
product lines and increased utilization of the remaining facilities. The
restructuring includes the discontinuation of the commercial tableware product
line and closure of the
56
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) RESTRUCTURING, INTEGRATION AND TRANSACTION RELATED EXPENSES (CONTINUED)
related portion of the Company's manufacturing facility in Charleroi,
Pennsylvania. In order to optimize the utilization of the Charleroi facility,
the Company has moved Corelle-Registered Trademark- cup production to its
Martinsburg, West Virginia facility and third party suppliers. In addition, the
Company terminated its supply contract with Corning's Greenville, Ohio facility
and Pyrex-Registered Trademark- production was consolidated at the Charleroi
facility. Additionally, the Company has discontinued manufacturing and
distributing rangetop cookware at its facility in Clinton, Illinois. Future
supply of rangetop cookware will be sourced from third party manufacturers.
In 1999, the Company recorded a net charge of $69.0 million to cover the
cost of this reorganization. The majority of the charge related to asset
disposals, however, cash charges are expected to approximate $18.0 million over
the life of the plan. In the fourth quarter of 1999, the Company reversed
$7.2 million of its original $76.2 million restructuring charge taken in the
first quarter of 1999. The reversal results from an increase in the anticipated
proceeds from the idle equipment, land and buildings and lower than expected
exit costs associated with the shutdown of the facility.
The cash and non-cash elements of the restructuring charge approximate
$18.2 million and $50.8 million, respectively. Details of restructuring activity
(in thousands) are as follows:
1999 1999 1999 BALANCE AT 2000 BALANCE AT
RESTRUCTURING NON-CASH CASH DECEMBER 31, CASH DECEMBER 31,
CHARGE ACTIVITY ACTIVITY 1999 ACTIVITY 2000
------------- -------- -------- ------------ -------- ------------
Disposal of assets........... $51,400 $51,400 $ -- $ -- $ -- $ --
Employee severance &
termination................ 14,658 2,400 7,758 4,500 3,407 1,093
Other exit costs............. 2,926 -- 2,426 500 500 --
------- ------- ------- ------ ------ ------
$68,984 $53,800 $10,184 $5,000 $3,907 $1,093
======= ======= ======= ====== ====== ======
The tangible assets of the Clinton, Illinois facility and the commercial
tableware product line have been adjusted to net realizable value. All
intangible asset carrying values associated with the Clinton facility and the
commercial tableware product line have been written off. The tangible and
intangible assets written off totaled $36.1 million and $12.3 million,
respectively. Management judgment is involved in estimating the net realizable
value; accordingly, actual results could vary significantly from such estimates.
As part of the restructuring initiative, approximately 600 employees had their
employment terminated. The termination resulted in a pension and postretirement
benefit charge of $2.4 million. The remaining $1.1 million is included in other
current liabilities.
1998
As a result of an effort to reduce manufacturing, assembly and distribution
costs, WKI recorded a restructuring charge of $4.8 million in 1998 related to
the consolidation and rationalization of Asian operations and the consolidation
of Canadian and U.S. distribution facilities. The restructuring plan was
complete and all costs were incurred by December 31, 1999. Transaction related
expenses of $28.9 million primarily consist of cash and non-cash compensation,
financing costs and other expenses associated with the Recapitalization. The
charge included $17.4 million of compensation payments reimbursed by Corning
related to arrangements entered into by Corning with certain Corning
57
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) RESTRUCTURING, INTEGRATION AND TRANSACTION RELATED EXPENSES (CONTINUED)
employees who accepted employment with WKI. The remaining transaction related
expenses consisted of costs incurred in 1998 for fees and services related to
the Recapitalization and the related financings.
(14) SEGMENT INFORMATION
The Company manages its business on the basis of one reportable segment--the
worldwide manufacturing and marketing of consumer housewares. The Company
believes its operating segments have similar economic characteristics and meet
the aggregation criteria of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company markets its products chiefly in
the United States but also has significant business in international markets
such as Canada, Asia, Australia, the United Kingdom and Latin America. The
Company is exposed to the risk of changes in social, political, and economic
conditions inherent in foreign operations and the value of its foreign assets
are affected by fluctuations in foreign currency exchange rates. Net sales by
geographic area are presented by attributing revenues from external customers on
the basis of where the products are sold. In 2000, 1999, and 1998, one customer,
Wal-Mart Stores, Inc., accounted for approximately 15%, 16%, and 15%,
respectively, of the Company's gross sales. Accounts receivable from Wal-Mart
Stores, Inc. was approximately $20 million and $25 million at December 31, 2000
and 1999, respectively.
The following information is presented in accordance with SFAS No. 131.
GEOGRAPHIC AREAS:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
NET SALES:
United States............................... $665,597 $511,961 $449,541
Canada...................................... 62,879 40,460 32,433
-------- -------- --------
North America............................. 728,476 552,421 481,974
Other International......................... 99,105 81,113 61,467
-------- -------- --------
Total..................................... $827,581 $633,534 $543,441
======== ======== ========
2000 1999
-------- --------
LONG-LIVED ASSETS:(1)
United States......................................... $543,272 $549,830
Canada................................................ 4,292 5,941
-------- --------
North America....................................... 547,564 555,771
Other International................................... 4,104 5,502
-------- --------
Total............................................... $551,668 $561,273
======== ========
58
WKI HOLDING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) SEGMENT INFORMATION (CONTINUED)
CLASSES OF SIMILAR PRODUCTS:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999(5) 1998
-------- -------- --------
(IN THOUSANDS)
NET SALES:(2)
Bakeware.................................... $286,278 $234,889 $202,649
Dinnerware.................................. 174,692 178,598 182,938
Rangetop Cookware........................... 102,380 99,349 103,231
Kitchen/Household Tools..................... 138,666 36,013 --
Cleaning Products(3)........................ 13,834 6,674 --
Cutlery..................................... 32,678 10,091 --
Precision Cutting Tools..................... 21,202 3,684 --
Other(4).................................... 57,851 64,236 54,623
-------- -------- --------
Total..................................... $827,581 $633,534 $543,441
======== ======== ========
- ------------------------
(1) Includes property and equipment, goodwill, trademarks, patents and other
assets.
(2) Certain 1999 and 1998 amounts have been reclassified to conform with 2000
presentation. In addition, net sales have been reclassified to exclude
shipping and handling costs in accordance with newly issued accounting
standards. The impact of this change increased net sales by $22.1 million,
$16.0 million and $14.0 million for the years ended December 2000, 1999 and
1998 respectively. (See Note 2)
(3) Product line was exited in 2000.
(4) "Other" sales include selected kitchen accessories manufactured by third
parties, which are principally sold through Company-operated factory stores.
(5) Reflects net sales for EKCO and GHC from September 13, 1999 and October 21,
1999, respectively.
(15) SUBSEQUENT EVENTS
On January 18, 2001, the Company announced Steven G. Lamb as its new
President and Chief Executive Officer. Mr. Lamb's strong customer focus and
operating results orientation, coupled with his experience in acquisition
integration, supply chain optimization, operational restructurings and
continuous improvement led to the management change.
On March 28, 2001, the WKI Board of Directors approved a plan to restructure
several aspects of the Company's manufacturing and distribution operations, a
measure that will result in a restructuring charge of approximately $35 million
in 2001, approximately $16 million of such charge will be for cash items over
the life of the plan. It is also likely that additional restructuring actions
and charges will be taken in 2001 as the Company completes its transformation.
The current restructuring program includes three major components: (i) exit
from manufacturing at the Martinsburg, West Virginia facility for the
CorningWare-Registered Trademark- and Visions-Registered Trademark- product
lines and secure alternative sources of production by the end of the first
quarter 2002, (ii) consolidation of distribution operations at Waynesboro,
Virginia into World Kitchen's existing distribution centers at Monee, Illinois
and Greencastle, Pennsylvania by the end of the first quarter of 2002 and
(iii) significant restructuring of metal bakeware manufacturing at Massillon,
Ohio.
On April 12, 2001, the Company entered into an Amended and Restated Credit
Agreement (see Note 8).
59
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
WKI Holding Company, Inc.
We have audited the accompanying consolidated balance sheets of WKI Holding
Company, Inc. and Subsidiaries (the "Company") as of December 31, 2000 and 1999,
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 2000. Our audits also included the financial statement schedule
listed in Item 14. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Buffalo, New York
April 13, 2001
60
PART III
ITEM 16--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the executive officers
and directors of the Company.
NAME AGE POSITION
- ---- -------- --------
Steven G. Lamb............................ Director, President & Chief Executive
44 Officer
C. Robert Kidder.......................... 56 Director and Chairman of the Board
Brian F. Carroll.......................... 29 Director
William H. Carter......................... 47 Director
Nancy A. Reardon.......................... 47 Director
William F. Stoll, Jr. .................... 51 Director
Kevin M. Kelley........................... 43 Director
Michael M. Calbert........................ 38 Director
Steven Lamb was elected Director, President and Chief Executive Officer of
the Company effective January 18, 2001. Prior to that he was President and Chief
Operating Officer of CNH Global N.V., created in November 1999 from the merger
of Case Corporation and New Holland N.V. Mr. Lamb held the same title with Case
from October 1997. Prior to that he had been Executive Vice President and Chief
Operating Officer of Case from 1995.
C. Robert Kidder was elected a Director and Chairman of the Board of World
Kitchen, Inc. on April 1, 1998. He was elected a Director, Chairman of the Board
and Chief Executive Officer of Borden, Inc. on January 10, 1995, and continues
in those positions. He is also a director of Electronic Data Systems Corporation
and Morgan Stanley Dean Witter & Co.
Brian F. Carroll was elected a Director of the Company in April 2000. He has
been an Executive of Kohlberg Kravis Roberts & Co. since July 1999. From
September 1997 to June 1999 he attended the Stanford University Graduate School
of Business. From March 1995 to August 1997 he was an Executive of Kohlberg
Kravis Roberts & Co. Prior thereto, he was an investment banker with Donaldson,
Lufkin & Jenrette Securities Corporation. He is also a Director of Spalding
Holdings Corporation and Evenflo Company, Inc.
William H. Carter has been a Director of the Company since April 1, 1998. He
was elected Executive Vice President and Chief Financial Officer of
Borden, Inc. effective April 3, 1995. Prior to that, since 1987, he was a
partner in Price Waterhouse LLP.
Nancy A. Reardon has been a Director of the Company since April 1, 1998. She
was elected Senior Vice President, Human Resources and Corporate Affairs, of
Borden, Inc. effective March 3, 1997 and promoted to Executive Vice President in
December 2000. Previously she was Senior Vice President--Human Resources and
Communications for Duracell International, Inc. from 1991 through
February 1997.
William F. Stoll, Jr. has been a Director of the Company since April 1,
1998. He was elected Senior Vice President and General Counsel of Borden, Inc.
effective July 1, 1996 and promoted to Executive Vice President in
December 2000. Prior to joining Borden at that time, he was a Vice
61
President of Westinghouse Electric Corporation since 1993, and served as its
Deputy General Counsel from 1988 to 1996.
Kevin M. Kelley has been a Director of the Company since April 30, 1999. He
has served as Executive Vice President, Corporate Strategy and Development of
Borden, Inc. since April 5, 1999. Prior to that, since April 1996, he was
Managing Director of Ripplewood Holding, LLC. From January 1995 to April 1996,
he was a Managing Director with Onex Investment Corporation.
Michael M. Calbert became a Director of the Company on August 24, 2000 and
joined Kohlberg Kravis Roberts & Co. in 2000. Prior to joining Kohlberg Kravis
Roberts & Co., he was Senior Vice President and Chief Financial Officer of
Randall's Food Markets, Inc., a portfolio company purchased by Kohlberg Kravis
Roberts & Co. in June 1997 and sold to Safeway Inc., in September 1999. He began
his career with Randall's as a Senior Vice President, Corporate Development,
where he was responsible for various initiatives including the integration of a
major acquisition, implementation of a distribution network and the design and
implementation of a comprehensive performance management system. From 1985 to
1994, he was a management consultant with Arthur Andersen Worldwide where he was
involved in various strategic, systems and process design projects for a broad
range of industries.
62
ITEM 17--EXECUTIVE COMPENSATION
The following tables and charts set forth information with respect to
benefits made available, and compensation paid or accrued, by the Company during
the years ended December 31, 2000, 1999 and 1998 for services by each of the
chief executive officer, the four other most highly compensated executive
officers whose total salary and bonus exceeded $100,000, and two other
executives that would have made the list had they been employed by the Company
at December 31, 2000.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------- -------------------------
OTHER AWARDS PAYOUTS
ANNUAL ---------- ------------
PERQUISITE RESTRICTED ALL
ALLOWANCES STOCK SECURITIES OTHER
NAME AND COMPENSATION AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) OPTIONS ($)
- ------------------ -------- ---------- --------- ------------ ---------- ---------- ------------
NATHANIEL C. STODDARD (1).... 2000 437,500 1,570,632 120,000 171,429 94,864
President 1999 N/A N/A N/A
Chief Executive Officer 1998 N/A N/A N/A N/A
ALEX LEE (2)................. 2000 300,000 250,000 -- -- 100,000 25,599
Vice President 1999 180,000 379,940 -- -- -- --
General Manager OXO 1998 150,000 43,938 -- -- 36,000 --
DENNIS G. BROWN.............. 2000 191,289 159,913 23,597 -- 40,000 1,403
Sr. Vice President 1999 N/A N/A N/A N/A N/A N/A
Sales & Marketing 1998 N/A N/A N/A N/A N/A N/A
CRAIG A. SALINE.............. 2000 150,000 172,564 25,000 -- 85,714 36,000
Vice President 1999 N/A N/A N/A N/A N/A N/A
Human Resources 1998 N/A N/A N/A N/A N/A N/A
RAYMOND J. KULLA (2)......... 2000 225,000 28,125 25,000 -- 85,714 7,058
Vice President 1999 187,000 313,825 -- 498,250 -- 350,478
Secretary & General Counsel 1998 173,000 4,844 -- -- 41,000 --
ANTHONY P. DEASEY (3)........ 2000 228,365 642,483 24,453 -- 80,000 547
Sr. Vice President 1999 250,000 66,172 25,000 -- 80,000 4,447
Chief Financial Officer 1998 135,692 100,793 14,583 -- 80,000 1,250
DENNIS E. SCHNEIDER (1)...... 2000 206,462 455,089 24,791 -- 57,143 76,792
Sr. Vice President 1999 N/A N/A N/A N/A N/A N/A
Supply Chain Mgmt. & 1998 N/A N/A N/A N/A N/A N/A
Operations
- ------------------------
(1) Nathaniel C. Stoddard and Dennis E. Schneider resigned in the first quarter
of 2001. The 2000 bonus includes amounts from the exit agreement.
(2) Information relating to 1999 and 1998 includes compensation earned while
employed by the General Housewares Corporation, which was acquired by the
Company in the fourth quarter of 1999.
(3) Anthony P. Deasey resigned during the fourth quarter of 2000. The 2000 bonus
includes amounts from the exit agreement.
63
EMPLOYEE AGREEMENTS
The Company has in place a severance practice pursuant to which it will
provide to all salaried employees upon certain terminations of employment,
compensation in amounts ranging between eight weeks of base salary (for
employees with at least one year of service) and 104 weeks of base salary (for
employees with at least 20 years of service).
OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
POTENTIAL REALIZABLE
VALUE AT ASSUMED
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------------- ---------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION GAIN AT GAIN AT
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ---- ---------- ------------ -------- ---------- --------- ---------
Dennis G. Brown...................... 40,000 5.6% $3.50 09/01/10 $88,045 $223,124
Raymond J. Kulla..................... 85,714 11.9% 3.50 09/01/10 188,668 478,121
Alex Lee............................. 100,000 13.9% 3.50 09/01/10 220,113 557,810
Craig A. Saline...................... 85,714 11.9% 3.50 09/01/10 188,668 487,121
Dennis E. Schneider.................. 57,143 8.0% 3.50 09/01/10 125,779 318,749
Nathaniel C. Stoddard................ 171,429 23.9% 3.50 09/01/10 377,338 956,248
- ------------------------
(1) No SARs were granted in 2000 to any of the named executive officers.
(2) The dollar amounts set forth under these columns are the result of
calculations at 5% and at 10% rates established by the Securities and
Exchange Commission and therefore are not intended to forecast future
appreciation of WKI's stock price. The Company did not use any alternative
formula for grant date valuation as it is unaware of any formula, which
would determine with reasonable accuracy a present value based upon future
unknown factors.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES(1)
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF
OPTIONS AT FISCAL YEAR IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- -----------------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
- ---- ----------- ------------ ----------- ------------- --------------- -----------------
Dennis G. Brown............ -- -- -- 40,000 -- --
Raymond J. Kulla........... -- -- -- 85,714 -- --
Alex Lee................... -- -- -- 100,000 -- --
Craig A. Saline............ -- -- -- 85,714 -- --
Dennis E. Schneider........ -- -- -- 57,143 -- --
Nathaniel Stoddard......... -- -- -- 171,429 -- --
Anthony P. Deasey.......... -- -- 24,000 56,000 -- --
- ------------------------
(1) There are no SARs outstanding.
PENSION PLAN
The Company maintains a Pension Plan, a defined benefit plan, under which
benefits are paid based upon career earnings (regular salary and cash awards
such as those paid under the Company's Variable Compensation Plans) and years of
credited service. Employees are required to contribute an amount equal to 2% of
compensation in excess of the social security wage base up to the compensation
64
limits imposed by the Internal Revenue Code. Salaried employees may contribute
2% of their annual earnings up to the social security wage base. The Company's
contributions to the Plan are determined by the Plan's actuaries and are not
determined on an individual basis. The amounts of benefits payable under the
Plan and attributable to the Company's contributions is subject to the
provisions of the Employee Retirement Income Security Act and limits imposed by
the Internal Revenue Code.
Borden, Inc. maintains a non-qualified Supplemental Pension Plan (the
"Supplemental Plan"), pursuant to which it will pay to certain executives,
including each of the named executive officers, amounts approximately equal to
the difference between the benefits provided for under the WKI Pension Plan and
benefits which would have been provided there under but for limitations on
benefits which may be provided under tax-qualified plans, as set forth in the
Internal Revenue Code.
The estimated annual benefits under the Pension Plan and the Supplemental
Plan upon retirement at normal age for each of the executive officers of the
Company named in the Summary Compensation Table are:
YEAR OF
CREDITED SERVICE TOTAL BENEFIT
---------------- -------------
Dennis G. Brown................................... .75 $ 93,938
Raymond J. Kulla.................................. 5.23 110,405
Alex Lee.......................................... 6.33 153,337
Craig A. Saline................................... .67 55,826
COMPENSATION OF MEMBERS OF BOARD
Members of the Board will receive no cash compensation for their service on
the Board or its committees. Members of the Board will receive reimbursement for
traveling costs and other out-of-pocket expenses incurred in attending Board and
committee meetings.
ITEM 18--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of December 31, 2000 by each person
who is known by the Company to beneficially own more than 5% of the Company's
Common Stock and each of the Company's directors.
PERCENTAGE OF
BENEFICIAL COMMON
OWNERSHIP OF STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK(1) OUTSTANDING
- ------------------------------------ --------------- -------------
KKR Associates, L.P.(2)......................... 64,467,143 95.7%
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, New York 10019
- ------------------------
(1) The amounts and percentages of common stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has a
right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed to be a beneficial owner of securities as
to which such person has an economic interest. The percentage of class
outstanding is based on 67,397,028 shares of common stock outstanding at
December 31, 2000.
65
(2) Shares of common stock shown as owned by KKR Associates, L.P. (KKR
Associates) are owned of record by CCPC Acquisition Corp. (CCPC
Acquisition). KKR Associates is the sole general partner of Whitehall
Associates, L.P., which is the managing member of BW Holdings, LLC. BW
Holdings, LLC owns 100% of the outstanding capital stock of CCPC
Acquisition. Messrs. Todd Fisher, Edward A. Gilhuly, Perry Golkin, James H.
Greene, Jr., Johannes Huth, Henry R. Kravis, Robert I. MacDonnell, Michael
W. Michelson, Alexander Navab, Paul E. Raether, Neil Richardson, George R.
Roberts, Scott M. Stuart and Michael T. Tokarz as general partners of KKR
Associates, may be deemed to share beneficial ownership of any shares
beneficially owned by KKR Associates, but disclaim any such beneficial
ownership.
ITEM 19--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BETWEEN CORNING AND THE COMPANY
Historically, Corning has provided the Company with certain administrative,
technical and other services, as well as providing office space and
manufacturing capacity in facilities owned or leased by Corning. Additionally,
Corning has made available to the Company certain manufacturing technology and
other intellectual property, including the Pyrex-Registered Trademark- and
Corningware-Registered Trademark- trademarks. In connection with the
Recapitalization, Corning and WKI entered into several agreements relating to
the provision by Corning of goods and services to WKI, the sharing of certain
facilities with WKI and the royalty-free license to use certain trademarks,
tradenames, service marks, patents and know-how of Corning, in each case, on
terms substantially as described below.
TECHNOLOGY SUPPORT AND SHARED FACILITY AGREEMENT. The Company obtains
certain manufacturing technology, engineering and research and development
services from Corning. The Company and Corning entered into a technology support
agreement pursuant to which Corning will continue to make these manufacturing
and technology services available to the Company. In addition, the technology
support agreement will provide for Corning and the Company to conduct an annual
technology review, for each other's benefit, relating to patents and technical
know-how in the field of the Company's products. The manufacturing technology
and engineering services to be provided by Corning are made available to the
Company at agreed upon rates that approximate market.
The Company's Corning, New York manufacturing facility is adjacent to, and
shares certain assets and infrastructure (e.g., waste disposal and utility
service facilities) with, Corning's Fall Brook Plant. The Company and Corning
have entered into a shared facility agreement pursuant to which the parties have
provided for the continued use and sharing of these assets and infrastructure
facilities and the allocation of the costs associated with these items (which
costs are generally allocated according to the parties' relative use of such
shared asset) until April 1, 2008, or until such earlier time as the Company or
Corning shall have terminated its obligation to accept or provide such assets
and infrastructure facilities in accordance with the agreement.
As of January 19, 2001, Corning notified the Company that it considered the
Company in default of the Shared Facility and Technology Support Agreement
referenced above. The Company and Corning are currently negotiating to seek
resolution of these disputes. Regardless of the outcome of these negotiations,
the Company does not believe that they will have a material adverse impact on
the Company as a whole.
ADMINISTRATIVE SERVICES AGREEMENT. In order to enable the Company to
continue its sales operations in Australia, Brazil, Mexico, China, Hong Kong,
India, Japan, Korea, Singapore and Taiwan, Corning or its affiliates will
provide certain administrative and distribution services and subleases space to
the Company.
LICENSE AGREEMENTS. Corning and the Company entered into certain license
agreements pursuant to which Corning granted to the Company exclusive licenses
to use the Corningware-Registered Trademark- trademark,
66
service mark and trade name and Pyroceram-Registered Trademark- trademark in the
field of housewares and the Pyrex-Registered Trademark- trademark in the field
of durable consumer products (which the Company currently does not sell) for ten
years (each renewable at the option of the Company on the same terms and
conditions for an unlimited number of successive ten-year terms). In addition,
Corning entered into agreements with the Company providing for the Company's
continued use of the Corning name for up to three years (and up to five years
for molds and molded products with the Corning name embedded thereon). Corning
granted to the Company a fully paid, royalty free license of patents and
know-how (including evolutionary improvements) owned by Corning that pertain to
or have been used in the Company's business.
CORNING GLASS CENTER AND SUPPLY ARRANGEMENTS. Pursuant to the
Recapitalization Agreement, the Company will maintain its commercial
arrangements with the Corning Glass Center (the Corning employee store) for a
period of ten years ending March 31, 2008 on a pricing basis of the Company's
standard costs plus 15% and will continue to sell products to Corning's
manufacturing facilities for a period of five years in substantially the same
quantities and terms as during the twelve month period prior to March 31, 1998.
BETWEEN BORDEN AND THE COMPANY
In connection with the Recapitalization, the Company and Borden entered into
an agreement pursuant to which Borden will provide management, consulting and
financial services to the Company. Services will be provided in such areas as
the preparation and evaluation of strategic, operating, financial and capital
plans and the development and implementation of compensation and other incentive
programs. In consideration for such services, Borden will be entitled to an
annual fee of $2.5 million, plus reimbursement for certain expenses and
indemnification against certain liabilities. This agreement is terminable by
either party upon 30 days written notice. The transaction and financing fees and
expenses were included in the fees and expenses incurred in connection with the
Recapitalization. In addition, Borden and its affiliates provided all of the
interim debt financing for the Recapitalization, a portion of which was
refinanced by borrowings under the Credit Facilities and the remainder was
refinanced with the proceeds of the credit facilities.
The Company and/or affiliates of the Company, including entities related to
KKR, from time to time have purchased, and may in the future purchase, depending
on market conditions, senior subordinated notes previously issued by the Company
in the open market or by other means. As of December 31, 2000, affiliates have
purchased an aggregate of $39.4 million of senior subordinated notes in open
market transactions.
TAX SHARING AGREEMENT
The Company and certain of its subsidiaries have entered into a tax sharing
arrangement with CCPC Acquisition pursuant to which the Company and such
subsidiaries will be required to compute their provision for income taxes on a
separate return basis and pay to, or receive from, CCPC Acquisition the separate
U.S. federal and applicable state and local income tax return liability or
credit so computed, if any.
STOCKHOLDERS' AGREEMENT; REGISTRATION RIGHTS AGREEMENT
The Company, CCPC Acquisition and Corning entered into the Stockholders'
Agreement which provides for certain restrictions and rights regarding the
transfer of Common Stock, including a right of first refusal in favor of, first,
the Company and, if the Company refuses, then CCPC Acquisition with respect to
the common stock owned by Corning. In addition, the Stockholders' Agreement
provides Corning with unlimited "piggy back" registration rights and one demand
registration right.
67
CCPC Acquisition has the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities Act
shares of common stock held by it pursuant to the CCPC Acquisition Registration
Rights Agreement. Such registration rights will generally be available to CCPC
Acquisition until registration under the Securities Act is no longer required to
enable it to resell the common stock owned by it without restriction. The CCPC
Acquisition Registration Rights Agreement provides, among other things, that the
Company will pay all registration expenses in connection with the first six
demand registrations requested by CCPC Acquisition and in connection with any
registration commenced by the Company as a primary offering in which CCPC
Acquisition participates through "piggy back" registration rights granted under
the CCPC Acquisition Registration Rights Agreement.
PART IV
ITEM 20--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
14(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
1. Financial Statements
All financial statements of the registrant are set forth under Item 8,
Financial Statements and Supplementary Data of this Report on Form 10-K.
2. Schedule II Valuation accounts and reserves.
14(B) REPORTS ON FORM 8-K
On November 14, 2000, the registrant filed a report on Form 8-K under
"Item 5--Other Events" to announce its quarterly conference call to bond
holders and review its third quarter results.
On January 19, 2001, the registrant filed a report on Form 8-K under
"Item 5--Other Events" to announce that its affiliate, Borden, Inc., has
agreed to extend, to February 28, 2001, the maturity of Borden's
$40 million line of credit to the Company, and to announce that a new
President and Chief Executive Officer has been named.
On March 7, 2001, the registrant filed a report on Form 8-K under "Item
5--Other Events" to announce that its affiliate, Borden, Inc. has agreed
to extend, to March 30, 2001, the maturity of Borden's $40 million line
of credit to the Company.
On April 3, 2001, the registrant filed a report on Form 8-K under "Item
5--Other Events" to announce that the Company has filed Form 12b-25,
Notification of Late Filing of Form 10-K Annual Report, and that it has
issued a press release to announce a restructuring program, preliminary
2000 operating results and a credit agreement update.
68
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.
WKI HOLDING COMPANY, INC.
By: /s/ STEVEN G. LAMB
--------------------------------------- President and Chief Executive April 13, 2001
(Steven G. Lamb) Officer, Director
By /s/ WILLIAM H. CARTER
--------------------------------------- Chief Financial Officer, April 13, 2001
(William H. Carter) Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
By /s/ C. ROBERT KIDDER
--------------------------------------- Director and Chairman of the April 13, 2001
(C. Robert Kidder) Board
By /s/ MICHAEL M. CALBERT
--------------------------------------- Director April 13, 2001
(Michael M. Calbert)
By /s/ BRIAN F. CARROLL
--------------------------------------- Director April 13, 2001
(Brian F. Carroll)
By /s/ NANCY A. REARDON
--------------------------------------- Director April 13, 2001
(Nancy A. Reardon)
By /s/ WILLIAM F. STOLL, JR.
--------------------------------------- Director April 13, 2001
(William F. Stoll, Jr.)
By /s/ KEVIN M. KELLEY
--------------------------------------- Director April 13, 2001
(Kevin M. Kelley)
69
SCHEDULE II
WKI HOLDING COMPANY, INC.
VALUATION ACCOUNTS AND RESERVES
(IN THOUSANDS)
BALANCE AT BALANCE AT
YEAR ENDED DECEMBER 31, 2000 12/31/99 ADDITIONS DEDUCTIONS 12/31/00
- ---------------------------- ---------- --------- ---------- ----------
Doubtful accounts and allowances.................... $17,657 $ 50,691 $(42,781) $ 25,567
Deferred tax assets valuation allowance............. 74,339 103,754 -- 178,093
Accumulated amortization of goodwill and other
intangibles....................................... 12,124 16,302 (4,773) 23,653
Accumulated amortization of software................ 12,755 6,227 (1,199) 17,783
BALANCE AT BALANCE AT
YEAR ENDED DECEMBER 31, 1999 12/31/98 ADDITIONS DEDUCTIONS 12/31/99
- ---------------------------- ---------- --------- ---------- ----------
Doubtful accounts and allowances.................... $11,172 $ 17,352 $(10,867) $ 17,657
Deferred tax assets valuation allowance............. 92,177 -- (17,838) 74,339
Accumulated amortization of goodwill and other
intangibles....................................... 10,658 3,219 (1,753) 12,124
Accumulated amortization of software................ 13,311 2,333 (2,889) 12,755
BALANCE AT BALANCE AT
YEAR ENDED DECEMBER 31, 1998 12/31/97 ADDITIONS DEDUCTIONS 12/31/98
- ---------------------------- ---------- --------- ---------- ----------
Doubtful accounts and allowances.................... $ 7,304 $ 17,950 $(14,082) $ 11,172
Deferred tax assets valuation allowance............. 13,432 92,177 (13,432) 92,177
Accumulated amortization of goodwill and other
intangibles....................................... 8,625 2,033 -- 10,658
Accumulated amortization of software................ 10,771 2,856 (316) 13,311
Certain 1999 amounts have been restated to conform with 2000 presentation.
70
21(C) EXHIBITS FILED AS PART OF THIS REPORT
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------------------- ------------------------------------------------------------
*2.1 Recapitalization Agreement dated as of March 2, 1998, among
Corning Consumer Products Company, Corning Incorporated,
Borden, Inc. and CCPC Acquisition Corp. which appears as
Exhibit 2.1 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this
Annual Report on Form 10-K.
*2.2 Amendment to the Recapitalization Agreement dated March 31,
1998 which appears as Exhibit 2.2 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*2.3 Assignment and Assumption Agreement dated as of April 1,
1998 between the Company and Corning, which appears as
Exhibit 2.3 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this
Annual Report on Form 10-K.
*2.4 Stock Purchase Agreement, dated as of October 25, 1999,
between CCPC Acquisition Corp. and CCPC Holding Company,
Inc., is incorporated herein by reference in this annual
report on Form 10-K.
*2.5 Agreement and Plan of Merger, dated as of August 2, 1999,
between CCPC Acquisition Corp. and General Housewares Corp.,
is incorporated herein by reference in this annual report on
Form 10-K.
*2.6 Amendment No. 1 to the Agreement and Plan of Merger, dated
as of October 20, 1999, by and among CCPC Acquisition Corp.,
GHC Acquisition Corp. and General Housewares Corp., is
incorporated herein by reference in this annual report on
Form 10-K.
*2.7 Amendment No. 2 to the Agreement and Plan of Merger, dated
as of October 20, 1999, by and among CCPC Acquisition Corp.,
GHC Acquisition Corp., and General Housewares Corp., is
incorporated herein by reference in this annual report on
Form 10-K.
*2.8 Consent and Waiver to the Agreement and Plan of Merger,
dated as of October 21, 1999, by and among CCPC Acquisition
Corp., GHC Acquisition Corp. and General Housewares Corp.,
is incorporated herein by reference in this annual report on
Form 10-K.
*2.9 Contribution Agreement, dated as of October 21, 1999,
between CCPC Acquisition Corp. and CCPC Holding Company,
Inc., is incorporated herein by reference in this annual
report on Form 10-K.
*3.1 Amended and Restated Certificate of Incorporation of the
Company which appears as Exhibit 3.1 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*3.2 By-Laws of the Company which appears as Exhibit 3.2 to the
Registration Statement on Form S-4, dated June 18, 1998, is
incorporated herein by reference in this Annual Report on
Form 10-K.
*3.3 Certificate of Amendment of Certificate of Incorporation
which appears as Exhibit 3.3 to Amendment No. 3 to the
Registration Statement on Form S-4, dated September 16,
1998, is incorporated herein by reference in this Annual
Report on Form 10-K.
*3.4 Amended and Restated Certificate of Incorporation of CCPC
Holding Company, Inc., dated November 1, 1999 which appears
as Exhibit 3 to the Quarterly Report on Form 10-Q dated
November 10, 1999, is incorporated herein by reference in
this Annual Report on Form 10-K.
71
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- --------------------- ------------------------------------------------------------
*3.5 Certificate of Amendment of the Restated Certificate of
Incorporation of CCPC Holding Company, Inc. dated July 31,
2000, which appears as Exhibit 3.1 to the Quarterly Report
on Form 10-Q, dated November 15, 2000, is incorporated
herein by reference in this Annual Report, on Form 10-K.
*4.2 Form of 9 5/8% Senior Subordinated Note due 2008 (included
in Exhibit 4.1) which appears as Exhibit 4.2 to the
Registration Statement on Form S-4, dated June 18, 1998, is
incorporated herein by reference in this Annual Report on
Form 10-K.
*4.3 Form of 9 5/8% Series B Senior Subordinated Note due 2008
(included in Exhibit 4.1) which appears as Exhibit 4.3 to
the Registration Statement on Form S-4, dated June 18, 1998,
is incorporated herein by reference in this Annual Report on
Form 10-K.
*4.4 Form of 9 1/4% Senior Note due 2006 (incorporated herein by
reference to Exhibit 4.2 (b) to EKCO Group, Inc. Form 10-K
for the year ended December 31, 1995, is incorporated herein
by reference in this annual report on Form 10-K.
*10.1 Credit Facility, dated as of April 9, 1998, among the
Company, the several lenders from time to time parties
thereto, and the Chase Manhattan Bank, as administrative
agent, which appears as Exhibit 10.1 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*10.2 Stockholders' Agreement, dated as of April 1, 1998 among the
Company, CCPC Acquisition Corp. and Corning Incorporated
which appears as Exhibit 10.2 to the Registration Statement
on Form S-4, dated June 18, 1998, is incorporated herein by
reference in this Annual Report on Form 10-K.
*10.3 Form of Management Stockholder's Agreement among the
Company, CCPC Acquisition Corp. and certain officers of the
Company which appears as Exhibit 10.3 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*10.4 Non-Qualified Stock Option Agreement dated as of April 1,
1998 between the Company and certain employees of the
Company which appears as Exhibit 10.4 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*10.5 1998 Stock Purchase and Option Plan for Key Employees of the
Company and Subsidiaries which appears as Exhibit 10.5 to
the Registration Statement on Form S-4, dated June 18, 1998,
is incorporated herein by reference in this Annual Report on
Form 10-K.
*10.6 Registration Rights Agreement between the Company and CCPC
Acquisition Corp. dated as of April 1, 1998 which appears as
Exhibit 10.6 to the Registration Statement on Form S-4,
dated June 18, 1998, is incorporated herein by reference in
this Annual Report on Form 10-K.
*10.7 Tax Sharing Agreement among the Company, CCPC Acquisition
Corp. and Revere Ware Corporation, dated as of April 30,
1998 which appears as Exhibit 10.7 to the Registration
Statement on Form S-4, dated June 18, 1998, is incorporated
herein by reference in this Annual Report on Form 10-K.
*10.8 Form of Sale Participation Agreement between the Company and
certain officers of the Company which appears as Exhibit
10.8 to the Registration Statement on Form S-4, dated June
18, 1998, is incorporated herein by reference in this Annual
Report on Form 10-K.
72
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NO. DESCRIPTION OF EXHIBIT
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*10.9 Receivables Purchase Agreement dated June 29, 2000 between
the Company and Borden, Inc., which appears as Exhibit 10.1
to the Quarterly Report on Form 10-Q, dated November 15,
2000, is incorporated herein by reference in this Annual
Report, on Form 10-K.
*10.10 Credit Agreement dated August 25, 2000 between the Company
and Borden, Inc. which appears as Exhibit 10.2 to the
Quarterly Report on Form 10-Q, dated November 15, 2000, is
incorporated herein by reference in this Annual Report, on
Form 10-K.
*10.11 Credit Agreement as amended and restated as of November 15,
1999 among the Company, the lending institutions from time
to time parties thereto, and the Chase Manhattan Bank, as
administrative agent, which appears as Exhibit 10.3 to the
Quarterly Report on Form 10-Q, dated November 15, 2000, is
incorporated herein by reference in this Annual Report, on
Form 10-K.
*10.12 Pay Agreement and Release dated January 27, 2000 between the
Company and Peter F. Campanella with appears as Exhibit 10.4
to the Quarterly Report on Form 10-Q, dated November 15,
2000, is incorporated herein by reference in this Annual
Report, on Form 10-K.
**10.13 Pay Agreement and Releases dated January 19, 2001 between
the Company and Nathaniel A. Stoddard.
**10.14 Amended and Restated 1998 Stock Purchase and Option Plan for
Key Employees dated August 10, 2000.
*10.15 Credit Agreement as amended and restated as of February 28,
2001 between the Company and Borden, Inc. which appears as
Exhibit 4.1 to the Report on Form 8-K dated March 7, 2001,
is incorporated herein by reference in this Annual Report,
on Form 10-K.
**10.16 Credit Agreement as amended and restated as of April 12,
2001 between the Company and Borden, Inc.
**10.17 Amended and restated Credit Agreement, dated April 12, 2001,
by and among the Company, the several lenders party thereto.
The Chase Manhattan Bank as Administration Agent, Citibank
N.A. as Syndication Agent, and Bankers Trust Company as
Documentation Agent with Chase Securities Inc. as Arranger.
*13.1 General Housewares Corp. 1998 financial statements,
incorporated herein by reference to the Report on Form 8-K/A
dated January 3, 2000.
*13.2 EKCO Group, Inc. 1998 financial statements, incorporated
herein by reference to the Report on Form 8-K/A dated
January 3, 2000.
*16 Letter re: change in certifying accountant which appears as
Exhibit 16 to the Registration Statement on Form S-4, dated
June 18, 1998, is incorporated herein by reference in this
Annual Report on Form 10-K.
**21 Subsidiaries of the registrant.
*23.1 Consent of KPMG LLP, independent certified public
accountants, incorporated herein by reference to the Report
on Form 8-K/A dated January 3, 2000
- ------------------------
* Previously filed and incorporated by reference
** Filed herewith
73