-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C0iuJBQGBinHRI8kSLCaqT7ZD/9DHC49YG1wi2wV5mMFBods9dw+FLCqEoUdcEqL xWzntN3pWlkl63WoT8G4FA== 0000950135-96-002165.txt : 19960517 0000950135-96-002165.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950135-96-002165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EKCO GROUP INC /DE/ CENTRAL INDEX KEY: 0000018827 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 112167167 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07484 FILM NUMBER: 96567784 BUSINESS ADDRESS: STREET 1: 98 SPIT BROOK RD CITY: NASHUA STATE: NH ZIP: 03062 BUSINESS PHONE: 6038881212 MAIL ADDRESS: STREET 1: 98 SPIT BROOK RD CITY: NASHUA STATE: NH ZIP: 03062 FORMER COMPANY: FORMER CONFORMED NAME: CENTRONICS CORP DATE OF NAME CHANGE: 19880504 FORMER COMPANY: FORMER CONFORMED NAME: CENTRONICS DATA COMPUTER CORP DATE OF NAME CHANGE: 19870304 10-Q 1 EKCO GROUP, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended MARCH 31, 1996 -------------- Commission File Number 1-7484 ------ EKCO GROUP, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 11-2167167 ------------------------------ ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 98 SPIT BROOK ROAD, NASHUA, NEW HAMPSHIRE 03062 -------------------------------------------------- (Address of principal executive offices) (Zip Code) (603) 888-1212 -------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of May 9, 1996, there were issued and outstanding 18,459,672 shares of common stock of the registrant. 1 2 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, DECEMBER 31, 1996 1995 --------- ------------ (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 803 $ 142 Accounts receivable, net 39,020 43,823 Inventories 51,087 47,565 Prepaid expenses and other current assets 12,925 11,080 -------- -------- Total current assets 103,835 102,610 Property and equipment, net 56,006 56,380 Property held for sale or lease, net 2,812 2,830 Other assets 7,391 5,955 Excess of cost over fair value of net assets acquired, net 135,493 136,600 -------- -------- Total assets $305,537 $304,375 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term obligations $ 60 $ 18,079 Accounts payable 12,934 15,607 Accrued expenses 22,028 23,711 Income taxes 160 538 -------- -------- Total current liabilities 35,182 57,935 -------- -------- Long-term obligations, less current portion 124,122 96,700 -------- -------- Other long-term liabilities 9,976 9,859 -------- -------- Series B ESOP Convertible Preferred Stock, net; outstanding 1,490 shares and 1,488 shares, respectively, redeemable at $3.61 per share 3,668 3,458 -------- -------- Commitments and contingencies - - Minority interest 498 498 -------- -------- Stockholders' equity Common stock, $.01 par value; outstanding 18,436 shares and 18,414 shares, respectively 184 184 Capital in excess of par value 107,030 106,916 Cumulative translation adjustment 882 929 Retained earnings 29,630 33,614 Unearned compensation (3,887) (3,970) Pension liability adjustment (1,748) (1,748) -------- -------- 132,091 135,925 -------- -------- Total liabilities and stockholders' equity $305,537 $304,375 ======== ========
The accompanying notes are an integral part of the financial statements. 2 3 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND APRIL 2, 1995 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
1996 1995 ---- ---- Net revenues $56,961 $58,732 ------- ------- Costs and expenses Cost of sales 41,089 40,725 Selling, general and administrative 13,359 13,285 Amortization of excess of cost over fair value 1,109 1,109 ------- ------- 55,557 55,119 ------- ------- Income before interest and income taxes 1,404 3,613 ------- ------- Net interest Interest expense 3,026 3,433 Investment income (90) (75) ------- ------- 2,936 3,358 ------- ------- Income (loss) before income taxes and extraordinary charge (1,532) 255 Income taxes (benefit) (733) 121 ------- ------- Income (loss) before extraordinary charge (799) 134 Extraordinary charge for early retirement of debt, net of tax benefit of $2,560 (2,787) - ------- ------- Net income (loss) $(3,586) $ 134 ======= ======= Earnings (loss) per common share: Income (loss) before extraordinary charge $(0.04) $0.01 Extraordinary charge (0.15) - ------- ------- Earnings (loss) per common share $(0.19) $0.01 ======= ======= Weighted average number of shares used in computation of per share data 18,410 20,224
The accompanying notes are an integral part of the financial statements. 3 4 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND APRIL 2, 1995 (AMOUNTS IN THOUSANDS) (UNAUDITED)
1996 1995 ---- ---- Cash flows from operating activities Net income (loss) $ (3,586) $ 134 Adjustments to reconcile net income to net cash provided by operations Depreciation 2,471 2,466 Amortization of excess of cost over fair value 1,109 1,109 Amortization of deferred finance costs 106 119 Other amortization 1,604 1,662 Extraordinary charge 2,787 -- Other 1 (88) Changes in certain assets and liabilities, net of effects from acquisitions and dispositions of businesses, affecting cash provided by operations Accounts receivable 4,799 9,826 Inventories (3,572) (6,052) Prepaid marketing costs (600) (1,045) Other assets (2,511) (409) Accounts payable and accrued expenses (4,237) 808 Income taxes payable 2,182 (851) -------- ------- Net cash provided by operations 553 7,679 -------- ------- Cash flows from investing activities Proceeds from sale of property and equipment 6 -- Capital expenditures (2,099) (3,009) -------- ------- Net cash used in investing activities (2,093) (3,009) -------- ------- Cash flows from financing activities Proceeds from issuance of notes payable and long-term obligations 120,504 5,820 Proceeds from sale of investment held as collateral -- 3,600 Payment of dividends (398) (371) Payment of notes and long-term obligations (118,005) (13,792) Other 101 128 -------- ------- Net cash provided by (used in) financing activities 2,202 (4,615) Effect of exchange rate changes on cash (1) 1 -------- ------- Net increase in cash and cash equivalents 661 56 Cash and cash equivalents at beginning of year 142 129 -------- ------- Cash and cash equivalents at end of period $ 803 $ 185 ======== ======= Cash paid during the period for Interest $ 3,553 $ 978 Income taxes ??? 726
The accompanying notes are an integral part of the financial statements. 4 5 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION AND OTHER MATTERS The consolidated condensed financial statements included herein have been prepared by Ekco Group, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is believed, however, that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The consolidated condensed financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The condensed financial statements, in the opinion of management, reflect all adjustments necessary to fairly state the Company's financial position and the results of its operations. Such adjustments are of a normal recurring nature. A large part of the Company's business is seasonal. Historically, revenues in the last half of the calendar year have been greater than revenues in the first half of the year. Accordingly, the results for the entire year may not necessarily be the product of annualizing results for any interim period. (2) ACCOUNTS RECEIVABLE, NET Accounts receivable consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995 -------------- ----------------- (AMOUNTS IN THOUSANDS) Accounts receivable $40,009 $44,871 Allowance for doubtful accounts (989) (1,048) ------- ------- $39,020 $43,823 ======= =======
(3) INVENTORIES The components of inventory were as follows:
MARCH 31, 1996 DECEMBER 31, 1995 -------------- ----------------- (AMOUNTS IN THOUSANDS) Raw materials $12,048 $11,489 Work in process 4,903 3,097 Finished goods 34,136 32,979 ------- ------- $51,087 $47,565 ======= =======
5 6 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (4) PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995 -------------- ----------------- (AMOUNTS IN THOUSANDS) Property and equipment at cost Land, buildings and improvements $23,217 $22,856 Equipment, factory and other 73,452 71,922 ------- ------- 96,669 94,778 Less accumulated depreciation 40,663 38,398 ------- ------- $56,006 $56,380 ======= =======
(5) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET Excess of cost over fair value of net assets acquired consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995 -------------- ----------------- (AMOUNTS IN THOUSANDS) Excess of cost over fair value of net assets acquired $164,329 $164,327 Accumulated amortization (28,836) (27,727) -------- -------- $135,493 $136,600 ======== ========
(6) INCOME TAXES The Company's effective tax rate as reported in its latest annual report on Form 10-K was 50% for the year ended December 31, 1995 ("Fiscal 1995"). The difference between the Company's effective tax rate of 48% for the three months ended March 31, 1996 and the Fiscal 1995 rate results primarily from amortization of excess of cost over fair value of net assets acquired, which is not deductible for income taxes, being a lower percentage of earnings (loss) before income taxes. (7) SERIES B ESOP CONVERTIBLE PREFERRED STOCK Series B ESOP Convertible Preferred Stock, net, consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995 -------------- ----------------- (AMOUNTS IN THOUSANDS) Series B ESOP Convertible Preferred Stock, par value $.01, redeemable at $3.61 per share $ 5,378 $ 5,372 Unearned compensation (1,710) (1,914) ------- ------- $ 3,668 $ 3,458 ======= =======
6 7 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (8) COMMON STOCK, $.01 PAR VALUE Share information regarding common stock consisted of the following:
MARCH 31, 1996 DECEMBER 31, 1995 -------------- ----------------- Authorized shares 60,000,000 60,000,000 ========== ========== Shares issued 27,860,267 27,854,441 Shares held in treasury 9,424,431 9,440,577 ---------- ---------- 18,435,836 18,413,864 ========== ==========
(9) NET INCOME PER COMMON SHARE Primary earnings per common share are based upon the weighted average of common stock and dilutive common stock equivalent shares outstanding during each period. Fully diluted earnings per share have been omitted since they are either the same as primary earnings per share or anti-dilutive. The weighted average number of shares used in computation of earnings per share consisted of the following for the periods presented:
THREE MONTHS ENDED ------------------ MARCH 31, 1996 APRIL 2, 1995 -------------- ------------- (AMOUNTS IN THOUSANDS) Weighted average shares of common stock outstanding during the period 18,410 18,204 Series B ESOP Convertible Preferred Stock anti-dilutive 1,568 Weighted average common equivalent shares due to stock options anti-dilutive 452 ------------- ------ 18,410 20,224 ====== ======
(10) CONTINGENCIES Item 1. LEGAL PROCEEDINGS. The Company is a party to several pending legal proceedings and claims, including the matters described below. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company's management is of the opinion that the expected final outcome should not have a material adverse effect on the Company's financial position, results of operations or liquidity. In April 1996, the U.S. District Court for the Northern District of Ohio ruled that certain products which the Company has marketed in the past infringed a patent owned by a third-party plaintiff. Monetary damages have not yet been assessed by the Court. The Company and its counsel believe that the Company has meritorious grounds for appeal and defenses. The Company will vigorously pursue an appeal. 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 has incurred obligations for investigations or remedial actions with respect to certain of such matters. While 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 is aware that at its facilities in 7 8 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) (UNAUDITED) Environmental matters (continued) Massillon and Hamilton, Ohio, Easthampton, Massachusetts, Lititz, Pennsylvania, Chicago, Illinois and at the previously owned facility in Hudson, New Hampshire, hazardous substances and oil have been detected and that additional investigation will be, and remedial action will or may be, required. Operations at these and other facilities currently or previously owned or leased by the Company utilize, or in the past have utilized, hazardous substances. There can be no assurance that activities at these or any other facilities owned or operated by the Company or future facilities may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required. In connection with the acquisition of Kellogg Brush Manufacturing Co. and subsidiaries ("Kellogg") by the Company in 1993, the Company engaged environmental engineering consultants ("Consultants") to review potential environmental liabilities at all of Kellogg's properties. Additional investigation and testing resulted in the identification of likely environmental remedial actions, operation, maintenance and ground water monitoring and the estimated costs thereof. Management, based upon the engineering studies, originally estimated the total remediation and ongoing ground water monitoring costs to be approximately $6.0 million, including the effects of inflation, and accordingly at that time, recorded a liability of approximately $3.8 million, representing the undiscounted costs of remediation and the net present value of future costs discounted at 6%. Based upon the most recent cost estimates provided by the Consultants, the Company believes the total remediation costs will be approximately $2.0 million and the expense for the ongoing operation, maintenance and ground water monitoring will be $50,000 for Fiscal 1996 and $25,000 for each of the 30 years thereafter. As of March 31, 1996, the Company has recorded a liability of approximately $3.5 million. The Company expects to pay approximately $325,000 of the remediation costs in the current year ("Fiscal 1996") with the balance being paid out in fiscal years 1997 and 1998. During the first quarter of Fiscal 1996, the Company paid approximately $9,000 of such costs. The estimates may subsequently change if additional sites are identified or further remediation measures are required or undertaken or the interpretation of current laws or regulations are modified. The Company has not anticipated any insurance proceeds or third-party payments in arriving at the above estimates. (11) EXTRAORDINARY CHARGE On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006, at a price of 99.291% of face value, in a private offering to institutional investors. The Company used the net proceeds of the Senior Note offering to (i) repurchase its outstanding 12.70% Notes due 1998 and 7.0% Convertible Subordinated Note due 2002 and (ii) to repay substantially all amounts outstanding under the Revolving Credit Facility. Concurrently with closing the sale of the 9.25% Senior Notes, the Company entered into an amendment to its Revolving Credit Facility, which amendment consolidated the outstanding debt and borrowing capacity of the Company and its wholly-owned subsidiaries, Ekco Housewares, Inc. and Frem Corporation, and revised certain financial covenants. Borrowings under the amended Revolving Credit Facility bear interest at the bank's prime rate, or at LIBOR plus 1.25% or 1.5%, depending on the Company's borrowing strategy and the ratio of total debt to cash flow. The Revolving Credit Facility provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment amount and a $60,000 annual agency fee. Borrowings under the Revolving Credit Facility mature in December 1998. The Senior Notes, as well as the Revolving Credit Facility, contain certain financial covenants that may restrict the sale of assets, the incurrence of additional indebtedness and certain investments and acquisitions by the Company. The early extinguishment of the 12.70% Notes and 7% 8 9 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) (UNAUDITED) Extraordinary charge (continued) Convertible Subordinated Note resulted in an extraordinary charge of $2.8 million consisting of the following:
(Amounts in Thousands) Premium on 12.70% Notes, due 1998 $ 6,511 Discount on prepayment of 7% Convertible Subordinated Note, due 2002 (3,218) Write-off of related unamortized financing costs 2,054 ------- Extraordinary charge before income tax benefit 5,347 Income tax benefit 2,560 ------- Net extraordinary charge $ 2,787 =======
9 10 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The following discussion and analysis of the consolidated results of operations for the thirteen week periods ended March 31, 1996 (the First Quarter of Fiscal 1996) and April 2, 1995 (the First Quarter of Fiscal 1995) and the financial condition at March 31, 1996 should be read in conjunction with the Company's Consolidated Condensed Financial Statements and Notes thereto. Because of the seasonality of the Company's revenues, which have historically been concentrated in the second half of its fiscal year, the results of operations and the balance sheet for, or as of, the end of any interim period may not be indicative of either a full year's operations or the financial condition of the Company at the end of any fiscal year. NET REVENUES Net revenues for the First Quarter of Fiscal 1996 decreased approximately $1.8 million (3%) from the comparable prior year period. The decline in net revenues was primarily due to lower net revenues generated from sales of the Company's bakeware and kitchen tool and gadget products partially offset by $2.1 million in net revenues from the Company's new line of VIA! products. Net revenues in the First Quarter of Fiscal 1996 were affected by a number of factors: First, the generally poor retail environment that was experienced in the last quarter of Fiscal 1995 extended into the First Quarter of Fiscal 1996 as consumer purchasing was restrained. In addition, poor weather across much of the nation, especially early in the quarter, also contributed to the slow retail environment. Finally, orders from retailers were lower than usual because retailers ended 1995 with higher levels of inventory which needed to be sold before needing to be replenished. GROSS PROFIT The Company's gross profit margin declined from 31% in the First Quarter of Fiscal 1995 to 28% for the First Quarter of Fiscal 1996. The decline in gross profit margin was primarily due to lower net revenues from the Company's bakeware and kitchen tool and gadget products. Other factors contributing to this decline were (i) continuation of increased promotional discounting, started in the fourth quarter of Fiscal 1995 to help structure consumer demand, (ii) cost increases including higher labor costs and material costs, particularly tin plate and packaging materials, which were not recovered through price increases and (iii) unabsorbed manufacturing costs due to shortfall in planned volumes. NET INTEREST EXPENSE Net interest expense decreased $422,000 from the First Quarter of Fiscal 1995 level of $3.4 million. The decline in net interest expense was primarily due to lower average borrowings. 10 11 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) EXTRAORDINARY CHARGE The extraordinary charge was due to the early extinguishment of the 12.7% Notes and 7% Convertible Subordinated Note. See Note 11 of Notes to Condensed Financial Statements. LIQUIDITY AND CAPITAL RESOURCES During the First Quarter of Fiscal 1996, the Company generated $553,000 in cash from operations. Such cash, together with net proceeds of $2.5 million from issuance of debt was used for capital expenditures of approximately $2.1 million and dividend payments of approximately $398,000. On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006, at a price of 99.291% of face value, in a private offering to institutional investors. The Company used net proceeds of the Senior Note offering to (i) repurchase its outstanding 12.7% Notes due 1998 and 7.0% Subordinated Convertible Note due 2002 and (ii)to repay substantially all amounts outstanding under the Revolving Credit Facility. Concurrently with closing the sale of the 9.25% Senior Notes, the Company entered into an amendment to its Revolving Credit Facility, which amendment consolidated the outstanding debt and borrowing capacity of the Company and its wholly-owned subsidiaries, Ekco Housewares, Inc. and Frem Corporation, and revised certain financial covenants. Borrowings under the amended Revolving Credit Facility bear interest at the bank's prime rate, or at LIBOR plus 1.25% or 1.5%, depending on the Company's borrowing strategy and the ratio of total debt to cash flow. The Revolving Credit Facility provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment amount and a $60,000 annual agency fee. Borrowings under the Revolving Credit Facility mature in December 1998. The Senior Notes, as well as the Revolving Credit Facility, will contain certain financial covenants that will restrict the sale of assets, the incurrence of additional indebtedness and certain investments and acquisitions by the Company. The Company believes that the net proceeds from the Senior Note offering, together with borrowing capacity under the amended Revolving Credit Facility will provide sufficient borrowing capacity to finance its ongoing operations for the foreseeable future. The Company may, however, require additional funds to finance any future acquisitions. The Company's properties held for sale include a former manufacturing facility located in Chicago, Illinois, and a warehouse located in Lititz, Pennsylvania. The Company is actively pursuing the sale or lease of these properties, and has leased the Lititz warehouse facility. The Company plans to sell these properties within the next two years. The aggregate carrying values of such properties, $2.8 million at March 31, 1996, are periodically reviewed and are stated at the lower of cost or market. The Company has provided approximately $3.5 million for environmental remediation and ongoing operation, maintenance and ground water monitoring costs associated with facilities owned or occupied by the Company's cleaning products business. The Company believes the provision is adequate, but will continue to monitor and adjust the provision, as appropriate, should additional sites be identified or further remediation measures be required or undertaken or interpretation of current laws or regulation be modified. BUSINESS OUTLOOK This Quarterly Report, including "Management's Discussion and Analysis of Results of Operations and Financial Condition," contains forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to: the impact of the level of the Company's indebtedness; restrictive covenants contained in the Company's various debt documents; the seasonal nature of the Company's business; and the impact of federal, state and local environmental requirements (including the impact of the current or future environmental claims against the Company). As a result, the Company's operating results may fluctuate, especially when measured on a quarterly basis. 11 12 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is a party to several pending legal proceedings and claims, including the matters described below. Although the outcome of such proceedings and claims cannot be determined with certainty, the Company's management is of the opinion that the expected final outcome should not have a material adverse effect on the Company's financial position, results of operations or liquidity. In April 1996, the U.S. District Court for the Northern District of Ohio ruled that certain insulated bakeware products infringed a patent owned by a third-party plaintiff. The Company ceased manufacturing such products in December 1995. Monetary damages have not yet been assessed by the Court. The Company and its counsel believe that the Company has meritorious grounds for appeal and defenses. The Company will vigorously pursue an appeal. ENVIRONMENTAL REGULATION AND CLAIMS 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 has incurred obligations for investigations or remedial actions with respect to certain of such matters. While 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 is aware that at its facilities in Massillon (more fully described below), and Hamilton, Ohio, Easthampton, Massachusetts (more fully described in Note 10 of Notes to Consolidated Condensed Financial Statements hereinabove) Lititz, Pennsylvania, Chicago, Illinois and at the previously owned facility in Hudson, New Hampshire, hazardous substances and oil have been detected and that additional investigation will be, and remedial action will or may be, required. Operations at these and other facilities currently or previously owned or leased by the Company utilize, or in the past have utilized, hazardous substances. There can be no assurance that activities at these or any other facilities owned or operated by the Company or future facilities may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required. Prior to the Company's acquisition of Ekco Housewares, Inc. ("Housewares") in 1987, Housewares' Massillon, Ohio steel bakeware manufacturing facility was the subject of administrative proceedings before the United States Environmental Protection Agency by issuance of an administrative complaint alleging violations of the Resource Conservation and Recovery Act resulting from operation of a wastewater lagoon at the facility. American Home Products Corporation ("AHP"), a former owner of Housewares, pursuant to an indemnity agreement (the "Indemnity Agreement") with Housewares relating to acts occurring prior to September 7, 1984, assumed the costs of remediation measures in addition to the defense of the administrative proceedings with federal and state environmental protection agencies, as well as preparation of closure plans and other plans called for as a result of these proceedings. While AHP has acknowledged its full responsibility under the Indemnity Agreement with respect to the wastewater lagoon, it has asserted that Housewares should contribute to the cost of a remediation study and certain remediation measures to the extent that Housewares exacerbated contamination at the facility since September 7, 1984. Housewares has denied that it has exacerbated contamination at the facility since such date. AHP and Housewares have agreed to allocate such costs in proportion to their respective responsibilities based on the results of an engineering study but in no event will Housewares' share with respect to the wastewater lagoon exceed the lesser of 25% of the total cost or $750,000. The Company is unable to determine to what extent, if any, it will be responsible to contribute to such costs but the Company does not believe that any such contribution that it may be required to make will have a material adverse effect on its financial position, results of operations or liquidity. 12 13 In June 1992, the United States filed an action in the U.S. District Court for the Northern District of Ohio against Housewares seeking penalties and injunctive relief and alleging violations as a result of an alleged failure to provide certain closure and post-closure financial assurances with respect to the Massillon, Ohio site. Pursuant to the Indemnity Agreement and a confirmatory letter from AHP to Housewares on December 19, 1988 (the "Indemnity Documents"), AHP conducted and controlled all matters relating to such financial assurances and the defense of the action filed in June 1992. In January 1994, the court entered judgment against Housewares in the amount of $4.6 million in the lawsuit. AHP filed an appeal on behalf of Housewares. In August 1995, the Court of Appeals affirmed in part and reversed in part the penalty imposed on Housewares and remanded the redetermination of civil penalties for certain periods of time. The penalty affirmed by the Court of Appeals amounted to $2,858,000, and, pursuant to the Indemnity Documents, AHP paid that amount, plus applicable interest, on Housewares' behalf. With respect to the penalty reversed and remanded by the Court of Appeals, the United States has agreed in principle to a stipulated judgment that would resolve the remaining claims in the case for $400,000. While such stipulated judgment has not yet been finalized and entered by the Court, AHP, by letter dated May 6, 1996, notified Housewares that if such judgment is entered AHP intends to pay that amount on Housewares' behalf and will not seek reimbursement from the Company of the amounts AHP has paid or will pay on Housewares' behalf in this litigation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit No. 27: Financial Data Schedule. (b) Reports on Form 8-K: On March 7, 1996, the registrant filed a report on Form 8-K as of December 31, 1995 to report under "Item 5. Other Events" that it and its wholly-owned subsidiaries, Ekco Housewares, Inc. and Frem Corporation, had entered into an amendment dated as of December 31, 1995 with their lender banks. On March 29, the registrant filed a report on Form 8-K as of March 20, 1996 to report under "Item 5. Other Events" that it had entered into an agreement to sell $125 million principal amount of 9 1/4% Senior Notes due April 2006 at a price of 99.291% of face value in a private offering to institutional investors. 13 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EKCO GROUP, INC. ------------------------------- (Registrant) Date: May 15, 1996 By: /s/ ROBERT STEIN ------------------------ ------------------------------- Robert Stein President and Chief Executive Officer By: /s/ DONATO A. DENOVELLIS ------------------------------- Donato A. DeNovellis Executive Vice President, Finance and Administration, and Chief Financial Officer 14 16 INDEX TO EXHIBITS FILED WITH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 803 0 40,009 989 51,087 103,835 96,669 40,663 305,537 35,182 124,182 3,668 0 184 131,907 305,537 56,961 56,961 41,089 54,448 1,109 4 3,026 (1,532) (733) (799) 0 (2,787) 0 (3,586) (.19) (.19)
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