-----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, N7U6P3mTUiQxrb4jzwG67sAdXP189ZEA8NKVVgKSrzDfnOpNH/hML3O0WEJJ4V5K pZ9NnXKDzRQPKpOd9VB8Mg== 0000950135-97-002375.txt : 19970515 0000950135-97-002375.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950135-97-002375 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970330 FILED AS OF DATE: 19970514 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: 97603498 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 30, 1997 -------------- 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 5, 1997, there were issued and outstanding 18,912,653 shares of common stock of the registrant. 1 2 PART I ITEM 1. FINANCIAL STATEMENTS EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 30, DECEMBER 29, 1997 1996 --------- ------------ (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 28,657 $ 15,706 Accounts receivable, net 34,779 42,182 Inventories 55,354 47,422 Other current assets 6,497 6,180 Net assets of discontinued operations 2,766 17,030 Deferred income tax 10,947 10,857 -------- -------- Total current assets 139,000 139,377 Property and equipment, net 34,242 34,998 Other assets 8,458 6,569 Excess of cost over fair value of net assets acquired, net 110,209 111,132 -------- -------- Total assets $291,909 $292,076 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 15,897 $ 18,395 Accrued expenses 28,859 28,688 Income taxes 4,978 2,651 -------- -------- Total current liabilities 49,734 49,734 -------- -------- Long-term obligations, less current portion 124,204 124,182 ------- -------- Other long-term liabilities 11,347 11,052 -------- -------- Series B ESOP Convertible Preferred Stock, net; outstanding 1,391 shares and 1,439 shares, respectively, redeemable at $3.61 per share 4,156 4,098 -------- -------- Commitments and contingencies - - Minority interest 494 495 -------- -------- Stockholders' equity Common stock, $.01 par value; outstanding 18,717 shares and 18,580 shares, respectively 187 186 Capital in excess of par value 108,051 107,622 Cumulative translation adjustment 844 869 Retained earnings (deficit) (2,360) (1,352) Unearned compensation (2,901) (2,963) Pension liability adjustment (1,847) (1,847) -------- -------- 101,974 102,515 -------- -------- Total liabilities and stockholders' equity $291,909 $292,076 ======== ========
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 30, 1997 AND MARCH 31, 1996 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
1997 1996 ---- ---- Net revenues $53,888 $51,090 ------- ------- Costs and expenses Cost of sales 36,870 35,451 Selling, general and administrative 14,900 12,569 Special charge 294 - Amortization of excess of cost over fair value 909 909 ------- ------- 52,973 48,929 ------- ------- Income before interest and income taxes 915 2,161 ------- ------- Net interest Interest expense 3,135 3,026 Investment income (270) (90) ------- ------- 2,865 2,936 ------- ------- Loss from continuing operations before income taxes (1,950) (775) and extraordinary charge Income taxes (benefit) (942) (744) ------- ------- Loss from continuing operations before extraordinary charge (1,008) (31) Loss from discontinued operations, net of tax benefit of $410 - (347) ------- ------- Loss before extraordinary change (1,008) (378) Extraordinary charge for early retirement of debt, net of tax benefit of $2,139 - (3,208) ------- ------- Net income (loss) $(1,008) $(3,586) ======= ======= Loss per common share Loss from continuing operations before extraordinary charge $ (.05) $ - Loss from discontinued operations - (.02) Loss before extraordinary charge (.05) (.17) ------- ------- Loss per common share $ (.05) $ (.19) ======= ======= Weighted average number of shares used in computation of per share data 18,688 18,410 ======= =======
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 30, 1997 AND MARCH 31, 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED)
1997 1996 ---- ---- Cash flows from operating activities Net loss $(1,008) $ (3,586) Adjustments to reconcile net income to net cash provided by (used for) operations Depreciation 1,871 1,877 Amortization of excess of cost over fair value 909 909 Amortization of deferred finance costs 136 106 Other amortization 1,152 1,604 Special charges 294 - Loss from discontinued operations Extraordinary charge - 3,208 Other 36 (152) Changes in certain assets and liabilities, net of effects from acquisition of business, affecting cash provided by operations Accounts receivable 7,269 4,367 Inventories (8,003) (4,074) Prepaid marketing costs (1,167) (600) Other assets (39) (2,415) Accounts payable and accrued expenses (4,216) (4,467) Income taxes payable 2,325 1,761 ------- --------- Net cash provided by (used in) operating activities Continuing operations (441) (1,462) Discontinued operations 14,264 2,039 ------- --------- Net cash provided by operating activities 13,823 577 ------- --------- Cash flows from investing activities Proceeds from sale of property and equipment 100 6 Capital expenditures for continuing operations (1,240) (1,580) Capital expenditures for discontinued operations - (545) ------- --------- Net cash used in investing activities (1,140) (2,119) ------- --------- Cash flows from financing activities Proceeds from issuance of notes payable and long-term obligations - 120,504 Proceeds from sale of investment held as collateral - - Payment of dividends - (398) Payment of notes and long-term obligations - (118,005) Other 283 101 ------- --------- Net cash provided by (used in) financing activities 283 2,202 Effect of exchange rate changes on cash (15) 1 ------- --------- Net increase in cash and cash equivalents 12,951 661 Cash and cash equivalents at beginning of year 15,706 142 ------- --------- Cash and cash equivalents at end of period $28,657 $ 803 ======= ========= Cash paid during the period for Interest $ 32 $ 3,553 Income taxes (3,179) (1,018)
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) DISCONTINUED OPERATIONS On January 31, 1997, the Company's Board of Directors approved management's plan to dispose of the Company's molded plastic products business. Accordingly, in its latest annual report on Form 10-K the Company reported the results of the operations of the molded plastics products business and the loss on disposal as discontinued operations. During the quarterly period ended March 30, 1997 (the "First Quarter of Fiscal 1997") the Company sold substantially all of the assets of its molded plastics products business for cash proceeds of approximately $14.3 million and a $2.0 million promissory note. The approximately $2.8 million of net assets of discontinued operations at March 30, 1997 consists principally of the Company's molded plastic product manufacturing facility in Worcester, Massachusetts. The Company has leased this facility under a five year lease with annual lease payments of approximately $500,000. On April 28, 1997, the Company entered into a purchase and sale agreement to sell the Worcester, Massachusetts facility for approximately $3 million. 5 6 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (2) DISCONTINUED OPERATIONS CONTINUED Net assets of discontinued operations classified separately in the consolidated condensed balance sheets as of December 29, 1996 are as follows: (Amounts in thousands) Accounts receivable, net $ 4,210 Inventories 6,138 Prepaid expenses and other assets 67 Property and equipment, net 16,743 Accounts payable (2,416) Accrued expenses (2,212) Loss of disposal (5,500) ------- $17,030 =======
Certain information with respect to statement of operations from discontinued operations for the three months ended March 31, 1996 follows: (Amounts in thousands) Net revenues $5,871 ------ Cost of sales 5,638 Selling, general and administrative 790 Goodwill amortization 200 ------ 6,628 ------ Loss before income tax benefit (757) Income tax benefit (410) ------ Loss from discontinued operations $ (347) ======
(3) ACCOUNTS RECEIVABLE, NET Accounts receivable consisted of the following:
MARCH 30, 1997 DECEMBER 29, 1996 -------------- ----------------- (AMOUNTS IN THOUSANDS) Accounts receivable $35,636 $42,942 Allowance for doubtful accounts (857) (760) ------- ------- $34,779 $42,182 ======= =======
6 7 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (4) INVENTORIES The components of inventory were as follows:
MARCH 30, 1997 DECEMBER 29, 1996 -------------- ----------------- (AMOUNTS IN THOUSANDS) Raw materials $10,736 $ 9,628 Work in process 3,648 3,253 Finished goods 40,970 34,541 ------- ------- $55,354 $47,422 ======= =======
(5) PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following:
MARCH 30, 1997 DECEMBER 29, 1996 -------------- ----------------- (AMOUNTS IN THOUSANDS) Property and equipment at cost Land, buildings and improvements $14,715 $14,623 Equipment, factory and other 59,630 58,963 ------- ------- 74,345 73,586 Less accumulated depreciation 40,103 38,588 ------- ------- $34,242 $34,998 ======= =======
(6) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET Excess of cost over fair value of net assets acquired is net of accumulated amortization of $29,599 and $28,690 as of March 30, 1997 and December 29, 1996, respectively. (7) INCOME TAXES The Company's effective tax rate fluctuates significantly due to the impact of goodwill amortization which is not deductible for tax purposes. The Company's effective tax rate as reported in its latest annual report on Form 10-K was 787% for the year ended December 29, 1996. The anticipated effective rate for fiscal 1997 is 48%. 7 8 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (8) SERIES B ESOP CONVERTIBLE PREFERRED STOCK, NET Series B ESOP Convertible Preferred Stock, net, consisted of the following:
MARCH 30, 1997 DECEMBER 29, 1996 -------------- ----------------- (AMOUNTS IN THOUSANDS) Series B ESOP Convertible Preferred Stock, par value $.01, redeemable at $3.61 per share $ 5,050 $ 5,196 Unearned compensation (894) (1,098) ------- ------- $ 4,156 $ 4,098 ======= =======
(9) COMMON STOCK, $.01 PAR VALUE Share information regarding common stock consisted of the following:
MARCH 30, 1997 DECEMBER 29, 1996 -------------- ----------------- (AMOUNTS IN THOUSANDS) Authorized shares 60,000 60,000 ====== ====== Shares issued 28,134 27,997 Shares held in treasury 9,417 9,417 ------ ------ 18,717 18,580 ====== ======
(10) LOSS 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 30, 1997 MARCH 31, 1996 -------------- -------------- (AMOUNTS IN THOUSANDS) Weighted average shares of common stock outstanding during the period 18,688 18,410 Series B ESOP Convertible Preferred Stock anti-dilutive anti-dilutive Weighted average common equivalent shares due to stock options anti-dilutive anti-dilutive ------------- ------------- 18,688 18,410 ====== ======
8 9 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (11) CONTINGENCIES LEGAL PROCEEDINGS The Company is a party to several pending legal proceedings and claims. 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. 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 Massillon and Hamilton, Ohio; Easthampton, Massachusetts; Lititz, Pennsylvania; Chicago, Illinois and at its 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 at such facilities. 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 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. Such 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 and compliance costs will be approximately $1.8 million and the expense for the ongoing operation, maintenance and ground water monitoring will be $12,500 for Fiscal 1997 and $12,500 to $25,000 for each of the 30 years thereafter. As of March 30, 1997, the liability recorded by the Company was approximately $3.5 million. Although the current estimated costs of remediation are less than the liability recorded at March 30, 1997, the Company does not consider any adjustment to be prudent at this time given the inherent uncertainties involved in completing the remediation processes. The Company expects to pay approximately $110,500 of the remediation costs in the current year 9 10 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) ENVIRONMENTAL MATTERS CONTINUED ("Fiscal 1997") with the balance being paid out in fiscal 1998 and 1999. During the first quarter of Fiscal 1997, the Company paid approximately $6,000 of such costs. The estimates may subsequently change should additional sites be identified or further remediation measures be required or undertaken or interpretation of current laws or regulations be modified. The Company has not anticipated any insurance proceeds or third-party payments in arriving at the above estimates. (12) SPECIAL CHARGE The special charge relates to the recognition of appreciation in value of stock appreciation rights granted to the Company's former Chief Executive Officer pursuant to a December 1996 severance arrangement. (13) EXTRAORDINARY CHARGE On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006 at a price of 99.2291% of face value in a private offering to institutional investors. The Company used the net proceeds of the Senior Notes to (i) repurchase its outstanding 12.7% Notes due 1998 and 7.0% Convertible Subordinated Note due 2002 and (ii) repay substantially all amounts outstanding under its revolving credit facility. The early extinguishment of the 12.7% Notes and 7% Convertible Subordinated Note resulted in an extraordinary pre-tax charge of $5.3 million and an after tax charge of $3.2 million. 10 11 \ 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 period ended March 30, 1997 (the "First Quarter of Fiscal 1997") and March 31, 1996 (the "First Quarter of Fiscal 1996") and the financial condition at March 30, 1997 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 1997 increased approximately $2.8 million (5.5%) from the comparable prior year period. The increase in net revenues was primarily due to higher sales of the Company's insulated bakeware line due to product line expansion introduced in early 1996, increased sales of kitchen tools and gadgets resulting from the roll-out of new plan-o-grams at several key customers, a high level of acceptance of new products introduced during fiscal 1996 and increased sales of the Company's animal care and pest control products. Net revenues for the First Quarter of Fiscal 1996 included net revenues of $1.6 million from the Company's wireforming business, which was divested in the fourth quarter of Fiscal 1996. GROSS PROFIT The Company's gross profit margin improved from 30.6% in the First Quarter of Fiscal 1996 to 31.6% for the First Quarter of Fiscal 1997. The improvement in gross margin was due primarily to successful efforts in obtaining lower purchase costs for the Company's kitchen tools and gadgets products and improvement in bakeware manufacturing efficiencies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE Selling, general and administrative expenses increased approximately $2.3 million (18.5%) from the comparable prior year period. The increase in selling, general and administrative expenses was due primarily to increased investments for the development of new products, improved packaging and the development of selling and marketing materials, as well as the acceleration of the timing of these expenditures to earlier in the year and increased selling expenses attributable to higher year-over-year sales. EXTRAORDINARY CHARGE On March 25, 1996, the Company sold $125.0 million of its 9.25% Senior Notes due 2006 at a price of 99.2291% of face value in a private offering to institutional investors. The Company used the net proceeds of the Senior Notes to (i) repurchase its outstanding 12.7% Notes due 1998 and 7.0% Convertible Subordinated Note due 2002 and (ii) repay substantially all amounts outstanding under its revolving credit facility. The early extinguishment of the 12.7% Notes and 7% Convertible Subordinated Note resulted in an extraordinary pre-tax charge of $5.3 million and an after tax charge of $3.2 million. 11 12 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES During the First Quarter of Fiscal 1997, the Company generated approximately $14.3 million in cash from the sale of the assets of its molded plastic products business. This amount was used to fund operations and capital expenditures of approximately $1.2 million. On January 31, 1997, the Company's Board of Directors approved management's plan to dispose of the Company's molded plastic products business. Accordingly, in its latest annual report on Form 10-K, the Company reported the results of the operations of the molded plastics products business and the loss on disposal as discontinued operations. During the quarterly period ended March 30, 1997 (the "First Quarter of Fiscal 1997"), the Company sold substantially all of the assets of its molded plastics products business for cash proceeds of approximately $14.3 million and a $2.0 million promissory note. The approximate $2.8 million of net assets of discontinued operations at March 30, 1997 consists principally of the Company's molded plastics products manufacturing facility in Worcester, Massachusetts. The Company has leased this facility under a five year lease with annual lease payments of approximately $500,000. On April 28, 1997, the Company entered into a purchase and sale agreement to sell the Worcester, Massachusetts facility for approximately $3 million. The $7.4 million decline in accounts receivable from the $42.2 million at December 29, 1996, was offset by $7.9 million growth in the Company's inventories. The accounts receivable decline was primarily due to the seasonality of net revenues. The increase in inventory was partially due to seasonality, a planned increase in inventories to facilitate higher service levels and an accumulation of safety stock relating to the consolidation of the Company's cleaning products manufacturing facilities. As reported in the Company's latest report on Form 10-K, the Company will combine the manufacturing of cleaning products currently located in Easthampton, Massachusetts into the existing cleaning products manufacturing facility in Hamilton, Ohio. The consolidation is expected to be completed during the fourth quarter of Fiscal 1997. It is expected that there will be additional operating expenses of approximately $1.5 million associated with the orderly transition of manufacturing activities to the Hamilton, Ohio facility. During the First Quarter of Fiscal 1997 additional consolidation costs incurred were insignificant. At March 30, 1997, the Company was not in compliance with certain covenants of its revolving credit facility and such noncompliance has been waived. The Company is currently renegotiating with its lender modifications to certain covenants and conditions of the revolving credit facility. At March 30, 1997, $17.0 million was available for general corporate purposes under the revolving credit facility net of $11.0 million in outstanding letters of credit. The Company believes it has sufficient borrowing capacity to finance its ongoing operations for the foreseeable future. The Company, however, may require additional funds to finance acquisitions. 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 this 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 regulations be modified. 12 13 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share (FASB No. 128). FASB No. 128 supersedes APB No. 15 and specifies the computation, presentation and disclosure requirements for earnings per share. FASB No. 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997 and early application is not permitted. Accordingly, the Company will apply FASB No. 128 for the quarter and year ended December 31, 1997 and restate prior information as required under the statement. The Company has determined that if the FASB No. 128 had been applied for the first quarter ending March 30, 1997 the impact on earnings per share as currently stated would have been immaterial. BUSINESS OUTLOOK This Quarterly Report, including "Management's Discussion and Analysis of Results of Operations and Financial Condition," contains forward-looking statements made pursuant to the safe harbor provision of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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; general economic conditions and conditions in the retail environment; the Company's dependence on a few large customers; price fluctuations in the raw materials used by the Company; competitive conditions in the Company's markets; the timely introduction of new products; the impact of competitive products and pricing; certain assumptions related to consumer purchasing patterns; the seasonal nature of the Company's business; and the impact of federal, state and local environmental requirements (including the impact of current or future environmental claims against the Company). As a result, the Company's results may fluctuate, especially when measured on a quarterly basis. These forward looking statements represent the Company's best estimate as of the date of this Form 10-Q. The Company assumes no obligation to update such estimates except as required by the rules and regulations of the Securities and Exchange Commission. 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 cannot be determined with certainty, the Company's management, after consultation with legal counsel, is of the opinion that the expected final outcome should not have a material adverse effect on the Company's financial position, results of operation or liquidity. In April 1996, the U.S. District Court for the Northern District of Ohio ruled that certain insulated bakeware products manufactured by the Company infringed a patent held by a third-party plaintiff. The Company ceased manufacturing such products in December 1995. In July 1996, the court enjoined the Company from infringing the patent and awarded the plaintiff a royalty of 2% 13 14 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) of sales, or approximately $88,000. The Company believes that it is not liable for infringement, and in December 1996, the Company filed a notice of appeal, and thereafter, the third-party plaintiff filed a cross-appeal. The Company and its counsel believe that the Company has meritorious grounds for its appeal of the court's decision. The Company's management believes that the final outcome will not have a material adverse effect on the Company's financial position, results of operations or liquidity. 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 and Hamilton, Ohio; Easthampton, Massachusetts (more fully described in Note 11 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 at such facilities. 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 or future facilities may not result in additional environmental claims being asserted against the Company or additional investigations or remedial actions being required. ITEM 2. CHANGES IN SECURITIES On March 21, 1997, the registrant amended its preferred share purchase Rights Agreement which was originally adopted by the registrant on March 27, 1987 (the "Rights Plan"). The amendment extended the term of the Rights Plan from April 9, 1997 to March 21, 2007 and adjusted the exercise price of the Rights issuable under the Rights Plan from $20 to $30. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit: 4.1 Amended and Restated Rights Agreement dated as of March 21, 1997 between Ekco Group, Inc. and American Stock Transfer & Trust Company, including form of Rights Certificate (incorporated herein by reference to Exhibit 4.1 to Form 8-K as of March 21, 1997). 10.1 Subordinated Promissory Note dated March 28,1997 made by Austin Products, Inc. to Ekco Consumer Plastics, Inc. 27 Financial Data Schedule (b) Reports on Form 8-K: None. 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 12, 1997 By: /s/ Malcolm L. Sherman ------------------------------ ------------------------------- Malcolm L. Sherman Chairman and Chief Executive Officer By: /s/ Donato A. DeNovellis ------------------------------- Donato A. DeNovellis Executive Vice President, Finance and Administration, and Chief Financial Officer 15 16 INDEX TO EXHIBIT FILED WITH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1997 EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1 SUBORDINATED PROMISSORY NOTE DATED MARCH 28, 1997 MADE BY AUSTIN PRODUCTS, INC. TO EKCO CONSUMER PLASTICS, INC. 27 FINANCIAL DATA SCHEDULE 16 EX-10.1 2 SUBORDINATED PROMISSORY NOTE DATED 3/28/97 1 EXHIBIT 10.1 ------------ SUBORDINATED PROMISSORY NOTE $2,000,000.00 Date: March 28, 1997 FOR VALUE RECEIVED, AUSTIN PRODUCTS, INC., a Texas corporation (herein called "Maker"), promises to pay to the order of EKCO CONSUMER PLASTICS, INC., a Massachusetts corporation (herein together with any successors or assigns collectively called "Payee"), in Worcester County, Massachusetts, the principal sum of Two Million and No/100 Dollars ($2,000,000.00), together with interest on the unpaid principal balance from time to time outstanding at a rate of ten percent (10%) per annum. 1. PAYMENT. Principal and interest to be paid as follows: a. INTEREST ONLY PERIOD. Interest only on the outstanding principal balance shall be due and payable in quarterly installments of $50,000, beginning on June 30, 1997, and continuing thereafter on the last day of each succeeding September, December, March and June, through and including March 31, 1999. b. PRINCIPAL AND INTEREST PAYMENTS. After March 31, 1999, the outstanding principal balance shall be due and payable in twelve (12) equal quarterly installments of principal PLUS interest, commencing on June 30, 1999, and continuing thereafter on the last day of each succeeding September, December, March and June, with the final payment of all outstanding principal and accrued interest thereon due on March 31, 2002. 2. PREPAYMENT. Maker shall be entitled to prepay all or any part of the principal of this Note prior to the date of maturity without premium or penalty. All payments on this Note shall be applied first to the payment of the Payee's costs and expenses, if applicable, second to the payment of the accrued and unpaid interest, and then to the reduction of the principal balance hereof (applied to the principal installments hereunder in inverse order of maturity). Any prepayment shall not affect the obligation of Maker to make the scheduled payments described above, if on each scheduled payment date the unpaid principal balance thereof plus accrued interest is equal to or greater than the amount of the scheduled payments. 3. DEFAULT. The occurrence and continuance of any of the following specified events shall constitute an "Event of Default:" (a) The failure to make any payment of interest, SUBORDINATED PROMISSORY NOTE -1- EKCO 2 principal or other amounts due pursuant to the terms of this Note on the due date thereof (other than as a result of the suspension of payments as permitted under the subordination provisions of Paragraph 5 below). (b) The Maker shall commence a voluntary case under 11 U.S.C. [section]101 ET. SEQ. (the "Bankruptcy Code") or any foreign, federal or state bankruptcy, insolvency or other similar law or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary bankruptcy or similar case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or the taking of possession by a receiver, trustee or other custodian for all or a substantial part of its property, or the making by the Maker of any assignment for the benefit of creditors, or the admission by the Maker in writing of its inability to pay its debts as such debts become due. (c) A court shall enter a decree or order for relief in respect of the Maker in an involuntary case under the Bankruptcy Code or any applicable foreign, federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed or dismissed within 60 days of the entry thereof, or a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other person having similar powers over the Maker, or over all or a substantial part of its property, shall have been entered. Upon the occurrence and continuance of any Event of Default hereunder, (i) the principal of and accrued interest on this Note may be declared to be immediately due and payable, PROVIDED, HOWEVER, in the case of an Event of Default described in paragraphs (b) or (c) above, the principal of and accrued interest on this Note shall immediately become due and payable by the Maker without notice, action or election by the Payee, (ii) any other amounts payable by the Maker hereunder shall automatically become immediately due and payable by the Maker, and (iii) the Payee may enforce any of its rights granted pursuant to applicable law or equity, all of which shall be cumulative and not exclusive, and may be exercised singly, repetitively, in any combination, and in any order. 4. INTEREST ON PAST DUE FUNDS. All past due principal of, accrued interest on and other charges due under this Note shall bear interest, from the due date until paid, at a rate equal to the lesser of: (i) 14% and (ii) the highest rate Payee is then entitled lawfully to charge under applicable law. 5. UNSECURED NOTE; SUBORDINATION. Payee acknowledges and agrees that the indebtedness evidenced by this Note is unsecured SUBORDINATED PROMISSORY NOTE -2- EKCO 3 and is subordinate to all "Primary Secured Debt" as provided herein. As used herein, the term "PRIMARY SECURED DEBT" shall mean the secured indebtedness described in the following clauses (whether outstanding at the date hereof or hereafter incurred or created), including unpaid principal and unpaid interest on such secured indebtedness as well as other obligations arising under the promissory notes, loan agreements, deeds of trust, and security agreements securing such secured indebtedness, and costs of collection, reasonable attorneys' fees, and court costs relating to such secured indebtedness: (i) all secured indebtedness of Maker to its senior secured lenders, currently COMERICA BANK-Texas, providing primary financing for Maker's equipment, inventory and working capital needs (or any successors or assigns of the foregoing); and (ii) increases, renewals, extensions, refinancing, and refunding of any of the foregoing with senior secured lenders. If any payments under this Note would result in Maker being in "Default" (herein so called) under any Primary Secured Debt instrument (including without limitation, any "Subordination Agreement", herein so called, executed by Payee) or if Maker is otherwise in "Default" (either a payment or covenant default) under any Primary Secured Debt instrument, then payments under this Note shall be suspended for up to 120 days for a payment Default and 90 days for a covenant Default (in either case, a "Suspension Period"); provided (i) the suspension shall only apply to that portion of the payment which would trigger the Default unless the Default is a covenant Default or the Subordination Agreement executed by Payee bars all payments during the Suspension Period, and (ii) at the end of the Suspension Period, or if earlier as soon as payments can be made within the Suspension Period without Maker being in such Default, such payment(s) shall resume immediately (with all previously suspended payments being paid as soon as possible, without triggering additional Defaults under the Primary Secured Debt). During any Suspension Period, Maker shall provide within fifteen (15) days of the date of the commencement of the suspension, a written explanation detailing the reasons for such suspension. Notwithstanding anything contained herein to the contrary, a new Suspension Period can not commence prior to the expiration of thirty (30) days after the end of any previous Suspension Period. Payee promises at any time and from time to time prior to the payment in full of all amounts due under this Note to execute promptly one or more Subordination Agreements in favor of any holder of Primary Secured Debt in conformity herewith. During the term hereof, Maker shall timely deliver to Payee copies of the unaudited (and audited, if applicable) consolidated, financial statements of its parent corporation, Alpha Holdings, Inc., as delivered to is primary secured lenders from time to time. 6. COLLECTION COSTS. The Maker agrees to pay on demand SUBORDINATED PROMISSORY NOTE -3- EKCO 4 all out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and costs) incurred or paid by the Payee in enforcing this Note. 7. PLACE OF PAYMENT. All payments hereunder shall be made to Payee at , or at such other address as Payee may from time to time designate in writing to Maker. 8. NO WAIVER OF RIGHTS. Payee's partial or complete exercise, delay, or failure to exercise any of the options, rights, or powers granted to Payee hereunder shall not constitute a waiver of the right to exercise the same or any other option, right, or power at any subsequent time. Any rights or options of Payee hereunder shall not be affected by any renewal or extension in the time of payment hereof, or by any release or change in any security for the payment of this Note, or by the acceptance in advance of due date of any payment hereunder, or by any acceptance of a payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment regardless of the number of such renewals, extensions, releases, changes, or acceptances. 9. WAIVER OF NOTICE. Maker, and each surety, endorser, guarantor, and other party liable for the payment of any sums of money payable on this Note, severally waive presentment and demand for payment, protest, and notice of protest, notice of intent to accelerate, notice of acceleration, and nonpayment and all other notices in connection with this Note. 10. LAWS GOVERNING. This Note shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 11. HEADINGS. The titles and headings of paragraphs are included for convenience of reference only and are not to be considered in construing the provisions of this Note. 12. COURSE OF DEALING; ENTIRE AGREEMENT. No course of dealing or other conduct, no oral agreement or representation made by the Payee, or usage of trade shall operate as a waiver of any right or remedy by the Payee. This Note contains the entire agreement between the parties with respect to the subject matter hereof, and supersedes every course of dealing, other conduct, oral agreement or representation previously made by the Payee. No waiver, amendment or forbearance of any of the terms of this Note, or the rights and remedies of the Payee hereunder, shall be effective unless made specifically in a writing signed by the Payee. 13. SUCCESSORS AND ASSIGNS. The Note is a binding obligation enforceable against the Maker and its successors and SUBORDINATED PROMISSORY NOTE -4- EKCO 5 assigns and shall inure to the benefit of the holder hereof and its successors and assigns. This Note may be assigned by the Payee without the consent of the Maker. 14. SEVERABILITY. In the event that any court of competent jurisdiction shall determine that any provision, or any portion thereof, contained in this Note shall be unenforceable in any respect, than such provision shall be deemed limited to the extent that such court deems it enforceable, and the remaining provisions of this Note shall nevertheless remain in full force and effect. 15. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing, shall be addressed to the receiving party's address set forth below or to such other address as a part may designate by notice hereunder, and shall be either (i) delivered by hand, (ii) made by telex, telecopy or facsimile transmission, (iii) sent by recognized overnight courier, or (iv) sent by registered or certified mail, return receipt requested, postage prepaid. If to the Maker: Austin Products, Inc. 1500 Three Lincoln Centre 5430 LBJ Freeway Dallas, TX 75240 Attn: President Fax No.: (972) 701-0530 With a copy to: KRONEY SILVERMAN MINCEY, INC. 1210 Three Forest Plaza 12221 Merit Drive Dallas, TX 75251 Attn: James M. Mincey, Jr., Esq. Fax No.: (972) 701-0307 If to the Payee: Ekco Group, Inc. 98 Spit Brook Road, Suite 102 Nashua, NH 03062 Attn: Chief Executive Officer Fax No.: (603) 888-1427 With a copy to: Ekco Group, Inc. 98 Spit Brook Road, Suite 102 Nashua, NH 03062 Attn: Jeffrey A. Weinstein, Esq. Fax No.: (603) 888-1427 And to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, MA 02111 SUBORDINATED PROMISSORY NOTE -5- EKCO 6 Attn: Peter F. Demuth, Esq. Fax No.: (617) 542-2241 EXECUTED as of the date first above written. Maker: AUSTIN PRODUCTS, INC. By: /s/ Jack R. Rigby ---------------------------- Jack R. Rigby, President SUBORDINATED PROMISSORY NOTE -6- EKCO EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-30-1997 28,657 0 35,636 857 55,354 139,000 74,345 34,242 291,909 49,734 124,202 4,156 0 187 101,787 291,909 53,888 53,888 36,870 52,064 909 153 3,135 (1,950) (942) (1,008) 0 0 0 (1,008) (.05) (.05)
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