-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, e+4i29RD569KcavJ0gVQwiiFlQC9k97/BgN2YuUEAZplsFweUJOcgOeRjhZ6NYt7 44d8vnPe5msxCBJ2pUcjsw== 0000950135-94-000661.txt : 19941122 0000950135-94-000661.hdr.sgml : 19941122 ACCESSION NUMBER: 0000950135-94-000661 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941002 FILED AS OF DATE: 19941115 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EKCO GROUP INC /DE/ CENTRAL INDEX KEY: 0000018827 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94560425 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 FORM 10-Q FOR EKCO GROUP, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For quarterly period ended OCTOBER 2, 1994 --------------- 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 and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ As of November 3, 1994, there were issued and outstanding 18,038,112 shares of common stock of the registrant. 2 EKCO GROUP, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OCTOBER 2, JANUARY 2, 1994 1994 ----------- ---------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents $ 238 $ 327 Accounts receivable, net of allowance for doubtful accounts (October 2, 1994, $2,110; January 2, 1994, $1,758) 50,472 36,095 Inventories 42,731 33,612 Prepaid expenses and other current assets 5,559 5,800 Deferred income taxes 8,617 9,647 Investments pledged as collateral 3,800 4,350 -------- -------- Total current assets 111,417 89,831 Property and equipment, net 50,845 53,241 Property held for sale or lease, net 7,524 9,353 Other assets 4,668 10,006 Excess of cost over fair value of net assets acquired, net of accumulated amortization (October 2, 1994, $22,182; January 2, 1994, $18,852) 142,171 145,530 -------- -------- Total assets $316,625 $307,961 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Note payable $ 3,706 $ 4,338 Current portion of long-term obligations 9,821 9,238 Accounts payable 15,536 13,955 Accrued expenses 30,888 31,659 Income taxes 2,509 4,872 -------- -------- Total current liabilities 62,460 64,062 -------- -------- Accrued pension, post-retirement and post-employment costs 1,484 1,466 -------- -------- Long-term obligations, less current portion 114,834 111,982 -------- -------- Deferred income taxes 2,631 1,589 -------- -------- Other long-term liabilities 8,352 8,814 -------- -------- Commitments and contingencies - - Series B ESOP Convertible Preferred Stock, net; outstanding October 2, 1994, 1,602 shares; outstanding January 2, 1994, 1,645 shares; redeemable at $3.61 per share 2,968 2,686 -------- -------- Minority interest 498 498 -------- -------- Stockholders' equity Common stock, $.01 par value; outstanding October 2, 1994, 18,033 shares; outstanding January 2, 1994, 17,844 shares 180 178 Capital in excess of par value 104,956 104,202 Cumulative translation adjustment 1,004 1,091 Retained earnings 22,237 15,749 Unearned compensation (3,075) (2,452) Pension liability adjustment (1,904) (1,904) -------- -------- 123,398 116,864 -------- -------- Total liabilities and stockholders' equity $316,625 $307,961 ======== ========
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 AND NINE MONTHS ENDED OCTOBER 2, 1994 AND OCTOBER 3, 1993 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- Net revenues $ 78,623 $ 73,287 $ 192,176 $ 177,046 ----------- ----------- ----------- ----------- Costs and expenses Cost of sales 51,511 46,776 127,776 116,558 Selling, general and administrative 14,507 14,781 39,675 38,093 Amortization of excess cost over fair value 1,111 1,107 3,330 3,119 ----------- ----------- ----------- ----------- 67,129 62,664 170,781 157,770 ----------- ----------- ----------- ----------- Income before interest and income taxes 11,494 10,623 21,395 19,276 ----------- ----------- ----------- ----------- Net interest expense Interest expense 3,223 3,418 9,512 9,550 Investment income (50) (105) (276) (451) ----------- ----------- ----------- ----------- 3,173 3,313 9,236 9,099 ----------- ----------- ----------- ----------- Income before income taxes and cumulative effect of accounting changes 8,321 7,310 12,159 10,177 Income taxes 3,845 3,628 5,671 4,947 ----------- ----------- ----------- ----------- Income before cumulative effect of accounting changes 4,476 3,682 6,488 5,230 Cumulative effect of changes in methods of accounting for postretirement and postemployment benefits (net of income taxes of $1,954) - - - (3,247) ----------- ----------- ----------- ----------- Net income $ 4,476 $ 3,682 $ 6,488 $ 1,983 =========== =========== =========== =========== Per share data Earnings before cumulative effect of accounting changes $ .22 $ .18 $ .32 $ .26 Cumulative effect of accounting changes - - - (.19) ----------- ----------- ----------- ----------- Net income $ .22 $ .18 $ .32 $ .07 =========== =========== =========== =========== Weighted average number of shares used in computation of per share data Earnings before cumulative effect of accounting changes 20,139,157 20,120,909 20,106,750 19,977,807 Cumulative effect of accounting changes - - - 17,148,320
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 NINE MONTHS ENDED OCTOBER 2, 1994 AND OCTOBER 3, 1993 (AMOUNTS IN THOUSANDS) (UNAUDITED)
1994 1993 ---- ---- Cash flows from operating activities Net income $ 6,488 $ 1,983 Adjustments to reconcile net income to net cash provided by (used in) operations Depreciation and amortization 7,028 6,989 Amortization of intangible assets 6,018 4,628 Cumulative effect of accounting changes - 3,247 Other 3,392 3,094 Changes in certain assets and liabilities, net of effects from acquisition of businesses, affecting cash provided by (used in) operations Accounts receivable (14,885) (12,796) Inventories (9,669) (11,184) Other assets 3,123 (3,861) Accounts payable and accrued expenses 313 2,572 Income taxes payable (2,362) (1,672) --------- --------- Net cash used in operations (554) (7,000) --------- --------- Cash flows from investing activities Proceeds from sale of property and equipment 5,219 138 Capital expenditures (7,514) (11,919) Acquisition of business, net of cash acquired - (26,428) --------- --------- Net cash used in investing activities (2,295) (38,209) --------- --------- Cash flows from financing activities Proceeds from issuance of notes payable and long-term obligations 30,385 30,274 Issuance of common stock under stock purchase plans 414 448 Payment of notes and long-term obligations (27,582) (2,998) Other (514) 638 --------- --------- Net cash provided by financing activities 2,703 28,362 Effect of exchange rate changes on cash 57 183 --------- --------- Net decrease in cash and cash equivalents (89) (16,664) Cash and cash equivalents at beginning of year 327 16,998 --------- --------- Cash and cash equivalents at end of period $ 238 $ 334 ========= ========= Cash paid during the period for Interest $ 6,631 $ 6,678 Income taxes 5,586 4,539
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. These condensed financial statements should 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. The Company's principal operating subsidiaries are wholly-owned Ekco Housewares, Inc. ("Housewares"), Frem Corporation ("Frem") and Kellogg Brush Manufacturing Co. and subsidiaries ("Kellogg") and majority-owned Woodstream Corporation ("Woodstream"). 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) ACQUISITION OF KELLOGG BRUSH MANUFACTURING CO. On April 1, 1993, the Company acquired Kellogg for a cash payment of approximately $26 million and 564,651 shares of the Company's common stock valued at approximately $6.5 million. The following unaudited pro forma combined results of operations for the nine months ended October 3, 1993 have been prepared assuming that the acquisition of Kellogg occurred at the beginning of such period. In preparing the pro forma data, adjustments have been made for: (i) the amortization of goodwill; (ii) the interest expense related to the borrowings under bank credit agreements to finance a portion of the purchase price; (iii) reduction in investment income for utilization of the Company's cash and investments to finance a portion of the purchase price; and (iv) the elimination of costs associated with the exercise of options under Kellogg's stock option plan which were exercised in connection with the acquisition of Kellogg. The following unaudited pro forma financial information is not necessarily indicative of results of operations that would have occurred had the transaction been effected at the beginning of Fiscal 1993 or of future results of the combined companies. 5 6 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (2) ACQUISITION OF KELLOGG BRUSH MANUFACTURING CO. (CONTINUED)
NINE MONTHS ENDED OCTOBER 3, 1993 --------------------------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues $187,494 Income before income taxes and cumulative effect of changes in method of accounting 6,492 Income before cumulative effect of changes in method of accounting 2,948 Net loss (299) Per share data Income before cumulative effect of change in method of accounting .15 Net loss (.04)
(3) INVENTORIES The components of inventory were as follows:
OCTOBER 2, 1994 JANUARY 2, 1994 --------------- --------------- (AMOUNTS IN THOUSANDS) Raw materials $15,698 $10,040 Work in process 5,431 1,871 Finished goods 21,602 21,701 ------- ------- $42,731 $33,612 ======= =======
(4) PROPERTY AND EQUIPMENT, NET Property and equipment, net, consisted of the following:
OCTOBER 2, 1994 JANUARY 2, 1994 --------------- --------------- (AMOUNTS IN THOUSANDS) Property and equipment at cost Land, buildings and improvements $21,693 $21,151 Equipment, factory and other 56,952 57,227 ------- ------- 78,645 78,378 Less accumulated depreciation, and amortization 27,800 25,137 ------- ------- $50,845 $53,241 ======= =======
6 7 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (5) INCOME TAXES The Company's effective tax rate as reported in its latest annual report on Form 10-K was 67% for Fiscal 1993. Excluding the effect of the $11 million restructuring/ reorganization and excess facilities charge reported for Fiscal 1993, the effective tax rate would have been reduced from 67% to 50%. The difference between the Company's effective tax rate of 46% for the three and nine months ended October 2, 1994 and the adjusted tax rate of 50% for Fiscal 1993 was primarily a result of amortization of goodwill becoming a lower percentage of earnings before income taxes. The Company's federal income tax returns for all years subsequent to fiscal year 1987 are subject to review by the Internal Revenue Service. As part of the sale of the Company's printer business in 1987, the Company indemnified the purchaser with respect to foreign tax liabilities of the Company's former foreign subsidiaries relating to periods prior to the sale. (6) LONG-TERM OBLIGATIONS Long-term obligations consisted of the following:
OCTOBER 2, 1994 JANUARY 2, 1994 --------------- --------------- (AMOUNTS IN THOUSANDS) Group Credit Line $ 21,030 $ 17,820 (a) Housewares Credit Agreement 16,049 13,956 Frem Credit Agreement 5,356 6,500 12.7% Senior Subordinated Notes 60,000 60,000 7% Convertible Subordinated Note 22,000 22,000 Other 220 944 -------- -------- 124,655 121,220 Less current portion 9,821 9,238 -------- -------- $114,834 $111,982 ======== ========
(a) The Group Credit Line replaced the following which were outstanding on January 2, 1994: Woodstream Credit Agreement $ 1,286 Kellogg Credit Agreement 9,614 10% Mortgage Note 6,920 ------- $17,820 =======
On April 1, 1994 the Company entered into an agreement which provides for a $35 million bank credit line ("Group Credit Line") and a $5 million standby letter of credit facility. The Group Credit Line reduces to $30 million at December 31, 1995 and $25 million at December 31, 1996. The loan matures on December 1, 1998. Loans under the Group Credit Line bear interest at either the bank's prime rate plus one-quarter of one percent or the LIBOR rate plus 1.75%. The agreement provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment amount. Borrowings under the Group Credit Line are collateralized by substantially all of the assets of the Company not otherwise pledged. The Group Credit Line contains certain financial and operating covenants, the most restrictive of which requires the Company to maintain a minimum level of cash flow. The maturity of $2.0 million of the revolving credit line due under the Frem Credit Agreement has been extended from June 30, 1994 to January 31, 1995. As of October 2, 1994, Frem was not in compliance with the Leverage Ratio and such non-compliance was waived. 7 8 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (7) SERIES B ESOP CONVERTIBLE PREFERRED STOCK, NET Series B ESOP Convertible Preferred Stock, net, consisted of the following:
OCTOBER 2, 1994 JANUARY 2, 1994 --------------- --------------- (AMOUNTS IN THOUSANDS) Series B ESOP Convertible Preferred Stock, par value $.01, no dividend $ 5,717 $ 5,939 Unearned compensation (2,749) (3,253) -------- -------- $ 2,968 $ 2,686 ======== ========
(8) COMMON STOCK, $.01 PAR VALUE Share information regarding common stock consisted of the following:
OCTOBER 2, 1994 JANUARY 2, 1994 --------------- --------------- Authorized shares 60,000,000 60,000,000 ========== ========== Shares issued 27,256,742 27,067,262 Shares held in treasury (9,223,600) (9,223,600) ---------- ---------- Shares outstanding 18,033,142 17,843,662 ========== ==========
(9) EARNINGS PER COMMON SHARE Primary earnings per common share are based upon the weighted average of common stock and dilutive common stock equivalent shares, including Series B ESOP Convertible Preferred Stock, 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 NINE MONTHS ENDED ------------------ ----------------- OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3, 1994 1993 1994 1993 ---- ---- ---- ---- (AMOUNTS IN THOUSANDS) Weighted average shares of common stock outstanding during the period 18,000 17,765 17,925 17,553 Series B ESOP Convertible Preferred Stock 1,602 1,666 1,627 1,673 Weighted average common equivalent shares due to stock options 537 690 555 752 ------ ------ ------ ------ 20,139 20,121 20,107 19,978 ====== ====== ====== ======
8 9 EKCO GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (10) 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, Hudson, New Hampshire, and Lititz, Pennsylvania, 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 or future facilities owned or operated by the Company 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 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 therefor. Based upon the cost estimates provided by the Consultants, the Company believes remediation costs will be approximately $1.5 million and the expense for the ongoing operation, maintenance and ground water monitoring will be $195,000 per year for the first ten years and $130,000 per year for 20 years thereafter. Management believes that the total amount of these liabilities is approximately $6 million, including the effects of inflation. Accordingly, the Company recorded a liability of approximately $3.7 million. This amount represents the undiscounted costs of remediation and the net present value of future operation, maintenance and ground water monitoring costs discounted at 6%. The Company expects to pay approximately $231,000 of the remediation costs in Fiscal 1994 with the balance being paid out in Fiscal 1995 and Fiscal 1996. During the first nine months of Fiscal 1994 the Company paid approximately $168,000 of such costs. These 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. 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 October 2, 1994 (the Third Quarter of 1994) and October 3, 1993 (the Third Quarter of 1993) and for the thirty-nine week periods ended October 2, 1994 (the First Nine Months of 1994) and October 3, 1993 (the First Nine Months of 1993) and the financial condition at October 2, 1994 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 for any interim period and the balance sheet as of the end of any interim period are not 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 Third Quarter and First Nine Months of 1994 increased approximately $5.3 million (7.3%) and $15.1 million (8.5%), respectively, from the comparable prior year periods. Net revenues for the Third Quarter and First Nine Months of 1993 include $3.4 million and $9.7 million, respectively, associated with the Company's tackle box and hunting storage container business, which assets were sold in January 1994. Net revenues for the First Nine Months of 1994 include first quarter revenues of $12.7 million from Kellogg Brush Manufacturing Co. and subsidiaries ("Kellogg"). Kellogg was acquired by the Company on April 1, 1993. Excluding the above acquisitions and divestitures, net revenues for the Third Quarter and First Nine Months of 1994 increased approximately $8.8 million (12.6%) and $12.1 million (7.3%), respectively. Each of the Company's business units contributed to the growth in net revenues. Retailers, while continuing to adhere to stringent inventory controls, are committed to maintaining high service levels for their customers. As a result, retailers are keeping their shelves stocked, which has contributed to the Company's growth in revenues. Approximately $4.0 million of the Third Quarter ($5.0 million of the First Nine Months) increase resulted from increased sales of the Company's bakeware products which benefited from new products such as Crisp It pizza pans and Healthy Cooking broiler and meat loaf pans along with strong growth in Baker's Secret coated products. Approximately $2.0 million of the Third Quarter ($3.0 million of the First Nine Months) increase resulted from increased sales of the Company's kitchen tool and gadget products which benefited from the J-Hook program introduced in the second half of 1993. GROSS PROFIT The Company's gross profit margin declined from 36.2% in the Third Quarter of 1993 to 34.5% in the comparable 1994 period and from 34.2% in the First Nine Months of 1993 to 33.5% in the comparable 1994 period. The decline in gross profit margin was primarily due to increases in raw material costs and warehousing and distribution costs, along with changes in product mix, which were partially offset by improved facilities utilization at Kellogg. Although raw material costs are increasing in general, the majority of the increase resulted from the approximate doubling of prices of plastic resin, Frem's primary raw material. While the Company has not finalized any sales pricing strategies, it does expect to increase prices in fiscal 1995. There can be no assurance that the sales price increases will offset the increases being experienced in raw material costs. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses for the Third Quarter of 1994 decreased approximately $300,000 (1.9%) from the comparable prior year period but increased approximately $1.6 million for the First Nine Months of 1994 from the comparable prior year period. Selling, general and administrative expenses for the 10 11 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) RESULTS OF OPERATIONS (CONTINUED) SELLING, GENERAL AND ADMINISTRATIVE (CONTINUED) Third Quarter and First Nine Months of 1993, include $600,000 and $2.1 million, respectively, associated with the Company's tackle box and hunting storage container business. Additionally, selling, general, and administrative expenses for the First Nine Months of 1994, include first quarter expenses of $1.9 million from Kellogg. Excluding the above acquisitions and divestitures, selling, general and administrative expenses for the Third Quarter and First Nine Months of 1994 increased approximately $300,000 and $1.6 million, respectively. The increase is primarily due to increased display and sales promotion costs in the Company's kitchen tool and gadget products and costs associated with a start-up subsidiary that is developing products for the upscale and specialty marketplace. The increase was partially offset by the benefit associated with the implementation of the Restructuring Plan (see "Restructuring/reorganization and excess facilities charge" below). NET INTEREST EXPENSE Net interest expense for the Third Quarter of 1994 decreased $140,000 from the comparable prior year period. The decline was primarily due to lower average borrowings. Net interest expense for the First Nine Months of 1994 increased $137,000 from the First Nine Months of 1993. The increase was primarily due to the additional debt associated with the acquisition of Kellogg on April 1, 1993, partially offset by the lower average borrowings in the Third Quarter of 1994. RESTRUCTURING/REORGANIZATION AND EXCESS FACILITIES CHARGE During the Fourth Quarter of Fiscal 1993, the Company recorded an $11 million restructuring/reorganization and excess facilities charge ($6.6 million after income taxes) resulting from management's analysis of the Company's operations and future strategy. Of this charge approximately $2.7 million was non-cash. At January 2, 1994, the accrual relating to restructuring/reorganization and excess facilities costs was $8.3 million. During the First Nine Months of 1994, the Company charged approximately $4.9 million against such accrual for costs incurred in the implementation of the restructuring plan. At October 2, 1994 the accrual was $6.1 million. The Company estimates that the benefit it received in the Third Quarter and First Nine Months of 1994 from the restructuring was approximately $540,000 and $1.7 million, respectively. The benefit was primarily due to reduced expenses associated with the reduction and realignment in administrative and operating personnel, principally at Ekco Housewares. The Company expects to realize total benefits in Fiscal 1994 of approximately $2.5 million. CUMULATIVE EFFECT OF CHANGES IN METHOD OF ACCOUNTING The charge in Fiscal 1993 for the cumulative effect of changes in method of accounting was due to the adoption by the Company of Statement of Financial Accounting Standard No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and Statement of Financial Accounting Standard No. 112, "Employers' Accounting for Postemployment Benefits". 11 12 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES During the First Nine Months of 1994, the Company utilized approximately $600,000 to fund operating activities, primarily to pay interest expense and to increase working capital levels due to seasonality and increases in distribution to its major customers. Also, during the First Nine Months of 1994, the Company used approximately $2.7 million of increased borrowings along with the proceeds from both the January 1994 sale of the Company's plastic tackle box and hunting storage container business, approximately $3.9 million and the September 1994 sale of the Company's Toronto facility, approximately $900,000, for capital expenditures of approximately $7.5 million. Additionally, during the First Nine Months of 1994, the Company provided its Employee Stock Ownership Plan with approximately $950,000 to purchase approximately 137,000 shares of the Company's Common Stock in the public market. The increase in the Company's inventory and accounts receivable balances relates to the seasonality of the Company's revenues, which have historically been concentrated in the second half of its fiscal year. In addition to normal depreciation, the decline in property and equipment results primarily from the January 1994 sale of the assets of the Company's plastic tackle box and hunting storage container business. The decline in property held for sale or lease results primarily from the sale of the Company's land and building in Toronto, Ontario. The decline in other assets relates to the reduction in time deposits held by a bank to collateralize letters of credit issued to secure a portion of the Company's obligations under employment agreements. The time deposits were used to reduce borrowings. On April 1, 1994, the Company entered into a $40 million bank credit facility consisting of a $35 million credit line ("Group Credit Line") and a $5 million standby letter of credit facility. The Group Credit Line reduces to $30 million at December 31, 1995 and $25 million at December 31, 1996. Final maturity will be on December 1, 1998. Loans under the Group Credit Line bear interest at either the bank's prime rate plus one-quarter of one percent or the LIBOR rate plus 1.75%. The agreement provides for a commitment fee of three-eighths of one percent on the unused portion of the commitment amount. Initial borrowings under the Group Credit Line were used to refinance loans under the Woodstream Credit Agreement and the Kellogg Credit Agreements and to retire a 10% Mortgage Note. The maturity of $2.0 million of the revolving credit line due under the Frem Credit Agreement has been extended from June 30, 1994 to January 31, 1995. As of October 2, 1994, Frem was not in compliance with the Leverage Ratio and such non-compliance was waived. Including the Group Credit Line, the Company and its operating subsidiaries have credit facilities of $59.0 million, of which $42.4 million were outstanding at October 2, 1994. These credit facilities reduce to $57.9 million at the end of Fiscal 1994 and to $32.6 million at the end of Fiscal 1995. The Company believes it will have sufficient borrowing capacity to finance its ongoing operations through at least the end of fiscal year 1994. The Company may require additional funds to finance any further acquisitions. The Company has land and buildings in Hudson, New Hampshire, Chicago, Illinois, and a portion of its facilities in Lititz, Pennsylvania, held for sale. The Company is actively pursuing the sale or lease of these properties, and has partially leased the Hudson and Lititz facilities. The aggregate carrying values of 12 13 EKCO GROUP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) such properties are periodically reviewed and are stated at the lower of cost or market. During the fourth quarter of Fiscal 1993, the Company provided an additional $1 million carrying value write down for these properties. The Company has provided approximately $3.7 million for environmental remediation and ongoing operation, maintenance and ground water monitoring costs associated with Kellogg-owned or occupied facilities. 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 regulations be modified. 13 14 EKCO GROUP, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS 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 at Massillon and Hamilton Ohio, Easthampton, Massachusetts, Hudson, New Hampshire, and Lititz, Pennsylvania 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 or any future facilities owned or operated by the Company may not result in additional environmental claims being asserted against the Company or remedial actions being required. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K: a) Exhibits - none b) Reports on Form 8-K: The registrant did not file any reports on Form 8-K during the quarter for which this report is filed. 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: November 15, 1994 By: /s/ ROBERT STEIN ------------------------ ------------------------------- Robert Stein, President and Chief Executive Officer By: /s/ DONATO A. DENOVELLIS ------------------------------- Donato A. DeNovellis Executive Vice President, Finance & Administration, Chief Financial Officer 15 16 INDEX TO EXHIBIT FILED WITH FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 1994
EXHIBIT NO. DESCRIPTION - - ----------- ----------- 27 Financial Data Schedule
16 EX-27 2 FINANCIAL DATA SCHEDULE TO FORM 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF EKCO GROUP, INC. FOR THE NINE MONTHS ENDED OCTOBER 2, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS JAN-01-1995 JAN-03-1994 OCT-02-1994 1 238 0 52,582 2,110 42,731 111,417 78,645 27,800 316,625 62,460 114,834 180 2,968 0 123,218 316,625 192,176 192,176 127,776 167,451 3,330 461 9,512 12,159 5,671 6,488 0 0 0 6,488 .32 .32
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