<PAGE> 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.
<PAGE> 2
<TABLE>
EKCO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
OCTOBER 2, JANUARY 2,
1994 1994
----------- ----------
(UNAUDITED)
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 3
<TABLE>
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)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
<TABLE>
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)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 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
<PAGE> 6
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
(2) ACQUISITION OF KELLOGG BRUSH MANUFACTURING CO. (CONTINUED)
<CAPTION>
NINE MONTHS ENDED OCTOBER 3, 1993
---------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
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)
</TABLE>
<TABLE>
(3) INVENTORIES
The components of inventory were as follows:
<CAPTION>
OCTOBER 2, 1994 JANUARY 2, 1994
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Raw materials $15,698 $10,040
Work in process 5,431 1,871
Finished goods 21,602 21,701
------- -------
$42,731 $33,612
======= =======
</TABLE>
<TABLE>
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following:
<CAPTION>
OCTOBER 2, 1994 JANUARY 2, 1994
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
6
<PAGE> 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.
<TABLE>
(6) LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<CAPTION>
OCTOBER 2, 1994 JANUARY 2, 1994
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
(a) The Group Credit Line replaced the following which were outstanding on
January 2, 1994:
<TABLE>
<S> <C>
Woodstream Credit Agreement $ 1,286
Kellogg Credit Agreement 9,614
10% Mortgage Note 6,920
-------
$17,820
=======
</TABLE>
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
<PAGE> 8
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
(7) SERIES B ESOP CONVERTIBLE PREFERRED STOCK, NET
Series B ESOP Convertible Preferred Stock, net, consisted of the following:
<CAPTION>
OCTOBER 2, 1994 JANUARY 2, 1994
--------------- ---------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
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
======== ========
</TABLE>
<TABLE>
(8) COMMON STOCK, $.01 PAR VALUE
Share information regarding common stock consisted of the following:
<CAPTION>
OCTOBER 2, 1994 JANUARY 2, 1994
--------------- ---------------
<S> <C> <C>
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
========== ==========
</TABLE>
<TABLE>
(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:
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1994 1993 1994 1993
---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
====== ====== ====== ======
</TABLE>
8
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 16
<TABLE>
INDEX TO EXHIBIT FILED WITH FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 1994
<CAPTION>
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1995
<PERIOD-START> JAN-03-1994
<PERIOD-END> OCT-02-1994
<EXCHANGE-RATE> 1
<CASH> 238
<SECURITIES> 0
<RECEIVABLES> 52,582
<ALLOWANCES> 2,110
<INVENTORY> 42,731
<CURRENT-ASSETS> 111,417
<PP&E> 78,645
<DEPRECIATION> 27,800
<TOTAL-ASSETS> 316,625
<CURRENT-LIABILITIES> 62,460
<BONDS> 114,834
<COMMON> 180
2,968
0
<OTHER-SE> 123,218
<TOTAL-LIABILITY-AND-EQUITY> 316,625
<SALES> 192,176
<TOTAL-REVENUES> 192,176
<CGS> 127,776
<TOTAL-COSTS> 167,451
<OTHER-EXPENSES> 3,330
<LOSS-PROVISION> 461
<INTEREST-EXPENSE> 9,512
<INCOME-PRETAX> 12,159
<INCOME-TAX> 5,671
<INCOME-CONTINUING> 6,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,488
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
