<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 July 3, 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 (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 August 8, 1994, there were issued and outstanding 17,999,490
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>
July 3, January 2,
1994 1994
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 500 $ 327
Accounts receivable, net of allowance for
doubtful accounts (July 3, 1994, $1,938;
January 2, 1994, $1,758) 36,046 36,095
Inventories 39,858 33,612
Prepaid expenses and other current assets 5,596 5,800
Deferred income taxes 9,665 9,647
Investments pledged as collateral 3,800 4,350
------- -------
Total current assets 95,465 89,831
Property and equipment, net 49,952 53,241
Property held for sale or lease, net 8,936 9,353
Other assets 4,456 10,006
Excess of cost over fair value of net assets
acquired, net of accumulated amortization
(July 3, 1994, $21,071; January 2, 1994, $18,852) 143,213 145,530
------- -------
Total assets $302,022 $307,961
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable $ 3,768 $ 4,338
Current portion of long-term obligations 6,134 9,238
Accounts payable 15,019 13,955
Accrued expenses 27,135 31,659
Income taxes 2,730 4,872
------- -------
Total current liabilities 54,786 64,062
------- -------
Accrued pension, postretirement and postemployment costs 1,507 1,466
------- -------
Long-term obligations, less current portion 113,894 111,982
------- -------
Deferred income taxes 1,842 1,589
------- -------
Other long-term liabilities 8,241 8,814
------- -------
Commitments and contingencies - -
Series B ESOP Convertible Preferred Stock, net;
outstanding July 3, 1994, 1,602 shares;
outstanding January 2, 1994, 1,645 shares redeemable
at $3.61 per share 2,867 2,686
------- -------
Minority interest 498 498
------- -------
Stockholders' equity
Common stock, $.01 par value; outstanding
July 3, 1994, 17,974 shares; outstanding
January 3, 1994, 17,844 shares 180 178
Capital in excess of par value 104,718 104,202
Cumulative translation adjustment 816 1,091
Retained earnings 17,761 15,749
Unearned compensation (3,184) (2,452)
Pension liability adjustment (1,904) (1,904)
------- -------
118,387 116,864
------- -------
Total liabilities and stockholders' equity $302,022 $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 SIX MONTHS ENDED JULY 3, 1994 AND JULY 4, 1993
(Amounts in thousands, except share data)
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $59,199 $57,439 $113,553 $103,759
------- ------- -------- --------
Costs and expenses
Cost of sales 39,657 39,574 76,265 69,782
Selling, general and administrative 13,482 12,115 25,168 23,312
Amortization of excess cost over
fair value 1,109 1,111 2,219 2,012
------- ------- -------- --------
54,248 52,800 103,652 95,106
------- ------- -------- --------
Income before interest and
income taxes 4,951 4,639 9,901 8,653
------- ------- -------- --------
Net interest expense
Interest expense 3,095 3,301 6,289 6,132
Investment income (133) (111) (226) (346)
------- ------- -------- --------
2,962 3,190 6,063 5,786
------- ------- -------- --------
Income before income taxes and
cumulative effect of accounting
changes 1,989 1,449 3,838 2,867
Income taxes 956 671 1,826 1,319
------- ------- -------- --------
Income before cumulative effect of
accounting changes 1,033 778 2,012 1,548
Cumulative effect of changes in method
of accounting for postretirement
and postemployment benefits (net of
income taxes of $1,954) - - - (3,247)
------- ------- -------- --------
Net income (loss) $ 1,033 $ 778 $ 2,012 ($ 1,699)
======= ======= ======== ========
Per share data:
Earning before cumulative effect of
accounting changes $.05 $.04 $.10 $ .08
Cumulative effect of accounting
changes - - - (.19)
--- --- --- ---
Net income (loss) $.05 $.04 $.10 $(.11)
==== ==== ==== =====
Weighted average number of shares used
in computation of per share data:
Earnings before cumulative effect
of accounting changes 20,113,521 20,190,991 20,090,546 19,906,257
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 SIX MONTHS ENDED JULY 3, 1994 AND JULY 4, 1993
(Amounts in thousands)
(UNAUDITED)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,012 $ (1,699)
Adjustments to reconcile net income to net cash
provided by (used in) operations
Depreciation and amortization 4,757 4,454
Amortization of intangible assets 3,985 2,478
Cumulative effect of accounting changes - 3,247
Other 940 1,383
Change in certain assets and liabilities, net of
effects from acquisition of businesses, affecting
cash provided by (used in) operations:
Accounts receivable (302) 1,763
Inventories (6,833) (11,601)
Other assets 4,276 (2,732)
Accounts payable and accrued expenses (4,468) (457)
Income taxes payable and deferred taxes (2,146) (2,024)
------- -------
Net cash provided by (used in) operations 2,221 (5,188)
------- -------
Cash flows from investing activities
Proceeds from sale of property, equipment and product line 4,412 103
Capital expenditures (4,481) (8,801)
Acquisition of business, net of cash acquired - (26,428)
------- -------
Net cash used in investing activities (69) (35,126)
------- -------
Cash flows from financing activities
Proceeds from issuance of notes payable and
long-term obligations 24,355 24,511
Issuance of common stock under stock purchase plans 363 285
Payment of notes and long-term obligations (26,349) (1,411)
Other (400) 109
------- -------
Net cash provided by (used in) financing activities (2,031) 23,494
Effect of exchange rate changes on cash 52 141
------- -------
Net increase (decrease) in cash and cash equivalents 173 (16,679)
Cash and cash equivalents at beginning of year 327 16,998
------- -------
Cash and cash equivalents at end of period $ 500 $ 319
======= =======
Cash paid during the period for
Interest $ 5,928 $ 5,626
Income taxes 3,762 3,036
</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 six months ended July 4, 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)
(2) ACQUISITION OF KELLOGG BRUSH MANUFACTURING CO. (continued)
<TABLE>
<CAPTION>
Six months ended July 4, 1993
-----------------------------
(Amounts in thousands, except per share data)
<S> <C>
Net revenues $114,207
Loss before income taxes and
cumulative effect of changes in
method of accounting (818) (a)
Loss before cumulative effect
of changes in method of accounting (734)
Net loss (3,981)
Per share data:
Loss before cumulative effect
of change in method of accounting (.04)
Net loss (.23)
<FN>
(a) Prior to acquisition by the Company, Kellogg recorded a $3.2 million
provision for environmental matters.
</TABLE>
(3) Inventories
The components of inventory were as follows:
<TABLE>
<CAPTION>
July 3, 1994 January 2, 1994
------------ ---------------
(Amounts in thousands)
<S> <C> <C>
Raw materials $12,507 $10,040
Work in process 4,215 1,871
Finished goods 23,136 21,701
------- -------
$39,858 $33,612
======= =======
</TABLE>
(4) Property and Equipment, Net
<TABLE>
Property and equipment consisted of the following:
July 3, 1994 January 2, 1994
------------ ---------------
(Amounts in thousands)
<S> <C> <C>
Property and equipment at cost
Land, buildings and improvements $21,307 $21,151
Equipment, factory and other 54,401 57,227
------- -------
75,708 78,378
Less accumulated depreciation,
and amortization 25,756 25,137
------- -------
$49,952 $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 48% for the three and six
months ended July 3, 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
<TABLE>
Long-term obligations consisted of the following:
<CAPTION>
July 3, 1994 January 2, 1994
------------ ---------------
(Amounts in thousands)
<S> <C> <C>
Group Credit Line $ 19,000 $ 17,820 (a)
Housewares Credit Agreement 12,281 13,956
Frem Credit Agreement 6,500 6,500
12.7% Senior Subordinated Notes 60,000 60,000
7% Convertible Subordinated Note 22,000 22,000
Other 247 944
------- -------
120,028 121,220
Less current portion 6,134 9,238
------- -------
$113,894 $111,982
======== ========
<FN>
(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
=======
</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 $3.0 million due under the Frem Credit Agreement has
been extended from June 30, 1994 to August 31, 1994.
7
<PAGE> 8
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
(7) SERIES B ESOP CONVERTIBLE PREFERRED STOCK
<TABLE>
Series B ESOP Convertible Preferred Stock, net, consisted of the following:
<CAPTION>
July 3, 1994 January 2, 1994
------------ ---------------
(Amounts in thousands)
<S> <C> <C>
Series B ESOP Convertible Preferred
Stock, par value $.01, no dividend $ 5,784 $ 5,939
Unearned compensation (2,917) (3,253)
------ ------
$ 2,867 $ 2,686
======= =======
</TABLE>
(8) COMMON STOCK, $.01 PAR VALUE
<TABLE>
Share information regarding common stock consisted of the following:
<CAPTION>
July 3, 1994 January 2, 1994
------------ ---------------
<S> <C> <C>
Authorized shares 60,000,000 60,000,000
========== ==========
Shares issued 27,197,494 27,067,262
Shares held in treasury (9,223,600) (9,223,600)
---------- ----------
Shares outstanding 17,973,894 17,843,662
========== ==========
</TABLE>
(9) EARNINGS PER COMMON SHARE
<TABLE>
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 Six months ended
------------------ ----------------
July 3, July 4, July 3, July 4,
------- ------- ------- -------
1994 1993 1994 1993
---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C>
Weighted average shares of common
stock outstanding during the
period 17,926 17,741 17,887 17,447
Series B ESOP Convertible
Preferred Stock 1,640 1,676 1,640 1,676
Weighted average common equivalent
shares due to stock options 547 774 564 783
------ ------ ------ ------
20,113 20,191 20,091 19,906
====== ====== ====== ======
</TABLE>
(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.
8
<PAGE> 9
EKCO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
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 for the first ten years
and $130,000 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 has 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
$424,000 of the remediation costs in Fiscal 1994 with the balance being paid out
in Fiscal 1995 and Fiscal 1996. During the first six months of Fiscal 1994 the
Company paid approximately $140,000 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 July 3, 1994 (the Second Quarter
of 1994) and July 4, 1993 (the Second Quarter of 1993) and for the twenty six
week periods ended July 3, 1994 (the First Half of 1994), July 4, 1993 (the
First Half of 1993) and the financial condition at July 4, 1993 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 Second Quarter and First Half of 1994 increased
approximately $1.8 million (3.0%) and $9.8 million (9.4%), respectively, from
the comparable prior year periods. Net revenues for the Second Quarter and
First Half of 1993 include $3.1 million and $6.2 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 Half 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 Second Quarter and First Half of 1994 increased approximately $4.9 million
(9.0%) and $3.4 million (3.5%). Approximately $4.8 million of the Second
Quarter increase resulted from increased sales of the Company's bakeware
products, Frem plastic products and household pest control products. Such
increases more than offset declines in first quarter results of these product
lines. Approximately $1.5 million of the Second Quarter and First Half increase
was due to increased sales of the Company's brooms, brushes and mops, primarily
in the hardware channel. The above increases in net revenues for the Second
Quarter were partially offset by a decline in sales of kitchen tools and
gadgets. The Second Quarter of 1993 included initial shipments to a major
customer. For the First Half comparison, sales of kitchen tools and gadgets
increased $1.0 million.
GROSS PROFIT
The Company's gross profit margin improved from 31.1% in the Second
Quarter of 1993 to 33.0% in the comparable 1994 period. The improvement was
primarily due to the exclusion of the results of the Company's plastic box and
hunting storage container business whose gross margin was lower than the
Company's consolidated gross margin and changes in revenue mix. The Company's
gross profit margin for the First Half periods remained essentially the same.
SELLING, GENERAL AND ADMINISTRATIVE
Selling general and administrative expenses for the Second Quarter and
First Half of 1994 increased approximately $1.4 million (11.3%) and $1.9 million
(8.0%), respectively, from the comparable prior year periods. The increase for
the Second Quarter of 1994 was primarily due to increased display and sales
promotion costs in the Company's kitchen tool and gadget product lines and costs
associated with a start-up subsidiary that is developing product for the upscale
and specialty marketplace. The increase for the First Half of 1994 was also
affected by the inclusion of Kellogg ($1.9 million). The increase was partially
offset by the benefit associated with the implementation of the restructuring
plan and the elimination of expenses associated with the Company's plastic
tackle and hunting storage container business, which assets were sold in January
1994.
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)
NET INTEREST EXPENSE
Net interest expense for the Second Quarter of 1994 decreased $228,000
from the comparable prior year period. The decline was primarily due to lower
interest rates. Net interest expense increased $277,000 from the First Half of
1993. The increase was primarily due to the additional debt associated with the
acquisition of Kellogg on April 1, 1993 and partially offset by the lower rates
experienced in the Second Quarter comparisons.
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 Half of 1994, the Company charged approximately $2.8
million against such accrual for costs incurred in the implementation of the
restructuring plan. At July 3, 1994 the accrual was $5.6 million. The Company
estimates that the benefit it received in the Second Quarter and First Half of
1994 from the restructuring was approximately $500,000 and $1.1 million,
respectively. The benefit was primarily due to a 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 Standards No. 112,
"Employers' Accounting for Postemployment Benefits".
LIQUIDITY AND CAPITAL RESOURCES
During the First Half of 1994, the Company generated approximately $2.2
million of cash from operations. Such cash, along with proceeds from the
January 1994 sale of the Company's plastic tackle box and hunting storage
container business, was used for capital expenditures (approximately $4.5
million) and a $2 million reduction in borrowings. Also, during the First Half
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 balance relates to the
seasonality of the Company's revenues, which have historically been concentrated
in the second half of its fiscal year. 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 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.
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 (continued)
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 $3.0 million due under the Frem Credit Agreement has
been extended from June 30, 1994 to August 31, 1994.
Including the Group Credit Line, the Company and its operating
subsidiaries have credit facilities of $59.4 million, of which $37.8 million
were outstanding at July 3, 1994. These credit facilities reduce to $56.4
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 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, Toronto,
Ontario, 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, Lititz and Toronto
facilities. The aggregate carrying values of 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.
12
<PAGE> 13
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 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
<TABLE>
At the Annual Meeting of Stockholders held on May 17, 1994 in Boston,
Massachusetts, each of the persons nominated for election as a
director of the Company were elected by the votes shown below.
Directors will hold office until the next annual meeting of
stockholders and until their successors are duly chosen and qualified
or until their earlier resignation or removal.
<CAPTION>
No. of No. of
Shares Voted Shares
FOR Withheld
-----------------------------------------------------------------------
<S> <C> <C>
Andrew D. Dunn 14,892,775 119,099
T. Michael Long 14,893,775 118,099
Stuart B. Ross 14,893,575 118,299
Bill W. Sorenson 14,893,075 118,799
Herbert M. Stein 14,893,275 118,599
Robert Stein 14,893,084 118,790
Jeffrey A. Weinstein 14,892,104 119,770
</TABLE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits: None.
b) Reports on Form 8-K: On April 20, 1994, the registrant filed a
report on Form 8-K as of April 11, 1994 to report under "Item 5.
Other Events" its agreement to waive the remaining restrictions on
transfer with respect to the remaining 282,325 shares of its common
stock set forth in that certain Agreement and Plan of Merger dated
as of March 31, 1993 with respect to the acquisition of Kellogg
Brush Manufacturing Co. and subsidiaries.
13
<PAGE> 14
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: August 16, 1994 By: /s/ ROBERT STEIN
--------------------- ---------------------------
Robert Stein
President and
Chief Executive Officer
By: /s/ DONATO A. DENOVELLIS
---------------------------
Donato A. DeNovellis
Vice President and
Chief Financial Officer
14
