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