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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1993 Commission file number: 0-20416
EAGLE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3384361
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Office)
(312) 906-8700
(Registrant's telephone number, including area code)
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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 inquired to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
State the aggregate market value of the voting stock held by nonaffiliates
of the Registrant.
Not Applicable
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
1,000 shares of Common Stock as of March 15, 1994
Documents Incorporated by Reference: None
The Registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing
this form with the reduced disclosure format.
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EAGLE INDUSTRIES, INC.
TABLE OF CONTENTS
PART I. PAGE
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Item 1. Business.................................................................... 3
Item 2. Properties.................................................................. 11
Item 3. Legal Proceedings........................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......................... 13
PART II.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.... 13
Item 6. Selected Financial Information.............................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 14
Item 8. Financial Statements and Supplementary Data................................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 57
PART III.
Item 10. Directors and Executive Officers of the Registrant.......................... 58
Item 11. Executive Compensation...................................................... 59
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 59
Item 13. Certain Relationships and Related Transactions.............................. 59
PART IV.
Item 14. Exhibits, Financial Statements and Schedules, and Reports on Form 8-K....... 60
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PART I
ITEM 1. BUSINESS
THE COMPANY
Eagle Industries, Inc. ("Eagle" or the "Company") is a Delaware
corporation, its principal executive offices are located at Two North Riverside
Plaza, Suite 1100, Chicago, Illinois 60606 and its telephone number is (312)
906-8700. Eagle has grown from revenues of approximately $250 million in 1987 to
$1.1 billion for the year ended December 31, 1993. This growth has been
generated primarily through acquisitions. Eagle is currently comprised of 16
businesses operating in five segments. These businesses generally are low and
medium technology industrial companies in niche markets. They primarily service
the residential and commercial construction, electric utility, chemical and
pharmaceutical, commercial aviation, automotive aftermarket, consumer yarn and
commercial refrigeration markets.
COMPANY DESCRIPTION OF PRODUCT PRIMARY INDUSTRY(IES)
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BUILDING PRODUCTS GROUP
Hart & Cooley................... HVAC Accessories Residential and Commercial
Construction
Mansfield....................... Bathroom Fixtures & Residential Construction
Plumbing Fittings
DeVilbiss Air Power............. Light Duty Air Compressors Home Improvement
ELECTRICAL PRODUCTS GROUP
Elastimold...................... Underground Medium and High Electric Utility
Voltage Cable Accessories
Hendrix......................... Power Cables and Cable Electric Utility
Accessories
IEP............................. Interconnect, Control and Electrical/Electronic
Timing Devices; Airport
Lighting Transformers; and
Electrical Connectors
INDUSTRIAL PRODUCTS GROUP
Pfaudler........................ Glass-lined Industrial Chemical/Pharmaceutical
Vessels
Chemineer....................... Fluid Processing Agitators Chemical/Pharmaceutical
and Mixers
Burns Aerospace................. Commercial Aircraft Seating Commercial Aviation
AUTOMOTIVE PRODUCTS GROUP
Mighty.......................... Auto Parts Distribution Automobile Aftermarket
Parts House..................... Auto Parts Distribution Automobile Aftermarket
Denman Tire..................... Specialty Pneumatic Tires Aftermarket Tires
Clevaflex....................... Multiply, Flexible Tubing Automotive OEM
SPECIALTY PRODUCTS GROUP
Hill Refrigeration.............. Refrigerated Display Cases Commercial Refrigeration
Caron International............. Knitting Yarns and Craft Crafts and Consumer Yarns
Kits
Gerry Sportswear................ Rugged Outerwear and Ski Retail Apparel
Apparel
From its inception, much of the Company's growth has come from
acquisitions. The Company's acquisition philosophy has been to acquire
"underperforming" manufacturing companies that have the potential to become
market leaders and low cost producers through the application of Eagle's cost
reduction and quality improvement strategies. Eagle generally has sought
companies that serve basic industrial niche
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markets. To enhance its position within these market niches, the Company has
pursued and completed over 21 "add-on" acquisitions to profitably expand product
lines and geographical scope. Eagle has also divested 16 businesses for total
proceeds of over $500 million. A substantial portion of these proceeds were used
to reduce debt levels.
HISTORY
In February 1987, Great American Management and Investment, Inc. ("GAMI")
consolidated its basic manufacturing businesses by capitalizing Eagle with Lapp
Insulator Company ("Lapp") and various businesses which were previously a part
of Clevepak Corporation ("Clevepak"). In April 1987, Eagle purchased The
Pfaudler Companies, Inc. ("Pfaudler") and in February of 1988, Eagle purchased
The DeVilbiss Company ("DeVilbiss"). In September 1989, Eagle purchased Amerace
Corporation ("Amerace"), and certain indirect subsidiaries of GAMI acquired The
Jepson Corporation ("Jepson"). In January 1991, GAMI, through its subsidiaries,
contributed Jepson to Eagle and concurrent with becoming a subsidiary of Eagle,
Jepson changed its name to Falcon Manufacturing, Inc. ("Falcon").
Effective as of September 25, 1992 GAMI, and its subsidiaries consummated a
restructuring (the "Restructuring"). Pursuant to the Restructuring, among other
things, (i) Eagle sold the net assets of Equality Specialties, Inc. ("Equality")
to GAMI for approximately $17 million; (ii) GAMI contributed, through certain
subsidiaries, all of the outstanding stock owned by it in North Riverside
Holdings, Inc. ("North Riverside") to Eagle; (iii) Eagle declared a stock
dividend to facilitate the Distribution, as defined below (the effect of which
was negated by a reverse stock split in December 1993); and (iv) Great American
Financial Group, Inc. (formerly Great American Industrial Group, Inc.) ("GAFG")
distributed all of the outstanding Eagle common stock owned by it to GAMI. For a
discussion of the accounting treatment of the foregoing transactions, see Note 1
and Note 12 to the Eagle Industries, Inc. and Subsidiaries Consolidated
Financial Statements ("Eagle Consolidated Financial Statements").
On September 25, 1992, the Board of Directors of GAMI authorized the
distribution of all of the outstanding shares of Eagle common stock, $.01 par
value per share (the "Eagle Common Stock"), to holders of GAMI common stock (the
"Distribution"). On October 29, 1992, the GAMI Board of Directors delayed the
consummation of and on October 13, 1993 decided not to complete the
Distribution.
BUSINESS
Eagle is currently comprised of 16 businesses operating in five business
segments. The five business segments are: the Building Products Group, the
Electrical Products Group, the Industrial Products Group, the Automotive
Products Group and the Specialty Products Group. These businesses generally are
low and medium technology, industrial companies in niche markets. They primarily
service the residential and commercial construction, electric utility,
commercial aviation, chemical and pharmaceutical, automotive aftermarket, craft
and consumer yarn and commercial refrigeration markets. See Note 16 to the Eagle
Consolidated Financial Statements for financial information regarding industry
segments and geographic data.
BUILDING PRODUCTS GROUP
The Building Products Group consists of three businesses which manufacture
and distribute building products primarily for the residential and commercial
construction and home improvement markets. Products manufactured by this group
include air distribution and handling equipment, bathroom plumbing fixtures and
light-duty air compressors.
The building products industry relies primarily on the residential and
commercial construction markets. The residential construction market is largely
dependent on housing starts and remodeling/do-it-yourself ("DIY") projects.
Housing starts and remodeling/DIY projects are generally a function of new
household formation, mortgage rates, inflation, unemployment and gross national
product growth. Since fiscal 1990, the decline in residential housing starts
resulted in excess manufacturing capacity and pricing pressures in this
industry. More recently, this trend has started to reverse as a result of lower
mortgage rates and improved consumer confidence. The Company believes that
future growth in revenue and earnings for companies
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operating in this industry is dependent upon the housing and construction
markets in North America, increased international business, quality and customer
service, and further market penetration with new products and within niches.
Air Distribution and Handling Equipment
Hart & Cooley is a manufacturer of residential and commercial air
distribution and air handling products in the North American market. Hart &
Cooley manufactures more than 6,000 items primarily for the residential and, to
a lesser extent, commercial heating ventilating and air conditioning ("HVAC")
markets, including metal grilles, registers and diffusers, metal and plastic
chimney vent systems, flexible ducts, terminal units and electric duct heaters.
Products are generally produced on a high-volume, low cost basis, however, the
standard product line is supplemented with custom-engineered products designed
to meet specific size or performance requirements.
Residential and commercial products are marketed to HVAC contractors
primarily through wholesale distributors. In order to provide high quality
service and convenience to HVAC contractors, the Company services its
distribution network through a direct field sales staff which is supported by a
customer service group located at Hart & Cooley's headquarters. These products
are marketed under the Hart & Cooley(R), Metlvent(R) and Ultravent(R) trade
names. Commercial/industrial registers, grilles, diffusers, terminal units,
louvers and electric duct heaters are marketed primarily to HVAC contractors
through manufacturers' representatives under the Tuttle & Bailey(R) trade name.
Key competitive considerations in the HVAC market are delivery time, quality and
proximity to distributors.
Bathroom Plumbing Fixtures
Mansfield is a manufacturer of ceramic, vitreous china and enameled steel
bathroom plumbing fixtures, including lavatories, toilet bowls and tanks and
brass and plastic fittings. These products are sold primarily to the residential
construction markets and, to a lesser extent, to commercial markets.
Mansfield competes primarily with regional manufacturers, and to a lesser
extent with national manufacturers. Management believes that there are
approximately eight other regional competitors. Mansfield's emphasis on quality
control and customer service has enabled it to charge slightly higher prices for
its products. As part of the Energy Policy Act of 1992, the manufacture of 3.5
gallon per flush toilets for residential use is prohibited after January 1,
1994. In the past three years, Mansfield has introduced four new models of
ceramic toilet bowls which use 1.6 gallons per flush, approximately 55% less
than the average water volume used per flush in existing toilet bowls, while
still preserving the simplicity of conventional plumbing fixtures.
Ceramic bathroom fixtures and brass and plastic fittings are marketed
through manufacturers' representatives to plumbing wholesalers and plumbing
fixture manufacturers, and to the retail hardware and DIY markets through
wholesalers, packagers, and mass merchants. The market is divided into:
manufacturers that distribute nationally, service all market segments and have
broad product lines; and regional manufacturers that distribute regionally, tend
to emphasize marketing at the wholesale level and have narrower product lines.
Air Products
DeVilbiss Air Power is a North American supplier of light-duty air
compressors for the commercial and consumer, building and construction markets.
DeVilbiss Air Power manufactures a broad line of portable and stationary air
compressors in the 3/4 to 6 horsepower range and also sells a variety of
accessories such as paint spray guns, air hoses, pneumatic tools and other
related items. DeVilbiss Air Power's products are primarily used for painting,
stapling and nailing applications for home improvement and building. DeVilbiss
Air Power was the first company to introduce oil-free technology to light-duty
air compressors, and since 1979 has been the primary supplier of Craftsman(R)
air compressors to Sears Roebuck & Company ("Sears"). Sales to Sears account for
a significant amount of the sales of the Building Products Group. Eagle
restructured DeVilbiss Air Power in 1989 by constructing a new manufacturing
facility in Jackson, Tennessee.
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In fiscal 1991, DeVilbiss Air Power acquired the Energair division
("Energair") of the Ingersoll-Rand Company, whose strong market position in the
home center and warehouse club outlets, has strengthened DeVilbiss Air Power's
position in the DIY and refurbishing markets under such trade names as Charge
Air Pro(R), Air America(R) and Pro Air II(R). DeVilbiss Air Power also
manufactures air compressors under private-label programs, which has further
expanded its customer and distribution base.
ELECTRICAL PRODUCTS GROUP
The Electrical Products Group consists of two broad groups of businesses,
those providing electrical power distribution products for the electric utility
market and those supplying electrical control products for electrical equipment
manufacturers. The principal products manufactured by these businesses include
medium voltage electric cable, underground cable accessories, and interconnect
and timing devices.
The electrical products industry is largely dependent on utility
transmission and distribution expenditures, new construction and spending levels
of those manufacturers who supply electrical equipment to the utility industry.
Spending for utility transmission equipment has been at historically low levels
for the last several years and has not yet begun to improve. This has resulted
in excess industry capacity and continued pricing pressures. Eagle believes that
future growth in revenue and earnings in this industry is largely dependent on
increased electric utility capital spending from the currently depressed levels
and further recovery of the residential and commercial construction markets in
North America.
Electrical Power Distribution Products
Major products manufactured by these businesses for the electrical power
distribution market include: Elastimold's pre-molded terminators, separable
connectors, cable joints and surge arrestors for underground power distribution
systems; and Hendrix's residential power distribution cables, aerial cable
systems and medium voltage accessory products.
Elastimold is a designer, manufacturer and marketer of underground medium
and high voltage cable accessories for the electric utility industry in North
America. The majority of Elastimold's products are used for power distribution
systems and are related to housing starts. Elastimold has established joint
ventures and partnerships in Europe and Asia to increase Elastimold's
distribution base.
These businesses market their products through a number of distribution
channels, including manufacturers' representatives, original equipment
manufacturers and authorized distributors, as well as through a direct sales
staff. Elastimold's electrical products are marketed directly to North American,
Canadian and European electric utilities through a direct sales staff,
manufacturers' representatives and authorized distributors. Elastimold also
maintains a world-wide presence through joint ventures in western Europe, Japan
and Taiwan. Hendrix markets its products primarily to electric utilities and
electrical equipment manufacturers through a network of manufacturers and
distributors.
Since the electrical power distribution products are used primarily in the
transmission and distribution of electricity, their operating performance
depends in part on the demand for residential and commercial construction.
Although not heavily dependent upon the construction of new power plants, these
companies' business prospects are closely tied to the electric utility industry.
Industrial Electrical Products
Eagle's Industrial Electrical Products Group consists of four businesses,
hereinafter referred to as IEP. These businesses provide products that serve a
wide variety of markets with a number of recognized names such as: Agastat(R)
timers and protective relays; Buchanan(R) electrical terminal blocks and
electronic connectors; Russellstoll(R) medium to high amperage electrical
connectors; pin and sleeve plug and receptacle connector devices for the
world-wide refrigerated container industry. In addition, these businesses
manufacture and distribute airfield transformers, connector kits and cable
assemblies. The product lines are sold through an extensive distributor network,
supplemented with direct sales to original equipment manufacturers and to end
users in the United States, Canada, the United Kingdom and Europe.
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Eagle has undertaken an extensive cost reduction program since acquiring
the IEP companies in 1989. As a major part of that plan, Eagle relocated one of
IEP's principal manufacturing facilities from New Jersey to Florida in the first
quarter of 1993 in order to improve productivity and quality control, enhance
manufacturing efficiencies and increase labor flexibility.
INDUSTRIAL PRODUCTS GROUP
The Industrial Products Group consists of three businesses that manufacture
and distribute products for the chemical/pharmaceutical, process industries and
commercial aviation markets. Products manufactured and distributed include
reactor and storage vessels, fluid mixing and agitation equipment and commercial
airline seating.
The chemical process industry is largely dependent on capital expenditures
by chemical and pharmaceutical producers. Domestically, capital spending over
the past few years has been less than anticipated by published industry
forecasts. However, the pharmaceutical segment of the chemical process industry
has shown continued growth. Both domestically and in Europe, Eagle's business is
focused on the pharmaceutical segment. Eagle's operations in Europe continue to
be negatively affected by the depressed economy in Germany.
The financial difficulties experienced by the domestic airline industry
have resulted in a reduction in capital spending for commercial aircraft and
associated equipment. However, Burns Aerospace ("Burns") derives approximately
65% of its aviation business from the foreign aviation market, which has not
been as adversely affected as the domestic industry. Eagle believes that future
revenue and earnings growth for the Industrial Products Group is largely
dependent on worldwide capital spending in the chemical and aviation industries.
Process Industries Products
Major products manufactured for the process industries markets include:
lined and coated reactor and storage vessels, heat exchangers, mixers and
evaporators, columns and accessories, and agitators and static mixers.
Pfaudler is a producer of glass-lined reactor and storage vessels, which
are custom-ordered and designed for use in the chemical and pharmaceutical
industries. Pfaudler's sales exceed those of its major competitor. Pfaudler's
products are manufactured in six facilities operating in the United States, the
United Kingdom, Germany, Mexico, Brazil and a joint venture interest in India.
This arrangement allows Pfaudler to respond quickly to market demands for both
sales and service. Replacement parts and service represent a significant portion
of revenues.
Pfaudler's products are available in a broad range of construction
materials, such as glass-lined steel fluoropolymers, exotic metals and alloys.
These vessels, together with accessories such as agitators and baffles, are
marketed under the trade name Glasteel(R). In pharmaceutical applications,
Glasteel(R) protects the color and purity of the products being processed.
Chemineer is a designer, manufacturer and distributor of agitators and
static mixers for fluid processing applications, which range from sophisticated
polymerization and fermentation processes to simple storage operations.
Chemineer's products include its line of HT Series turbine agitators, which use
rotary action to produce motion in a fluid; side-entering agitators; static
mixers, which are continuous mixing and processing devices with no moving parts;
and small portable agitators. Competition is based primarily on application
engineering and customer service. Replacement parts and service account for a
significant portion of revenues. Chemineer's products are used in the chemical,
pharmaceutical, paint, coatings, petrochemical, food processing and water
treatment industries.
Chemineer's products are marketed worldwide to a diverse customer base,
with products being sold primarily through manufacturers' representatives and
sales representative organizations. Chemineer also maintains direct sales
offices in Houston, Texas, the United Kingdom and the Netherlands. Chemineer
established a research and development facility to focus on the development of
new products and on applied
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research. Chemineer recently has introduced computer technology to perform
on-site customized application engineering.
Commercial Aviation Products
Burns manufactures and refurbishes commercial airline seating, including
passenger, observer and flight attendant seating. In addition, Burns
manufactures various spare parts, including seat cushions and covers for
aftermarket sale in the commercial aircraft markets.
Burns sells its Innovator(R), Airest(R) 5, Airest(R) 202 and Airest(R)
Commuter seating products primarily to the major air carriers in the United
States and Europe. Over the past four years, Burns has been able to successfully
diversify its customer base from a domestic regional orientation to an
international mix. Burns derives approximately 65% of its new seat revenues from
foreign carriers.
AUTOMOTIVE PRODUCTS GROUP
Eagle has three primary businesses which serve various sectors of the
automotive aftermarket: Mighty Distributing System of America ("Mighty"), The
Parts House ("Parts House") and Denman Tire ("Denman"). Major products produced
and/or distributed to the automotive markets include: automotive parts and
accessories and specialty pneumatic tires. Clevaflex manufactures and
distributes multi-ply flexible tubing for carburetor air ducts to original
equipment manufacturers in the automotive market.
Mighty and Parts House distribute automotive parts and accessories
principally throughout the United States. Mighty is an owner and operator of
automotive parts franchise operations and has over 150 franchises nationwide and
one distribution center that sell automotive parts in the aftermarket to
professional dealers and installers. Mighty also markets new territories and
re-markets existing territories to generate franchise fee revenues. Mighty
repackages and distributes Mighty private label auto parts to franchisees and
other company locations, and owns and operates nine locations directly. Parts
House, headquartered in Jacksonville, Florida, is a wholesale distributor of
nationally branded automotive parts and accessories serving primarily the
Southeast region of the United States and operates through three principal
distribution centers.
Denman manufactures and distributes over 1,000 different types of specialty
pneumatic tires, including tires for classic and racing automobiles, all-terrain
vehicles, motorcycles, light and medium duty trucks and farm, mining and other
industrial vehicles. Denman's products are marketed nationally under both the
Denman brand name and the private label names of certain Denman customers.
Denman distributes its tires primarily through five major wholesale
distributors, and services its customers through a direct sales force.
Substantially all of Denman's sales are to the replacement tire market.
Clevaflex manufactures and distributes multi-ply, flexible tubing for
carburetor air ducts used in automobile emission systems and other
automotive-engine compartment applications. Clevaflex has a direct sales force
which distributes its products to original equipment manufacturers in the
automotive markets. Approximately 80% of Clevaflex's sales are made directly to
domestic automobile manufacturers, including General Motors Corporation, Ford
Motor Company and Chrysler Corporation, with additional sales to certain foreign
automobile manufacturers for use in models produced in the United States.
SPECIALTY PRODUCTS GROUP
The Specialty Products Group consists of businesses which manufacture and
distribute commercial refrigeration equipment and consumer products. Businesses
within the group manufacture refrigerated display cases and hand knitting and
craft yarns. In addition, the group includes a designer and distributor of ski
and rugged outerwear. The Specialty Products Group is largely dependent on
trends in consumer spending and overall consumer confidence. The Company
believes that future growth in revenue and earnings for the Specialty Products
Group is dependent on consumer spending.
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Commercial Refrigeration Equipment
Hill Refrigeration ("Hill") manufactures commercial refrigeration
equipment, including refrigeration and non-refrigeration display cabinets,
condensing units and refrigeration systems, and related equipment for sale to
food retailers.
Principal products in this market include refrigerated display cases that
merchandise and protect perishables such as meat, deli products, frozen foods,
dairy products and produce. To enhance manufacturing efficiencies, cases are
configured to use common design parts and are produced in two basic lengths.
However, to meet specific needs of the customer, Hill offers many options and
special accessories. In addition, because energy efficiency is a significant
consideration in case purchases, Hill offers sophisticated controls and patented
features to reduce operating costs for its customers. Hill equipment is sold
through a direct sales force to leading supermarket chains, food wholesalers and
government commissaries. Smaller food chains are serviced through a network of
independent distributors who buy and re-sell equipment.
In 1993, the Company closed Hill's Canadian facility and consolidated those
operations with its Trenton, New Jersey facility. In an effort to reduce
manufacturing costs and to simplify manufacturing processes, Hill initiated a
project to redesign its commercial refrigeration cases in 1993. This redesign
has led to a decision to restructure Hill's Trenton, New Jersey manufacturing
facility. Accordingly, in 1993, the Company reduced the book value of its
Trenton, New Jersey plant by approximately $20 million as it reviews relocation
options.
Consumer Products
Eagle has two businesses which serve various consumer markets: Gerry
Sportswear ("Gerry") and Caron International ("Caron"). Gerry designs and
markets ski and rugged outerwear. Caron is a manufacturer and distributor of
acrylic hand knitting and craft yarns and a producer of craft kits. The yarn
products include a broad line of acrylic fibers in a wide assortment of weights
and colors with varying textures. Craft kits are sold under the Wonder Art(R)
name and include latch hook, stamped goods, craft dolls and yarn kits. Caron
markets its yarn products and craft kits directly to major retailers through its
own sales force. Caron's customer base includes all major distribution channels,
including mass merchants, chain stores, fabric stores and craft and specialty
stores. As part of a cost reduction program which the Company undertook in 1993,
Caron closed its London, Kentucky manufacturing facility, consolidating the
London operation into its other locations.
COMPETITION
Eagle faces competition in each of the various product lines from numerous
firms within the United States and internationally. Businesses within the
Building Products Group, the Electrical Products Group, Automotive Products
Group and the Specialty Products Group compete primarily with several domestic
competitors in their various markets. Pfaudler competes primarily with one major
competitor on a world-wide basis. The other businesses within the Industrial
Products Group compete primarily with several domestic competitors in their
various markets. Eagle strives to position its businesses as market leaders,
desiring to achieve a position as one of the top three suppliers in each of the
individual markets which its businesses serve. Eagle's businesses compete with
other companies on the basis of price, service, product quality, availability
and delivery. Certain of Eagle's competitors are larger and have greater
financial resources than Eagle.
SEASONALITY, WORKING CAPITAL AND CYCLICALITY
Sales of certain of Eagle's products are subject to seasonal variation.
Seasonal factors historically have not had a significant affect on working
capital requirements as Eagle has been able to adjust its production to meet
these seasonal demands. Sales of products manufactured within the Building
Products Group are primarily dependent on residential and commercial
construction markets and home improvement. Sales of certain products
manufactured within the Electrical Products Group are also dependent on the
construction industry. Due to seasonal factors associated with the construction
industry, sales of these products are higher during the spring and summer
building seasons than at other times of the year. Most of the industries in
which the Company competes are particularly sensitive to changes in the economy.
The nation's most recent recession had an adverse impact on the Company's sales
and profitability. Future downturns in the economy would
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negatively affect the Company's operating results. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RAW MATERIALS, SUPPLIERS AND CUSTOMERS
Eagle purchases raw materials, principally steel, aluminum, alloy metals,
clay and other supplies from numerous domestic and foreign suppliers. These raw
materials and other supplies are generally available. Eagle's businesses market
their products to numerous domestic and foreign customers. As previously
discussed, Sears accounts for a significant amount of sales in the Building
Products Group, however, this amount is not significant to Eagle's consolidated
net sales. See "Business" above.
RESEARCH AND DEVELOPMENT
Eagle and its subsidiaries invest in research and development of new
products. See Note 2 to the Eagle Consolidated Financial Statements for
information regarding research and development expenses.
PATENTS, TRADEMARKS, LICENSES AND FRANCHISES
There are several registered patents and trademarks used by businesses
within the Building Products Group, the Electrical Products Group, the
Industrial Products Group, the Automotive Products Group and the Specialty
Products Group, none of which are individually significant to the consolidated
operations of Eagle. Eagle's businesses do not materially rely on any single
patent, license or franchise.
BACKLOG
The following table indicates the approximate backlog for each of Eagle's
business groups as of the dates indicated. Approximately $44 million of the
backlog at December 31, 1993 is expected to be shipped in 1995 or after,
substantially all of which relates to Burns.
DECEMBER 31, DECEMBER 31,
1993 1992
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(RESTATED)
(IN MILLIONS)
Building Products Group.............................. $ 25.6 $ 11.5
Electrical Products Group............................ 24.7 21.9
Industrial Products Group............................ 140.1 132.5
Automotive Products Group............................ 2.9 3.3
Specialty Products Group............................. 36.4 34.1
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Total........................................... $229.7 $203.3
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OTHER MATTERS
ENVIRONMENTAL MATTERS
Eagle's subsidiaries, as manufacturing companies, are subject to various
environmental laws concerning, for example, emissions to the air, discharges
into water and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. In addition to costs associated with
regulatory compliance, companies such as those within Eagle, which in prior
years have disposed of hazardous material at various sites, may be liable under
various federal and state laws for the costs of the clean-up of such sites. It
is impossible to predict accurately Eagle's future expenditures for
environmental matters; however, Eagle anticipates that future environmental
requirements will become more stringent, which may result in increased
expenditures. It is Eagle's policy to take all reasonable measures to control
and eliminate pollution resulting from its operations. Eagle believes that as a
general matter its policies, practices and procedures in the areas of pollution
control, product safety, occupational health, medical services and safety and
loss prevention are adequate to prevent unreasonable risk of environmental and
other damage, and the resulting financial liability.
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Eagle believes, based on consultations with legal counsel and environmental
consultants and its own reviews of the nature and extent of potential
liabilities, that compliance with existing environmental protection laws,
including those requiring clean-up of hazardous waste, will not have a material
adverse effect on Eagle's financial position, results of operations or
competitive position. The Company believes that it has adequate reserves. The
amounts spent by Eagle on environmental expenditures were not material to
Eagle's results of operations and financial position in the year ended December
31, 1993, the five months ended December 31, 1992 or in fiscal 1992 or 1991. It
is impossible, however, to predict with certainty the level of expenditures with
respect to any such obligations, in part because a substantial portion of any
expenditure is a function of unsettled and evolving enforcement and regulatory
policies in states where Eagle conducts its business.
EMPLOYEES
Eagle's continuing operations employed approximately 9,400 employees as of
December 31, 1993. Approximately 3,800 employees are represented by 24 unions.
Collective bargaining is conducted on a subsidiary-by-subsidiary basis with
local unions belonging to various national and international unions. Management
believes that labor relations are satisfactory at all subsidiaries.
ITEM 2. PROPERTIES
Eagle believes its manufacturing, warehouse and office facilities are
adequate for its current and foreseeable requirements. Eagle's principal
facilities consist of the following:
APPROX
SQUARE TERMS OF
LOCATION PRINCIPAL USE FOOTAGE OCCUPANCY(A)
- --------------------------------------- --------------------------------- -------- -------------
BUILDING PRODUCTS GROUP:
AIR DISTRIBUTION AND HANDLING PRODUCTS
Holland, Michigan Office, Manufacturing 613,000 Owned
Huntsville, Alabama Office, Manufacturing 219,000 Owned
Geneva, Alabama Office, Manufacturing 177,000 Owned
Memphis, Tennessee Office, Manufacturing, Warehouse 94,000 Leased
Sparks, Nevada Distribution Center 73,000 Leased
Jackson, Tennessee Manufacturing, Warehouse 62,000 Leased
BATHROOM PLUMBING FIXTURES
Kilgore, Texas Office, Warehouse, Manufacturing 544,000 Owned
Perrysville, Ohio Office, Manufacturing 492,000 Owned
Walnut, California Manufacturing 413,900 Owned
Big Prairie, Ohio Manufacturing 60,000 Owned
Shelby, Ohio Warehouse 48,000 Leased
AIR PRODUCTS
Jackson, Tennessee Office, Manufacturing, Warehouse 300,000 Owned
ELECTRICAL PRODUCTS GROUP:
ELECTRICAL POWER DISTRIBUTION PRODUCTS
Milford, New Hampshire Office, Manufacturing 230,000 Owned
Hackettstown, New Jersey Office, Manufacturing 125,000 Owned
Albuquerque, New Mexico Office, Manufacturing 90,000 Owned
Hackettstown, New Jersey Office, R&D 34,000 Owned
Hackettstown, New Jersey Warehouse 10,000 Leased
INDUSTRIAL ELECTRICAL PRODUCTS
Brooksville, Florida Office, Manufacturing 65,000 Owned
Punta Gorda, Florida Office, Manufacturing 60,000 Owned
Ontario, Canada Office, Manufacturing 17,500 Leased
Newbury, Berkshire, England Office, Manufacturing 7,000 Leased
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APPROX
SQUARE TERMS OF
LOCATION PRINCIPAL USE FOOTAGE OCCUPANCY(A)
- --------------------------------------- --------------------------------- -------- -------------
INDUSTRIAL PRODUCTS GROUP:
PROCESS INDUSTRIES PRODUCTS
Rochester, New York Office, Manufacturing 500,000 Owned
Schwetzingen, Germany Office, Manufacturing 400,000 Owned
Levin Fife, Scotland Office, Manufacturing 240,000 Owned
Dayton, Ohio Office, Manufacturing 145,000 Leased
Mexico City, Mexico Office, Manufacturing 110,000 Owned
Avondale, Pennsylvania Office, Manufacturing 100,000 Owned
Taubate, Brazil Office, Manufacturing 100,000 Owned
North Andover, Massachusetts Office, Manufacturing 30,000 Leased
Sao Jose Dos Campos, Brazil Office, Manufacturing 30,000 Leased
Derby, England Office, Manufacturing 20,000 Leased
Kearsley, England Office, Manufacturing 14,000 Owned
Stoline, Levin Fife, Scotland Office, Manufacturing 12,500 Leased
Bolton, England Office, Manufacturing 11,000 Owned
COMMERCIAL AVIATION PRODUCTS
Winston-Salem, North Carolina Office, Manufacturing 268,300 Owned
Inglewood, California Office, Manufacturing 86,000 Leased
AUTOMOTIVE PRODUCTS GROUP:
AUTOMOTIVE AFTERMARKET PRODUCTS
Lordstown, Ohio Warehouse 216,000 Leased
Warren, Ohio Office, Manufacturing 205,500 Owned
Jackson, Tennessee Warehouse 93,00 Owned
Monroe, Louisiana Office, Warehouse 43,200 Leased
Jackson, Mississippi Office, Warehouse 43,200 Leased
Jacksonville, Florida Office, Warehouse 40,000 Leased
New Orleans, Louisiana Office, Warehouse 25,300 Leased
Orlando, Florida Office, Warehouse 25,000 Leased
Miami, Florida Office, Warehouse 24,800 Leased
Cleveland, Ohio Office, Manufacturing 21,000 Owned
Norcross, Georgia Office 17,000 Owned
St. Petersburg, Florida Office, Warehouse 15,200 Leased
West Palm Beach, Florida Office, Warehouse 14,000 Leased
Tallahassee, Florida Office, Warehouse 12,000 Leased
Sarasota, Florida Office, Warehouse 10,000 Leased
SPECIALTY PRODUCTS GROUP:
CONSUMER PRODUCTS
Rochelle, Illinois Office, Manufacturing, Warehouse 476,000 Owned
Lafayette, Georgia Office, Manufacturing 150,600 Owned
Seattle, Washington Office, Warehouse 60,000 Owned
Dalton, Georgia Office, Manufacturing 42,500 Leased
Rochelle, Illinois Warehouse 12,000 Leased
COMMERCIAL REFRIGERATION EQUIPMENT
Trenton, New Jersey Office, Manufacturing, Warehouse 680,000 Owned
Chino, California Office, Warehouse 25,000 Leased
CORPORATE:
Chicago, Illinois Corporate Headquarters 10,000 Leased (b)
- -------------------------
(a) Substantially all domestic properties owned by Eagle and its subsidiaries
are subject to mortgages granted to financial institutions under its credit
facilities. See Note 5 to the Eagle Consolidated Financial Statements for
additional information regarding indebtedness of Eagle and its subsidiaries.
(b) Eagle leases this property from affiliates of GAMI.
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ITEM 3. LEGAL PROCEEDINGS
Eagle and its subsidiaries are defendants in several lawsuits arising in
the ordinary course of business. Management does not believe, based on the
advice of counsel, that any of these lawsuits, individually or in the aggregate,
will have a material adverse effect on Eagle's financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As a result of the Restructuring, Eagle became a wholly owned subsidiary of
GAMI, and as such, had one stockholder subsequent to September 25, 1992.
Pursuant to the Restructuring, Eagle declared a stock dividend, resulting in
11,077,261 shares of common stock issued and outstanding. In December, 1993,
Eagle declared a reverse stock split of 1/11,077 per share of common stock
resulting in the Company having 1,000 shares of common stock issued and
outstanding. At March 15, 1994, Eagle had 1,000 shares of common stock
authorized, issued and outstanding, all of which was held by GAMI.
Eagle paid a $30.0 million cash dividend to its corporate parent out of
earnings in February 1991. Eagle does not currently intend to pay dividends to
its stockholder. Eagle's dividend policy will be reviewed from time to time by
its Board of Directors in light of Eagle's earnings, financial position and
other factors deemed relevant by the Board of Directors. In addition, the amount
of cash dividends, if any, which may be paid on the Eagle Common Stock is
restricted by debt agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Certain Relationships and Related Transactions -- Disaffiliation
Agreement" and Note 5 to the Eagle Consolidated Financial Statements for a
discussion of restrictions on the ability of Eagle to pay dividends.
As discussed in Note 17 to the Eagle Consolidated Financial Statements, in
January 1994 the Company received $50 million from GAMI in the form of a capital
contribution.
ITEM 6. SELECTED FINANCIAL INFORMATION
The selected financial information presented below has been derived from
the audited Eagle Consolidated Financial Statements for the year ended December
31, 1993, the five months ended December 31, 1992 and for the fiscal years ended
July 31, 1989 through 1992 and should be read in conjunction with such financial
statements and the notes thereto. The five month period ended December 31, 1991
is unaudited and is
13
14
presented only for comparative purposes. This information has been restated to
give retroactive effect to businesses accounted for as discontinued operations.
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
DECEMBER 31, -------------------- ------------------------------------------
1993 1992 1991 1992 1991 1990 1989
------------ -------- -------- -------- -------- -------- ------
(IN MILLIONS)
INCOME STATEMENT DATA:
Net sales................ $1,142.3 $ 458.2 $ 433.4 $1,098.8 $1,033.9 $ 992.0 $448.6
Loss from continuing
operations............. (68.1) (6.5) (4.8) (0.3) (2.9) (8.8) (1.5)
Net income (loss)........ (110.6) (11.4) 12.0 25.9 27.3 41.4 4.6
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............. $1,102.2 $1,179.2 $1,277.1 $1,230.0 $1,269.5 $1,439.3 $571.2
Long-term debt........... 641.2 645.7 621.3 613.3 654.7 729.1 361.1
Total liabilities........ 1,010.1 970.4 1,031.4 1,004.5 1,035.7 1,230.1 522.2
Stockholder's equity..... 92.1 208.8 245.7 225.5 233.8 209.2 49.0
- -------------------------
(A) Eagle adopted the new accounting standard "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112") effective December 31, 1993,
"Accounting for Income Taxes" ("SFAS No. 109") in the first quarter of
calendar 1993 and "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS No. 106") in the first quarter of fiscal 1992. Refer
to Notes 2, 6 and 7 to the Eagle Consolidated Financial Statements for
additional information regarding the adoption of these accounting
pronouncements.
(B) See Note 3 to the Eagle Consolidated Financial Statements for information
regarding acquisitions.
(C) See Note 12 to the Eagle Financial Statements for information regarding
certain adjustments to stockholder's equity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements included herein.
GENERAL
Effective December 16, 1992, Eagle changed its year end from July 31 to
December 31. Information for the year ended December 31, 1992 and for the five
months ended December 31, 1991 is unaudited and has been presented for
comparative purposes only.
As disclosed in Notes 2 and 7 to the Eagle Consolidated Financial
Statements, Eagle adopted the provisions of SFAS No. 109 effective January 1,
1993. By adopting this standard, Eagle reduced its net deferred tax assets by
$3.5 million and recorded a corresponding charge of $3.5 million.
As disclosed in Note 2 to the Eagle Consolidated Financial Statements,
Eagle adopted the provisions of SFAS No. 112 effective December 31, 1993. By
adopting this standard, Eagle increased its accrued expenses by $3.0 million and
recorded a corresponding pretax charge of $3.0 million.
As disclosed in Note 6 to the Eagle Consolidated Financial Statements,
Eagle adopted the provisions of SFAS No. 106 in the first quarter of fiscal
1992. By adopting this standard, Eagle recorded a cumulative adjustment of $24.2
million by reducing its then recorded postretirement benefits liability to the
discounted present value of expected future benefits attributed to employees'
service rendered prior to August 1, 1991, and recorded a corresponding $24.2
million non-cash pretax benefit.
In 1993, the Company redefined its industry segments to add an Automotive
Products Group and realign its Building Products and Specialty Products Groups.
Prior periods' results of operations have been restated to reflect the
reclassifications.
14
15
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO YEAR ENDED DECEMBER 31, 1992
Net Sales
Following are net sales by business group:
YEAR ENDED DECEMBER
31, INCREASE/(DECREASE)
---------------------- ---------------------
1993 1992 AMOUNT PERCENTAGE
-------- -------- ------ ----------
(DOLLARS IN MILLIONS)
Building Products Group.......................... $ 372.3 $ 345.2 $ 27.1 7.9%
Electrical Products Group........................ 176.8 168.7 8.1 4.8
Industrial Products Group........................ 241.4 280.2 (38.8) (13.9)
Automotive Products Group........................ 164.2 139.8 24.4 17.5
Specialty Products Group......................... 187.6 189.7 (2.1) (1.1)
-------- -------- ------
Total....................................... $1,142.3 $1,123.6 $ 18.7 1.7%
-------- -------- ------ ----------
-------- -------- ------ ----------
Excluding the effects of acquisitions, consolidated net sales for the year
ended December 31, 1993 were $16.3 or 1.5% higher than net sales for the year
ended December 31, 1992. This increase was primarily due to increased volume at
the Company's automotive parts distribution businesses, Denman, Hart & Cooley,
Mansfield and Hill partially offset by declines at Burns, Pfaudler and Caron.
Net sales of $372.3 million for the year ended December 31, 1993 for the
Building Products Group were $27.1 million or 7.9% higher than in the 1992
period. This increase was primarily due to increased volume at Mansfield and
increased volume and to a lesser extent improved pricing at Hart & Cooley. These
increases were primarily the result of improvement in the residential
construction market.
Net sales of $176.8 million for the year ended December 31, 1993 for the
Electrical Products Group were $8.1 million or 4.8% higher than in the 1992
period. Approximately $2.4 million of the increase was due to a product line
acquisition made by Elastimold. The remainder of the increase was primarily due
to increased volume and improved pricing at Hendrix and increased international
volume at Elastimold.
Net sales of $241.4 million for the year ended December 31, 1993 for the
Industrial Products Group were $38.8 million or 13.9% lower than in the 1992
period. This decrease was due to lower volume at Pfaudler due to a decline in
European sales and lower volume at Burns due to decreased expenditures in the
aviation industry and a large order in the 1992 period, which was not repeated
in 1993. These decreases were partially offset by an increase in volume at
Chemineer, which was partially offset by reduced pricing.
Net sales of $164.2 million for the year ended December 31, 1993 for the
Automotive Products Group were $24.4 million or 17.5% higher than in the 1992
period. This increase was primarily due to increased volume at Denman and as a
result of an increase in the customer base at the automotive parts distribution
businesses.
Net sales of $187.6 million for the year ended December 31, 1993 for the
Specialty Products Group were $2.1 million or 1.1% lower than in the 1992
period. This decrease was primarily due to a decrease in volume at Caron related
to the sale of its industrial yarn product line in 1992, which accounted for
$6.5 million of the decrease, as well as continued softness in consumer
discretionary spending. This decrease was partially offset by increased volume
at Hill, partially offset by reduced pricing.
Gross Earnings
Consolidated gross earnings of $224.5 million for the year ended December
31, 1993 were $2.2 million lower than in the 1992 period. This decrease was
primarily due to lower sales volume and to a lesser extent competitive pricing
in the Industrial Products Group, a write-down of inventory at Burns and a
decrease in volume at Caron. Consolidated gross margin of 19.7% in 1993 was down
from 20.2% in the comparable 1992 period.
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16
Operating Income
Following is operating income by business group:
YEAR ENDED DECEMBER 31, INCREASE/(DECREASE)
---------------------- ---------------------
1993 1992 AMOUNT PERCENTAGE
------ ------ ------ ----------
(DOLLARS IN MILLIONS)
Building Products Group........................... $ 47.5 $ 44.1 $ 3.4 7.7%
Electrical Products Group......................... 14.9 17.0 (2.1) (12.7)
Industrial Products Group......................... (2.9) 11.7 (14.6) (124.9)
Automotive Products Group......................... 6.2 3.6 2.6 72.5
Specialty Products Group.......................... (67.6) (0.9) (66.7) N/M
Corporate Expenses................................ (11.0) (12.7) 1.7 13.1
------ ------ ------
Operating Income (Loss)...................... $(12.9) $ 62.8 $(75.7) (120.5)%
------ ------ ------ ----------
------ ------ ------ ----------
Consolidated operating loss for the year ended December 31, 1993 was $12.9
million compared to operating income of $62.8 million in 1992. This decrease was
primarily due to the recording of $71.8 million of restructuring charges in the
third and fourth quarter of 1993. Excluding these restructuring charges and $1.7
million of restructuring charges recorded in 1992, operating income decreased
$5.7 million or 8.8%. This decrease was primarily due to lower sales volume at
Pfaudler, Burns and Caron, and a write-down of certain inventory and receivables
at Burns of $6.7 million. The decline was partially offset by increased sales
volume at Denman and the Company's automotive parts distribution businesses and
an increase in price and volume at Hendrix and Hart & Cooley.
Several of the Company's businesses recorded restructuring charges totaling
$71.8 million in the third and fourth quarter of 1993. Elastimold recorded
charges of $0.6 million related to an early retirement program. IEP recorded
charges of $2.0 million for additional costs associated with the relocation of
one of its manufacturing facilities from New Jersey to Florida. Pfaudler
recorded charges of $2.0 million, principally for the downsizing of certain of
its foreign operations. Caron recorded charges of $6.2 million for the shut down
of its London, Kentucky facility. Hill recorded charges of $8.8 million for the
shut down of its Canadian facility. Hill also recorded charges of $52.2 million
for the write-down of certain assets including property, plant and equipment of
$19.4 million and goodwill of $25.8 million associated with its studies
regarding the reconfiguration and/or relocation of its Trenton, New Jersey
plant. See Note 8 to the Eagle Consolidated Financial Statements for a more
detailed description of the restructuring charges.
Operating income for the year ended December 31, 1993 for the Building
Products Group was $3.4 million or 7.7% higher than in 1992. This increase was
primarily due to improved pricing and increased volume at Hart & Cooley,
partially offset by decreases at Mansfield due to decreased pricing and higher
operating costs. Operating margin for the group was 12.8% for the years ended
December 31, 1993 and 1992.
Excluding the effects of restructuring charges, income for the year ended
December 31, 1993 for the Electrical Products Group was $0.4 million or 2.6%
higher than in 1992. Improved pricing at Hendrix and reduced manufacturing costs
at IEP were offset by declines at Elastimold caused by decreased earnings at its
European joint venture. Excluding the effects of restructuring charges,
operating margins were 9.9% and 10.0% for the years ended December 31, 1993 and
1992, respectively, due to the above mentioned factors.
Excluding restructuring charges of $2.0 million in 1993 and $1.7 million in
1992, the operating loss for the year ended December 31, 1993 for the Industrial
Products Group was $0.9 million compared to operating income of $13.4 million in
1992. The decrease was due primarily to decreased pricing at Chemineer, lower
volume and prices at Burns, the write-down of certain receivables and inventory
at Burns and lower volume at Pfaudler. Excluding the effects of restructuring
charges and the write-down of accounts receivables and inventory in 1993 and
restructuring charges in 1992, operating margins were 2.4% and 4.8% for the
years ended December 31, 1993 and 1992, respectively, due to the above mentioned
factors.
16
17
Operating income for the year ended December 31, 1993 for the Automotive
Products Group was $2.6 million or 72.5% higher than in 1992. This increase was
primarily due to increased sales volume at Denman and the automotive parts
distribution businesses. Operating margins were 3.8% and 2.6% for the years
ended December 31, 1993 and 1992, respectively, due to the above mentioned
factors.
Excluding restructuring charges, operating loss for the year ended December
31, 1993 for the Specialty Products Group was $0.4 million compared to an
operating loss of $0.9 million in 1992. The improvement was primarily due to
increased volume at Hill partially offset by decreased volume at Caron.
Excluding the effects of restructuring charges, operating margins were (0.2)%
and (0.5)% for the years ended December 31, 1993 and 1992, respectively, due to
the above mentioned factors.
Corporate expenses for the year ended December 31, 1993 were $1.7 million
or 13.1% lower than in the 1992 period. This decrease was primarily due to a one
time curtailment gain of $1.3 million associated with a pension plan.
Interest Expense
Net interest expense related to continuing operations was $67.1 million for
the year ended December 31, 1993 compared to $63.8 million for the comparable
1992 period. This increase is primarily attributable to a decrease in interest
income (see Note 12 to the Eagle Consolidated Financial Statements).
Loss From Continuing Operations (Before Income Taxes)
The loss from continuing operations before income taxes for the year ended
December 31, 1993 was $80.0 million. This was due to restructuring charges and
the write-down of certain accounts receivables and inventory totaling $78.5
million. In addition, as discussed in Liquidity and Capital Resources below, the
Refinancing is expected to generate annual savings of at least $20 million in
interest expense.
Income Tax Provision
The Company's tax benefit for continuing operations for the year ended
December 31, 1993 reflected the significant amount of non-deductible expenses
including the write-down of goodwill balances and goodwill amortization. See
Note 7 to the Eagle Consolidated Financial Statements for a further analysis of
the effective tax rate.
FIVE MONTHS ENDED DECEMBER 31, 1992 AS COMPARED TO FIVE MONTHS ENDED DECEMBER
31, 1991
Net Sales
Following are net sales by business group:
FIVE MONTHS ENDED
DECEMBER 31, INCREASE/(DECREASE)
------------------ ---------------------
1992 1991 AMOUNT PERCENTAGE
------ ------ ------ ----------
(DOLLARS IN MILLIONS)
Building Products Group............................. $150.1 $128.7 $ 21.4 16.6%
Electrical Products Group........................... 66.2 62.2 4.0 6.4
Industrial Products Group........................... 100.5 100.7 (0.2) (0.2)
Automotive Products Group........................... 58.9 47.0 11.9 25.3
Specialty Products Group............................ 82.5 94.8 (12.3) (12.9)
------ ------ ------
Total............................................. $458.2 $433.4 $ 24.8 5.7%
------ ------ ------ ----------
------ ------ ------ ----------
Excluding the effects of acquisitions, consolidated net sales for the five
months ended December 31, 1992 were $20.5 million or 4.7% higher than net sales
for the five months ended December 31, 1991. The increase was primarily due to
increased volume at Hart & Cooley, Mansfield, Elastimold, Denman and DeVilbiss
Air Power, partially offset by declines at Chemineer and Caron. Net sales
increased $4.3 million due to the effect
17
18
of an acquisition within the Company's Automotive Products Group during the five
months ended December 31, 1991.
Net sales of $150.1 million for the Building Products Group were $21.4
million or 16.6% higher than net sales for the five months ended December 31,
1991. This was primarily due to increased volume attained by all businesses
within this group. Contributing to this increase were increased sales to
customers in Mexico by Mansfield of $1.7 million and increased sales to Sears by
DeVilbiss Air Power of $6.5 million.
Net sales of $66.2 million for the Electrical Products Group were $4.0
million or 6.4% higher than net sales for the five months ended December 31,
1991. This was primarily due to increased international volume at Elastimold.
Net sales of $100.5 million for the Industrial Products Group were $0.2
million or 0.2% lower than net sales for the five months ended December 31,
1991. This decrease was primarily due to a $3.7 million decline in sales at
Chemineer, partially offset by an increase of $3.0 million at Burns.
Net sales of $58.9 in the Automotive Products Group were $11.9 million or
25.3% higher than the net sales for five months ended December 31, 1991.
Approximately $4.3 million of the increase reflects the effect of an acquisition
within the Company's automotive parts distribution businesses. Sales also
increased at Denman and Eagle's automotive parts distribution businesses.
Net sales in the Specialty Products Group were $12.3 million or 12.9% lower
than the net sales for five months ended December 31, 1991. This decrease was
primarily due to declines at Caron and Gerry caused by continued softness in
consumer discretionary spending and, to a lesser extent, the sale of Caron's
industrial yarn product line.
Gross Earnings
Consolidated gross earnings of $90.2 million for the five months ended
December 31, 1992 were virtually unchanged from gross earnings of $89.8 million
for the five months ended December 31, 1991. The consolidated gross margin
declined to 19.7% for the five months ended December 31, 1992 from 20.7% for the
five months ended December 31, 1991 due primarily to competitive pricing
pressures and changes in product mix in many of Eagle's businesses. Many of the
Company's businesses reduced sales prices in order to remain competitive and/or
to gain market share. Partially offsetting these price discounts were cost
reduction programs, which included reduced staffing levels and other cost
containment measures.
Operating Income
Following is operating income by business group:
FIVE MONTHS ENDED
DECEMBER 31, INCREASE/(DECREASE)
----------------- --------------------
1992 1991 AMOUNT PERCENTAGE
----- ----- ------ ----------
(DOLLARS IN MILLIONS)
Building Products Group................................. $18.6 $15.9 $ 2.7 17.4%
Electrical Products Group............................... 4.4 3.8 0.6 14.4
Industrial Products Group............................... 0.5 2.6 (2.1) (82.7)
Automotive Products Group............................... 0.5 1.1 (0.6) (44.8)
Specialty Products Group................................ 1.4 5.7 (4.3) (75.7)
Corporate Expenses...................................... (5.8) (4.7) (1.1) (22.3)
----- ----- -----
Operating Income................................... $19.6 $24.4 $(4.8) (19.7)%
----- ----- ----- -----
----- ----- ----- -----
Consolidated operating income of $19.6 million for the five months ended
December 31, 1992 was $4.8 million, or 19.7% lower than operating income for the
five months ended December 31, 1991. Operating income declined primarily due to
unfavorable product mix and a restructuring charge of $1.7 million in certain
businesses in the Industrial Products Group and reduced sales volumes for
certain businesses in the Specialty Products Group. Consolidated operating
margin, before restructuring charges, was 4.6% for the five months
18
19
ended December 31, 1992 as compared to 5.7% for the five months ended December
31, 1991. The decline is due to the above mentioned factors. Consolidated
selling and administrative expenses increased $4.5 million for the five months
ended December 31, 1992 compared to the five months ended December 31, 1991 as a
result of the higher sales levels, however, selling and administrative expenses
as a percentage of net sales remained at 14.3% during both periods.
Operating income for the Building Products Group of $18.6 million for the
five months ended December 31, 1992 was $2.7 million, or 17.4% higher than
operating income for the same period in 1991. This increase was due primarily to
increased sales volume at all of the businesses within this group. Operating
margin was essentially flat at 12.4% and 12.3% for the five months ended
December 31, 1992 and 1991, respectively.
Operating income for the Electrical Products Group of $4.4 million for the
five months ended December 31, 1992 was $0.6 million or 14.4% higher than
operating income for the same period in 1991. This increase was due primarily to
increased volume at Elastimold and cost reduction programs at certain units.
Operating margin was 6.6% and 6.1% for the five months ended December 31, 1992
and 1991, respectively, due to the above mentioned factors.
Operating income for the Industrial Products Group of $0.5 million for the
five months ended December 31, 1992 was $2.1 million lower than operating income
for the same period in 1991. This decrease was attributable to unfavorable
product mix at Burns and lower sales volume at Chemineer. Savings at Pfaudler
from cost reduction programs partially offset the decline, despite restructuring
charges of $1.7 million at Pfaudler and Burns. Operating margin, before
restructuring charges, was 2.1% and 2.6% for the five months ended December 31,
1992 and 1991, respectively, due to the reasons discussed above.
Operating income for the Automotive Products Group of $0.5 million for the
five months ended December 31, 1992, was $0.6 million lower than operating
income for the same period in 1991. The decline is primarily due to lower sales
volume at Clevaflex and increased operating expenses at Denman. Operating
margins were 1.3% and 2.9% for the five months ended December 31, 1992 and 1991,
respectively, due to the above mentioned factors.
Operating income for the Specialty Products Group of $1.4 million for the
five months ended December 31, 1992 was $4.3 million lower than operating income
for the same period in 1991. This decline was due primarily to decreases in
volume at Caron and Gerry, as well as lower absorption and costs associated with
a new product line at Hill. Operating margins were 1.7% and 6.0% for the five
months ended December 31, 1992 and 1991, respectively, due to the above
mentioned factors.
Corporate expenses for the five months ended December 31, 1992 increased
$1.1 million compared to the five months ended December 31, 1991. The increased
corporate expense was due to costs associated with the year end change and the
Restructuring consummated on September 25, 1992.
Interest Expense
Net interest expense related to continuing operations was $27.2 million for
the five months ended December 31, 1992 compared to $27.7 for the corresponding
period of 1991. This decrease is due primarily to the overall decline in
interest rates.
Loss from Continuing Operations (Before Income Taxes)
The loss from continuing operations before income taxes was $7.6 million
for the five months ended December 31, 1992 compared to a loss of $3.3 million
for the five months ended December 31, 1991. The loss reflected the general
economic environment in which Eagle was operating and the performance of certain
of its businesses. Eagle has taken actions throughout all of its businesses to
reduce operating expenses and manufacturing costs. The cost reduction efforts
did not offset the lower sales prices in many of these businesses.
19
20
Income Tax Provision
Eagle's tax benefit for continuing operations for the five months ended
December 31, 1992 reflected the significant amount of nondeductible expenses,
including goodwill amortization and depreciation, which are included in the
current operating loss. See Note 7 to the Eagle Consolidated Financial
Statements for a further analysis of the effective tax rate.
FISCAL YEAR ENDED JULY 31, 1992 AS COMPARED TO FISCAL YEAR ENDED JULY 31, 1991
Net Sales
Following are net sales by business group:
YEAR ENDED JULY 31, INCREASE/(DECREASE)
--------------------- ---------------------
1992 1991 AMOUNT PERCENTAGE
-------- -------- ------ ----------
(DOLLARS IN MILLIONS)
Building Products Group........................... $ 323.9 $ 258.3 $ 65.6 25.4%
Electrical Products Group......................... 164.7 182.2 (17.5) (9.6)
Industrial Products Group......................... 280.4 270.3 10.1 3.7
Automotive Products Group......................... 127.9 115.1 12.8 11.0
Specialty Products Group.......................... 201.9 208.0 (6.1) (2.9)
-------- -------- ------
Total........................................ $1,098.8 $1,033.9 $ 64.9 6.3%
-------- -------- ------ ----------
-------- -------- ------ ----------
Despite the adverse impact of the recession on many of the Company's
businesses, consolidated net sales for fiscal 1992 were $64.9 million or 6.3%
higher than fiscal 1991. Net sales increased $27.8 million in fiscal 1992 due to
the full year impact of the fiscal 1991 acquisitions, which included Norris
(acquired September 1990) and Energair (acquired April 1991). Excluding the
effects of the Norris and Energair acquisitions, consolidated net sales
increased by $37.1 million in fiscal 1992 compared to fiscal 1991.
Net sales of $323.9 million for the Building Products Group increased $65.6
million in fiscal 1992 compared to fiscal 1991. The acquisition of Norris and
Energair contributed $27.8 million to the sales increase in fiscal 1992.
Excluding net sales of Norris and Energair, net sales improved by $37.8 million,
$5.9 million of the increase was attributable to Mansfield due primarily to
increased sales volume of vitreous china products, while DeVilbiss Air Power
contributed $23.7 million. Hart & Cooley's sales increased $8.2 million of which
$5.1 million was due to increased flexible duct system volume.
Net sales of $164.7 million for the Electrical Products Group declined
$17.5 million in fiscal 1992 compared to fiscal 1991. The recession had a
negative impact on this group, primarily during the first six months of fiscal
1992, as both electric utility capital spending levels and construction levels
were below fiscal 1991 levels. Additionally, $5.5 million of this decline
related to a division which was sold by Eagle in January 1991.
Net sales of $280.4 million for the Industrial Product Group increased
$10.1 million in fiscal 1992 compared to fiscal 1991. This increase was
attributable to an increase at Burns of $18.0 million, due to several large
contracts for commercial aircraft seating, partially offset by decreases at
Pfaudler and Chemineer of $6.2 million and $1.6 million, respectively. Capital
spending by the chemical processing industry in the United States and Europe,
which affects sales volumes of Pfaudler and Chemineer, continued to remain flat
compared to levels experienced in fiscal 1991. Shipments in the last half of
fiscal 1992 improved over fiscal 1991 levels.
Net sales of $127.9 million for the Automotive Products Group were $12.8
million higher in fiscal 1992 compared to fiscal 1991. This increase was
primarily due to increased sales at Eagle's automotive distribution businesses
of $13.3 million.
Net sales of $201.9 million for the Specialty Products Group were $6.1
million lower in fiscal 1992 compared to fiscal 1991. This decrease was
primarily due to lower sales at Caron and Gerry of $2.4 million and
20
21
$1.9 million, respectively, due to softness in consumer discretionary spending
and decreases at Hill of $1.8 million.
Gross Earnings
Despite the adverse impact of the recession on many of the Company's
businesses, consolidated gross earnings of $226.2 million for fiscal 1992 were
$3.1 million higher than gross earnings of $223.1 million in fiscal 1991. Gross
earnings improved for businesses in the Building Products Group and Automotive
Products Group by $15.8 million and $3.6 million, respectively, primarily as a
result of increased sales volume resulting from improved market conditions and
acquisitions. Certain businesses within the Electrical Products Group,
Industrial Products Group and, to a lesser extent, the Specialty Products Group,
experienced price pressure. For these segments, gross earnings declined $6.2
million, $6.3 million and $3.9 million, respectively. Consolidated gross margin
was 20.6% for fiscal 1992 compared to 21.6% in fiscal 1991. The reduced level of
gross margin was due primarily to the above-mentioned factors.
Operating Income
Following is operating income by business group:
YEAR ENDED JULY
31, INCREASE/(DECREASE)
------------------ --------------------
1992 1991 AMOUNT PERCENTAGE
------ ------ ------ ----------
(DOLLARS IN MILLIONS)
Building Products Group................................. $ 41.4 $ 27.6 $13.8 50.0%
Electrical Products Group............................... 16.5 18.6 (2.1 ) (11.3)
Industrial Products Group............................... 14.2 23.9 (9.7 ) (40.4)
Automotive Products Group............................... 4.2 3.8 0.4 9.8
Specialty Products Group................................ 3.3 4.1 (0.8 ) (19.5)
Corporate Expenses...................................... (11.9) (12.3) 0.4 2.6
------ ------ ------
Total................................................. $ 67.7 $ 65.7 $ 2.0 3.0%
------ ------ ------ ----------
------ ------ ------ ----------
Consolidated operating income for fiscal 1992 was $2.0 million or 3.0%
higher than operating income in fiscal 1991. Consolidated operating margin was
6.2% and 6.4% for fiscal 1992 and 1991, respectively, and declined primarily due
to reduced sales volumes and continued price declines experienced by certain
businesses within the Electrical Products Group and reduced sales volumes and
manufacturing inefficiencies for certain businesses within the Industrial
Products Group. These decreases were partially offset by increases in the
Building Products Group and the Specialty Products Group due to increases in
sales volume and more substantial improvements in operating margin.
Operating income for the Building Products Group increased $13.8 million
during fiscal 1992 compared to fiscal 1991. This increase was due primarily to
increased sales volume and effective cost reduction programs previously
implemented by the businesses within this group, as well as to the earnings
contribution of Norris and Energair, which contributed $2.4 million to operating
income in fiscal 1992. Operating margin was 12.8% and 10.7% for fiscal 1992 and
fiscal 1991, respectively, with the improvement being due to the above mentioned
factors.
Operating income for the Electrical Products Group declined $2.1 million
during fiscal 1992 compared to fiscal 1991. Operating margin was relatively flat
at 10.0% and 10.2% for fiscal 1992 and 1991, respectively. The decline in
operating income was due to the reduced sales volumes and price declines
experienced by certain businesses within this group during fiscal 1992.
Operating income for the Industrial Products Group declined $9.7 million
during fiscal 1992 compared to fiscal 1991 due primarily to the reduced sales
volumes at Pfaudler and to manufacturing inefficiencies at Burns which resulted
in higher labor costs. Operating margin was 5.1% and 8.8% for fiscal 1992 and
1991, respectively, and declined due to the above mentioned factors.
21
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Operating income for the Automotive Products Group increased $0.4 million
during fiscal 1992 compared to fiscal 1991, primarily due to increased volume at
the Company's automotive parts distribution businesses. Operating margin was
3.3% for both fiscal 1992 and fiscal 1991.
Operating income for the Specialty Products Group decreased by $0.8 million
during fiscal 1992 compared to fiscal 1991. This decrease was primarily due to
continued softness in consumer discretionary spending. In addition, operating
income in fiscal 1991 included increased costs at Hill, offset by improved
product mix and lower operating expenses at Caron. Operating margin was 1.6% and
2.0% in fiscal 1992 and 1991, respectively, due to the above mentioned factors.
Corporate expenses for fiscal 1992 declined $0.4 million compared to fiscal
1991. This decline reflected efforts to reduce administrative costs at all
levels.
Interest Expense
Net interest expense related to continuing operations was $64.9 million for
fiscal 1992 compared to $68.7 million in fiscal 1991. The decline in net
interest expense was due primarily to the reduction in indebtedness as proceeds
from fiscal 1991 business dispositions (totaling approximately $250.2 million
through January 1991) were applied to outstanding debt balances. Accordingly,
the average outstanding debt balance for fiscal 1992 was approximately $7.0
million less than for fiscal 1991. In addition, Eagle realized savings in fiscal
1992 interest expense due to the overall decline in interest rates from levels
seen in fiscal 1991.
Income From Continuing Operations (Before Income Taxes)
Income from continuing operations before income taxes was $2.8 million for
fiscal 1992 compared to a loss of $3.0 million for fiscal 1991. The improvement
is a result of actions taken by Eagle throughout all of its businesses to reduce
operating expenses and manufacturing costs, which included headcount reductions,
renegotiating vendor contracts and reducing general corporate and administrative
expenses to offset lower volume and sales prices in many of its businesses.
Income Tax Provision
Eagle's tax provision for continuing operations for fiscal 1992 reflected
the significant amount of nondeductible expenses, including goodwill
amortization and depreciation, which are included in the current operating loss.
See Note 7 to the Eagle Consolidated Financial Statements for a further analysis
of the effective tax rate.
DISCONTINUED OPERATIONS
In the third quarter of 1993, the Company classified Lapp Insulator Company
("Lapp"), Underground Technologies, Inc. ("Underground Technologies") and Power
Structures, Inc. ("Power Structures") as discontinued operations. The Company is
currently pursuing options for the sale of Lapp. The Company sold Power
Structures and certain assets of Underground Technologies in the fourth quarter
of 1993 for total proceeds of $3.5 million. The Company made a provision of
$24.0 million, net of applicable tax benefit of $8.2 million, for estimated
losses from operations and from the ultimate disposition of these businesses.
These charges are reflected as "Loss on disposal" in the Company's Consolidated
Financial Statements. Included in the provision for disposition was the
write-off of approximately $10 million of goodwill related to Lapp and
Underground Technologies. The $10 million goodwill represented all of the
goodwill assigned to these businesses.
In February, 1993, Eagle sold, through an indirect wholly owned subsidiary,
a 60% interest in Signet Armorlite, Inc. ("Signet") to Galileo Industrie
Ottiche, S.p.A. ("Galileo"). Signet manufactures and distributes ophthalmic
lenses used for eyeglasses and also distributes supplies used in ophthalmic lens
processing. The Company received cash proceeds of approximately $23 million from
the sale, which were used to reduce outstanding debt. The Company recorded a
pretax loss of $5.0 million with a corresponding tax
22
23
benefit of $2.0 in December 1992. See Note 4 to the Eagle Consolidated Financial
Statements for a further discussion of the sale agreement and resulting
accounting treatment.
During fiscal 1992, Eagle and its subsidiaries completed the sale of its
process pump business, Pulsafeeder, Inc. and subsidiaries ("Pulsafeeder"), for
total cash and other consideration of $69.0 million, as a result of which a net
gain of approximately $10.6 million was recorded during the fourth quarter of
fiscal 1992. In addition, in conjunction with the Restructuring, Eagle sold the
net assets of Equality to GAMI for approximately $17.0 million. Eagle did not
record any gain on the sale of Equality.
During fiscal 1991, Eagle and its subsidiaries completed the sale of seven
business units for cash consideration of $250.2 million. A net gain of $35.8
million was recorded as a result of these dispositions.
Interest expense allocated to these discontinued businesses primarily
represented interest expense associated with debt assumed by the buyer or debt
related to the discontinued businesses that will no longer be incurred by Eagle
or its subsidiaries. In addition, certain interest expense related to Eagle and
its subsidiaries' revolving lines of credit has also been allocated to
discontinued operations based on the percentage of net assets sold to total
consolidated net assets plus indebtedness of Eagle. Interest expense related to
Eagle's subordinated notes has not been allocated to these discontinued
operations. Eagle believes the method used to allocate interest expense to
discontinued businesses is reasonable.
The provision for income taxes reflected for the operations of these
discontinued businesses in Eagle's Consolidated Statement of Income for the year
ended December 31, 1993, the five months ended December 31, 1992 and 1991 and
for fiscal 1992 and 1991, recognizes the tax effects related specifically to the
discontinued businesses.
An income tax benefit of $8.2 million was recorded in connection with the
ultimate disposition of companies recorded as discontinued operations in 1993.
The tax benefit recorded differs from that computed by utilizing the U.S.
federal tax rate due to certain non-deductible losses, principally the writedown
of goodwill. Income tax expense of $18.7 million and $37.6 million were provided
against the net gains on disposal of businesses in fiscal 1992 and 1991,
respectively. The tax recorded on the gains recorded in fiscal 1992 and 1991
differ from that computed by utilizing the U.S. federal tax rate due to state
taxes, certain non-deductible losses, the effect of net-of-tax accounting, the
effect of foreign tax credits and excess tax gain over the book gain
attributable to differences between the book and tax basis of assets related to
businesses sold.
LIQUIDITY AND CAPITAL RESOURCES
Eagle has historically met its debt service, capital expenditure
requirements and operating needs through a combination of operating cash flow
and external financing.
Operating Cash Flow
Cash flow from continuing operating activities was $12.5 million for the
year ended December 31, 1993. The Company recorded a loss from continuing
operations of $68.1 million of which $71.8 million was related to restructuring
charges. An increase in accounts receivable, as well as the recording of income
tax benefits and expenditures due to the relocation of IEP's manufacturing
facility from New Jersey to Florida represented the primary uses of cash in
1993.
Credit Facilities
As further described in Note 5 to the Eagle Consolidated Financial
Statements, in July 1993, the Company completed a tender offer for $151 million
of its 13% Senior Subordinated Notes ("13% Notes"). The tender of the $151
million of the 13% Notes was funded through a concurrent sale of Senior Deferred
Coupon Notes due 2003 ("Notes"). The issue price of the Notes was $598.97 per
$1,000 principal amount at maturity, which represents a yield to July 15, 1998
of 10.5% per annum. The aggregate principal amount of Notes issued was $315
million. Cash interest will be payable on January 15 and July 15 of each year at
a rate of 10.5% per annum commencing on January 15, 1999 until maturity on July
15, 2003. The net proceeds, after deducting the tender premium, consent
payments, interest on the 13% Notes tendered and other fees and
23
24
expenses, amounted to approximately $167 million. In connection with the tender
of the 13% Notes, the Company recognized an extraordinary charge of $8.4 million
net of applicable tax benefit of $5.8 million for call premiums and expenses.
In January 1994, the Company consummated a Refinancing (the "Refinancing"),
the proceeds of which were utilized to repay and redeem all of its subsidiaries
senior bank credit facilities, the remaining $149 million of its 13% Notes and
the 13.75% Senior Subordinated Notes ("13.75% Notes"). A portion of the proceeds
from the Refinancing were derived from a new senior bank credit facility
("Credit Facility") made available to Eagle Industrial Products Corporation,
("Eagle Industrial"), a newly formed wholly owned subsidiary of the Company
which owns all of the operating subsidiaries of the Company. The Company also
entered into an asset securitization program whereby it sold certain of its
accounts receivable for approximately $110 million. In addition, the Company
received a capital contribution from GAMI of $50 million in connection with the
Refinancing. The Refinancing of the Company's debt is expected to generate a
reduction of interest expense in excess of $20 million. In connection with the
Refinancing, the Company will record a pretax extraordinary charge of
approximately $26 million in the first quarter of 1994. See Note 17 to the Eagle
Consolidated Financial Statements for a further discussion of the Refinancing.
The Eagle Industrial Credit Facility consists of: (1) a $225 million term
loan due in quarterly installments increasing from $4.9 million per quarter
during 1994 to $15 million in 1999; (2) a $65 million term loan due in equal
quarterly installments aggregating $0.5 million per year in 1994 and 1995, $1
million per year in 1996 through 1999 and $60 million in 2000; and (3) a $135
million revolving Credit Facility (subject to borrowing base availability) that
expires in 1999, which may be extended through 2000. Borrowings under the Credit
Facility bear interest at alternative floating rate structures, at management's
option (4.9% at January 31, 1994), and are secured by substantially all domestic
property, plant, equipment, inventory and certain receivables of Eagle
Industrial and its subsidiaries. At January 31, 1994, $35 million and $290
million were outstanding under the revolving credit portion and term loan
portion of the Credit Facility, respectively. Additionally, the Credit Facility
provides for a letter of credit facility of up to $50 million. Borrowing
availability under the revolving portion of the Credit Facility is reduced by
the outstanding amount of letters of credit. At January 31, 1994, an additional
$28 million was available to borrow under the Credit Facility.
The Eagle Industrial Credit Facility contains various financial covenants,
the more restrictive requirements being: the maintenance of minimum levels of
net worth; limitations on incurring additional indebtedness; restrictions on the
payment of dividends or the making of loans to the Company; maintenance of
certain ratios of cash flow to interest expense and indebtedness; maintenance of
a minimum level of cash flow to fixed charges; and a prohibition on payments to
the Company for management services in excess of $3 million per year. The
Company has provided a guarantee as to the repayment of amounts outstanding
under this Credit Facility. Additionally, the Credit Facility requires that the
Zell interests (as defined) directly or indirectly maintain at least 30% of the
voting power to elect members of the board of directors of the Company and that
the Company directly own 100% of Eagle Industrial.
Prior to the Refinancing, the Company had four senior credit facilities
which were available to four subsidiary groups of the Company (the "Senior Bank
Credit Facilities"). A portion of the proceeds of the Refinancing were utilized
to fully repay the Senior Bank Credit Facilities in January 1994. The aggregate
amount available under the revolving portion of the Senior Bank Credit
Facilities (subject to borrowing base availability) amounted to $350.0 million
at December 31, 1993, of which $156.9 million was outstanding. Additionally, the
Senior Bank Credit Facilities at December 31, 1993 included $69.6 million in
outstanding term loans. Borrowings under the Senior Bank Credit Facilities bore
interest at alternative floating rate structures, at management's option (5.6%
and 6.1% at December 31, 1993 and 1992, respectively), and were secured by
substantially all domestic property, plant, equipment, inventory and receivables
of the Company's subsidiaries. Three of these senior credit facilities were
guaranteed by the Company. Additionally, these credit facilities provided for
letter of credit facilities within each credit facility. At December 31, 1993,
$33.5 million of letters of credit were issued and outstanding under the
aforementioned credit facilities.
24
25
The Senior Bank Credit Facilities contained various financial covenants,
the more restrictive requirements being the maintenance of minimum levels of net
worth; limitations on the incurrence of additional indebtedness, as defined;
maintenance of certain ratios of profitability to interest expense; maintenance
of certain asset to liability ratios; requirements that the Zell interests (as
defined) directly or indirectly maintain at least 51% of the voting power to
elect members of the board of directors of certain subsidiary groups; and
maintenance of minimum levels of earnings to fixed charges, as defined.
Capital Expenditures
Capital expenditures were $27.7 million and $31.8 million for the years
ended December 31, 1993 and 1992, respectively. Expenditures during 1992
included the construction of a new facility for IEP. Capital expenditures were
$13.6 million for the five months ended December 31, 1992, $27.5 million in
fiscal 1992 and $26.3 million in fiscal 1991.
In addition to normal maintenance expenditures, Eagle also expects to incur
additional capital expenditures to develop new products and improve product
quality. Capital expenditures will be funded through operating cash flow and
through availability under the Credit Facility. Eagle had no material
commitments for capital expenditures at December 31, 1993. The Company expects
that its capital expenditures in 1994 will increase to approximately $45
million.
Acquisitions and Divestitures
Although the Company has historically made a number of acquisitions, it has
not made any material acquisitions since fiscal 1990. While certain preliminary
discussions are at varying stages at this time, Eagle currently does not have
any contract or arrangement with respect to a material acquisition.
Eagle has historically sold a number of businesses, realizing cash proceeds
of $25.9 million in 1993 and $17.0 million in the five months ended December 31,
1992. Proceeds were $67.4 million, $250.2 million and $162.5 million in fiscal
1992, 1991 and 1990, respectively. Eagle has considered, and in the future will
consider, proposals for the sale of some or all of its interests in its
businesses. However, it has, at this time, no agreements or arrangements for the
sale of any of its businesses.
Other Liquidity Considerations
Eagle is structured as a holding company and the operations of Eagle are
conducted principally through its subsidiaries. As a result of the Refinancing,
Eagle has no debt service requirements and no cash interest payments due until
January 1999. Eagle Industrial owns all the operating subsidiaries of the
Company. Eagle Industrial will rely almost exclusively on income and cash flow
from its operating subsidiaries to generate the funds necessary to meet its debt
service obligations as defined in "Credit Facilities" above. Claims of creditors
(including trade creditors), if any, of Eagle's subsidiaries, even though such
claims do not constitute indebtedness of Eagle, will have priority as to the
assets and earnings of such subsidiaries over claims of Eagle and the holders of
Eagle's indebtedness. In addition, the Credit Facility and agreements to which
Eagle or its subsidiaries are a party, restrict the ability of Eagle or its
subsidiaries to incur further indebtedness. See Note 5. Management believes that
cash flow from continuing operations along with availability under the Credit
Facility will be sufficient to pay interest on outstanding debt, meet current
debt maturities, pay income taxes and fund anticipated capital expenditures.
IMPACT OF INFLATION
Eagle believes that inflation has not had a significant impact on
operations during the period August 1, 1990 through December 31, 1993 in any of
the countries or industries in which Eagle competes. Inflationary increases to
operating income in Brazil and Mexico are substantially offset by translation
losses included in operating income. Brazilian and Mexican monetary assets, net
of monetary liabilities, are not material to Eagle.
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Public Accountants.............................................. 27
Consolidated Balance Sheets........................................................... 28
Consolidated Statements of Income..................................................... 29
Consolidated Statements of Stockholder's Equity....................................... 30
Consolidated Statements of Cash Flows................................................. 31
Notes to Consolidated Financial Statements............................................ 33
Supplemental Financial Data (Unaudited)............................................... 57
26
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Eagle Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Eagle
Industries, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of income, stockholder's
equity and cash flows for the year ended December 31, 1993, the five months
ended December 31, 1992 and each of the two years in the period ended July 31,
1992. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Eagle
Industries, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for the year ended December 31,
1993, the five months ended December 31, 1992 and each of the two years in the
period ended July 31, 1992, in conformity with generally accepted accounting
principles.
As explained in Note 2 and Note 7 to the consolidated financial statements,
effective January 1, 1993, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes". As
explained in Note 2 to the consolidated financial statements, effective December
31, 1993, the Company adopted the requirements of Statement of Financial
Accounting Standards No. 112, "Employer's Accounting for Postemployment
Benefits". As explained in Note 7 to the consolidated financial statements,
effective August 1, 1991, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pensions".
ARTHUR ANDERSEN & CO.
Chicago, Illinois
March 10, 1994
27
28
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
(RESTATED)
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 15.1 $ 31.5
Accounts receivable, net.......................................... 167.2 151.8
Inventories, net.................................................. 187.2 193.3
Other current assets.............................................. 58.4 27.8
Net current assets of discontinued operations..................... 38.9 65.3
------------ ------------
Total current assets.............................................. 466.8 469.7
Property, plant and equipment, net.................................. 218.3 232.6
Goodwill............................................................ 328.3 362.7
Other assets........................................................ 88.8 92.6
Net long-term assets of discontinued operations..................... -- 21.6
------------ ------------
Total assets...................................................... $1,102.2 $1,179.2
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion long-term debt.................................... $ 18.5 $ 17.2
Accounts payable.................................................. 74.9 72.9
Accrued liabilities............................................... 109.2 94.9
------------ ------------
Total current liabilities......................................... 202.6 185.0
Senior subordinated notes........................................... 421.9 375.0
Other long-term debt................................................ 219.3 270.7
Accrued employee benefit obligations................................ 96.7 78.8
Other long-term liabilities......................................... 69.6 60.9
------------ ------------
Total liabilities................................................. 1,010.1 970.4
------------ ------------
Stockholder s equity:
Common stock, par value $.01 per share, 1,000 shares authorized,
issued and outstanding............................................ -- --
Additional paid-in capital.......................................... 138.7 138.7
Retained earnings (deficit)......................................... (37.0) 73.6
Cumulative translation adjustments.................................. (5.0) (3.5)
Pension liability adjustment........................................ (4.6) --
------------ ------------
Total stockholder's equity........................................ 92.1 208.8
------------ ------------
Total liabilities and stockholder's equity........................ $1,102.2 $1,179.2
------------ ------------
------------ ------------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
28
29
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JULY 31,
DECEMBER 31, ------------------ ---------------------
1993 1992 1991 1992 1991
------------ ------ ------ -------- --------
(RESTATED) (RESTATED)
(UNAUDITED)
(IN MILLIONS)
Net sales.............................. $1,142.3 $458.2 $433.4 $1,098.8 $1,033.9
Cost of sales.......................... 917.8 368.0 343.6 872.6 810.8
------------ ------ ------ -------- --------
Gross earnings....................... 224.5 90.2 89.8 226.2 223.1
Selling and administrative expenses.... 158.6 65.8 61.3 149.4 150.7
Other income........................... (3.5) (1.2) (0.2) (1.1) (2.2)
Goodwill amortization.................. 10.5 4.3 4.3 10.2 8.9
Restructuring charges.................. 71.8 1.7 -- -- --
------------ ------ ------ -------- --------
Operating income (loss).............. (12.9) 19.6 24.4 67.7 65.7
------------ ------ ------ -------- --------
Interest expense....................... 68.3 28.3 30.5 71.3 76.6
Interest income........................ (1.2) (1.1) (2.8) (6.4) (7.9)
------------ ------ ------ -------- --------
Net interest expense................. 67.1 27.2 27.7 64.9 68.7
------------ ------ ------ -------- --------
Income (loss) from continuing
operations before income taxes....... (80.0) (7.6) (3.3) 2.8 (3.0)
Provision (benefit) for income taxes
from continuing operations........... (11.9) (1.1) 1.5 3.1 (0.1)
------------ ------ ------ -------- --------
Loss from continuing operations........ (68.1) (6.5) (4.8) (0.3) (2.9)
Discontinued Operations, net of taxes:
Operating loss....................... (4.6) (1.9) (0.1) (1.3) (5.6)
Gain (loss) on disposal.............. (24.0) (3.0) -- 10.6 35.8
------------ ------ ------ -------- --------
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principles................ (96.7) (11.4) (4.9) 9.0 27.3
Extraordinary item:
Loss from early retirement of debt,
net of applicable income tax
benefit of $5.8................... (8.4) -- -- -- --
------------ ------ ------ -------- --------
Income (loss) before cumulative effect
of change in accounting principles... (105.1) (11.4) (4.9) 9.0 27.3
Cumulative effect of change in
accounting principles less income tax
provision (benefit) of $(1.0) in 1993
and $7.3 in December 1991 and fiscal
1992................................. (5.5) -- 16.9 16.9 --
------------ ------ ------ -------- --------
Net income (loss)...................... $ (110.6) $(11.4) $ 12.0 $ 25.9 $ 27.3
------------ ------ ------ -------- --------
------------ ------ ------ -------- --------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
29
30
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
ADDITIONAL RETAINED CUMULATIVE PENSION
COMMON PAID-IN EARNINGS TRANSLATION LIABILITY
STOCK CAPITAL (DEFICIT) ADJUSTMENTS ADJUSTMENT
------ ---------- -------- ----------- ----------
(IN MILLIONS)
(RESTATED)
Balance at July 31, 1990.................... $ -- $144.8 $ 61.8 $ 2.6 $ --
Net income................................ -- -- 27.3 -- --
Cash dividend declared.................... -- -- (30.0) -- --
Return of capital by subsidiaries accounted
for as a pooling of interest.............. -- (5.6) -- -- --
Effect of the Company's parent acquiring
the interest of its minority
shareholder............................ -- 35.6 -- -- --
Translation adjustments and other......... -- -- -- (2.7) --
------ ---------- -------- ----------- ----------
Balance at July 31, 1991.................... -- 174.8 59.1 (0.1) --
Net income................................ -- -- 25.9 -- --
Restructuring transaction (Note 12)....... -- (37.7) -- -- --
Translation adjustments and other......... -- -- -- 3.5 --
------ ---------- -------- ----------- ----------
Balance at July 31, 1992.................... -- 137.1 85.0 3.4 --
Net loss.................................. -- -- (11.4) -- --
Translation adjustments and other......... -- 1.6 -- (6.9) --
------ ---------- -------- ----------- ----------
Balance at December 31, 1992................ -- 138.7 73.6 (3.5) --
Net loss.................................. -- -- (110.6) -- --
Pension liability adjustment.............. -- -- -- -- (4.6)
Translation adjustments and other......... -- -- -- (1.5) --
------ ---------- -------- ----------- ----------
Balance at December 31, 1993................ $ -- $138.7 $ (37.0) $(5.0) $ (4.6)
------ ---------- -------- ----------- ----------
------ ---------- -------- ----------- ----------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
30
31
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIVE MONTHS
ENDED YEAR ENDED JULY
YEAR ENDED DECEMBER 31, 31,
DECEMBER 31, ---------------- -----------------
1993 1992 1991 1992 1991
------------ ------ ------ ------ -------
(RESTATED) (RESTATED)
(UNAUDITED)
(IN MILLIONS)
Cash Flows from Operating Activities:
Loss from continuing operations...................... $ (68.1) $ (6.5) $ (4.8) $ (0.3) $ (2.9)
Adjustments to reconcile loss from continuing
operations to net cash flow from operating
activities:
Depreciation....................................... 31.8 12.3 11.5 27.5 26.2
Amortization....................................... 17.9 7.8 7.0 17.9 15.8
Noncash postretirement benefits expense............ 1.1 0.7 1.1 2.2 7.1
Deferred income tax provision (benefit)............ (8.4) 2.3 1.4 (1.8) 7.9
Accretion of discount on subordinated debt......... 9.5 -- -- -- --
Restructuring charges.............................. 71.8 1.7 -- -- --
Cash effects of changes in (excluding the effects
of acquisitions or dispositions of businesses):
(Increase) decrease in accounts receivable....... (15.0) 14.6 1.0 (22.7) 0.9
(Increase) decrease in inventories............... 5.5 (3.9) (15.0) (4.8) 5.2
Decrease in other current assets................. 0.5 5.3 9.0 7.8 2.6
Increase (decrease) in accounts payable.......... 1.8 (12.3) (2.8) 16.5 (1.5)
Increase (decrease) in accrued income taxes...... (16.3) 4.8 0.6 5.1 7.1
Decrease in accrued liabilities and accrued
employee benefit obligations.................. (19.6) (21.6) (8.9) (14.4) (39.1)
------------ ------ ------ ------ -------
Net cash from continuing operating activities........ 12.5 5.2 0.1 33.0 29.3
Net cash used in discontinued operations............. (3.0) (21.0) (2.7) (15.4) (51.5)
------------ ------ ------ ------ -------
Net cash from (used in) operations:.................. 9.5 (15.8) (2.6) 17.6 (22.2)
------------ ------ ------ ------ -------
Cash Flows from Investing Activities:
Proceeds from sale of businesses..................... 25.9 17.0 -- 67.4 250.2
Purchases of businesses.............................. -- -- -- -- (20.7)
Capital expenditures................................. (27.7) (13.6) (9.3) (27.5) (26.3)
Other................................................ (1.2) (9.7) (7.9) (7.4) (14.6)
------------ ------ ------ ------ -------
Net cash from (used in) investing activities:........ (3.0) (6.3) (17.2) 32.5 188.6
------------ ------ ------ ------ -------
Cash Flows from Financing Activities:
Net payments on long-term debt....................... (1.3) (4.3) (0.5) (15.1) (32.5)
Net borrowings (repayments) on revolving credit
facilities......................................... (44.6) 35.4 17.0 (24.0) (27.6)
Proceeds from issuance of subordinated notes, net.... 184.0 -- -- -- --
Redemption of subordinated notes and debentures...... (161.0) -- -- -- --
Proceeds from new credit facility, net............... -- -- -- -- 181.3
Repayment of subsidiary credit facility.............. -- -- -- -- (317.0)
Net (payments to) advances from affiliates........... -- (13.5) 0.1 (14.1) 15.7
Cash dividend paid................................... -- -- -- -- (30.0)
Capital transactions of subsidiaries accounted for as
a pooling-of-interest.............................. -- -- -- -- (5.6)
------------ ------ ------ ------ -------
Net cash from (used in) financing activities:........ (22.9) 17.6 16.6 (53.2) (215.7)
------------ ------ ------ ------ -------
Change in Cash and Cash Equivalents.................... (16.4) (4.5) (3.2) (3.1) (49.3)
Cash and Cash Equivalents, Beginning of Period......... 31.5 36.0 39.1 39.1 88.4
------------ ------ ------ ------ -------
Cash and Cash Equivalents, End of Period............... $ 15.1 $ 31.5 $ 35.9 $ 36.0 $ 39.1
------------ ------ ------ ------ -------
------------ ------ ------ ------ -------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
31
32
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FIVE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, JULY 31,
------------ --------------- ----------------
1993 1992 1991 1992 1991
------------ ----- ------ ------ ------
(RESTATED) (RESTATED)
(UNAUDITED)
(IN MILLIONS)
Net Cash Paid (Received) During the Period for
(Relating to Continuing and Discontinued
Operations):
Interest....................................... $ 62.2 $33.0 $ 37.4 $ 74.1 $ 88.0
Income taxes................................... (1.5) 15.6 (10.5) (6.8) 40.0
In Conjunction With the Purchase of Businesses,
Liabilities Were Assumed as Follows:
Fair value of assets acquired, excluding
cash........................................ $ -- $ -- $ -- $ -- $ 24.6
Cash paid or debt incurred for net assets and
capital stock............................... -- -- -- -- (20.7)
------ ----- ------ ------ ------
Liabilities assumed............................ $ -- $ -- $ -- $ -- $ 3.9
------ ----- ------ ------ ------
------ ----- ------ ------ ------
Noncash Investing and Financing Activities:
Acquisition accounting:
Adjustments increasing goodwill............. $ -- $ -- $ -- $ -- $(48.3)
Adjustments increasing accrued employee benefit
obligations and other long-term
liabilities................................. -- -- -- -- 12.7
Increase in stockholder's equity............... -- -- -- -- 35.6
------ ----- ------ ------ ------
$ -- $ -- $ -- $ -- $ --
------ ----- ------ ------ ------
------ ----- ------ ------ ------
Other equity transactions:
Adjustment decreasing additional paid-in
capital................................... $ -- $ -- $ -- $(37.7) $ --
Adjustment decreasing other long-term
assets.................................... -- -- -- 37.7 --
------ ----- ------ ------ ------
$ -- $ -- $ -- $ -- $ --
------ ----- ------ ------ ------
------ ----- ------ ------ ------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
32
33
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(1) BASIS OF PRESENTATION
Eagle Industries, Inc. (the "Company" or "Eagle") commenced operations on
February 1, 1987, when GAMI transferred certain stock and net assets of Clevepak
Corporation and Lapp Insulator Company to the Company. On January 9, 1991, Great
American Management and Investment, Inc. ("GAMI"), through its subsidiaries,
contributed all of the outstanding capital stock of The Jepson Corporation
("Jepson"), an indirect wholly owned subsidiary of GAMI, to the Company. The
contribution of the capital stock of Jepson to the Company was accounted for as
an exchange between companies under common control and in a manner similar to
that utilized in pooling-of-interest accounting. The historical financial
statements of the Company have been restated to give effect to the September
1989 acquisition of Jepson by a subsidiary of GAMI, as if the acquisition of
Jepson had been consummated by Eagle.
Prior to the Restructuring, as hereinafter defined, Great American
Financial Group, Inc. (formerly Great American Industrial Group, Inc.) ("GAFG")
directly and indirectly owned 100% of the common stock of the Company and GAMI
owned 100% of the common stock of GAFG. Eagle is currently 100% owned by GAMI.
Effective as of September 25, 1992, GAMI and its subsidiaries consummated a
restructuring (the "Restructuring"). Pursuant to the Restructuring, among other
things, (i) Eagle sold the net assets of its business, Equality Specialties,
Inc. ("Equality") to GAMI for approximately $17 million; (ii) GAFG contributed
all of the outstanding stock owned by it in North Riverside Holdings, Inc.
("North Riverside") to Eagle; (iii) Eagle declared a stock dividend to
facilitate the distribution of Eagle's common stock (the effect of which was
negated by a reverse stock split in December 1993); and (iv) GAFG distributed
all of the outstanding Eagle common stock owned by it to GAMI.
Effective December 16, 1992, Eagle changed its year end from July 31 to
December 31.
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION:
The accompanying Consolidated Financial Statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS:
For purposes of the Consolidated Statements of Cash Flows, all highly
liquid investment instruments with original maturities of three months or less
are considered to be cash equivalents.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost includes raw
materials, labor and manufacturing overhead. The last-in, first-out ("LIFO")
method of inventory valuation is used for 45.5% and 49.8% of inventory at
December 31, 1993 and 1992, respectively. The first-in first-out ("FIFO") method
of inventory valuation is used for the remaining inventory.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost. Cost is based on appraised
fair market values when allocating the purchase price for acquisitions. The
straight-line method is generally used to provide for depreciation over the
estimated useful lives of the assets. Property, plant and equipment held for
sale is written down to net realizable value and classified in other assets.
33
34
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
GOODWILL:
Goodwill represents the purchase price associated with acquired businesses
in excess of the fair value of the net assets acquired. Goodwill is amortized on
a straight-line basis primarily over forty years. Accumulated amortization was
$43.4 million and $32.9 million at December 31, 1993 and 1992, respectively.
The Company assesses the recoverability of unamortized goodwill allocated
to each of its individual acquired businesses as follows: A) continuing
operations -- whenever current operating income is not sufficient to recover
current amortization of goodwill or when events and circumstances indicate that
future operating income and cash flow may be negatively affected, the
recoverability is evaluated based upon the estimated future operating income and
undiscounted cash flow of the related entity during the remaining period of
goodwill amortization, and; B) entities to be divested -- the carrying value of
the net assets of each entity, including the amount of goodwill assigned
thereto, is compared to the expected divestiture proceeds. If a loss is
indicated, it is recorded when known; gains are recorded when the divestiture
occurs.
FOREIGN CURRENCIES:
The effects of foreign currency translation adjustments are recorded as a
separate component of stockholder's equity. Translation adjustments of non-U.S.
subsidiaries with highly inflationary economies (Brazil and Mexico) are charged
to operations.
REVENUE RECOGNITION:
The Company recognizes revenues as products are shipped.
POSTEMPLOYMENT BENEFITS:
The Company adopted the provisions of "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112") effective December 31, 1993. By
adopting this standard, the Company increased its accrued expenses by $3.0
million and recorded a corresponding pretax charge of $3.0 million reflected as
a "Cumulative effect of change in accounting principle".
RESEARCH AND DEVELOPMENT:
Research, product development and engineering facilities are maintained at
various subsidiary locations. Research and development efforts center on
developing improved materials and designs for existing products and the creation
of new products and equipment. Research and development costs are expensed as
incurred. Research and development costs were $3.1 million for the year ended
December 31, 1993, $1.6 million for the five months ended December 31, 1992,
$3.4 million in fiscal 1992 and $3.5 million in fiscal 1991.
INCOME TAXES:
The Company is included in GAMI's consolidated U.S. federal income tax
return. Under the terms of a tax sharing arrangement with GAMI, the Company
computes and pays to GAMI its liability for U.S. federal income taxes as if the
Company filed a separate U.S. federal income tax return. The Company files
separate U.S. state and non-U.S. income tax returns.
The Company does not provide for U.S. income taxes on the undistributed
earnings of its non-U.S. subsidiaries. Management intends to indefinitely
reinvest non-U.S. subsidiaries' earnings. Undistributed earnings of non-U.S.
subsidiaries were $9.3 million at December 31, 1993. If these earnings were
distributed, foreign tax credits would substantially offset the related U.S.
income tax liability.
The Company adopted the provisions of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS. No. 109") effective January 1, 1993.
This new standard changes the Company's method of accounting for income taxes
from the deferred method required under APB No. 11 to the asset and
34
35
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
liability method. If it is more likely than not that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is recognized.
(See Note 7.)
INTEREST EXPENSE RELATED TO DISCONTINUED OPERATIONS:
Interest expense allocated to the discontinued businesses principally
represents interest expense related to debt assumed by the buyer or debt related
to the discontinued businesses that will no longer be incurred by the Company or
its subsidiaries. In addition, certain interest expense related to the Company
and its subsidiaries' revolving lines of credit has also been allocated to
discontinued operations based on the percentage of net assets sold or to be sold
to total consolidated net assets plus indebtedness of the Company. Interest
expense related to the Company's subordinated notes has not been allocated to
the discontinued businesses. The Company believes the method used to allocate
interest to discontinued businesses is reasonable.
(3) ACQUISITIONS
As described in Note 1, as part of the Restructuring GAMI contributed all
of the outstanding capital stock of North Riverside to Eagle. Substantially all
of North Riverside's operations are conducted through two automotive aftermarket
parts distributors. The contribution of North Riverside to the Company has been
accounted for in a manner similar to a pooling-of-interests under the provisions
of APB No. 16.
In April 1991, the Company, purchased all of the assets and assumed certain
liabilities of the Energair division ("Energair") for total cash consideration
of $8.4 million. Energair manufactures and distributes air compressors in the
United States.
In September 1990, the Company purchased all of the assets and assumed
certain liabilities of Norris Plumbing Products ("Norris") for total cash
consideration of $12.3 million. Norris manufactures and distributes ceramic and
enameled steel bathroom fixtures for use in the residential and commercial
construction industry.
The aforementioned acquisitions have been accounted for under the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16 ("APB No. 16") and, accordingly, the assets acquired and liabilities assumed
have been recorded at their fair values as of their respective dates of
acquisition.
(4) DISCONTINUED OPERATIONS
In the third quarter of 1993, the Company reflected Lapp Insulator Company
("Lapp"), Underground Technologies, Inc. ("Underground Technologies") and Power
Structures, Inc. ("Power Structures") as discontinued operations. The Company is
currently pursuing options for the sale of Lapp. The Company sold Power
Structures and certain assets of Underground Technologies in the fourth quarter
of 1993 for total proceeds of $3.5 million. The Company made a provision of
$24.0 million, net of applicable tax benefit of $8.2 million, for estimated
losses from operations and from the ultimate disposition of these businesses.
Included in the provision for disposition was the write-off of approximately $10
million of goodwill related to Lapp and Underground Technologies.
In February, 1993, the Company sold a 60% interest in Signet Armorlite,
Inc. ("Signet") to Galileo Industrie Ottiche, S.p.A. ("Galileo"). Signet
manufactures and distributes ophthalmic lenses used for eyeglasses and also
distributes supplies used in ophthalmic lens processing. The Company received
cash proceeds of approximately $23 million, which were used to reduce
outstanding debt. Under the terms of the sale agreement, the Company has the
right to put (the "Put") its remaining 40% interest in Signet to Galileo on
February 26, 1998. Galileo has the right to acquire the remaining 40% interest
(the "Call") held by the Company any time prior to February 26, 1998. While the
Company retains a 40% interest; it has no obligation
35
36
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
to fund future losses or make additional investments; it has a less than
majority board representation; it has given up substantially all of its rights
to future earnings or appreciation related to its 40% interest; and it intends
to exercise its Put in the event that Galileo does not exercise its Call. The
price under either the Put or Call is $14.9 million. The Company recorded a
pretax loss of $5.0 million with a corresponding tax benefit of $2.0 million in
December 1992. Under the terms of the sale agreement, Galileo also has the right
to put certain of Signet's plant and equipment (the "Real Estate Put") to the
Company from February 26, 1997 through February 26, 1998 for $10.0 million. No
gain or loss has been recognized with respect to the Real Estate Put.
As disclosed in Note 1, Eagle sold Equality to GAMI as part of the
Restructuring. The total consideration received by the Company was approximately
$17 million in cash. No gain or loss was recorded as a result of the sale of
Equality.
In May, 1992, the Company sold substantially all of the assets of
Pulsafeeder, Inc. and its wholly owned subsidiaries ("Pulsafeeder"). Total
consideration received by the Company was $69.0 million. The Company recorded a
pretax gain of $29.3 million with a corresponding tax provision of $18.7 million
during the fourth quarter of fiscal 1992.
During the first quarter of fiscal 1991, the Company, through a wholly
owned subsidiary, sold all of the issued and outstanding shares of capital stock
of DeVilbiss Health Care, Inc. and its subsidiaries ("DeVilbiss Health Care")
for total cash consideration of $84.5 million. The July 31, 1991 Consolidated
Financial Statements reflect a pretax gain of $44.7 million from the sale of
DeVilbiss Health Care with a corresponding tax provision of $15.8 million.
In addition, during fiscal 1991, the Company sold its Stimsonite, Air Maze
and Atlantic businesses for total cash consideration of $45.0 million, $8.3
million and $38.8 million, respectively. Since the consideration received for
these businesses approximated the fair value allocated to the net identifiable
assets of these businesses in purchase accounting, no net gain or loss was
recorded as a result of their sales. However, due to net-of-tax purchase
accounting, other income of $17.8 million with a corresponding tax provision of
$17.8 million has been recorded as a result of these divestitures. This income,
net of the related tax provision, has been included in net gain on disposal of
businesses in the Consolidated Statement of Income.
During the second quarter of fiscal 1991, the Company sold two of its
businesses, Hedstrom and Emerson. Certain net assets of Emerson were sold for
total cash consideration of $56.1 million. Since the consideration received for
Emerson approximated the fair value allocated to the net identifiable assets of
this division in purchase accounting, no net gain or loss was recorded as a
result of this divestiture. Certain net assets of Hedstrom were sold to New
Hedstrom Corp. ("Buyer"), an affiliate of GAI Partners Limited Partnership ("GAI
Partners"), which was organized to purchase, own and operate the business
constituted by such assets (the "Business"), for total consideration of $34.5
million. The $34.5 million of consideration received by the Company consisted of
a $32.5 million note receivable, which bears interest at 9.0% payable quarterly,
with principal payments due in varying installments through January 1998 (the
"Hedstrom Note"), and 9.0% cumulative preferred stock of Hedstrom Holdings,
Inc., which owns 100% of the stock of Buyer, having a redemption value of $2.0
million. Payment of interest on the Hedstrom Note may be deferred at the option
of GAI Partners until maturity, with interest accruing at 9.0% on any amount of
unpaid principal and interest. The Hedstrom Note is secured by a pledge of the
non-voting preferred stock GAI Partners holds in GAFG. In the event of default
on the GAFG non-voting preferred stock, GAMI has agreed to issue GAMI non-voting
preferred stock with similar rights and designations. Through January 1996, any
acceleration resulting from a default under the Hedstrom Note may, at the option
of GAI Partners, be satisfied solely by the transfer of the aforementioned
preferred stock (see Note 12) to the holder of such note. Since the
consideration received for the Business approximated the fair value allocated to
the net identifiable assets of Hedstrom in purchase accounting, no net gain or
loss was recorded as a result of this divestiture. In connection
36
37
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
with the sales of Emerson and Hedstrom, while no net gain or loss was recognized
due to net-of-tax purchase accounting, other income of $3.8 million with a
corresponding tax provision of $3.8 million has been recorded as a result of
these divestitures. This income, net of the related tax provision, has been
included in net gain on disposal of businesses in the Consolidated Statement of
Income.
In fiscal 1991, the Company recorded an additional gain on disposal of $6.9
million relating to the fiscal 1990 divestiture of a business. There was no
corresponding tax provision related to this additional gain due to net-of-tax
accounting.
The following table summarizes key financial data related to the
discontinued operations of Lapp, Power Structures, Underground Technologies,
Signet, Pulsafeeder, Equality, DeVilbiss Health Care, Air Maze, Atlantic,
Emerson and Hedstrom.
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ----------------
1993 1992 1992 1991
------------- -------------- ------ ------
(RESTATED) (RESTATED)
(IN MILLIONS)
Net sales........................................ $79.9 $ 74.2 $219.7 $276.6
Operating income (loss).......................... (4.7) -- 8.0 6.8
Allocated interest expense....................... 2.1 2.3 7.3 13.3
Income tax provision (benefit) applicable to
discontinued businesses........................ (2.2) (0.4) 2.0 (0.9)
Loss from operations of discontinued businesses
net of applicable income taxes................. (4.6) (1.9) (1.3) (5.6)
The net current assets of discontinued operations included in the
Consolidated Balance Sheet at December 31, 1993 amounted to $38.9 million, and
consisted primarily of receivables, inventories and property, plant and
equipment, net of accounts payable, accrued liabilities, debt and accrued
employee benefit obligations. These amounts have all been classified as current
based on the intent to dispose of them within one year. The net current assets
of discontinued operations at December 31, 1992 amounted to $65.3 million and
consisted primarily of receivables, goodwill and inventories net of accounts
payable and accrued liabilities. The net long-term assets of discontinued
operations at December 31, 1992 amounted to $21.6 million and consisted
primarily of property, plant and equipment and goodwill, net of debt and accrued
employee benefit obligations.
(5) DEBT
SENIOR SUBORDINATED NOTES:
Amounts outstanding at December 31, 1993 under the Company's Senior
Subordinated Notes are as follows:
DECEMBER 31,
----------------
1993 1992
------ ------
(IN MILLIONS)
Senior Deferred Coupon Notes................................. $197.9 $ --
13% Senior Subordinated Notes................................ 149.0 300.0
13.75% Notes................................................. 75.0 75.0
------ ------
$421.9 $375.0
------ ------
------ ------
37
38
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Senior Deferred Coupon Notes:
The Company's $315 million principal amount of Senior Deferred Coupon Notes
(the "Notes") issued pursuant to an Indenture, dated July 1, 1993, (the
"Indenture") mature on July 15, 2003. The issue price of each Note was $598.97
per $1,000 principal amount at maturity, which represents a yield to July 15,
1998 of 10.5% per annum. Cash interest will not accrue on the Notes prior to
July 15, 1998. Cash interest will be payable on January 15 and July 15 of each
year at a rate of 10.5% per annum commencing January 15, 1999 until maturity.
The Notes are general unsecured obligations of the Company and rank pari pasu in
right of payment with all senior indebtedness of the Company. The Notes are
redeemable at the Company's option on or after July 15, 1998 at par value, plus
accrued interest. In addition, prior to July 15, 1996, up to 35% of the Notes
may be redeemed out of the proceeds of certain equity offerings at 110% of
accreted amount to July 15, 1994 and decreasing by 1% per annum each July 14
thereafter, until July 14, 1996. Upon a Change of Control (as defined below)
each holder of the Notes may require the Company to repurchase such holders'
Notes at 101% of the accreted amount plus accrued interest, if any.
A Change of Control is primarily defined to mean such time as any person or
group, [other than GAMI, Equity Holding Limited, Hellman & Friedman Capital
Partners and any affiliate thereof (the "Original Investors")], become the
beneficial owner of more than 40% of the voting power of stock of the Company
and such ownership level exceeds that of the Original Investors as a group.
The Notes contain restrictive covenants, the more significant requirements
being: a limitation on dividend payments and distributions on capital stock;
restrictions on distributions from subsidiaries; limitations on sales of assets
and subsidiary stock; and limitations on the creation of additional indebtedness
(excluding certain refinancings of indebtedness, certain amounts to finance
capital expenditures, indebtedness under bank credit agreements not to exceed
$440 million, and other indebtedness of $50 million) unless consolidated EBITDA
to Consolidated Net Interest Expense (as defined in the Indenture) is equal to
or exceeds 1.75 to 1 for periods through July 1995 and 2.00 to 1 for periods
after July 1995.
13% Senior Subordinated Notes:
The Company's $300 million 13% Senior Subordinated Notes ("13% Notes")
issued pursuant to an indenture dated October 1, 1988 (the "Eagle Indenture")
were due in October 1998. The 13% Notes became redeemable by the Company on
October 15, 1993 at 104% of the principal amount of these notes with the
redemption price reducing to 100% in 2% increments each October 15 thereafter.
The 13% Notes were subordinated to all existing Senior Debt of the Company.
In April 1993, the Company commenced a tender offer for $151 million
aggregate principal amount of the 13% Notes at a price as subsequently amended
of $1,049 per $1,000 principal amount. The Company also solicited consents, at a
price of $15 for each $1,000 principal amount of 13% Notes purchased, from
tendering holders for proposed amendments to the Eagle Indenture to allow the
Company and its subsidiaries to incur certain amounts of additional
indebtedness. The Company received sufficient consents to adopt the proposed
amendments to the Eagle Indenture and consummated the tender offer on July 12,
1993, concurrent with the offering of the Notes.
As further discussed in Note 17, Subsequent Events -- Refinancing, in
January 1994, the Company called for redemption on February 27, 1994, the
remaining $149 million of 13% Notes at 104% of their principal amount plus
accrued interest. Proceeds for the redemption were derived from the Refinancing.
13.75% Notes:
The $75 million 13.75% Senior Subordinated Notes ("13.75% Notes") issued
pursuant to an indenture dated March 15, 1988 were due in March 1998. The 13.75%
Notes were redeemable at 108.25% of the
38
39
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
principal amount of these notes in March 1992 decreasing to 100% in 1.375%
increments each March 15 thereafter. As further described in Note 17, Subsequent
Events -- Refinancing, in January 1994, all of the 13.75% Notes were called for
redemption on March 15, 1994 at 105.5% of their principal amount plus accrued
interest. Proceeds for the redemption were derived from the Refinancing.
OTHER LONG-TERM DEBT:
DECEMBER 31,
--------------------
1993 1992
------ ----------
(RESTATED)
(IN MILLIONS)
Senior Bank Credit Facilities.............................. $224.0 $268.5
Industrial Revenue Bonds and debentures, payable through
2004, interest rates ranging from 7.4% to 10.25%......... 4.1 9.1
Other, including capitalized lease obligations, mortgages
and subsidiary subordinated debt......................... 9.7 10.3
------ ----------
237.8 287.9
Less current portion....................................... (18.5) (17.2)
------ ----------
Long-term debt............................................. $219.3 $270.7
------ ----------
------ ----------
Eagle Industrial Credit Facility:
As further described in Note 17, in January 1994 the Company consummated a
refinancing (the "Refinancing"), the proceeds of which were utilized to repay
and redeem of all of its subsidiaries senior bank credit facilities, its 13%
Notes and the 13.75% Notes. Thus, in January 1994 the Senior Bank Credit
Facilities (defined below) were fully repaid and the agreements terminated. A
portion of the proceeds to consummate the Refinancing were derived from a new
senior bank credit facility made available to Eagle Industrial Products
Corporation, ("Eagle Industrial") a newly formed wholly owned subsidiary of the
Company which owns all of the operating subsidiaries of the Company.
On January 31, 1994, Eagle Industrial entered into a new $425 million
senior credit facility with a group of banks (the "Credit Facility"). The Credit
Facility consists of: (1) a $225 million term loan due in quarterly installments
increasing from $4.9 million per quarter during 1994 to $15 million in 1999; (2)
a $65 million term loan due in equal quarterly installments aggregating $0.5
million per year in 1994 and 1995, $1 million per year in 1996 through 1999 and
$60 million in 2000; and (3) a $135 million revolving credit facility (subject
to borrowing base availability) that expires in 1999, which may be extended
through 2000. Borrowings under the Credit Facility bear interest at alternative
floating rate structures, at management's option (4.9% at January 31, 1994), and
are secured by substantially all domestic property, plant, equipment, inventory
and certain receivables of Eagle Industrial and its subsidiaries. The Credit
Facility requires an annual commitment fee of 0.5% on the average daily unused
amount of the revolving portion of the Credit Facility. At January 31, 1994, $35
million and $290 million were outstanding under the revolving credit portion and
term loan portion of the Credit Facility, respectively. Additionally, the Credit
Facility provides for a letter of credit facility of up to $50 million.
Borrowing availability under the revolving portion of the Credit Facility is
reduced by the outstanding amount of letters of credit. At January 31, 1994, an
additional $28.0 million was available to borrow under the Credit Facility.
The Credit Facility contains various financial covenants, the more
restrictive requirements being: the maintenance of minimum levels of net worth;
limitations on incurring additional indebtedness; restrictions on the payment of
dividends or the making of loans to the Company; maintenance of certain ratios
of cash flow to
39
40
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
interest expense and indebtedness; maintenance of a minimum level of cash flow
to fixed charges; and a prohibition on payments to the Company for management
services in excess of $3 million per year. The Company has provided a guarantee
as to the repayment of amounts outstanding under this credit facility.
Additionally, the Credit Facility requires that the Zell interests (as defined)
directly or indirectly maintain at least 30% of the voting power to elect
members of the board of directors of the Company and that the Company directly
own 100% of Eagle Industrial.
The proforma aggregate long-term debt maturities over the next five years
(including amounts that will be due under the Credit Facility and excluding
amounts repaid in connection with the Refinancing) are as follows: 1994 -- $23.2
million; 1995 -- $27.0 million; 1996 -- $36.8; 1997 -- $40.3 million and 1998 --
$51.3 million.
Senior Bank Credit Facilities:
The Company had four senior credit facilities which were available to four
subsidiary groups of the Company prior to the Refinancing (the "Senior Bank
Credit Facilities") (see Note 17). A portion of the proceeds of the Refinancing
were utilized to fully repay the Senior Bank Credit Facilities in January 1994.
The aggregate amount available under the revolving portion of the Senior Bank
Credit Facilities (subject to borrowing base availability) amounted to $350.0
million at December 31, 1993, of which $156.9 million was outstanding.
Additionally, the Senior Bank Credit Facilities at December 31, 1993 included
$69.6 million in outstanding term loans, which were due in quarterly
installments increasing from $3.9 million per quarter in 1994 to $7.5 million in
1997. Borrowings under the Senior Bank Credit Facilities bore interest at
alternative floating rate structures, at management's option (5.6% and 6.1% at
December 31, 1993 and 1992, respectively), and were secured by substantially all
domestic property, plant, equipment, inventory and receivables of the Company's
subsidiaries. Annual commitment fees ranging from 0.375% to 0.60% were payable
on the average daily unused amount of the revolving portion of these credit
agreements. Three of these senior credit facilities were guaranteed by the
Company. Additionally, these credit facilities provided for letter of credit
facilities within each credit facility. At December 31, 1993, $33.5 million of
letters of credit were issued and outstanding under the aforementioned credit
facilities.
The Senior Bank Credit Facilities contained various financial covenants,
the more restrictive requirements being: the maintenance of minimum levels of
net worth; limitations on the incurrence of additional indebtedness, as defined;
maintenance of certain ratios of profitability to interest expense; maintenance
of certain asset to liability ratios; requirements that the Zell interests (as
defined) directly or indirectly maintain at least 51% of the voting power to
elect members of the board of directors of certain subsidiary groups; and
maintenance of minimum levels of earnings to fixed charges, as defined. The
Company and its subsidiaries were in compliance with all covenants of their
respective debt agreements at December 31, 1993.
(6) EMPLOYEE RETIREMENT AND BENEFIT PLANS:
PENSION:
U.S. Plans:
Substantially all employees are covered by Company or union sponsored
defined benefit pension plans. Plans covering salaried and management employees
provide pension benefits that are based on the employee's years of service with
the Company and average compensation during the five years before retirement.
For other employees, pension benefits are provided based on a stated amount for
each year of service. The Company's funding policy for all plans is to make no
less than the minimum annual contributions required by applicable governmental
regulations.
40
41
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The following table sets forth the funded status for all U.S. defined
benefit pension plans and related amounts recognized in the Company's
Consolidated Financial Statements:
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------ ------------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(RESTATED)
Actuarial present value of:
Accumulated benefit obligation........... $29.7 $ 71.8 $37.3 $ 48.9
------ ------------- ------ -------------
------ ------------- ------ -------------
Vested benefits.......................... $28.2 $ 68.1 $35.1 $ 46.7
------ ------------- ------ -------------
------ ------------- ------ -------------
Projected benefit obligation............... $29.7 $ 73.4 $37.3 $ 51.0
Plan assets at fair value.................. 37.8 56.3 46.1 41.0
------ ------------- ------ -------------
Plan assets in excess of (less than)
projected benefit obligation............. 8.1 (17.1) 8.8 (10.0)
Net unrecognized (gain) loss............... (5.0) 7.0 (4.2) (1.0)
Net unrecognized prior service costs....... (1.6) 3.1 (1.1) 2.6
Unrecognized liability at August 1, 1987... -- 0.3 0.3 --
Additional minimum liability............... -- (10.1) -- (3.2)
Tax effect of recording pension liability
under APB No. 16......................... -- -- -- 0.1
------ ------------- ------ -------------
Pension asset (liability) recognized in
Consolidated Financial Statements........ $ 1.5 $ (16.8) $ 3.8 $ (11.5)
------ ------------- ------ -------------
------ ------------- ------ -------------
Plan assets generally consist of common stocks and fixed income
instruments. The unrecognized liability at August 1, 1987 is being amortized on
a straight-line basis over 15 years.
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for underfunded plans of $10.1 million and $3.2
million at December 31, 1993 and 1992, respectively, representing the excess of
unfunded accumulated benefit obligations over previously recorded pension cost
liabilities. A corresponding amount is recognized as an intangible asset except
to the extent that these additional liabilities exceed related unrecognized
prior service costs and net transition obligations, in which case the increase
in liabilities is charged directly to stockholder's equity. At December 1993,
the excess minimum pension liability resulted in a net charge to equity of $4.6
million.
Net periodic pension cost for defined benefit pension plans reporting under
the provisions of SFAS No. 87 included in the above table was:
YEAR ENDED
YEAR ENDED FIVE MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, --------------
1993 1992 1992 1991
------------ ------------------ ----- -----
(RESTATED) (RESTATED)
(IN MILLIONS)
Service cost...................................... $ 4.1 $ 1.5 $ 3.4 $ 3.6
Interest Cost..................................... 7.4 2.4 6.1 6.4
Actual return on assets........................... (9.2) (2.9) (5.2) (6.8)
Net amortization and deferral..................... 1.9 0.9 (0.3) 0.5
------ ------ ----- -----
Net periodic pension cost....................... $ 4.2 $ 1.9 $ 4.0 $ 3.7
------ ------ ----- -----
------ ------ ----- -----
41
42
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The following assumptions were used in determining the actuarial present
value of the projected benefit obligation for the Company's U.S. defined benefit
plans: weighted-average discount rate of 7.5% for the year ended December 31,
1993 and 9.0% for the five months ended December 31, 1992; rate of increase in
future compensation levels of 4.0% for the year ended December 31, 1993 and 6.0%
for the five months ended December 31, 1992; and expected long-term rate of
return on assets of 9.0% for both periods.
The Company and its subsidiaries also have several defined contribution
plans for certain U.S. employees. Employer contributions to these plans were
$4.8 million in the year ended December 31, 1993, $1.2 million in the five
months ended December 31, 1992, $4.4 million in fiscal 1992 and $3.2 million in
fiscal 1991. Contributions to these plans by the Company are determined under a
variety of methods including those based on the number of years employed or a
percentage of the contribution made by the employee.
Non-U.S. Plan:
The following table sets forth amounts recognized in the Company's
Consolidated Financial Statements related to its non-U.S. unfunded pension plan:
DECEMBER 31,
----------------
1993 1992
------ ------
(IN MILLIONS)
Actuarial present value of:
Accumulated benefit obligation............................. $ 23.3 $ 21.6
------ ------
------ ------
Vested benefits............................................ $ 23.0 $ 21.4
------ ------
------ ------
Projected benefit obligation................................. $ 26.0 $ 24.3
Plan assets at fair value.................................... -- --
------ ------
Plan assets less than projected benefit obligation........... (26.0) (24.3)
Net unrecognized gain........................................ (0.7) (3.2)
------ ------
Pension liability recognized in Consolidated Financial
Statements................................................. $(26.7) $(27.5)
------ ------
------ ------
Net periodic pension cost for this non-U.S. defined benefit pension plan
included in the above table was:
YEAR ENDED
YEAR ENDED FIVE MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, --------------
1993 1992 1992 1991
------------ ----------------- ----- -----
(IN MILLIONS)
Service cost...................................... $0.5 $ 0.2 $ 0.5 $ 0.4
Interest Cost..................................... 1.9 0.9 1.8 1.7
Net amortization and deferral..................... -- -- (0.1) (0.1)
----- ----- ----- -----
Net periodic pension cost......................... $2.4 $ 1.1 $ 2.2 $ 2.0
----- ----- ----- -----
----- ----- ----- -----
The Company used the following assumptions in determining the actuarial
present value of the projected benefit obligation for this non-U.S. pension
plan: weighted average discount rate of 7.25% for the year ended December 31,
1993 and 8.25% for the five months ended December 31, 1992 and fiscal 1992, and
rate of increase in future compensation levels of 4.0 % for all periods
presented. Pension payments are paid by this subsidiary from funds generated by
operations.
OTHER POSTRETIREMENT BENEFITS:
The Company provides certain postretirement life and health-care benefits
to certain of its employees. For most business units providing these benefits,
employees retiring from the Company on or after attaining
42
43
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
age 55 who have rendered at least 15 years of active service to the Company are
entitled to postretirement benefits coverage. Most of these plans are
non-contributory, while there are a few in which employees and retirees
contribute towards their coverage. The Company has not funded any of this
postretirement benefits liability. Contributions to the postretirement plans are
made by the Company as claims are incurred.
The Company adopted the provisions of SFAS No. 106 in the first quarter of
fiscal 1992 by adjusting its postretirement benefits liability recognized as of
August 1, 1991 to the discounted present value of expected future benefits
attributed to employees' service rendered prior to August 1, 1991. The
accumulated postretirement benefit obligation was determined using an assumed
discount rate of 7.5% for the year ended December 31, 1993, 9% for the five
months ended December 31, 1992 and 9.5% for fiscal 1992, and a health care cost
trend rate of 12% for the year ended December 31, 1993, with the assumption that
the health care cost trend rate would decrease ratably to 6.0% by the year 1997.
The health care cost trend rate was 13.0% for the five months ended December 31,
1992, with the assumption that the health care cost trend rate would decrease
gradually to 7.0% by the year 2000. The trend rate used for the year ended July
31, 1992 was 15% with the assumption that the rate would gradually decrease to
7.5% by the year 2000. The effect of a one percent increase in the health care
cost trend rate assumption would be to increase the accumulated postretirement
benefit obligation, the annual service cost and interest expense components by
approximately $3.2 million, $0.2 million and $0.4 million, respectively. In
adopting the provisions of SFAS No. 106, the Company evaluated the assumptions
used previously in estimating its postretirement benefits obligation under the
unfunded accrual method. Based on its experience and the results of this
evaluation, the Company revised certain of these previous assumptions when
adopting SFAS No. 106. Trend rates used in adopting SFAS No. 106 reflect the
Company's prior experience and expectation that future rates will trend
downward. Additionally, the August 1, 1991 valuation of the Company's
postretirement benefit obligation included the effects of announced future cost
sharing programs and benefit plan changes. In conjunction with the adoption of
SFAS No. 106, the Company recorded a reduction of its postretirement benefit
obligation of $24.2 million and recognized a corresponding $24.2 million pretax
benefit as a "Cumulative effect of change in accounting principle", with a
related tax provision of $7.3 million.
In the fourth quarter of 1993, the Company curtailed certain of its
postretirement benefits for its non-bargaining employees. In general, the
curtailment affects employees who retire after December 1994 with exception for
certain employees who meet certain age plus years of service requirements. The
curtailment resulted in a reduction of the postretirement benefit liability of
$4.2 million. The effect of the curtailment was offset by a charge in the fourth
quarter of 1993 of $4.2 million related to the Company s self-insurance costs.
43
44
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The following table sets forth postretirement benefits recognized in the
Company's Consolidated Financial Statements:
DECEMBER 31,
-------------------
1993 1992
----- ----------
(RESTATED)
(IN MILLIONS)
Accumulated postretirement benefit obligation:
Retirees.................................................. $54.0 $ 52.2
Other fully eligible participants......................... 6.7 7.1
Other active participants................................. 7.4 13.3
----- ----------
68.1 72.6
Unrecognized actuarial gain (loss)........................ (4.6) (3.3)
Unrecognized prior service cost........................... 0.3 (0.1)
----- ----------
Postretirement benefit liability recognized in Consolidated
Financial Statements...................................... $63.8 $ 69.2
----- ----------
----- ----------
Net postretirement benefit cost included the following components:
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ------------
1993 1992 1992 1991
------------ ------------ ---- ----
(RESTATED) (RESTATED)
(IN MILLIONS)
Service cost............................................ $ 1.0 $0.4 $0.9 $2.4
Interest Cost........................................... 4.1 1.8 4.2 6.0
Amortization of unrecognized liability at August 1,
1987.................................................. -- -- -- 1.3
------ ----- ---- ----
Net postretirement benefit cost.................... 5.1 2.2 5.1 9.7
Effect of curtailment................................... (4.2) -- -- --
------ ----- ---- ----
Adjusted net postretirement benefit cost........... $ 0.9 $2.2 $5.1 $9.7
------ ----- ---- ----
------ ----- ---- ----
(7) INCOME TAXES
The Company adopted the provisions of SFAS No. 109 effective January 1,
1993. The December 31, 1993 Consolidated Financial Statements reflect a decrease
in the net deferred tax assets of $3.5 million and a corresponding charge of
$3.5 million, reflected as a "Cumulative effect of change in accounting
principle". As part of the adoption of SFAS No. 109, various "gross" up
adjustments were made to the balance sheet in order to adjust amounts which were
originally recorded on a net of tax basis as part of purchase accounting. These
adjustments resulted in increases to net property, plant and equipment, accrued
liabilities, accrued employee benefit obligations and other long-term
liabilities of approximately $21.4 million, $1.9 million, $19.3 million and
$12.2 million, respectively. These increases were offset by a corresponding
increase to deferred taxes of approximately $12.0 million. As a result of the
adoption of SFAS No. 109, the Company's loss from continuing operations before
income taxes for the year ended December 31, 1993 was increased by approximately
$2.0 million due to increased depreciation expense.
44
45
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Company's Consolidated Financial Statements reflect the following
deferred tax assets and liabilities (in millions):
DECEMBER 31, JANUARY 1,
1993 1993
------------ ----------
Deferred tax assets:
Inventory and bad debt reserves....................... $ 7.9 $ 7.2
Accrued employee benefit obligations.................. 30.4 31.3
Net operating loss carryforwards...................... 6.2 6.4
Divestiture reserves.................................. 8.1 9.0
Restructuring reserves................................ 5.8 3.0
Environmental reserves................................ 7.2 4.0
Other................................................. 22.9 19.5
------ ----------
88.5 80.4
Valuation allowance................................... (1.2) (1.3)
------ ----------
$ 87.3 $ 79.1
------ ----------
------ ----------
Deferred tax liabilities:
Property, plant and equipment basis difference........ $ 35.0 $ 43.1
Other................................................. 8.9 7.4
------ ----------
$ 43.9 $ 50.5
------ ----------
------ ----------
The U.S. and non-U.S. components of income from continuing operations
before income taxes and the components of the provision for income taxes is as
follows:
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ---------------
1993 1992 1992 1991
------------ ------------ ----- ------
(RESTATED) (RESTATED)
(IN MILLIONS)
Income (loss) from continuing operations before
income taxes:
U.S................................................ $(81.6) $ (7.8) $(0.1) $(10.2)
Non U.S............................................ 1.6 0.2 2.9 7.2
------------ ------ ----- ------
Total......................................... $(80.0) $ (7.6) $ 2.8 $ (3.0)
------------ ------ ----- ------
------------ ------ ----- ------
Provision (benefit) for income taxes:
Current:
U.S. Federal.................................... $ (9.4) $ (3.3) $ 0.8 $(13.1)
U.S. State...................................... 3.8 0.6 3.9 2.4
Non-U.S......................................... 2.1 (0.7) 0.2 2.7
------------ ------ ----- ------
$ (3.5) $ (3.4) $ 4.9 $ (8.0)
------------ ------ ----- ------
------------ ------ ----- ------
Deferred:
U.S. Federal.................................... $ (5.9) $ 1.2 $(0.9) $ 8.7
U.S. State...................................... (1.9) 0.2 (1.3) (0.6)
Non U.S......................................... (0.6) 0.9 0.4 (0.2)
------------ ------ ----- ------
(8.4) 2.3 (1.8) 7.9
------------ ------ ----- ------
Total......................................... $(11.9) $ (1.1) $ 3.1 $ (0.1)
------------ ------ ----- ------
------------ ------ ----- ------
45
46
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Deferred tax provisions/(benefits) for the five months ended December 31,
1992 and for the fiscal years ended July 31, 1992 and 1991, resulted principally
from expenditures related to divestitures, non-cash accrued employee benefits
and depreciation.
Reconciliation of income taxes computed at the U.S. federal statutory rate
to the consolidated provision (benefit) for income taxes from continuing
operations:
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, --------------
1993 1992 1992 1991
------------ ------------ ----- -----
(RESTATED) (RESTATED)
(DOLLARS IN MILLIONS)
U.S. Federal statutory rate........................... 35.0% 34.0% 34.0% 34.0%
Income taxes at U.S. federal statutory rate........... $(28.0) $ (2.6) $ 1.0 $(1.0)
U.S. state income taxes, net of U.S. federal tax
benefit............................................. 1.3 0.4 1.8 1.2
Non-U.S. taxes provided at greater (less) than U.S.
federal statutory rate.............................. 1.0 0.2 (0.4) --
Nondeductible book depreciation and amortization...... 3.5 2.3 5.6 5.1
Effects of net-of-tax accounting...................... (1.3) (3.3) (4.9)
Write down of goodwill................................ 8.8 -- -- --
Other................................................. 1.5 (0.1) (1.6) (0.5)
------------ ------ ----- -----
Provision (benefit) for income taxes................ $(11.9) $ (1.1) $ 3.1 $(0.1)
------------ ------ ----- -----
------------ ------ ----- -----
Effective income tax rate........................... 14.8% 14.9% 109.5% 4.4%
------------ ------ ----- -----
------------ ------ ----- -----
(8) RESTRUCTURING CHARGES
During 1993, the Company recorded restructuring charges of $71.8 million
related principally to the closure of Hill's Canadian manufacturing facility,
the write down of certain assets of Hill Refrigeration, the closure of Caron's
London, Kentucky manufacturing facility, the downsizing of certain of Pfaudler's
foreign operations and costs associated with the relocation of one of IEP's
manufacturing facilities.
In 1993, the Company decided to close Hill's Canadian manufacturing
facility. Accordingly, a charge of $8.8 million was recorded in the third
quarter of 1993 to reflect the write down of property, plant and equipment and
to accrue for related shut down expenses. The shut down was substantially
complete at December 31, 1993.
In addition, in late 1993, the Company performed an in-depth analysis of
Hill's products, competitive position, market share and manufacturing cost base.
A decision was made to reduce its manufacturing costs and simplify its
manufacturing processes for its commercial refrigeration cases which were being
redesigned. To implement this decision, a review of reconfiguration and/or
relocation options was initiated. A decision was made to relocate the
manufacturing of the redesigned cases. Accordingly, a review was made of the
fair market value of the Trenton manufacturing facility which resulted in a
write down of $19.4 million in the fourth quarter of 1993. Employee related
costs of $7.0 million associated with the relocation/reconfiguration decision
were also recorded in the fourth quarter of 1993. In evaluating the goodwill
related to Hill, a write-down of $25.8 million was made in the fourth quarter of
1993 in accordance with the Company's accounting policy for goodwill.
In the third quarter of 1993, the Company decided to consolidate Caron's
London, Kentucky manufacturing facility into Caron's other manufacturing
facilities. Accordingly, the Company provided $6.2 million of
46
47
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
restructuring charges including $3.0 million for the write down of property,
plant and equipment and $3.2 million for shut down related expenses. The shut
down was substantially complete at December 31, 1993.
In the third quarter of 1993, the Company initiated a restructuring of its
work force in Pfaudler's German manufacturing unit. Costs for severance payments
in accordance with German legal requirements were accrued in the third quarter
of 1993. This severance program has been substantially completed in early 1994.
In conjunction with the relocation of one of IEP's manufacturing facilities
in the first quarter of 1993, costs were incurred which exceeded previously
established reserves. Accordingly, the Company recorded $2.0 million in charges
in the fourth quarter of 1993.
The cash and non-cash components of these charges are as follows (in
millions):
CASH NON-CASH
CHARGES CHARGES TOTAL
------- -------- -----
Hill, Canada
Property, plant and equipment write down......................... $ -- $ 3.2 $ 3.2
Shut down expenses............................................... 4.2 -- 4.2
Other asset write downs.......................................... -- 1.4 1.4
Hill, Trenton
Property, plant and equipment write down......................... -- 19.4 19.4
Goodwill write down.............................................. -- 25.8 25.8
Other costs...................................................... 7.0 -- 7.0
Caron, Kentucky
Property, plant and equipment write down......................... -- 3.0 3.0
Shut down expenses............................................... 3.2 -- 3.2
Pfaudler
Severance and related employee costs............................. 2.0 -- 2.0
IEP
Relocation costs................................................. 2.0 -- 2.0
Other.............................................................. 0.6 -- 0.6
------- -------- -----
$19.0 $ 52.8 $71.8
------- -------- -----
------- -------- -----
47
48
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(9) BALANCE SHEET DETAIL
DECEMBER 31,
---------------------
1993 1992
------- ----------
(RESTATED)
(IN MILLIONS)
Allowance for doubtful accounts:......................................... $ 4.2 $ 4.1
------- ----------
------- ----------
Inventories:
Raw materials and supplies............................................. $ 57.3 $ 73.8
Work in process........................................................ 56.8 57.0
Finished goods......................................................... 73.1 62.5
------- ----------
Total............................................................. $ 187.2 $ 193.3
------- ----------
------- ----------
Excess of replacement cost over LIFO inventory cost.................... $ 5.3 $ 5.3
------- ----------
------- ----------
Other current assets:
Deferred taxes......................................................... $ 45.4 $ 13.8
Other.................................................................. 13.0 14.0
------- ----------
Total............................................................. $ 58.4 $ 27.8
------- ----------
------- ----------
Property, plant and equipment:
Land................................................................... $ 20.9 $ 21.4
Buildings.............................................................. 100.1 99.4
Machinery and equipment................................................ 223.1 203.0
Construction in progress............................................... 13.6 15.0
Less accumulated depreciation.......................................... (139.4) (106.2)
------- ----------
Total............................................................. $ 218.3 $ 232.6
------- ----------
------- ----------
Accrued liabilities:
Divestiture reserves................................................... $ 12.5 $ 3.2
Wages and benefits..................................................... 31.1 27.6
Customer advances...................................................... 9.1 10.7
Interest............................................................... 8.0 12.6
Other.................................................................. 48.5 40.8
------- ----------
Total............................................................. $ 109.2 $ 94.9
------- ----------
------- ----------
(10) INCOME STATEMENT DETAIL
Repair and maintenance expense was $14.1 million in the year ended December
31, 1993, $6.6 million for the five months ended December 31, 1992, $19.3
million in fiscal 1992 and $16.0 million in fiscal 1991. Advertising expense was
$6.3 million in the year ended December 31, 1993, $3.5 million for the five
months ended December 31, 1992, $7.9 million in fiscal 1992 and $7.0 million in
fiscal 1991.
48
49
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash, cash equivalents and long-term investments
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. Long-term investments are
stated at the lower of cost or market.
Subordinated Notes
The fair value of the Company's Notes is based on the Call Price at January
31, 1994, for the 13% Notes and the 13.75% Notes and quoted market prices for
the Notes at December 31, 1993. The fair value was determined using quoted
market prices for all the subordinated notes at December 31, 1992.
Senior Bank Credit Facilities
The carrying amount approximates fair value as the rates are tied to the
prime rate and LIBOR which fluctuate based on current market conditions.
Other Debt
The carrying amount approximates fair value as rates approximate borrowing
rates currently available to the Company for similar loans.
The estimated fair values of the Company s financial instruments are as
follows:
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
(RESTATED)
Cash, cash equivalents and long-term investments........... $ 16.5 $ 16.5 $ 34.4 $ 34.4
Subordinated Notes......................................... 421.9 438.8 375.0 392.1
Senior Bank Credit Facilities.............................. 224.0 224.0 268.5 268.5
Other Debt................................................. 13.8 13.8 19.4 19.4
(12) STOCKHOLDER'S EQUITY
PREFERRED STOCK:
The Company amended its Restated Certificate of Incorporation in December
1993 to eliminate the authority to issue preferred stock.
COMMON STOCK:
In connection with the Restructuring, and in order to facilitate the
distribution of Eagle's common stock in September 1992, the Company distributed,
as a stock dividend, approximately 11,077 shares of its common stock for each
share outstanding. As the GAMI Board of Directors decided not to complete the
Distribution, the Company declared a reverse stock split of 1/11,077 per share
of common stock in December 1993, resulting in the Company having 1,000 shares
of common stock issued and outstanding. The accompanying financial statements
and related footnotes have been restated to give retroactive effect to this
reverse stock split.
49
50
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
ADDITIONAL PAID IN CAPITAL:
Restructuring
In connection with the sale of certain net assets of Hedstrom to an
affiliate of GAI Partners in January 1991, a portion of the consideration
received included the Hedstrom Note. Through January 16, 1996, any acceleration
resulting from a default under the Hedstrom Note may, at the option of GAI
Partners, be satisfied solely by the preferred stock GAI Partners holds in GAFG
(the "Class C Preferred Stock"). See Note 4.
The terms of the Class C Preferred Stock include, among other things, (i)
that the holder of the Class C Preferred Stock may on January 15 of 1999, 2000
and 2001, require GAFG to redeem any or all of the Class C Preferred Stock at a
redemption price equal to $1,000 per share plus a redemption premium equal to 8%
of the amount redeemed if redeemed in 1999, 11% if redeemed in 2000 and 13% if
redeemed in 2001, plus accrued but unpaid dividends through the date of
redemption, (ii) that upon liquidation of GAFG, the Class C Preferred Stock is
entitled to a liquidation preference of $1,000 per share, and (iii) in the event
of default on the GAFG non-voting preferred stock, GAMI has agreed to issue GAMI
non-voting preferred stock with similar rights and designations. See Note 4.
To relieve GAFG (to the extent Eagle or any of its subsidiaries acquires
such rights and is permitted to do so under the Eagle Indenture and one of the
Senior Bank Credit Facilities) of its obligation to redeem, or pay a liquidation
preference with respect to the Class C Preferred Stock, Eagle declared and paid
to GAFG, its sole shareholder at the time, a non-cash dividend consisting of the
benefits conferred by Eagle's execution of a Disaffiliation Agreement (the
"Disaffiliation Agreement"), effective as of September 25, 1992. Although the
dividend was paid by the execution of the Disaffiliation Agreement, the economic
benefit of the dividend will be received, if at all, only upon the satisfaction
of certain conditions including that no default under the Indenture exists or is
caused by the transfer of said benefits. Pursuant to the Disaffiliation
Agreement, among other things:
- Eagle agreed that if it or any of its subsidiaries becomes the owner of
any Class C Preferred Stock, it will transfer or cause to be transferred
(the "Transfer") such Class C Preferred Stock to GAFG without the payment
of any amount by GAFG, provided that certain conditions are satisfied
including that no default under the Indenture exists or is caused by the
Transfer;
- Eagle agreed that if the Transfer is made by one of its subsidiaries, it
will pay the transferor the redemption price or, if applicable, the
liquidation preference related to such Class C Preferred Stock, that the
transferor would have received from GAFG had the Transfer not been made,
such payment to be made at the time that GAFG would have been obligated
to pay such redemption price or liquidation preference;
- Eagle agreed to reimburse GAFG if GAFG pays any amount, to Eagle or its
subsidiaries (or any transferee of Eagle or its subsidiaries), for
redemption of, or as a liquidation preference in respect of, any Class C
Preferred Stock, provided that certain conditions are satisfied including
that no default under the Indenture exists or is caused by the
reimbursement; and
- To induce GAI Partners, as the owner of the Class C Preferred Stock, to
consent to the Restructuring and the Distribution, GAMI guaranteed GAFG's
obligation to pay the redemption price or the liquidation preference,
provided such guaranty will terminate if a default occurs and is
continuing under the Hedstrom Note or GAI Partners transfers ownership of
the Class C Preferred Stock to the holder of the Hedstrom Note.
50
51
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Disaffiliation Agreement conferred no benefits on Eagle, but Eagle's
execution thereof is a condition of the Distribution.
To account for the reorganization and the above transactions, Eagle reduced
paid in capital at July 31, 1992 by the amount of the Hedstrom Note and related
accrued interest thereon, pursuant to the dividend of the benefits conferred on
GAFG through execution of the Disaffiliation Agreement.
Other Transactions
In January 1991, GAFG issued 35,650 shares of its non-voting preferred
stock having a redemption value of $1,000 per share to GAI Partners, in exchange
for the 20% of GAFG common stock held by GAI Partners. GAFG has accounted for
the exchange of the aforementioned securities as an acquisition of its minority
interest, in accordance with APB No. 16, and has "pushed down" this additional
purchase price to subsidiaries of GAFG, pursuant to Securities and Exchange
Commission regulations. The effect on the Consolidated Financial Statements, as
a result of this transaction, was an increase in both paid in capital and
goodwill of approximately $35.6 million.
In January 1991, prior to the contribution of the capital stock of Jepson
to the Company, Jepson returned $5.0 million of original contributed capital to
subsidiaries of GAMI.
In March 1991, prior to the contribution of the capital stock of North
Riverside to the Company, GAMI converted $0.6 million of contributed capital of
North Riverside to intercompany indebtedness.
PENSION LIABILITY ADJUSTMENT:
In December 1993, the Company recorded a charge to equity related to its
underfunded pension plans. See Note 6.
DIVIDENDS:
In February 1991, the Company paid a $30.0 million cash dividend to its
shareholders.
(13) RELATED PARTY TRANSACTIONS
The Company has in the past entered into agreements or arrangements with
affiliates of directors or officers relating to acquisition and divestiture
services, financing services, legal services and consulting arrangements which
are described below. In addition, the Company has entered into arrangements for
certain administrative services in which the amount involved did not exceed
$60,000 for any one agreement. The Company believes that the terms and resulting
costs of all related party transactions and agreements are no more or less
favorable than those which could have been obtained from non-affiliated parties.
The Company leases office space from an affiliate of GAMI. The Company
incurred expenses of $0.3 million in the year ended December 31, 1993, $0.2
million in the five months ended December 31, 1992 and $0.4 million in each of
fiscal 1992 and 1991 for this office space and related expenses. Affiliates of
GAMI provided management services to the Company for which the Company paid $0.5
million in fiscal 1991. Affiliates of GAMI provide general corporate computer
and printing services to the Company for which the Company paid these affiliates
$0.2 million in the year ended December 31, 1993, the five months ended December
31, 1992 and in each of fiscal 1992 and 1991. GAMI's internal audit department
provides certain audit services to the Company for which GAMI was paid $0.2
million in the year ended December 31, 1993, $0.1 million in the five months
ended December 31, 1992, $0.7 million in fiscal 1992 and $0.5 million in fiscal
1991.
An affiliate of GAMI was paid $1.1 million in fiscal 1991 for services
rendered in connection with the divestitures of certain business.
51
52
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The law firm of Rosenberg & Liebentritt P.C., of which a Company Director
and former Officer is a member, has rendered legal services to the Company. The
Company paid this law firm $0.6 million in the year ended December 31, 1993,
$0.3 million in the five months ended December 31, 1992, $1.0 million in fiscal
1992 and $1.5 million in fiscal 1991. The fees paid to Rosenberg & Liebentritt
P.C. in the year ended December 31, 1993 included: $0.3 million for services
related to divestiture activity, $0.1 million for services related to financing
agreements and $0.2 million for other general expenses.
The Company and North Riverside historically entered into revolving credit
facilities with GAMI. All amounts were repaid prior to December 31, 1992.
GAMI provided management and accounting services to North Riverside for
which North Riverside paid $0.1 million in each of fiscal 1992 and 1991.
Also see Notes 1, 3, 4 and 12 for other information regarding related party
transactions.
(14) COMMITMENTS AND CONTINGENCIES
The Company conducts manufacturing operations at various leased facilities
and also leases warehouses, office space, computers and office equipment. Most
of the realty leases contain renewal options and escalation clauses. Total rent
expense, including related real estate taxes, amounted to $13.4 million in the
year ended December 31, 1993, $5.7 in the five months ended December 31, 1992,
$12.1 million in fiscal 1992 and $11.6 million in fiscal 1991.
Future minimum lease payments required as of December 31, 1993 (in
millions):
1994......................................................... $ 6.5
1995......................................................... 5.6
1996......................................................... 4.5
1997......................................................... 3.5
1998 and thereafter.......................................... 5.5
-----
$25.6
-----
-----
The Company and certain of its subsidiaries are involved in several
lawsuits arising in the ordinary course of business. However, it is the opinion
of the Company's management, based upon the advice of counsel, that these
lawsuits are either without merit, are covered by insurance, or are adequately
reserved for in the Consolidated Financial Statements, and that the ultimate
disposition of pending litigation will not be material in relation to the
Company's consolidated financial position.
(15) OTHER ACQUISITIONS/DIVESTITURES
Management continues to evaluate the acquisition of businesses that
complement the existing portfolio of companies. While certain negotiations are
at varying stages at this time, Eagle currently has no contract or arrangement
with respect to any material acquisition. Management also continuously monitors
and evaluates the businesses within the Company's portfolio. While certain
businesses may not necessarily meet certain of the Company's long-term
objectives, there currently are no definitive sales agreements or formal plans
to discontinue any businesses except Lapp as disclosed in Note 4.
(16) SEGMENT AND GEOGRAPHIC DATA
Eagle is organized into five business segments: the Building Products
Group, the Electrical Products Group, the Industrial Products Group, the
Automotive Products Group, and the Specialty Products Group. In
52
53
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
1993, the Company redefined its industry segments to add an Automotive Products
Group and realign its Building Products and Specialty Products Groups. Segment
information for prior periods has been restated to reflect the
reclassifications.
The Building Products Group consists of three businesses which manufacture
and distribute building fixtures for the residential and commercial construction
and home improvement markets. Products manufactured by this group include air
distribution and handling equipment, bathroom plumbing fixtures and air
compressors.
The Electrical Products Group consists of two broad groups of businesses,
those providing electrical power distribution products for the electric utility
market and those supplying industrial electrical products for electrical
equipment manufacturers. The principal products manufactured by this group
include medium voltage electric cable, underground cable accessories, and
interconnect and timing devices.
The Industrial Products Group consists of three businesses which
manufacture and distribute products for the process industries and commercial
aviation markets. Products manufactured by this group include chemical and
pharmaceutical reactor vessels, fluid mixing and agitation equipment and
commercial airline seating.
The Automotive Products Group consists of four businesses which manufacture
and distribute products primarily to the automotive aftermarket. Major products
include automotive aftermarket parts and accessories.
53
54
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
The Specialty Products Group consists of three businesses which manufacture
and distribute products to the consumer market and the commercial refrigeration
market. Major products include knitting yarns, skiwear and commercial
refrigeration equipment.
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, --------------------
1993 1992 1992 1991
------------ ------------ -------- --------
(RESTATED) (RESTATED)
(IN MILLIONS)
Net sales:
Building Products Group........................ $ 372.3 $ 150.1 $ 323.9 $ 258.3
Electrical Products Group...................... 176.8 66.2 164.7 182.2
Industrial Products Group...................... 241.4 100.5 280.4 270.3
Automotive Products Group...................... 164.2 58.9 127.9 115.1
Specialty Products Group....................... 187.6 82.5 201.9 208.0
------------ ------------ -------- --------
$1,142.3 $ 458.2 $1,098.8 $1,033.9
------------ ------------ -------- --------
------------ ------------ -------- --------
Operating income:
Building Products Group........................ $ 47.5 $ 18.6 $ 41.4 $ 27.6
Electrical Products Group...................... 14.9 4.4 16.5 18.6
Industrial Products Group...................... (2.9) 0.5 14.2 23.9
Automotive Products Group...................... 6.2 0.5 4.2 3.8
Specialty Products Group....................... (67.6) 1.4 3.3 4.1
Corporate (expenses)........................... (11.0) (5.8) (11.9) (12.3)
------------ ------------ -------- --------
Operating income (loss)................... $ (12.9) $ 19.6 $ 67.7 $ 65.7
------------ ------------ -------- --------
------------ ------------ -------- --------
Depreciation and amortization:
Building Products Group........................ $ 12.1 $ 5.0 $ 10.9 $ 10.0
Electrical Products Group...................... 13.3 5.1 12.2 12.2
Industrial Products Group...................... 9.4 4.1 9.4 8.6
Automotive Products Group...................... 3.6 1.3 3.0 2.4
Specialty Products Group....................... 6.2 2.4 5.5 5.3
Corporate...................................... 5.1 2.2 4.4 3.5
------------ ------------ -------- --------
Total..................................... $ 49.7 $ 20.1 $ 45.4 $ 42.0
------------ ------------ -------- --------
------------ ------------ -------- --------
Capital expenditures:
Building Products Group........................ $ 10.1 $ 2.5 $ 8.6 $ 6.1
Electrical Products Group...................... 8.1 6.3 4.7 5.0
Industrial Products Group...................... 4.0 1.8 8.5 9.9
Automotive Products Group...................... 2.4 2.4 2.2 1.4
Specialty Products Group....................... 2.5 0.4 3.3 3.8
Corporate...................................... 0.6 0.2 0.2 0.1
------------ ------------ -------- --------
Total..................................... $ 27.7 $ 13.6 $ 27.5 $ 26.3
------------ ------------ -------- --------
------------ ------------ -------- --------
Identifiable assets:
Building Products Group........................ $ 203.7 $ 208.6 $ 213.0 $ 199.4
Electrical Products Group...................... 288.2 287.6 287.6 288.9
Industrial Products Group...................... 233.2 260.2 268.2 258.0
Automotive Products Group...................... 109.8 100.5 99.8 86.9
Specialty Products Group....................... 122.7 157.0 165.7 175.9
Net assets of discontinued operations.......... 38.9 86.9 112.1 133.1
------------ ------------ -------- --------
Total identifiable assets................. 996.5 1,100.8 1,146.4 1,142.2
Corporate...................................... 105.7 78.4 83.6 127.3
------------ ------------ -------- --------
Total assets.............................. $1,102.2 $1,179.2 $1,230.0 $1,269.5
------------ ------------ -------- --------
------------ ------------ -------- --------
54
55
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
Corporate depreciation and amortization is principally amortization of debt
issuance costs. Corporate assets are principally cash and cash equivalents, debt
issuance costs, taxes receivable from affiliate and in fiscal 1991, notes
receivable.
The following table shows certain financial information relating to the
Company's operations in various geographic areas:
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, --------------------
1993 1992 1992 1991
------------ ------------- -------- --------
(RESTATED)
(IN MILLIONS) (RESTATED)
Sales to unaffiliated customers from:
United States and Canada...................... $1,074.8 $ 422.6 $1,013.8 $ 916.3
Europe........................................ 60.5 29.1 73.5 98.4
Central and South America..................... 7.0 6.5 11.5 19.2
-------- ------- -------- --------
Total...................................... $1,142.3 $ 458.2 $1,098.8 $1,033.9
-------- ------- -------- --------
-------- ------- -------- --------
Export sales from the United States to other geographic areas were $17.4
million in the year ended December 31, 1993, $8.0 million for the five months
ended December 31, 1992, $60.0 million in fiscal 1992 and $68.5 million in
fiscal 1991.
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, --------------------
1993 1992 1992 1991
------------ ------------- -------- --------
(RESTATED)
(IN MILLIONS) (RESTATED)
Operating income:
United States and Canada...................... $ (2.5) $ 25.9 $ 76.3 $ 71.9
Europe........................................ 0.8 (0.5) 3.5 5.3
Central and South America..................... (0.2) -- (0.2) 0.8
Corporate (expenses).......................... (11.0) (5.8) (11.9) (12.3)
-------- --------- -------- --------
Operating income (loss).................... $ (12.9) $ 19.6 $ 67.7 $ 65.7
-------- --------- -------- --------
-------- --------- -------- --------
Identifiable assets:
United States and Canada...................... $ 887.3 $ 939.0 $ 943.0 $ 928.9
Europe........................................ 60.9 64.1 75.6 63.7
Central and South America..................... 9.4 10.8 15.7 16.5
Net assets of discontinued operations......... 38.9 86.9 112.1 133.1
-------- --------- -------- --------
Total identifiable assets.................. 996.5 1,100.8 1,146.4 1,142.2
Corporate..................................... 105.7 78.4 83.6 127.3
-------- --------- -------- --------
Total assets............................... $1,102.2 $ 1,179.2 $1,230.0 $1,269.5
-------- --------- -------- --------
-------- --------- -------- --------
(17) SUBSEQUENT EVENTS -- REFINANCING
On January 31, 1994, Eagle completed a refinancing (the "Refinancing") of
substantially all of its outstanding debt except for its Senior Deferred Coupon
Notes. Through a newly formed subsidiary, Eagle Industrial, the Company entered
into the Credit Facility with a group of banks. The Company also entered into an
asset securitization program (the "Securitization") whereby it sold certain of
its accounts receivable for
55
56
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993
approximately $110 million. In addition, the Company received $50 million from
GAMI in the form of a capital contribution. Total proceeds from the Refinancing
were $485 million.
Proceeds from the Refinancing were used to retire the Senior Bank Credit
Facilities. In addition, proceeds will be used to retire the Company's 13.75%
Notes and the 13.0% Senior Subordinated Notes, both of which were called for
redemption on January 28, 1994. The call price for the 13.75% and 13.0% Senior
Subordinated Notes was $1,055 and $1,040 per $1,000 principal amount,
respectively. Eagle will record an extraordinary pretax charge of approximately
$26 million in the first quarter of 1994 in connection with the Refinancing.
In connection with the Securitization, the Company entered into a
receivables sale agreement whereby it will sell on a continuous basis, an
undivided interest in a pool of customer account receivables. Under the
agreement, which expires in June 1999, the maximum amount of proceeds which may
be accessed through this agreement is $145 million and is subject to change
based on the level of eligible receivables and restrictions on concentrations of
receivables.
56
57
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
QUARTERLY FINANCIAL DATA
The following is a summary of the unaudited interim results of operations
for the years ended December 31, 1993 and 1992. Quarterly data has been restated
to reflect discontinued operations. Refer to Note 4 in the Company's
Consolidated Financial Statements.
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------------- --------------- --------------- ---------------
1993 1992 1993 1992 1993 1992 1993 1992
------ ------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
Net Sales....................... $254.9 $271.0 $276.2 $282.6 $290.8 $285.3 $320.4 $284.7
Gross earnings.................. 50.9 52.7 57.8 59.4 57.8 60.0 58.0 54.6
Income (loss) from continuing
operations.................... (3.0) (2.1) 1.2 1.2 (9.1) 2.7 (57.2) (3.6)
Income (loss) before
extraordinary item and
cumulative effect of change in
accounting principle.......... (4.4) (2.5) (0.4) 10.9 (32.6) 2.5 (59.3) (8.4)
Net income (loss)............... (7.9) (2.5) (0.4) 10.9 (41.0) 2.5 (61.3) (8.4)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
57
58
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
DIRECTORS OF EAGLE
The chart below sets forth the name of each director of Eagle as of March
15, 1994 and, for each, the year during which each director was first elected,
information relating to the director's principal occupation and business
experience during the last five years, and any other directorships held by the
director in publicly held companies, and certain other information.
YEAR FIRST
ELECTED A
NAME DIRECTOR OTHER INFORMATION ABOUT DIRECTORS
- ---------------------- ---------- -----------------------------------------------------------
Sam A. Cottone........ 1993 See "EXECUTIVE OFFICERS OF EAGLE."
Rod Dammeyer.......... 1992 Mr. Dammeyer was named Chairman of the Board of Eagle in
March 1994. Mr. Dammeyer is President and Chief Executive
Officer of Itel Corporation ("Itel") and GAMI. Mr. Dammeyer
is Chairman of Anixter Bros., Inc., a subsidiary of Itel
engaged in the distribution of wiring system products. Mr.
Dammeyer is also a Director of Antec Corporation, Capture
Holdings Corp. ("Capture"), Itel, Lomas Financial
Corporation, Q-Tel, S.A. de C.V., Jacor Communications,
Inc., Revco D.S., Inc., GAMI, Santa Fe Energy Resources,
Inc., Servicios Financieros Quandrum, S.A., and The Vigoro
Corporation ("Vigoro"). Mr. Dammeyer is a Trustee of
several Van Kampen Merrit trusts and is 53 years old.
William K. Hall....... 1988 See "EXECUTIVE OFFICERS OF EAGLE."
Sheli Z. Rosenberg.... 1987 Mrs. Rosenberg is a member of the law firm of Rosenberg &
Liebentritt, P.C. Mrs. Rosenberg served as Vice President
and Assistant Secretary of Eagle from February 1987 until
September 1992. For more than five years prior to September
1992, Mrs. Rosenberg has also been Vice President, General
Counsel and Assistant Secretary and Director of GAMI,
Executive Vice President and Director of Equity Group
Investments, Inc. and Executive Vice President, Director
and General Counsel of Equity Financial and Management
Company. Mrs. Rosenberg is a Director of Capture, The Delta
Queen Steamboat Co., Itel, Consolidated Fibres Inc. and
Vigoro. Prior to October 4, 1991, Mrs. Rosenberg was Vice
President and a Director of Madison Management Group Inc.
See "Certain Relationships and Related Transactions --
Transactions with GAMI Affiliates -- Indemnity Agreements."
Mrs. Rosenberg is 52 years old.
Eagle's Amended and Restated By-Laws (the "Eagle Bylaws") provide that the
number of directors shall not be less than one nor more than eleven, with the
precise number to be determined by resolution of the Board of Directors or the
stockholders from time to time. The Board of Directors has fixed the number of
directors at four. Each director is elected to serve until the next annual
meeting or until his successor is duly elected and qualified.
58
59
EXECUTIVE OFFICERS OF EAGLE
The chart below sets forth the age and position of each executive officer
of Eagle at March 15, 1994:
NAME AGE POSITION
- ----------------------- --- ------------------------------------------------
William K. Hall........ 50 President and Chief Executive Officer
Gus J. Athas........... 57 Senior Vice President, General Counsel and
Secretary
Sam A. Cottone......... 53 Senior Vice President -- Finance, Chief
Financial Officer and Treasurer
Mark Koulogeorge....... 30 Vice President -- Corporate Development
Mr. Hall has served as President of Eagle since August 1988, as a Director
of GAMI since March 1994, and as Chief Executive Officer of Eagle since July
1990. From August 1988 until September 1992, Mr. Hall also served as Chief
Operating Officer and Treasurer of Eagle. Mr. Hall is a Director of Huffy
Corporation, a manufacturer of bicycles and recreational products, and A.M.
Castle & Co., a metals distribution company.
Mr. Athas has served as Senior Vice President, General Counsel and
Secretary of the Company since May 1993. From September 1992 to May 1993, Mr.
Athas was Vice President, General Counsel and Secretary. From November 1987 to
September 1992, Mr. Athas served as Vice President, General Counsel and
Assistant Secretary.
Mr. Cottone has served as Senior Vice President -- Finance, Chief Financial
Officer and Treasurer of the Company since March 1994. From May 1993 to March
1994, Mr. Cottone served as Senior Vice President -- Finance and Chief Financial
Officer. For more than five years prior thereto, Mr. Cottone was a partner with
Arthur Andersen & Co.
Mr. Koulogeorge has served as Vice President -- Corporate Development since
September 1992. From October 1990 to September 1992, Mr. Koulogeorge served as
Director -- Corporate Development. From August 1989 until September 1990, Mr.
Koulogeorge was a mergers and acquisitions associate with Equity Group.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to conditions set forth in General Instruction (J)(1)(a)
and (b) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to conditions set forth in General Instruction (J)(1)(a)
and (b) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EAGLE/GAMI TAX AGREEMENT
Eagle and its U.S. subsidiaries are included with GAMI in its consolidated
U.S. federal income tax returns for the taxable periods during which, pursuant
to applicable U.S. federal income tax laws, they qualify as members of GAMI's
affiliated group (the "Affiliation Years"). GAMI has entered into tax sharing
agreements with Eagle and each of its U.S. subsidiaries. Collectively, these tax
sharing agreements (i) provide for the manner of determining the allocation and
payment of U.S. federal, state and foreign income tax liabilities and benefits
among members of each subsidiary group for the Affiliation Years, (ii) detail
the procedure for determining the allocation of payments by, or refunds to,
members of each subsidiary group as a result of adjustments to the U.S. federal
or state income tax liabilities of any or all members of such subsidiary group
with respect to any Affiliation Year and (iii) define the post-affiliation
obligations of GAMI and any member that becomes disaffiliated with any of the
subsidiary groups (a "Former Member") with respect to post-affiliation years in
which the tax liability of GAMI, such Former Member or subsidiaries of such
Former Member may be affected by the former affiliation. Under the tax sharing
agreements, each member is to benefit fully from any loss, deduction or credit
attributable to such member.
59
60
DISAFFILIATION AGREEMENT
Prior to January 9, 1991, Ditri Associates, Inc., a Delaware corporation,
through its affiliate, GAI Partners Limited Partnership ("GAI Partners"), a
Connecticut limited partnership not affiliated with GAMI or Eagle, owned 20% of
the common equity of GAFG. On January 9, 1991, GAI Partners exchanged its 20%
common equity interest in GAFG for 35,650 shares of GAFG Class C Preferred Stock
(the "Class C Preferred Stock"), and Falcon Manufacturing, Inc. caused its
subsidiary, Hedstrom Corporation ("Hedstrom") to sell certain of Hedstrom's net
assets to New Hedstrom Corp. ("Buyer"), an affiliate of GAI Partners for total
consideration of $34.5 million. Such consideration consisted of a $32.5 million
promissory note made by GAI Partners, which bears interest at 9.0% payable
quarterly, with principal payments due in varying installments through January
1998 (the "Hedstrom Note"), and 9.0% cumulative preferred stock of Hedstrom
Holdings, Inc., which owns 100% of the stock of Buyer, having a redemption value
of $2.0 million. Payment of interest on the Hedstrom Note may be deferred at the
option of GAI Partners until maturity, with interest accruing at 9.0% on any
amount of unpaid principal and interest. To date, GAI Partners has exercised
this option and deferred payment of such interest.
The Hedstrom Note is held by a subsidiary of Eagle and is secured by a
pledge of the Class C Preferred Stock. The terms of the Class C Preferred Stock
provide, among other things, that (i) the holder of the Class C Preferred Stock
may on January 15 of 1999, 2000 and 2001, require GAFG to redeem any or all of
the Class C Preferred Stock at a redemption price equal to $1,000 per share plus
a redemption premium equal to 8% of the amount redeemed if redeemed in 1999, 11%
if redeemed in 2000 and 13% if redeemed in 2001, plus accrued but unpaid
dividends through the date of redemption, (ii) upon liquidation of GAFG, the
Class C Preferred Stock is entitled to a liquidation preference of $1,000 per
share, and (iii) in the event of default on the GAFG non-voting preferred stock,
GAMI has agreed to issue GAMI non-voting preferred stock with similar rights and
designations. GAI Partners is the current owner of all outstanding Class C
Preferred Stock. Through January 16, 1996, upon acceleration, the Hedstrom Note
may, at the option of GAI Partners, be satisfied by transferring ownership of
the Class C Preferred Stock to the holder of such note. In such event, the
holder of the Hedstrom Note would become the owner of the Class C Preferred
Stock.
In the event of a default on the Hedstrom Note, Eagle may indirectly become
the owner of the Class C Preferred Stock. In this event, Eagle's subsidiary
would have the rights of a holder of such Preferred Stock, including the right
to require GAFG to redeem it. To relieve GAFG of its obligation to redeem, or
pay a liquidation preference with respect to, the Class C Preferred Stock, Eagle
declared and paid to GAFG, its sole stockholder at the time, a non-cash dividend
consisting of the benefits conferred by Eagle's execution of a Disaffiliation
Agreement (the "Disaffiliation Agreement"), effective as of September 25, 1992.
Although the dividend was paid by the execution of the Disaffiliation Agreement,
the economic benefit of the dividend will be received, if at all, only upon the
satisfaction of certain conditions. Pursuant to the Disaffiliation Agreement,
among other things:
- Eagle agreed that if it or any of its subsidiaries becomes the owner of
any Class C Preferred Stock, it will transfer or cause to be transferred
(the "Transfer") such Class C Preferred Stock to GAFG without the payment
of any amount by GAFG, provided that certain conditions are satisfied;
- Eagle agreed to reimburse GAFG if GAFG pays any amount to Eagle or its
subsidiaries (or any transferee of Eagle or its subsidiaries) for
redemption of, or as a liquidation preference in respect of, any Class C
Preferred Stock, provided that certain conditions are satisfied; and
- To induce GAI Partners, as the owner of the Class C Preferred Stock, to
consent to the Restructuring and the Distribution GAMI guaranteed GAFG's
obligation to pay the redemption price or the liquidation preference,
provided such guaranty will terminate if a default occurs and is
continuing under the Hedstrom Note or GAI Partners transfers ownership of
the Class C Preferred Stock to the holder of the Hedstrom Note.
60
61
Eagle's execution of the Disaffiliation Agreement was a condition of the
Distribution and the granting of the indemnity discussed below.
INDEMNITY AGREEMENTS
In connection with the Restructuring, GAMI and Eagle entered into an
indemnity and hold harmless agreement pursuant to which GAMI agreed to indemnify
and hold Eagle and its subsidiaries harmless from and against any and all
claims, settlements, judgments or expenses (including reasonable attorneys'
fees) relating to, affecting or arising out of claims filed against Madison, an
unconsolidated affiliate of GAMI, in connection with its November 1991 petition
under Chapter 11 (subsequently converted to Chapter 7) of the Bankruptcy Code.
Eagle believes that any potential claim against Eagle arising out of the
bankruptcy proceeding will not have a material effect on Eagle's operating
results or financial condition, since (i) GAMI has indemnified Eagle as
discussed above and (ii) GAMI has represented to Eagle that it has substantial
meritorious defenses against actions brought by the trustee.
In addition, GAMI and Eagle entered into an agreement (the "Indemnity
Agreement") pursuant to which, among other things, GAMI agreed to indemnify
Eagle, its subsidiaries and their respective officers and directors against any
losses, liabilities, claims and damages arising out of or based upon any untrue
statement of a material fact contained in, or the failure to state a material
fact required to be stated in, the Information Statement which GAMI mailed on
October 16, 1992 relating to the Distribution, other than in Appendix A to such
Information Statement. Correspondingly, Eagle agreed to indemnify GAMI, its
subsidiaries and their respective officers and directors against any losses,
liabilities, claims and damages arising out of or based upon any untrue
statement of a material fact contained in, or the failure to state a material
fact required to be stated in Appendix A to such Information Statement. GAMI and
Eagle each agreed to provide the other party to the Indemnity Agreement access
to certain information in possession of the other party.
ONGOING TRANSACTIONS WITH GAMI AFFILIATES
Eagle has in the past entered into agreements or arrangements with
affiliates of directors or officers of Eagle relating to acquisition and
divestiture services, financing services, and consulting arrangements which are
described below. In addition, Eagle has entered into arrangements for certain
administrative services in which the amount involved did not exceed $60,000 for
any one agreement. Eagle may enter into similar agreements or arrangements from
time to time in the future. Eagle believes that the terms of the transactions
described below are no less favorable than those which could have been obtained
from non-affiliated parties.
LEASES WITH AFFILIATES
Eagle currently leases corporate office space at the rate of $28,000 per
month from an affiliate of GAMI. The Company incurred expenses of $0.3 million
in the year ended December 31, 1993.
MANAGEMENT SERVICES
Affiliates of GAMI provide general corporate computer and printing services
to Eagle for which Eagle paid $0.2 million in the year ended December 31, 1993.
Eagle will continue to utilize such services from time to time in the future.
INTERNAL AUDIT SERVICES
GAMI's internal audit department has provided Eagle with various audit
services in the past, including review of operational and financial controls and
assistance to outside auditors during Eagle's annual audit. These services have
been provided to Eagle and its subsidiaries during the year ended December 31,
1993 at a cost of $0.2 million. Eagle will continue to utilize such services
from time to time in the future.
LEGAL SERVICES
The law firm of Rosenberg & Liebentritt, P.C., of which Mrs. Rosenberg is a
member, has rendered legal services to Eagle and its subsidiaries. Eagle paid
this law firm $0.6 million in the year ended December 31, 1993.
61
62
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial Statements and Schedules
DESCRIPTION PAGE NO.
------------------------------------------------------------------------- --------
Report of Independent Public Accountants................................. 27
Consolidated Balance Sheets.............................................. 28
Consolidated Statements of Income........................................ 29
Consolidated Statements of Stockholder's Equity.......................... 30
Consolidated Statements of Cash Flows.................................... 31
Notes to Consolidated Financial Statements............................... 33
Report of Independent Public Accountants on Supplemental Schedules....... 63
Schedule III -- Condensed Financial Information of Registrant............ 64
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, or the information
called for therein is included elsewhere in the financial statements or the
notes thereto. Accordingly, such schedules have been omitted.
(B) Reports on Form 8-K
None
(C) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the Index to
Exhibits, which is incorporated herein by reference.
62
63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
To the Board of Directors of Eagle Industries, Inc.
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Eagle Industries, Inc. and Subsidiaries
included in this Annual Report on Form 10-K, and have issued our report thereon
dated March 10, 1994. Our report on the consolidated financial statements
includes an explanatory paragraph with respect to the adoption of Statements of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," No. 112, "Employer's Accounting
for Postemployment Benefits", and No. 109, "Accounting for Income Taxes", as
discussed in Note 2, Note 6 and Note 7 to the consolidated financial statements.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Supplemental Schedule III is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the consolidated financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
March 10, 1994
63
64
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EAGLE INDUSTRIES, INC. (PARENT COMPANY)
BALANCE SHEETS
DECEMBER 31,
------------------
1993 1992
------ ------
(DOLLARS IN
MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 0.2 $ 3.2
Other current assets, including tax receivable from affiliate.......... 18.5 0.6
------ ------
Total current assets................................................ 18.7 3.8
Property, net............................................................ 1.4 1.3
Investment in and advances to subsidiaries, net.......................... 429.3 513.0
Other noncurrent assets.................................................. 15.8 12.7
------ ------
Total assets........................................................ $465.2 $530.8
------ ------
------ ------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses.................................... $ 11.0 $ 6.9
Senior subordinated notes................................................ 346.9 300.0
Other noncurrent liabilities, including deferred income taxes............ 15.2 15.1
------ ------
Total liabilities................................................... 373.1 322.0
------ ------
Stockholder's equity:
Common stock, par value $.01 per share (1,000 shares authorized, issued
and outstanding)....................................................... -- --
Paid-in-capital.......................................................... 138.7 138.7
Retained earnings........................................................ (37.0) 73.6
Cumulative translation adjustment........................................ (5.0) (3.5)
Pension liability adjustment............................................. (4.6) --
------ ------
Total stockholder's equity.......................................... 92.1 208.8
------ ------
Total liabilities and stockholder's equity.......................... $465.2 $530.8
------ ------
------ ------
The accompanying notes to these financial statements
are an integral part of these statements.
64
65
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EAGLE INDUSTRIES, INC. (PARENT COMPANY)
INCOME STATEMENTS
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ----------------
1993 1992 1992 1991
------------ ------------ ------ ------
(IN MILLIONS)
Revenues:
Net sales......................................... $ 6.0 $ 1.9 $ 6.1 $ 6.3
Interest income, including intercompany........... -- -- 8.9 15.3
Management fees, intercompany..................... 15.6 6.8 16.6 19.0
Noncompete fee.................................... -- -- -- 4.5
------------ ------------ ------ ------
21.6 8.7 31.6 45.1
------------ ------------ ------ ------
Expenses:
Cost of Sales..................................... 3.8 1.3 3.8 3.9
Interest.......................................... 43.7 17.1 43.3 46.4
General and administrative........................ 15.8 4.0 10.2 8.7
------------ ------------ ------ ------
63.3 22.4 57.3 59.0
------------ ------------ ------ ------
Loss from operations before income taxes and equity
in net income of subsidiaries..................... (41.7) (13.7) (25.7) (13.9)
Income tax benefit.................................. 14.2 4.5 9.5 4.5
Equity in net earnings (loss) of continuing
subsidiaries...................................... (44.3) 2.7 15.9 6.5
Equity in net loss from operations of discontinued
subsidiaries...................................... (4.6) (1.9) (1.3) (5.6)
Equity in net gain (loss) on disposal of business... (24.0) (3.0) 10.6 35.8
Loss from early retirement of debt, net of taxes.... (8.4) -- -- --
Cumulative effect of change in accounting principle,
net of taxes...................................... (1.8) -- 16.9 --
------------ ------------ ------ ------
Net income (loss).............................. $ (110.6) $(11.4) $ 25.9 $ 27.3
------------ ------------ ------ ------
------------ ------------ ------ ------
The accompanying notes to these financial statements
are an integral part of these statements.
65
66
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EAGLE INDUSTRIES, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
FIVE YEAR ENDED
YEAR ENDED MONTHS ENDED JULY 31,
DECEMBER 31, DECEMBER 31, ----------------
1993 1992 1992 1991
------------ ------------- ------ ------
(IN MILLIONS)
Operating activities:
Net income (loss)................................ $ (110.6) $ (11.4) $ 25.9 $ 27.3
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization................. 1.6 0.7 1.8 2.5
Accretion of discount on subordinated debt.... 9.2 -- -- --
Cumulative effect of change in accounting
principle................................... 1.8 -- (16.9) --
Extraordinary loss............................ 8.4 -- -- --
Equity in net (earnings) loss of
subsidiaries................................ 72.9 2.2 (25.2) (36.7)
Changes in accrued income taxes............... (13.6) (2.6) (2.1) (9.8)
Changes in other operating items.............. (3.6) 3.6 4.5 8.3
------------ ------------- ------ ------
Net cash (used in) provided by operations..... (33.9) (7.5) (12.0) (8.4)
------------ ------------- ------ ------
Investing activities:
Purchases of property, net....................... (0.4) (0.2) (0.2) (0.1)
Capital contributions to subsidiaries............ -- -- -- (46.0)
Dividends received from subsidiaries............. -- -- -- 50.9
Advances from subsidiaries, net.................. 3.8 8.7 79.0 30.6
------------ ------------- ------ ------
Net cash (used in) provided by investing
activities.................................. 3.4 8.5 78.8 35.4
------------ ------------- ------ ------
Financing activities:
Net proceeds from issuance of subordinated
notes......................................... 184.0 -- -- --
Redemption of subordinated notes................. (156.5) -- -- --
Net repayments of long-term debt................. -- -- -- (20.0)
Net repayments on long-term revolving credit
facility...................................... -- -- (57.0) --
Net (payment to) advances from affiliates........ -- -- (14.0) 14.4
Cash dividend paid............................... -- -- -- (30.0)
Capital transactions of subsidiary accounted for
under pooling of interest..................... -- -- -- (5.6)
------------ ------------- ------ ------
Net cash (used in) provided by financing
activities.................................. 27.5 -- (71.0) (41.2)
Change in cash and cash equivalents................ (3.0) 1.0 (4.2) (14.2)
Cash and cash equivalents at beginning of period... 3.2 2.2 6.4 20.6
------------ ------------- ------ ------
Cash and cash equivalents at end of period.... $ 0.2 $ 3.2 $ 2.2 $ 6.4
------------ ------------- ------ ------
------------ ------------- ------ ------
The accompanying notes to these financial statements
are an integral part of these statements.
66
67
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
EAGLE INDUSTRIES, INC. (PARENT COMPANY)
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the parent company only financial statements for Eagle Industries, Inc.,
(the "Company"), the Company's investment in subsidiaries is stated at cost plus
equity in undistributed earnings of subsidiaries since the date of acquisition.
The Company's share of net income of its unconsolidated subsidiaries is included
in consolidated income using the equity method. Pursuant to the Restructuring in
September 1992, Clevaflex, Inc., formerly a subsidiary of Eagle, was merged into
and became an operating division of Eagle. Parent company only financial
statements should be read in conjunction with the Company's consolidated
financial statements.
(2) DEBT
As further discussed in Note 5 to the Company's Consolidated Financial
Statements, in July 1993, the Company issued $315 million principal amount of
Senior Deferred Coupon Notes due 2003 (the "Notes"). The issue price of each
Note was $598.97 per $1,000 principal amount at maturity, which represents a
yield to July 15, 1998 of 10.5% per annum. Cash interest will not accrue on the
Notes prior to July 15, 1998. The proceeds from the issuance of the Notes were
used to redeem $151 million principal amount of the Company's 13% Senior
Subordinated Notes ("13% Notes"). The 13% Notes were redeemed pursuant to a
tender offer at a price of $1,049 per $1,000 principal amount.
As further discussed in Note 17 to the Company's Consolidated Financial
Statements, the Company called for redemption on February 27, 1994, the
remaining $149 million of 13% Notes at 104% of their principal amount, plus
accrued interest. Proceeds for the redemption were derived from a new senior
bank credit facility made available to Eagle Industrial Products Corporation, a
newly formed wholly owned subsidiary of the Company and a $50 million capital
contribution from GAMI.
(3) COMMITMENTS AND CONTINGENCIES
See Note 14 to the Company's Consolidated Financial Statements.
67
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EAGLE INDUSTRIES, INC.
By: /s/ WILLIAM K. HALL
----------------------------------
William K. Hall
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM K. HALL Director, President and Chief March 28, 1994
- ----------------------------------------- Executive Officer (Principal
(William K. Hall) Executive Officer)
/s/ SAM A. COTTONE Director, Senior Vice March 28, 1994
- ----------------------------------------- President -- Finance, Chief
(Sam A. Cottone) Financial Officer, and
Treasurer (Principal Financial
and Accounting Officer)
/s/ ROD DAMMEYER Director and Chairman of March 28, 1994
- ----------------------------------------- the Board of Directors
(Rod Dammeyer)
/s/ SHELI Z. ROSENBERG Director March 28, 1994
- -----------------------------------------
(Sheli Z. Rosenberg)
68
69
INDEX TO EXHIBITS
EXHIBIT
NO. DOCUMENT DESCRIPTION
- ------- ------------------------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Amended and Restated By-laws of the Registrant. (Incorporated by reference to
Exhibit 2.2 of the Registrant's Registration Statement on Form 8-A filed July 16,
1992)
4.1 Indenture dated as of July 1, 1993, including therein the form of Note, between the
Registrant and Harris Trust and Savings Bank, as Trustee, providing for the 10.5%
Senior Deferred Coupon Notes due 2003. (Incorporated by reference to the
Registrant's quarterly report on Form 10-Q for the quarterly period ended June 30,
1993)
4.2 Credit Agreement, dated as of January 31, 1994, among Eagle Industrial Products
Corporation and Chemical Bank as administrative agent, Citicorp North America, Inc.
as collateral agent and the other banks named therein.
4.3 Eagle Trade Receivables Master Trust Pooling and Servicing Agreement dated as of
January 1, 1994, among Centrally Held Eagle Receivables Program, Inc., Eagle
Industrial Products Corporation and Continental Bank, National Association as
trustee.
4.4 Series 1994-1 Supplement, dated as of January 1, 1994 to Eagle Trade Receivable
Master Trust Pooling and Servicing Agreement.
10.1 Eagle Industries, Inc. Cash Balance Pension Plan. (Incorporated by reference to
Exhibit 10.9 of the Registrant's Registration Statement on Form S-1, File No.
33-23585)
10.2 Advantage Retirement Savings Plan. (Incorporated by reference to Exhibit 10.10 of
the Registrant's Registration Statement on Form S-1, File No. 33-23585)
10.3 Eagle Industries, Inc. Employee Savings Plan, as amended and restated as of January
1, 1991. (Incorporated by reference to Exhibit 10.6 of the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1991.
10.4 Eagle Industries, Inc. 1991 Long Term Incentive Plan. (Incorporated by reference to
Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1992)
10.5 Letter Agreement, dated as of November 9, 1987, between the Registrant and Gus J.
Athas. (Incorporated by reference to Exhibit 10.30 of the Registrant's Registration
Statement on Form S-1, File No. 33-23585)
10.6 Indemnity and Hold Harmless Agreement, entered into as of September 25, 1992, among
Great American Management and Investment, Inc., Great American Industrial Group,
Inc. and the Registrant (Incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K dated October 16, 1992)
10.7 Disaffiliation Agreement, dated as of September 25, 1992, among Great American
Management and Investment, Inc., Great American Industrial Group, Inc. and the
Registrant (Incorporated by reference to Exhibit 10.3 of the Registrant's Current
Report on Form 8-K dated October 16, 1992)
10.8 Agreement, dated as of September 25, 1992, by and between Great American Management
and Investment, Inc. and the Registrant. (Incorporated by reference to Exhibit 10.4
of the Registrant's Current Report on Form 8-K dated October 16, 1992)
10.9 Asset Purchase Agreement between PLF Acquisition Corporation and O.D.E.
Manufacturing, Inc. (Incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K dated May 5, 1992)
10.10 Contribution to Capital Agreement, entered into as of September 25, 1992, by and
among Great American Industrial Group, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.16 of the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1992)
10.11 Asset Purchase Agreement, entered into as of September 25, 1992, between Great
American Leasing Corp. and Great American Management and Investment, Inc.
(Incorporated by reference to Exhibit 10.17 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended July 31, 1992)
10.12 Purchase And Sale Agreement between Industrie Ottiche Europee, S.p.A. and Falcon
Manufacturing, Inc. (Incorporated by reference to Exhibit 2.1 of the Registrant's
Current Report on Form 8-K, dated March 10, 1993)
10.13 First Amendment To Purchase And Sale Agreement between Industrie Ottiche Europee
S.p.A. and Falcon Manufacturing, Inc. (Incorporated by reference to Exhibit 2.2 of
the Registrant's Current Report on Form 8-K, dated March 10, 1993)