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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
MAY 16, 1994
(Date of Report)
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction)
0-5256 58-1351398
(Commission File No.) (IRS Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip code)
(312) 648-5656
(Registrant's telephone number, include area code)
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ITEM 5. OTHER EVENTS
As a result of change in the year end from July 31 to December 31,
Great American Management and Investment, Inc . is filing an Annual Report for
the year ended December 31, 1993. A transition report on Form 10-Q covering
the transition period from July 31, 1993 through December 31, 1993, was filed
in February 1994.
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GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Business Description . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Management's Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . 16
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 17
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 22
Quarterly Stock Information . . . . . . . . . . . . . . . . . . . . . . . . 46
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
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GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
TO OUR SHAREHOLDERS
Calendar 1993 was a year of significant events for Great American and the
businesses in which it has major investments.
As reported in our annual report for the last fiscal year, the Board resolved
that Great American would not complete the spin-off of Eagle Industries, Inc..
Accordingly, Eagle's financial condition and results of operations have been
consolidated with Great American's in this annual report. Since the Company's
financial results are significantly impacted by Eagle's operations, effective
in October 1993, Great American changed its year end from July 31 to December
31 to conform with Eagle's reporting year.
Significant accomplishments for Great American since January 1993 include:
Manufacturing Businesses (Eagle Industries, Inc.)
- - - Eagle completed major revisions to its capital structure. In July
1993, Eagle successfully completed a tender offer for $151.0 million of its
13% Subordinated Notes due 1998. This tender was financed through the
issuance of $315.0 million maturity value Senior Deferred Coupon Notes due
2003. These Notes were priced at $598.97 per $1,000 producing an annual
yield to maturity of 10.5%. In January 1994, Eagle repaid the remaining
outstanding 13% Subordinated Notes, all of its outstanding 13.75%
Subordinated Notes due 1998 and all of its senior bank credit facilities.
The proceeds necessary to complete these repayments were generated from a
new $425.0 million Senior Credit Facility, a $110.0 million accounts
receivable securitization program, and a $50.0 million capital infusion
from Great American. The ongoing impact of these transactions will benefit
Eagle significantly through (1) lower cost debt resulting in substantially
lower interest expense, (2) deferral of interest payments improving Eagle's
cash flow, (3) relaxed covenants providing greater operating flexibility
and (4) a simplification of its debt structure, with the reduction in the
number of debt instruments.
- - - In an effort to divest itself of operations not considered to be a
part of Eagle's long-term plans, Eagle sold two operations, Underground
Technologies and Power Structures and 60% of Signet Armorlite realizing
cash proceeds of $27.0 million. In addition, Eagle has initiated efforts
to sell its Lapp Insulator business.
- - - By strengthening its market share, together with benefiting from
improved market conditions, Eagle increased its sales and earnings in its
Building Products and Automotive Products Groups.
- - - To expand Elastimold's market presence, Eagle acquired Blackburn
Primary Products Division of Thomas & Betts and subsequently integrated it
into Elastimold's operation.
- - - Eagle restructured the operations of companies in its Electrical
Products and Specialty Products Groups to better position them for improved
financial results in the coming years.
- - - Eagle augmented its executive management team with the addition of
Sam Cottone as Chief Financial Officer. Mr. Cottone was formerly a partner
with the firm of Arthur Andersen & Co.
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Investment in The Vigoro Corporation
- - - Vigoro again achieved its objective of providing at least a 20%
return on shareholders' equity, by reporting returns of 23% for fiscal
1993.
- - - Kalium, Vigoro's subsidiary which produces and distributes potash,
generated substantial sales increases in its ice melt and water softener
products. In addition, Kalium received Canadian governmental approval to
expand production by 12% to fulfill industrial and specialty potash needs.
- - - Additionally, by reducing its cash costs during 1993, Kalium has solidified
its position as the world's lowest-cost potash mining company.
- - - To pave the way for future growth and build a deep team for long-term
expansion, during 1993, Vigoro announced that Bob Fowler joined Vigoro as
President and Chief Operating Officer, and Jim Patterson was named Chief
Financial Officer.
- - - In April 1994, Vigoro completed the acquisition of Mid-Ohio Chemical
Company, one of the nation's largest independent manufacturers and
distributors of fertilizers, herbicides, pesticides and seeds. This
acquisition will complement Vigoro's existing retail farm center network,
as well as provide expansion into several prime areas previously not
serviced by Vigoro.
Corporate /Real Estate Portfolio
- - - In August 1993, Great American redeemed all $25.0 million of its 10%
Subordinated Notes. This event marked the successful redemption of all
parent company subordinated debt.
- - - In September 1993, Great American sold 3.5 million shares of its
holdings of Vigoro common stock: 3.0 million shares sold in a secondary
offering and 0.5 million shares sold to Vigoro, realizing net proceeds of
approximately $81.5 million and a pre-tax gain of $48.9 million. Great
American continues to own approximately 30% of Vigoro.
- - - Great American continues the orderly liquidation of its portfolio of
real estate investments. During 1993, Great American realized cash
proceeds of $21.0 million through loan payments, redemptions and real
estate sales.
The Company reported a loss from continuing operations of $49.8 million or
$4.74 per share for the year ended December 31, 1993. Major items contributing
to this loss included $71.8 million of restructuring reserves reported in our
manufacturing businesses and $28.4 million of other reserves relating to costs
to resolve the bankruptcy case of a non-consolidated subsidiary, Madison
Management Group, Inc. Losses from discontinued operations and early
retirement of debt related to our manufacturing businesses totaled $53.2
million or $4.79 per share. For the year ended December 31, 1993, the net loss
to common shareholders amounted to $100.2 million or $9.03 per share.
All of the steps taken during 1993 were aimed at increasing overall shareholder
value. In 1994, the Company will continue to evaluate its business units and
capital structure to more fully utilize its resources.
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In general, the Company's operating results improved during the second half of
the year and are improving in early 1994 over year ago levels.
Due to the change in the Company's year end, proposals of shareholders for the
next Annual Meeting of Shareholders, which will be held in May or June 1995,
must be received by the Company at its principal executive offices on or before
December 31, 1994 in order to be included in the Company's proxy statement and
form of proxy relating to such meeting.
Sincerely,
Rod Dammeyer
President and Chief Executive Officer
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BUSINESS DESCRIPTION
Great American Management and Investment, Inc. ("GAMI" or "the Company") is a
diversified company. The Company directly and through its wholly owned
subsidiary, Eagle Industries, Inc. ("Eagle"), owns businesses which produce and
distribute capital goods and other products serving building, electrical,
industrial, automotive and consumer markets. The Company also has investments
in the agricultural chemicals and fertilizers industry through its investment
in The Vigoro Corporation ("Vigoro") and manufactured homes through its
investment in The Commodore Corporation ("Commodore"). In addition, the
Company owns a portfolio of real estate, mortgage loans and real estate
syndications through its subsidiary Great American Financial Group, Inc.
("GAFG").
MANUFACTURING
The substantial portion of GAMI's businesses are in manufacturing operations.
The manufacturing operations are currently comprised of 17 businesses operating
in five business segments: 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. The manufacturing
business segments are affected by domestic and international market conditions
as well as by the business environment within their own respective industry
segments.
Building Products Group
The Building Products Group consists of 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 Group 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 formations, 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 market. 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 operating in this segment 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 market niches.
Electrical Products Group
The Electrical Products Group consists of two broad groups of businesses, those
providing electrical power distribution products for the electrical 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 Group 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 capacity and continued pricing pressures
in this segment's market. The Company believes that future growth in revenue
and earnings in this segment 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.
Industrial Products Group
The businesses within the Industrial Products Group 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.
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Businesses serving the chemical process industry are largely dependent on
capital expenditures by chemical and pharmaceutical producers. Both
domestically and in Europe, the Company's businesses operating in this
industry are focused on the pharmaceutical market. Domestically, capital
spending over the past few years has been less than anticipated by published
industry forecasts. However, the pharmaceutical market of the chemical process
industry has shown continued growth. This group's operating businesses 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, the Company derives approximately 65% of its
aviation business from the foreign aviation market, which has not been as
adversely affected as the domestic industry.
The Company 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.
Automotive Products Group
The businesses within the Automotive Products Group primarily serve the
automotive aftermarket. Major products produced and/or distributed include
automotive parts, accessories and specialty pneumatic tires. In addition,
multi-ply flexible tubing for carburetor air ducts are manufactured and
distributed to original equipment manufacturers. The Automotive Products Group
is primarily affected by both new and used automobile sales and the automotive
repair business. The Company's parts and accessory distribution businesses
have experienced a significant increase in sales and profits by exploiting
ineffiencies in this market's distribution process. In addition, the increase
in the average age of automobiles on the roads in the U.S. has resulted in
increased demand for parts and correspondingly sales. The specialty pneumatic
tire business has benefitted from the growth in truck and off-road vehicle
sales. The majority of sales in the flexible tubing business are made directly
to domestic automobile manufacturers. The overall improvement in new car sales
has reflected positively for this business.
Specialty Products Group
The Specialty Products Group consists of businesses which manufacture and
distribute refrigeration equipment and consumer products. Businesses within
this group manufacture refrigerated display cases, hand knitting and craft
yarns and decorative wrappings for packaging gifts. 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.
Over the last several years, this segment has suffered from a continued
softness in consumer discretionary spending.
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the following is a list of the primary manufacturing and distribution companies
or divisions owned by the Company and its subsidiaries:
<TABLE>
<CAPTION>
COMPANY/DIVISION DESCRIPTION OF PRODUCT PRIMARY INDUSTRY(IES)
- - ---------------------------------------- --------------------------- ----------------------
<S> <C> <C>
BUILDING PRODUCTS GROUP
Hart & Cooley, Inc. ("Hart & Cooley") Heating, Ventilation and Residential and Commercial
Air Conditioning Construction
Accessories
Mansfield Plumbing Products, Inc. Bathroom Fixtures & Residential Contruction
("Mansfield") Plumbing Fittings
DeVilbiss Air Power Company Light Duty Air Home Improvement
("DeVilbiss Air Power") Compressors
ELECTRICAL PRODUCTS GROUP
Elastimold Underground Medium-and Electric Utility
High-Voltage Cable
Accessories
Hendrix Wire and Cable ("Hendrix") Power Cables and Cable Electric Utility
Accessories
Industrial Electrical Products ("IEP") Interconnect, Control and Electrical/Electronic
Timing Devices;
Airport Lighting
Transformers; and
Electrical Connectors
INDUSTRIAL PRODUCTS GROUP
The Pfaudler Companies, Inc. Glass-lined Industrial Chemical/Pharmaceutical
("Pfaudler") Vessels
Chemineer, Inc. ("Chemineer") Fluid Processing Chemical/Pharmaceutical
Agitators and
Mixers
Burns Aerospace Corporation ("Burns") Commercial Aircraft Commercial Aviation
Seating
AUTOMOTIVE PRODUCTS GROUP
Mighty Distributing Systems of Auto Parts Distribution Automobile Aftermarket
America, Inc. ("Mighty")
The Parts House, Inc. ("Parts House") Auto Parts Distribution Automobile Aftermarket
Denman Tire Corporation ("Denman") Specialty Pneumatic Tires Aftermarket Tires
Clevaflex Multi-ply, Flexible Automotive OEM
Tubing
SPECIALTY PRODUCTS GROUP
Hill Refrigeration ("Hill") Refrigerated Display Commercial Refrigeration
Cases
Caron International, Inc. ("Caron") Knitting Yarns and Craft Crafts and Consumer Yarns
Kits
Gerry Sportswear Corporation ("Gerry") Rugged Outerwear and Ski Retail Apparel
Apparel
Equality Specialties ("Equality") Decorative Wrappings for Retail Accessories
Packaging Gifts
</TABLE>
INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD:
Investment in Vigoro
As of December 31, 1993, GAMI owned approximately 5.8 million shares or 30.0%
of the outstanding common stock of The Vigoro Corporation ("Vigoro"), which is
engaged in the agricultural chemicals and fertilizer business. The Company
accounts for its investment in Vigoro under the equity method. The common
stock of Vigoro is listed on the New York Stock Exchange under the symbol
"VGR," and closed at $30.25 per share on December 31, 1993. Dividends received
by the Company on its ownership of Vigoro common stock have been less than
income recorded under the equity method.
Vigoro's results of operations have historically been influenced by a number of
factors beyond Vigoro's control, which have at times had a significant effect
on Vigoro's operating results. A significant factor affecting Vigoro's
operations is U.S. fertilizer demand which is itself affected by a variety of
factors, including planted acreage, U.S. and foreign government agricultural
policies (including subsidy and acreage set-aside programs), projected grain
stocks and weather. Vigoro's business is highly seasonal with a substantial
portion of its sales and earnings occurring during the months of April through
June. Vigoro focuses on four areas of the agricultural chemicals and
fertilizer industry: potash, agribusiness, specialty/lawn and garden, and
industrial. Vigoro's management believes that acreage planted in 1994 should
be up significantly due to a decline in corn inventory caused primarily by
rainfall and flooding in parts of the Midwest; correspondingly, the use of
agricultural chemicals and fertilizers is expected to increase. Furthermore,
the 1993 rainfall and
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flooding washed nutrients from soils, which means a
higher likelihood of increased application rates during 1994.
Investment in Commodore
As of December 31, 1993, the Company owned approximately 56.0% of the
outstanding stock of Commodore. Commodore manufactures mobile homes in widths
ranging from 12 to 28 feet and in lengths ranging from 36 to 80 feet,
concentrating its production on quality-built, medium-priced homes, ranging in
price from $9,000 to $45,000. The Company has transferred control of the
operating decisions of Commodore to the president of Commodore, subject to
fulfilling certain conditions, and therefore accounts for its investment in
Commodore under the equity method. Commodore is currently not paying dividends
on its common stock.
FINANCIAL SERVICES:
The Company, through GAFG, manages and operates a diverse portfolio of real
estate investments divided into three major lines: ownership of a loan
portfolio; ownership of real estate and management and operation of real estate
limited partnerships. Substantially all of GAFG's loan and real estate
portfolio investments are located in the Southeast and Southwest United States.
Certain of the loans are with entities affiliated with the Company and its
subsidiaries. GAFG's position with respect to its loan and real estate
portfolio has been, and is expected to continue to be, to sell such loans or
properties given an acceptable price. Currently, GAFG is not actively seeking
new investments to increase its loan or real estate portfolio. During 1993,
GAFG's loan portfolio was substantially reduced through loan payoffs and
foreclosures of defaulted loans, which have significantly affected this
segment's revenues and results of operations. Certain subsidiaries of GAFG
serve as general partner to various real estate limited partnerships (the
"Partnerships" or "Partnership"), generating certain fees in this capacity.
The Company and its subsidiaries have not sponsored a Partnership since 1990
and are not expected to sponsor Partnerships in the near future. As a result,
the services provided and related fees earned will continue to diminish.
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MANAGEMENT'S DISCUSSION
GENERAL
The following financial review of the Company discusses its consolidated
results of operations and its consolidated liquidity, capital resources and
financial condition.
Effective October 1993, the Company 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, 1993 is unaudited and has been presented for
comparative purposes only.
In 1993, the Company redefined its industry segments to add an Automotive
Products Group and to realign its Building Products and Specialty Products
Groups. Prior periods' results of operations have been restated to reflect the
reclassifications.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993 AS COMPARED TO YEAR ENDED DECEMBER 31, 1992
Net Sales and Revenues
Following are net sales and revenues by business group (in millions):
<TABLE>
<CAPTION>
INCREASE/
YEAR ENDED DECEMBER 31, (DECREASE)
------------------------- ----------
1993 1992 PERCENTAGE
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<S> <C> <C> <C>
Building Products Group. . . . . $ 372.3 $ 345.2 7.9%
Electrical Products Group. . . . 176.8 168.7 4.8%
Industrial Products Group. . . . 241.4 280.2 (13.9)%
Automotive Products Group. . . . 164.2 139.8 17.5%
Specialty Products Group . . . . 205.9 206.1 (0.1)%
Financial Services Group . . . . 14.4 14.1 2.1%
-------- -------- -------
Total. . . . . . . . . . . . . . $1,175.0 $1,154.1 1.8%
-------- -------- -------
-------- -------- -------
</TABLE>
Net sales and revenues for the year ended December 31, 1993, were $1,175.0
million or 1.8% higher than the comparable 1992 period. This increase was
primarily due to improved net sales in the Building Products and Automotive
Products Groups partially offset by decreased net sales in the Industrial
Products Group. Increases in the Building Products Group were primarily due to
increased volume at Mansfield and, increased volume and, to a lesser extent,
improved pricing at Hart & Cooley due primarily to the improvement in the
residential construction market. Increases in the Automotive Products Group
were primarily due to increased volume at Denman and an increased customer base
at Mighty and Parts House. Decreases in the Industrial Products Group were due
to lower volume at Burns caused by decreased expenditures in the aviation
industry and a large order in 1992 which was not repeated in 1993. The
decreases in the Industrial Products Group were partially offset by an increase
in volume, partially offset by reduced pricing at Chemineer.
Operating Income (Loss)
Following is operating income (loss) by business group (in millions):
<TABLE>
<CAPTION>
INCREASE/
YEAR ENDED DECEMBER 31, (DECREASE)
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1993 1992 PERCENTAGE
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<S> <C> <C> <C>
Building Products Group . . . . $47.5 $44.1 7.7 %
Electrical Products Group . . . 14.9 17.0 (12.7)%
Industrial Products Group . . . (2.9) 11.7 (124.9)%
Automotive Products Group . . . 6.2 3.6 72.5%
Specialty Products Group . . . (63.9) 2.9 N/M
Financial Services Group . . . (7.6) (3.6) (111.0)%
Corporate Expenses . . . . . . (13.6) (16.2) 16.0%
Other Charges . . . . . . . . . (28.6) (4.1) (597.6)%
------- ------- ----------
Operating Income (Loss) . . . . $(48.0) $55.4 (186.6)%
------- ------- ----------
------- ------- ----------
</TABLE>
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Consolidated operating loss for the year ended December 31, 1993 was $48.0
million as compared to operating income of $55.4 million for the comparable
period of 1992. Substantially all of this change was the result of the
recording of $71.8 million of restructuring charges and $28.6 million of other
charges in 1993. Excluding these charges, and $1.7 million of restructuring
charges and $4.1 million of other charges recorded in 1992, operating income
decreased $8.8 million for the comparable periods.
Restructuring and other charges recorded during the twelve months ended
December 31, 1993 were as follows: (1) the Electrical Products Group recorded
$2.6 million of restructuring charges related to additional costs associated
with the closing of a manufacturing facility and an early retirement program,
(2) the Industrial Products Group recorded $2.0 million in restructuring
charges principally related to the downsizing of its foreign operations, (3)
businesses in the Specialty Products Group recorded reserves totaling $67.2
million, including $15.0 million of charges related to the shutdowns of Caron's
London, Kentucky facility and Hill's Canadian facility and $52.2 million of
charges for the write-down of certain assets including property, plant and
equipment, goodwill and other charges associated with the decision to
reconfigure and/or relocate Hill's Trenton, New Jersey plant. See Note 12 to
Consolidated Financial Statements for a more detailed description of the
restructuring charges. Other charges of $28.6 million and $4.1 million for the
years ended December 31, 1993 and 1992, respectively, primarily represent
reserves for litigation and pension costs associated with the bankruptcy of
Madison Management Group, Inc. ("Madison"). See Note 18 to the Consolidated
Financial Statements for a further description.
Excluding the effects of restructuring and other charges and corporate expenses,
operating income of $73.6 million for the year ended December 31, 1993 for the
Company's manufacturing segments was $7.4 million lower than in the comparable
period of 1992. This decrease was primarily due to lower sales volume and a
$6.7 million write-down of certain receivables and inventory at businesses in
the Industrial Products Group, partially offset by the effects of increased
sales at businesses comprising the Building Products and Automotive Products
Groups.
Operating loss for the Financial Services Group was $7.6 million and $3.6
million for the years ended December 31, 1993 and 1992, respectively. The
Company recorded valuation adjustments on loans receivable of $9.6 million and
$7.5 million in 1993 and 1992, respectively. In addition, interest income
decreased as the Company's loan portfolio continued to be liquidated.
Gain on sale of securities/Earnings Accounted for by the Equity Method
As disclosed in Note 5 to the Consolidated Financial Statements, in September
1993, the Company publicly sold 3.0 million shares of Vigoro common stock. In
addition, Vigoro simultaneously repurchased 0.5 million shares of Vigoro common
stock directly from the Company. Net proceeds from these sales (net of costs
paid subsequent to the sales date) amounted to $81.5 million. The Company
realized a pretax gain of approximately $48.9 million on these sales which was
reflected as "Gain on sales of securities" in the Consolidated Financial
Statements. These sales reduced the Company's ownership of Vigoro's
outstanding common stock from approximately 47% to 30%. Vigoro's earnings
accounted for by the equity method for the year ended December 31, 1993 were
$1.4 million less than in 1992. The decrease was primarily attributable to the
Company's reduced ownership of Vigoro stock. In addition, earnings decreased
due to decreased sales caused by lower average prices for nitrogen-based
products as a result of an increase in the wholesale business sale volumes and
decreases in sales of premium-priced consumer and specialty products. Potash
export sales volumes decreased primarily due to a decrease in sales to China in
early 1993 and offshore competition from the former Soviet Union. Also
affecting earnings was a $2.0 million extraordinary charge, net of tax, related
to Vigoro's early redemption of indebtedness.
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FIVE MONTHS ENDED DECEMBER 31, 1993 AS COMPARED TO FIVE MONTHS ENDED
DECEMBER 31, 1992
Net Sales and Revenues
Net sales and revenues for the five months ended December 31, 1993 were $517.9
or $45.3 million higher than the comparable period of 1992. The increase was
primarily due to increased volume and improved pricing attributable to the
improved economy, increased residential housing starts and continued market
penetration. The businesses recording the largest increases were Hart & Cooley
- - - $11.6 million, Hill - $6.9 million, Mighty and Parts House - $6.7 million and
Mansfield - $6.6 million.
Operating (Loss) Income
The Company had an operating loss of $65.0 million and operating income of
$21.2 million for the five months ended December 31, 1993 and 1992,
respectively. The decrease was primarily due to $71.8 million of restructuring
charges, $10.8 million of other charges related primarily to the Madison
bankruptcy case and a $6.7 million write-down of inventory and receivables at
Burns, all of which are discussed in the comparison of the twelve-month 1993
and 1992 periods.
Excluding the effects of restructuring and other charges and the write-down of
inventory and receivables, operating income for the five months ended December
31, 1993 for the Company's manufacturing segments was $24.3 million or $0.9
million higher than the comparable period of 1992. The increase was primarily
due to increased sales volume and improved pricing as previously discussed.
Earnings Accounted for by the Equity Method
Earnings accounted for by the equity method of $4.2 million and $5.5 million
for the five months ended December 31, 1993 and 1992, respectively, were most
materially affected by the decrease in the Company's ownership of Vigoro common
stock as previously discussed.
DISCONTINUED OPERATIONS
The Company has classified Underground Technologies, Inc., and Power
Structures, Inc. (sold in the third quarter of 1993), Signet Armorlite, Inc. (a
majority interest sold in the first quarter of 1993) and Lapp Insulator Company
(sales options being pursued) as discontinued operations in the Consolidated
Financial Statements. See Note 3 to the Consolidated Financial Statements for
a further discussion of the sales agreements and resulting accounting
treatment.
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LIQUIDITY AND CAPITAL RESOURCES
CREDIT FACILITIES/SUBORDINATED DEBT
As further described in Note 9 to the Consolidated Financial Statements, in
July 1993, Eagle completed a tender offer for $151.0 million of its 13% Senior
Subordinated Notes ("13% Notes") funded through a concurrent sale of Senior
Deferred Coupon Notes due 2003 ("Notes"). The net proceeds, prior to the
repayment of the 13% Notes, after deducting the tender premium, consent
payments, interest on the 13% Notes tendered and other fees and expenses,
amounted to approximately $167.0 million. In connection with the tender of the
13% Notes, the Company recognized an extraordinary charge of $14.2 million for
call premiums and expenses.
In January 1994, Eagle consummated a Refinancing (the "Refinancing"), the
proceeds of which were utilized to repay and redeem all of its senior bank
credit facilities, the remaining $149.0 million of its 13% Notes and its 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 ("Eagle Credit
Facility") made available to Eagle Industrial Products Corporation, ("Eagle
Industrial"), a newly formed, wholly owned subsidiary of Eagle, which owns all
of the operating subsidiaries of Eagle. Eagle also entered into an asset
securitization program whereby it sold certain of its accounts receivable for
approximately $110.0 million. In addition, Eagle received a capital
contribution from GAMI of $50.0 million in connection with the Refinancing.
The Refinancing of Eagle's debt is expected to generate a reduction of interest
expense in excess of $20.0 million in 1994. In connection with the
Refinancing, the Company will record a pretax extraordinary charge of
approximately $26.0 million in the first quarter of 1994. See Note 21 to the
Consolidated Financial Statements for a further discussion of the Refinancing.
The Eagle Credit Facility consists of: (1) a $225.0 million term loan due in
quarterly installments increasing from $4.9 million during 1994 to $15.0
million in 1999; (2) a $65.0 million term loan due in equal quarterly
installments aggregating $0.5 million per year in 1994 and 1995, $1.0 million
per year from 1996 through 1999 and $60.0 million in 2000; and (3) a $135.0
million revolving credit facility (subject to borrowing base availability) that
expires in 1999, which may be extended through 2000. Borrowings under the
Eagle 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,
$35.0 million and $290.0 million were outstanding under the revolving credit
portion and term loan portion of the Eagle Credit Facility, respectively.
Additionally, the Eagle Credit Facility provides for a letter of credit
facility of up to $50.0 million. Borrowing availability under the revolving
credit portion of the Eagle 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 Eagle Credit Facility.
The Eagle Credit Facility contains various financial covenants (see Note 9 to
the Consolidated Financial Statements). Such restrictions are not expected to
have an adverse impact on Eagle's ability to meet its cash obligations.
Prior to the Refinancing, Eagle had four senior credit facilities which were
available to four subsidiary groups of Eagle (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. For a further
description see Note 9 to the Consolidated Financial Statements.
Revolving credit facilities available to GAMI ("GAMI Credit Facilities") bear
interest at alternate floating structures based on the banks' alternate base
rate or LIBOR. At December 31, 1993, $0.2 million was outstanding and $21.6
million was available to borrow under the GAMI Credit Facilities.
In August 1993, the Company redeemed the $25.0 million principal amount 10%
Subordinated Notes due September 1993. These notes were redeemed at par plus
accrued interest using available cash as of such date.
14
<PAGE> 15
CAPITAL EXPENDITURES
Capital expenditures were $28.9 million and $32.2 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 $14.2
million and $13.7 million for the five months ended December 31, 1993 and 1992,
respectively. In addition to normal maintenance expenditures, the Company's
manufacturing sector 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 Eagle
Credit Facility. The Company had no material commitments for capital
expenditures at December 31, 1993. The Company expects that its capital
expenditures in 1994 will increase to approximately $45.0 million.
ACQUISITIONS AND DIVESTITURES
Although the Company has historically made a number of acquisitions, primarily
through Eagle, it has not made any material acquisitions since fiscal 1990.
While certain preliminary discussions are at varying stages at this time, Eagle
currently has not executed any purchase contracts with respect to a material
acquisition.
Eagle has historically sold a number of businesses, realizing cash proceeds of
$25.9 million in calendar 1993. Eagle has considered, and in the future will
consider, proposals for the sale of some or all of its interests in its
businesses. However, at this time, it has not executed any sale agreements for
the sale of any of its businesses.
The Company's Financial Service Group realized $21.4 million of cash in the
year ended December 31, 1993 and $13.1 million in the five months ended
December 31, 1992 from the sale of real estate properties and loans and the
redemption and principal reduction of its loan portfolio.
OTHER LIQUIDITY CONSIDERATIONS
The Company believes that currently it has or will have adequate access to
capital resources to meet its long- and short-term requirements. These
resources include the Eagle Credit Facility, the GAMI Credit Facilities,
dividends from its investment in Vigoro and potentially the proceeds from
sales, or borrowings secured by all or a portion of its investment in Vigoro,
the operations of its Manufacturing and Financial Services businesses, as well
as the ability to leverage or sell certain assets or refinance existing loans
as they come due. At December 31, 1993, the Company had available cash of
$89.7 million. With respect to the Madison bankruptcy (see Note 18 to the
Consolidated Financial Statements), the Company believes that it has adequate
resources to litigate the Trustee's (as defined in Note 18 to the Consolidated
Financial Statements) claims and satisfy any likely outcome of the Madison
bankruptcy.
ACCOUNTING STANDARDS
As disclosed in Note 11 to the Consolidated Financial Statements, the Company
adopted the provisions of SFAS No. 109 effective January 1, 1993. By adopting
this standard, the Company increased its net deferred tax assets by $8.6
million and recorded a corresponding benefit of $8.6 million.
As disclosed in Note 2 to the Consolidated Financial Statements, the Company
adopted the provisions of 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 charge of $3.0 million.
15
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Great American Management and Investment, Inc.
We have audited the accompanying consolidated balance sheets of Great American
Management and Investment, Inc. (a Delaware corporation) and subsidiary
companies as of December 31, 1993 and 1992 and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1993 and the five months ended December 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 Great American
Management and Investment, Inc. and subsidiary companies as of December 31,
1993 and 1992, and the results of their operations and their cash flows for the
year ended December 31, 1993 and the five months ended December 31, 1992 in
conformity with generally accepted accounting principles.
As explained in Note 11 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 - Employers' Accounting for Postemployment Benefits.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
April 22, 1994
16
<PAGE> 17
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1992
------------ -------------
ASSETS (RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 89.7 $ 48.0
Trade receivables (less allowance for doubtful
accounts of $4.3 and $4.2, respectively) . . . 170.2 154.5
Inventories, net . . . . . . . . . . . . . . . . . 193.1 197.9
Other current assets . . . . . . . . . . . . . . . 42.7 32.2
Net current assets of discontinued operations . . 38.9 65.3
---------- ----------
Total current assets . . . . . . . . . . . . . . . 534.6 497.9
Investments accounted for by the equity method . . . . 59.7 79.0
Loans to affiliates (less valuation reserves of $20.9 and
$12.5, respectively) . . . . . . . . . . . . . 53.9 79.5
Loans receivable and real estate (less valuation reserves
of $6.2 and $9.9, respectively, and accumulated
depreciation) . . . . . . . . . . . . . . . . . 15.6 18.5
Property, plant and equipment, net . . . . . . . . . . 222.1 236.1
Goodwill . . . . . . . . . . . . . . . . . . . . . . . 337.5 372.2
Other assets . . . . . . . . . . . . . . . . . . . . . 103.1 105.0
Net long-term assets of discontinued operations . . . . --- 21.6
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . $ 1,326.5 $ 1,409.8
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion long-term debt . . . . . . . . . . $ 19.1 $ 44.8
Accounts payable . . . . . . . . . . . . . . . . . 75.7 73.3
Accrued liabilities . . . . . . . . . . . . . . . 146.2 103.9
---------- ----------
Total current liabilities . . . . . . . . . . . . 241.0 222.0
Long-term debt . . . . . . . . . . . . . . . . . . . . 644.8 670.8
Accrued employee benefit obligations . . . . . . . . . 96.7 78.8
Other long-term liabilities . . . . . . . . . . . . . . 93.1 86.5
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . 1,075.6 1,058.1
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 18)
Redeemable preferred stock of subsidiary . . . . . . . 43.6 40.8
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock (5,000,000 shares authorized, none issued) --- ---
Common stock (40,000,000 shares authorized,
12,059,067 issued, 11,158,588 and 11,052,261
outstanding, respectively) . . . . . . . . . . . . 0.1 0.1
Additional paid-in capital . . . . . . . . . . . . . . 194.8 193.5
Retained earnings . . . . . . . . . . . . . . . . . . . 35.5 135.7
Cumulative translation adjustments . . . . . . . . . . (5.0) (3.5)
Pension liability adjustment . . . . . . . . . . . . . (4.6) ---
Common stock in treasury, at cost (900,479 shares and
1,006,806 shares, respectively) . . . . . . . . . (13.5) (14.9)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . 207.3 310.9
---------- ----------
Total liabilities and stockholders' equity . . . . $ 1,326.5 $ 1,409.8
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 18
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31,
DECEMBER 31, --------------------
1993 1993 1992
----------- --------- ---------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C>
Net sales and revenues.............................. $1,175.0 $517.9 $472.6
--------- --------- --------
Operating expenses:
Cost of goods and services sold............. 929.4 416.8 372.7
Selling and administrative.................. 182.4 79.1 72.2
Goodwill amortization....................... 10.8 4.4 4.4
Restructuring and other charges............. 100.4 82.6 2.1
--------- --------- --------
Total operating expenses............................ 1,223.0 582.9 451.4
--------- --------- --------
Operating (loss) income............................. (48.0) (65.0) 21.2
Earnings accounted for by the equity method......... 19.6 4.2 5.5
Gain on sales of securities......................... 48.9 48.9 -
Net interest expense................................ (66.9) (24.6) (28.4)
--------- --------- --------
(Loss) from continuing operations
before income taxes......................... (46.4) (36.5) (1.7)
Income tax expense (benefit) from
continuing operations....................... 3.4 4.3 (0.9)
--------- --------- --------
(Loss) from continuing operations................... (49.8) (40.8) (0.8)
Discontinued Operations (Note 3):
(Loss) from discontinued operations, net
of tax.................................... (6.8) (2.5) (2.4)
(Loss) on disposal of businesses, net
of tax.................................... (32.2) (32.2) (3.0)
--------- --------- --------
(Loss) before extraordinary item and cumulative
effect of change in accounting principles... (88.8) (75.5) (6.2)
Extraordinary item:
(Loss) from early retirement of debt........ (14.2) --- ---
--------- --------- --------
(Loss) before cumulative effect of change in
accounting principles....................... (103.0) (75.5) (6.2)
Cumulative effect of change in accounting
principles.................................. 5.6 (3.0) ---
--------- --------- --------
Net (loss).......................................... (97.4) (78.5) (6.2)
Dividends on subsidiary preferred stock............. (2.8) (1.2) (1.1)
--------- --------- --------
Net (loss) to common stockholders................... $ (100.2) $(79.7) $ (7.3)
--------- --------- --------
--------- --------- --------
Weighted average common and common equivalent
shares outstanding.......................... 11.1 11.1 11.1
--------- --------- --------
--------- --------- --------
(Loss) earnings per common share:
Continuing operations....................... $ (4.74) $ (3.78) $ (0.17)
Discontinued operations..................... (3.51) (3.13) (0.49)
Extraordinary item.......................... (1.28) --- ---
Cumulative effect of change in accounting
principles................................ 0.50 (0.27) ---
--------- --------- --------
Net (loss).......................................... $ (9.03) $ (7.18) $ (0.66)
--------- --------- --------
--------- --------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 19
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
Additional Cumulative Pension Common
Common Paid-in Retained Translation Liability Stock in
Stock Capital Earnings Adjustments Adjustment Treasury
--------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1992
(restated)......................... $0.1 $193.5 $ 143.0 $ 3.4 $ --- $(14.2)
Net (loss) for the five months
ended December 31, 1992........ --- --- (7.3) --- --- ---
Purchase of treasury stock........ --- --- --- --- --- (0.7)
Translation adjustment and
other.......................... --- --- --- (6.9) --- ---
--------- ---------- --------- ---------- ----------- ----------
Balance at December 31, 1992
(restated)......................... 0.1 193.5 135.7 (3.5) --- (14.9)
Net (loss) for the year ended --- --- (100.2) --- --- ---
December 31, 1993...............
Exercise of stock options........... --- 1.3 --- --- --- 1.4
Pension liability adjustment........ --- --- --- --- (4.6) ---
Translation adjustment and other.... --- --- --- 1.5 --- ---
--------- ---------- --------- ---------- ----------- ----------
Balance at December 31, 1993.......... $0.1 $194.8 $ 35.5 $(5.0) $(4.6) $(13.5)
--------- ---------- --------- ---------- ----------- ----------
--------- ---------- --------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 20
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1993 1992
----------- ----------- -----------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) from continuing operations............... $ (49.8) $ (40.8) $ (0.8)
Adjustments to reconcile loss from
continuing operations to net cash flow from
operating activities:
Depreciation.................................. 33.4 14.2 13.0
Amortization.................................. 18.5 7.7 8.6
Deferred income tax provision (benefit)....... (11.9) (13.1) 2.3
Accretion of discount on subordinated debt.... 9.5 8.3 ---
Undistributed earnings of investments accounted
for under the equity method................. (13.9) (3.2) (2.7)
Valuation adjustments......................... 9.6 1.3 0.2
Gain on sale of securities.................... (48.9) (48.9) ---
Restructuring and other charges............... 100.4 82.6 2.1
Other......................................... 1.4 3.5 0.3
Changes in current assets and current liabilities:
Trade receivables............................. (15.3) 5.5 14.3
Inventories................................... 4.3 6.8 (4.0)
Other current assets.......................... (0.4) (1.7) 5.2
Accounts payable and accrued liabilities...... (13.8) 4.6 (24.9)
-------- -------- --------
Net cash flow from continuing
operating activities.................... 23.1 26.8 13.6
Net cash flow from (used in) discontinued
operations.............................. (3.0) 5.4 (21.4)
-------- -------- --------
Net cash flow from (used in) operations... 20.1 32.2 (7.8)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses.............. 25.9 3.0 ---
Proceeds from sale of securities.............. 82.5 82.5 ---
Loan principal repayments and proceeds from
sales of real estate........................ 21.4 8.3 13.1
Capital expenditures.......................... (28.9) (14.2) (13.7)
Other......................................... (7.8) (7.3) (9.5)
-------- -------- --------
Net cash flow from (used in) investing
activities.............................. 93.1 72.3 (10.1)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt.............................. 184.0 --- 60.4
Reduction of debt............................. (258.3) (60.6) (40.0)
Exercise of stock options..................... 2.8 2.8 ---
Purchase of treasury stock.................... --- --- (0.7)
-------- -------- --------
Net cash flow (used in) from financing
activities.............................. (71.5) (57.8) 19.7
-------- -------- --------
CHANGE IN CASH AND CASH EQUIVALENTS.............. 41.7 46.7 1.8
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD........................... 48.0 43.0 46.2
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD........................................ $ 89.7 $ 89.7 $ 48.0
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 21
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN MILLIONS)
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD
<TABLE>
<CAPTION> FIVE MONTHS ENDED
FOR (RELATING TO CONTINUING AND DISCONTINUED YEAR ENDED DECEMBER 31,
OPERATIONS): DECEMBER 31, -----------------------
1993 1993 1992
---------- --------- ---------
(RESTATED) (RESTATED)
(UNAUDITED)
<S> <C> <C> <C>
Interest . . . . . . . . . . . . . . . . . . . . . $ 65.4 $ 22.9 $ 34.5
---------- --------- ---------
---------- --------- ---------
Income taxes . . . . . . . . . . . . . . . . . . . $ 0.9 $ 5.4 $ 6.7
---------- --------- ---------
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 22
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(1) BASIS OF PRESENTATION
Great American Management and Investment, Inc. ("GAMI" or the
"Company"), a Delaware corporation, directly and through its wholly
owned subsidiary, Eagle Industries, Inc. ("Eagle"), owns 17
manufacturing businesses which have been classified into the following
five business segments: Building Products Group, Electrical Products
Group, Industrial Products Group, Automotive Products Group and
Specialty Products Group. The Company directly owns an investment in
the common stock of an agricultural chemicals and fertilizer company
(The Vigoro Corporation, "Vigoro," whose stock is listed on the New
York Stock Exchange) and directly owns an investment in the common
stock of a manufacturer of mobile homes (The Commodore Corporation,
"Commodore"). In addition, the Company owns a portfolio of real
estate properties, mortgage loans and real estate syndications
through its subsidiary Great American Financial Group, Inc. ("GAFG").
In September 1992, GAMI's Board of Directors (the "Board") authorized
the distribution (the "Distribution") of the common stock of Eagle to
GAMI's stockholders. In conjunction with this authorization, GAMI
reported the operations of Eagle as discontinued operations in the
Consolidated Financial Statements beginning with the year ended July
31, 1992. In October 1992, GAMI's Board decided to delay the
Distribution. In October 1993, the Board resolved that, due to a
variety of factors which occurred since the August 1992 receipt of a
ruling from the Internal Revenue Service allowing tax-free treatment
of the Distribution, GAMI would discontinue its intention to complete
the Distribution. Accordingly, Eagle's financial condition and
results of operations have been reconsolidated in GAMI's Consolidated
Financial Statements.
Effective October 1993, the Company changed its year end from July 31
to December 31.
(2) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION:
The Consolidated Financial Statements include the accounts of the
Company and its majority-owned subsidiaries excluding Commodore. The
Company accounts for its investments in Vigoro and Commodore under the
equity method. For summarized financial information of Vigoro and
Commodore, see Note 5. 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 44.1% and
48.6% 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.
LOANS RECEIVABLE AND REAL ESTATE:
Loans receivable and real estate are stated at the lower of cost or
net realizable value. When the Company believes that a loan has been
permanently impaired, the Company records a valuation allowance in an
amount needed to bring the carrying value of the loan to the estimated
present value of cash flows anticipated to be received from such loan,
including interest. Real estate acquired through foreclosure is
generally retained as operating property. Depreciation on real estate
is generally provided on the straight-line method based upon the
estimated useful life of the property.
22
<PAGE> 23
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
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.
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 $44.7 million and $34.0 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 stockholders' equity. Translation
adjustments of non-U.S. subsidiaries with highly inflationary
economies (Brazil and Mexico) are charged to operations.
REVENUE RECOGNITION:
Sales are recognized when products are shipped or services are
performed. The Company discontinues the accrual of interest income on
loans receivable when conditions exist which cause the Company to
believe the collection of principal or interest is doubtful.
POSTEMPLOYMENT BENEFITS:
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 112, "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 charge of $3.0 million
reflected as a "Cumulative effect of change in account principle."
INCOME TAXES:
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109") effective January 1, 1993. This new standard changed the
Company's method of accounting for income taxes from the deferred
method required under APB No. 11 to the asset and 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 11).
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.
23
<PAGE> 24
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
INTEREST EXPENSE RELATED TO DISCONTINUED OPERATIONS:
Interest expense allocated to the discontinued businesses principally
represents interest expense related to debt to be 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.
EARNINGS PER COMMON SHARE:
Earnings per common share are based on the weighted average number of
common shares outstanding during each year. Earnings per share from
continuing operations are computed after giving effect to preferred
dividends (see Note 15).
RECLASSIFICATIONS:
Certain balances in the five months ended December 31, 1992 have been
reclassified to conform with the classifications presented in the 1993
Consolidated Financial Statements.
(3) DISPOSITIONS/DISCONTINUED OPERATIONS
In the third quarter of 1993, Eagle reflected Lapp Insulator Company
("Lapp"), Underground Technologies, Inc. ("Underground Technologies")
and Power Structures, Inc. ("Power Structures") as discontinued
operations. Eagle is currently pursuing options for the sale of Lapp.
Eagle sold Power Structures and certain assets of Underground
Technologies in the fourth quarter of 1993 for cash and notes totaling
$3.5 million. Eagle recorded a provision of $32.2 million for
estimated losses from operations and from the ultimate disposition of
these three businesses. Included in the provision for disposition was
the write-off of approximately $10.0 million of goodwill.
In February 1993, Eagle 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. Eagle
received cash proceeds of approximately $23.0 million, which were used
to reduce outstanding debt. Under the terms of the sale agreement,
Eagle 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 Eagle any time
prior to February 26, 1998. While Eagle retains a 40% interest, it
has no obligation 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
reflected Signet as a discontinued operation during the fourth quarter
of fiscal 1992 and 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 Eagle 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.
24
<PAGE> 25
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
The following table summarizes key financial data related to the
discontinued operations of Lapp, Power Structures, Underground
Technologies and Signet (in millions):
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
---------- ----------
(RESTATED)
<S> <C> <C>
Net sales......................................... $ 79.9 $ 70.9
---------- ----------
---------- ----------
Operating (loss).................................. $ (4.7) $ (0.6)
Allocated interest expense........................ 2.1 2.2
Income tax (benefit) applicable to discontinued
businesses..................................... --- (0.4)
---------- ----------
Loss from operations of discontinued businesses net of
applicable income taxes........................ $ (6.8) $ (2.4)
---------- ----------
---------- ----------
</TABLE>
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.
In the year ended December 31, 1993, the Company sold one hotel and
one apartment complex for cash proceeds totaling $3.1 million. During
the five months ended December 31, 1992, the Company sold its interest
in two apartment complexes for cash proceeds totaling $4.1 million.
(4) INVENTORIES
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
---------- ----------
<S> <C> <C>
Finished goods.............................. $ 77.3 $ 65.7
Work in process............................. 56.9 57.3
Raw materials............................... 58.9 74.9
---------- ----------
$ 193.1 $ 197.9
---------- ----------
---------- ----------
Excess of replacement cost over LIFO
inventory cost............................ $ 5.3 $ 5.3
---------- ----------
---------- ----------
</TABLE>
(5) INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
INVESTMENT IN VIGORO
In August 1993, Vigoro filed a registration statement with the
Securities and Exchange Commission (the "SEC") under which the Company
publicly offered 3.0 million shares of Vigoro common stock. In
addition, Vigoro agreed to repurchase 0.5 million shares of Vigoro
common stock directly from the Company. In September 1993, the
offering was completed at a price of $24.625 per share, with the
Company realizing net proceeds (net of costs paid subsequent to the
sales date) of approximately $81.5 million. The Company currently
owns approximately 5.8 million shares of Vigoro common stock, or
approximately 30% of Vigoro's outstanding common stock. The pretax
gain realized on these sales was approximately $48.9 million.
25
<PAGE> 26
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
The Company received common stock dividends from Vigoro of $5.7
million and $2.7 million in calendar 1993 and the five months ended
December 31, 1992, respectively.
On July 1, 1993, Vigoro adopted the provisions of SFAS No. 109 (as
defined in Note 2) and restated its prior period financial statements.
Accordingly, the Company has restated its investment in Vigoro based on
Vigoro's restated financial statements. The restatement resulted in a
decrease as of August 1, 1992 of the Company's investment in Vigoro of
$15.9 million. In addition, in connection with the decision to sell a
portion of its investment in Vigoro and the adoption of SFAS 109,
beginning January 1, 1993, the Company has fully provided for income
taxes on earnings accounted for by the equity method.
Vigoro has a June 30 fiscal year end. A significant portion of
Vigoro's earnings historically occur in the months April through June.
Due to the impact of such seasonality, the interim results of
operations are not generally indicative of Vigoro's results of
operations for an entire year. Summarized financial information for
Vigoro is as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1993
------------ ------------
(UNAUDITED) (RESTATED)
<S> <C> <C>
Current assets......................... $ 216.0 $ 215.8
Noncurrent assets...................... 240.2 236.9
----------- -----------
Total assets......................... $ 456.2 $ 452.7
----------- -----------
----------- -----------
Current liabilities.................... $ 138.5 $ 122.8
Long-term debt......................... 102.8 101.2
Other liabilities...................... 55.5 56.8
----------- -----------
296.8 280.8
Stockholders' equity................... 159.4 171.9
----------- -----------
Total liabilities and equity......... $ 456.2 $ 452.7
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX FOR THE
MONTHS MONTHS YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1992 1993
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (RESTATED)
<S> <C> <C> <C>
Net sales........................... $ 185.8 $ 168.9 $ 578.2
----------- ----------- -----------
----------- ----------- -----------
Operating income.................... $ 13.7 $ 13.9 $ 72.1
----------- ----------- -----------
----------- ----------- -----------
Pretax income....................... $ 11.0 $ 11.0 $ 64.8
----------- ----------- -----------
----------- ----------- -----------
Earnings applicable to common stock. $ 6.8 $ 6.6 $ 40.1
----------- ----------- -----------
----------- ----------- ------------
</TABLE>
INVESTMENT IN COMMODORE
As of December 31, 1993, GAMI owned 56.25% of the outstanding common
stock of Commodore. In 1990, control of the operating decisions of
Commodore was transferred to the president of Commodore, subject to
fulfilling certain conditions; therefore, the Company reports this
investment under the equity method of accounting. During 1993, the
president of Commodore attempted to acquire 6.15% of Commodore stock
owned by GAMI pursuant to the terms of the shareholders' agreement
between the parties. GAMI believes that under the terms of the
shareholders' agreement, the rights to acquire this stock may have been
forfeited. The Company's counsel is reviewing this issue and as of
this date has not reached a conclusion as to the validity of the stock
purchase right. The Company recognized income from its investment in
Commodore of $1.8 million and $2.1 million for the year ended December
31, 1993 and the five months ended December 31, 1992, respectively.
26
<PAGE> 27
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
(6) LOANS TO AFFILIATES
Loans to affiliates consisted of the following as of December 31,
1993, and 1992, respectively (in millions):
<TABLE>
<CAPTION>
NET CARRYING
FACE VALUE INTEREST MATURITY
AMOUNT 1993 1992 RATE DATE
------ --------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Equity Pool No.1............................ $ 5.9 $ 5.9 $14.9 7.9% 9/94 (a)
Coal Canyon Company
("Coal Canyon").............................. 7.3 2.1 2.1 Prime + 2.0% (b)
GAI Partners
("Hedstrom, #1 Note")........................ 32.5 32.5 32.5 9.0% (c)
Hedstrom Corporation
("Hedstrom, #2 Note")........................ 3.5 3.5 4.5 12.0% (c)
First Capital Institutional Real
Estate Ltd. - 4 ("IRE-4")................... 3.9 3.9 3.9 8.5% (d)
First Capital Income Properties
Series XI ("Series XI")..................... 8.3 2.3 8.3 LIBOR + 2.5% (d)
First Capital Income and Growth
Fund-Series XII ("Series XII").............. 13.4 3.7 6.2 LIBOR + 2.5% (d)
Other....................................... --- --- 7.1 Various (e)
------ ------ -----
$74.8 $53.9 $79.5
------ ------ -----
------ ------ -----
</TABLE>
The Company believes that these loans, at their origination, purchase, or
extension, were at terms that were no less favorable to the Company than could
have been obtained with non-affiliated parties. Material related party
transactions are approved by the independent members of the Company's Board of
Directors. In accordance with Statement of Financial Accounting Standards No.
107 - Disclosures about Fair Value of Financial Instruments ("SFAS 107"), it is
not practical to estimate the fair value of the loans; however, the Company
believes that the fair value of each loan equals or exceeds the Company's
carrying value.
(a) Pursuant to a 1993 amendment (the "Amendment") to this loan, the
loan is now collateralized by partnership units which are
convertible in September 1994 to approximately 550,000 shares of
Equity Residential Properties Trust ("EQR"), a publicly traded
entity affiliated with Mr. Zell. The closing price of EQR common
shares on March 31, 1994 was $30.125 per share. Pursuant to the
Amendment, the maturity date was extended to September 1994.
GAMI is entitled to contingent participations based on
distributions received by Equity Pool No. 1 during the term of
the loan and based on the market value of the partnership units
on the loan maturity date.
(b) A subsidiary of GAMI has a 50% interest in Coal Canyon, a joint
venture owning 663 acres of property in Orange County,
California. The loan is secured by the land held by the joint
venture. Interest on the loan is deferred to maturity and, to
date, no accrued interest has been recorded in the Consolidated
Financial Statements. GAMI has recorded the carrying value of
the loan at its original carrying basis of $2.1 million. In
October 1992, the terms of the Coal Canyon loan were extended for
a period of two years, to October 26, 1994. During the extension
period, the interest rate on the loan is at prime plus 2%.
(c) Interest payments on the Hedstrom #1 Note may be deferred through
January 15, 1996 at the option of GAI Partners Limited
Partnership ("GAI Partners"). All interest payments have been
deferred as of March 31, 1994. The accrued interest balance
was $9.9 million and $6.3 million at December 31, 1993 and 1992,
respectively. Principal payments are due as follows: $6.5
million on July 15, 1995, $9.5 million on July 15, 1996, $13.0
million on July 15, 1997 and $3.5 million on July 15, 1998. The
Hedstrom #1 Note is secured by 43,618 shares of Series C Preferred
Stock of GAFG owned by the GAI Partners (see Note 15).
27
<PAGE> 28
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
The borrower of the Hedstrom #2 Note is an affiliate of GAI
Partners. In February 1993, a modification was entered into
extending the maturity to August 6, 1997 and modifying the
interest rate to 10% for the first six months following such
modification and increasing 2% every six months thereafter
with a ceiling of 20%. In connection with this modification,
a $1.0 million principal payment was received.
(d) GAMI, or certain of its subsidiaries, has provided these
unsecured loans to three of the partnerships
(the "Partnerships" or "Partnership") for which subsidiaries
of GAMI serve as the general partner. Repayment of the Series
XI and Series XII loans is generally subordinated to
distributions, generated from sales and/or refinancing of the
properties, to the respective limited partners of 100% of
their respective original capital contributions in such
Partnership. Repayment of the loan to IRE-4 is to be funded
from a portion of sale and refinancing proceeds of properties
owned by such Partnership. The maturity dates of the loans to
IRE-4, Series XI and Series XII are on demand subject to the
subordination disclosed above. Ongoing analyses of the
operations and projected ultimate realization of the assets of
Series XI and Series XII indicate that these loans will not be
fully realized. In the first quarter of calendar 1993, the
Company adjusted its carrying value of the loans to Series XI
and Series XII to the net present value of the estimated cash
flows expected to be realized, recording loss reserves of $5.8
million and $2.2 million, respectively. The Company believes,
based on analyses of the operations of IRE-4, that the loan to
IRE-4 will be fully repaid. Both the Series XI and XII have
the option to defer interest payments. Series XI's deferral
period expires December 31, 1994 and Series XII's deferral
period expires April 1, 1995. Through March 31, 1994, neither
Series XI nor XII had deferred their monthly interest payments
pursuant to their respective amendments.
(e) These loans were all paid in full during 1993.
(7) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
---- ----
<S> <C> <C>
Land............................................ $ 20.9 $ 21.4
Buildings....................................... 102.5 101.9
Machinery and equipment......................... 225.1 206.5
Construction in progress........................ 14.2 15.1
------- -------
362.7 344.9
Less - Accumulated depreciation
and amortization....................... (140.6) (108.8)
------- -------
$ 222.1 $ 236.1
------- -------
------- -------
</TABLE>
(8) ACCRUED EXPENSES
Accrued expenses consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1992
---- ----
<S> <C> <C>
Divestiture reserves............................ $ 12.5 $ 3.2
Wage and benefits............................... 31.4 28.2
Customer advances............................... 9.1 10.7
Interest........................................ 8.0 12.6
Taxes........................................... 13.2 2.1
Legal and professional.......................... 30.0 3.6
Other........................................... 42.0 43.5
------- -------
$ 146.2 $ 103.9
------- -------
------- -------
</TABLE>
28
<PAGE> 29
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
(9) LONG-TERM DEBT
Components of long-term debt were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
---------- ----------
<S> <C> <C>
Subordinated Debt:
GAMI................................. $ -- $ 24.0
Eagle................................ 421.6 373.9
---------- --------
421.6 397.9
---------- --------
Senior Debt:
GAMI................................. 0.2 25.0
Eagle................................ 224.0 268.5
---------- --------
224.2 293.5
---------- --------
Other:
GAMI................................. 4.3 4.8
Eagle................................ 13.8 19.4
---------- --------
18.1 24.2
---------- --------
Total debt.................................... 663.9 715.6
Less current portion.......................... (19.1) (44.8)
---------- --------
Total long-term debt.......................... $ 644.8 $670.8
---------- --------
---------- --------
</TABLE>
SUBORDINATED DEBT:
EAGLE
Senior Deferred Coupon Notes:
Eagle's $315.0 million principal amount of Senior Deferred Coupon
Notes (the "Notes") issued pursuant to an Indenture, dated July 1,
1993, mature on July 15, 2003. The issue price of each Note was
$598.97 per $1,000 principal amount at maturity, which represented 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 Eagle and rank pari pasu in right of
payment with all senior indebtedness of Eagle. The Notes are
redeemable at Eagle'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. The
Notes contain several restrictive covenants, including but not limited
to, dividend distributions from subsidiaries, sales of assets and
subsidiary stock and the creation of additional indebtedness (subject
to certain financial ratios). In addition, the holders of the Notes
may require the Company to repurchase such Notes upon a change of
control (as defined in the agreement).
13% Senior Subordinated Notes:
Eagle's $300.0 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 Eagle 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 Eagle.
In April 1993, Eagle commenced a tender offer for $151.0 million
aggregate principal amount of the 13% Notes at a price as subsequently
amended of $1,049 per $1,000 principal amount. Eagle 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 Eagle and its subsidiaries to incur certain
amounts
29
<PAGE> 30
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
of additional indebtedness. Eagle 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 21, in January 1994 Eagle called for
redemption on February 27, 1994, the remaining $149.0 million of 13%
Notes at 104% of their principal amount plus accrued interest.
Proceeds for the redemption were derived from the Refinancing (as
defined below) in January 1994.
13.75% Notes:
The $75.0 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 principal
amount of these notes in March 1992 decreasing to 100% in 1.375%
increments each March 15 thereafter. As further described in Note 21,
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.
GAMI
10% Subordinated Notes
In August 1993, GAMI redeemed the $25.0 million principal amount 10%
Subordinated Notes due September 15, 1993 at par plus accrued
interest.
SENIOR DEBT:
EAGLE:
Eagle Industrial Credit Facility:
As further described in Note 21, in January 1994 Eagle consummated a
refinancing (the "Refinancing"), the proceeds of which were utilized
to repay and redeem of all of its subsidiaries senior bank credit
facilities, the 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 Eagle,
which owns all of the operating subsidiaries of Eagle.
On January 31, 1994, Eagle Industrial entered into a new $425.0
million senior credit facility with a group of banks (the "Eagle
Credit Facility"). The Eagle Credit Facility consists of: (1) a
$225.0 million term loan due in quarterly installments increasing from
$4.9 million during 1994 to $15.0 million in 1999; (2) a $65.0 million
term loan due in equal quarterly installments aggregating $0.5 million
per year in 1994 and 1995, $1.0 million per year from 1996 through
1999 and $60.0 million in 2000; and (3) a $135.0 million revolving
credit facility (subject to borrowing base availability) that expires
in 1999, which may be extended through 2000. Borrowings under the
Eagle 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 Eagle Credit Facility requires an annual commitment
fee of 0.5% on the average daily unused amount of the revolving
portion of the Eagle Credit Facility. At January 31, 1994, $35.0
million and $290.0 million were outstanding under the revolving credit
portion and term loan portion of the Eagle Credit Facility,
respectively. Additionally, the Eagle Credit Facility provides for a
letter of credit facility of up to $50.0 million. Borrowing
availability under the revolving credit portion of the Eagle 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 Eagle Credit Facility.
30
<PAGE> 31
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
The Eagle Credit Facility contains several restrictive financial
covenants, including but not limited to, net worth; additional
indebtedness; payment of dividends or loans to Eagle; certain cash
flow ratios and payments to Eagle for management services. Eagle has
provided a guarantee as to the repayment of amounts outstanding under
this credit facility. Additionally, the Eagle Credit Facility
requires that the Zell interests (as defined in the agreement)
directly or indirectly maintain at least 30% of the voting power to
elect members of the board of directors of Eagle and that Eagle
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 Eagle 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:
Eagle had four senior credit facilities which were available to four
subsidiary groups of Eagle prior to the Refinancing (the "Senior Bank
Credit Facilities") (see Note 21). 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 Eagle'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 Eagle. 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 several restrictive
financial covenants, including but not limited to, net worth,
additional indebtedness, maintenance of certain financial ratios and
ownership requirements.
GAMI:
GAMI has two senior credit facilities (the "GAMI Facilities").
Pursuant to a 1993 amendment, the GAMI Facilities are amortizing
revolving credit facilities. Total availability as of December 31,
1993 was $21.6 million. Interest is at variable rates tied to each
lender's base rate or LIBOR with maturity in September 1994. The
collateral for the GAMI Facilities consists of 2.5 million shares of
Vigoro common stock plus a pledge of all distributions received by
GAMI on an additional 2.5 million shares of Vigoro common stock.
The GAMI Facilities contain restrictive convenants, including but not
limited to, the payment of dividends, additional debt, net worth
maintenance and transfers of its Vigoro common stock. The Company was
in compliance with all covenants of the respective debt agreements at
December 31, 1993.
OTHER:
Consists of Industrial Revenue Bonds, mortgages and capitalized lease
obligations with varying maturity dates.
31
<PAGE> 32
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
(10) EMPLOYEE RETIREMENT AND BENEFIT PLANS:
PENSION:
U.S. Plans:
Substantially all employees of the Company's manufacturing sector 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 Eagle
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.
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 (in millions):
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
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 (benefits).................. (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)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
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 "Statement of Financial Accounting Standards No. 87
"Employers' Accounting for Pensions" ("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.
32
<PAGE> 33
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
Net periodic pension cost for defined benefit pension plans reporting
under the provisions of SFAS No. 87 included in the above table was
(in milllions):
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
(RESTATED)
<S> <C> <C>
Service cost................... $4.1 $1.5
Interest cost.................. 7.4 2.4
Actual return on assets........ (9.2) (2.9)
Net amortization and deferral.. 1.9 0.9
---- ----
Net periodic pension cost.. $4.2 $1.9
---- ----
---- ----
</TABLE>
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 $5.0 million in the year ended December 31, 1993
and $1.2 million in the five months ended December 31, 1992.
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 (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
---- ----
<S> <C> <C>
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)
----- -----
----- -----
</TABLE>
Net periodic pension cost for this non-U.S. defined benefit pension
plan included in the above table was (in millions):
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Service cost . . . . . . . . . . . . $0.5 $0.2
Interest cost . . . . . . . . . . . . 1.9 0.9
---- ----
Net periodic pension cost . . . . . . $2.4 $1.1
---- ----
---- ----
</TABLE>
33
<PAGE> 34
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
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 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 in the Company's manufacturing
sector. For most business units providing these benefits, employees
retiring from the Company on or after attaining 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 accounts for other postretirement benefits in accordance
with the provisions of Statement of Financial Accounting Standards No.
106 "Employers' Accounting for Postretirement Benefits Other than
Pensions". 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
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 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 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.
The following table sets forth postretirement benefits recognized in
Company's Consolidated Financial Statements (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
---- ----
(RESTATED)
<S> <C> <C>
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 (loss) . . . . . . . (4.6) (3.3)
Unrecognized prior service cost (benefits). . 0.3 (0.1)
----- -----
Postretirement benefit liability recognized in
Consolidated Financial Statements . . . . . $63.8 $69.2
----- -----
----- -----
</TABLE>
34
<PAGE> 35
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
Net postretirement benefit cost included the following components
(in millions):
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
----------- -----------
(RESTATED)
<S> <C> <C>
Service cost . . . . . . . . . . . . . . . $1.0 $0.4
Interest cost . . . . . . . . . . . . . . . 4.1 1.8
------- -------
Net postretirement benefit cost . . . 5.1 2.2
Effect of curtailment . . . . . . . . . . . (4.2) ---
------- -------
Adjusted net postretirement benefit cost $0.9 $2.2
------- -------
------- -------
</TABLE>
(11) INCOME TAXES
The Company adopted the provisions SFAS No. 109 effective January 1,
1993. The December 31, 1993 Consolidated Financial Statements
reflected an increase in the net deferred tax assets of $8.6 million
and a corresponding benefit of $8.6 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.
At December 31, 1993, based upon the Company's Federal income tax
returns, consolidated net operating losses of approximately $30.0
million were available to offset future taxable income of the Company
and its subsidiaries. The carryforward expires in 2008. The Company
also has approximately $7.0 million of alternative minimum tax credit
carryforward available. The credit does not expire.
The Consolidated Financial Statements reflected the following deferred
tax assets and liabilities (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1993 1993
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory and bad debt reserves............ $ 13.3 $ 12.0
Accrued employee benefit obligations....... 30.4 31.3
Net operating loss and AMT credit
carryforwards........................... 12.2 13.4
Divestiture reserves....................... 8.1 9.0
Restructuring reserves..................... 5.8 3.0
Legal and environmental reserves........... 17.5 6.8
Other...................................... 29.3 25.1
------- -------
116.6 100.6
Valuation allowance........................ (21.3) (1.3)
------- -------
$ 95.3 $ 99.3
------- -------
------- -------
Deferred tax liabilities:
Property, plant and equipment basis
difference.............................. $ 34.6 $42.8
Investment in equity investees............. 12.9 17.4
Other...................................... 11.0 11.4
------- -------
$ 58.5 $71.6
------- -------
------- -------
</TABLE>
35
<PAGE> 36
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
DECEMBER 31, 1993
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 were as follows (in millions):
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ -------------
(RESTATED)
<S> <C> <C>
Income (loss) from continuing operations
before income taxes:
U.S...................................... $(47.4) $(1.8)
Non-U.S.................................. 1.0 .1
------------ -------------
Total.................................. $(46.4) $(1.7)
------------ -------------
------------ -------------
Provision (benefit) for income taxes:
Current:
U.S. federal............................. $ 9.0 $(3.3)
U.S. state............................... 4.1 .8
Non-U.S.................................. 2.2 (0.7)
------------ -------------
15.3 (3.2)
------------ -------------
Deferred:
U.S. federal............................. (9.0) 1.2
U.S. state............................... (2.2) .2
Non-U.S.................................. (0.7) .9
------------ -------------
(11.9) 2.3
------------ -------------
Total................................. $ 3.4 $(0.9)
------------ -------------
------------ -------------
</TABLE>
Reconciliation of income taxes computed at the U.S. federal statutory
rate to the consolidated provision (benefit) for income taxes from
continuing operations (in millions):
<TABLE>
<CAPTION>
FIVE
MONTHS
ENDED
YEAR ENDED DECEMBER
DECEMBER 31, 31,
1993 1992
----------- -----------
(RESTATED)
<S> <C> <C>
U.S. federal statutory rate........................ 35.0% 34.0%
Income taxes at U.S. federal
statutory rate................................... $(16.2) $(0.6)
U.S. state income taxes, net of U.S.
federal tax benefit.............................. 1.5 0.5
Non-U.S. taxes provided at greater
than U.S. federal statutory rate................. 1.0 0.2
Nondeductible book depreciation and
amortization..................................... 3.8 2.3
Effects of net-of-tax accounting................... --- (1.3)
Write-down of goodwill............................. 8.8 ---
Tax exempt return on investments
accounted for by the equity method............... (1.2) ---
Impact of dividends received deduction
and unremitted earnings on investments
accounted for by the equity method............... --- (1.6)
Valuation allowance................................ 4.2 ---
Other.............................................. 1.5 (0.4)
----------- -----------
Provision (benefit) for income taxes............. $ 3.4 $(0.9)
----------- -----------
----------- -----------
</TABLE>
36
<PAGE> 37
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
(12) RESTRUCTURING AND OTHER CHARGES
During 1993, the Company recorded restructuring and other charges of
$100.4 million related principally to the closure of Hill
Refrigeration's ("Hill") Canadian manufacturing facility, the write
down of certain assets of Hill, the closure of Caron International,
Inc.'s ("Caron") London, Kentucky manufacturing facility, the
downsizing of certain of The Pfaudler Companies, Inc's. ("Pfaudler")
foreign operations, costs associated with the relocation of one of
Industrial Electrical Product's ("IEP") manufacturing facilities and a
provision for litigation matters (as further described in Note 18).
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, NJ 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 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 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 of
$2.0 million were accrued in the third quarter of 1993. This
severance program was 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 of charges in the fourth quarter of 1993.
37
<PAGE> 38
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
<TABLE>
<CAPTION>
Components of these charges are as follows (in millions):
CASH NON-CASH
CHARGES CHARGES TOTAL
-------- -------- -------
<S> <C> <C> <C>
Restructuring:
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 writedown............. --- 19.4 19.4
Goodwill write-down................................. --- 25.8 25.8
Other costs......................................... 7.0 --- 7.0
Caron, Kentucky
Property, plant and equipment writedown............. --- 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
Other:
Provision for litigation costs (see Note 18)................ 28.3 --- 28.3
Other....................................................... 0.3 --- 0.3
-------- -------- -------
$ 47.6 $ 52.8 $ 100.4
-------- -------- -------
-------- -------- -------
</TABLE>
(13) 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 approximated fair
value because of the short maturity of those instruments. Long-term
investments were stated at the lower of cost or market.
Subordinated Debt
The fair value of the Company's subordinated notes was based on the
respective 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 Debt
The carrying amount approximated fair value as the rates are tied to
the prime rate and LIBOR which fluctuate based on current market
conditions. The carrying amount approximated fair value as rates
approximate borrowing rates currently available to the Company for
similar loans.
Other Debt
The carrying amount approximated fair value as rates approximated
borrowing rates currently available to the Company for similar loans.
38
<PAGE> 39
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
Redeemable Preferred Stock
The fair value of the Company's redeemable preferred stock was based
on the redemption price plus accrued dividends.
The estimated fair values of the Company's financial instruments were
as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- --------- --------
(RESTATED)
<S> <C> <C> <C> <C>
Cash, cash equivalents and long-term
investments.............................................. $ 89.7 $ 89.7 $ 48.0 $ 48.0
Subordinated Debt........................................... $ 421.6 $ 438.5 $ 397.9 $ 415.0
Senior Debt................................................. $ 224.2 $ 224.2 $ 293.5 $ 293.5
Other Debt.................................................. $ 18.1 $ 18.1 $ 24.2 $ 24.2
Redeemable Preferred Stock.................................. $ 43.6 $ 43.6 $ 40.8 $ 40.8
</TABLE>
(14) COMMON STOCK AND PREFERRED STOCK
At December 31, 1993, the Company had authorized 40.0 million shares
of $0.01 par value common stock and 5.0 million shares of $0.01 par
value preferred stock. No preferred stock was outstanding. As of
December 31, 1993, 900,479 shares of common stock were held in
treasury. The following table highlights the significant changes in
the Company's outstanding common stock.
Changes in common stock outstanding were as follows (in thousands):
<TABLE>
<CAPTION>
FIVE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
<S> <C> <C>
Common stock, beginning 11,052.3 11,077.3
Exercise of stock options................ 106.3 ---
Purchase of treasury stock............... --- (25.0)
------------ ------------
Common stock, ending..................... 11,158.6 11,052.3
------------ ------------
------------ ------------
</TABLE>
(15) REDEEMABLE PREFERRED STOCK
The Company's Redeemable Preferred Stock (the "Preferred Stock"),
owned by GAI Partners, is redeemable, 7% dividend per annum,
cumulative, nonparticipating and nonvoting. The stated value of the
Preferred Stock is $1,000 per share and dividends may be paid in like
Preferred Stock or cash. Dividends for the period from issuance
through December 1993 have been paid in Preferred Stock. At December
31, 1993, the total outstanding Preferred Stock, including accrued
dividends, amounted to $43.6 million. The Preferred Stock is
redeemable at the option of the issuer or GAI Partners after December
1998, at a redemption price of $1,000 per share, plus a redemption
premium of varying amounts not to exceed 13%. The Preferred Stock is
held as collateral for the $32.5 million Hedstrom Note #1 (see Note
6).
(16) STOCK OPTIONS
The Company's Amended and Restated 1991 Stock Option Plan (the "Stock
Option Plan") provides for the issuance of incentive stock options,
nonqualified stock options or stock appreciation rights for certain
key
39
<PAGE> 40
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
employees, officers, directors and consultants of the Company.
Options have been granted for five-year terms at their fair market
value at the date of the grant. Shares which remain available for
future grants totaled 1,556,000 at December 31, 1993.
<TABLE>
<CAPTION>
SHARES SUBJECT AVERAGE OPTION
TO OPTION PRICE PER SHARE
------------- ---------------
<S> <C> <C>
Balance at July 31, 1992 250,500 $ 26.50
Options granted 142,000 $ 26.25
-------------
Balance at December 31, 1992 392,500 $ 26.41
Options granted 74,000 $ 33.32
Options exercised (106,327) $ 26.47
Options cancelled (22,500) $ 26.39
-------------
Balance at December 31, 1993 337,673 $ 27.90
-------------
-------------
</TABLE>
(17) RELATED PARTY TRANSACTIONS
Equity Holdings Limited Partnership, an Illinois limited partnership
("EHL"), an entity affiliated with Mr. Zell, Chairman of the Board,
along with certain other officers and directors of the Company, owned
approximately 73.1% of the Company's outstanding common stock at
December 31, 1993, as a result of purchases and sales made from 1980
through 1993.
Pursuant to a Stock Purchase agreement (the "Agreement") among Hellman
& Friedman Capital Partners (a California limited partnership),
Hellman & Friedman Capital Partners International (BVI) (together, the
"Hellman & Friedman Group"), EHL, and the Company, the parties will
use their best efforts in electing two directors from the Hellman &
Friedman Group for every twelve. The Agreement also requires consent
of the Hellman & Friedman Group for certain types of significant
transactions of the Company.
Individuals and companies affiliated with Mr. Zell perform or provide
services to the Company and its subsidiaries relating to acquisition
and divestiture consulting, corporate planning, legal and tax advice,
property management, as well as providing certain computer equipment,
operations and maintenance services, and lease office space to the
Company and certain of its subsidiaries. Related party agreements or
fee arrangements are approved by independent members of the Board of
Directors and are generally for a term of one year. Fees paid
relating to the above described services were $3.5 million for the
year ended December 31, 1993 as compared to $2.1 million for the five
months ended December 31, 1992.
Other related party transactions are disclosed in Notes 5, 6, 15 and
16.
(18) 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 $14.2 million in the year ended December 31,
1993 and $6.2 million in the five months ended December 31, 1992.
Future minimum lease payments required as of December 31, 1993 (in
millions):
<TABLE>
<S> <C>
1994........................... $ 6.7
1995........................... 5.8
1996........................... 4.7
1997........................... 4.4
1998 and thereafter............ 5.8
------
$ 27.4
------
------
</TABLE>
40
<PAGE> 41
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
Litigation:
In November 1991, Madison Management Group, Inc. ("Madison"), a
non-consolidated affiliate, the stock of which is owned by GAFG, filed
a petition with the United States Bankruptcy Court for the Northern
District of Illinois (the "Bankruptcy Court") under Chapter 11 of the
United States Bankruptcy Code ("Bankruptcy Code"). In July 1992, the
Chapter 11 case of Madison was converted to a case under Chapter 7 of
the Bankruptcy Code. A Chapter 7 trustee (the "Trustee") was
appointed for Madison. Total proofs of claims filed by creditors
through the bar date with the Bankruptcy Court amounted to
approximately $943.0 million. After the elimination of what the
Company believes to be duplicate filings of proofs of claims, the
total of outstanding claims amounted to approximately $485.0 million.
The automatic stay of the Bankruptcy Code prohibits the creditors of
Madison from pursuing their claims outside of Madison bankruptcy case.
The Company disputes all except approximately $7.0 million of such
claims.
The Company believes that approximately $454.0 million of these claims
(the "Pipe Claims") are successor liability claims, all of which are
unadjudicated, for breach of contract, tort and breach of warranty
asserted by former customers of a division whose business was sold in
1981 by a predecessor company to Madison. The Company and its counsel
believe that there are meritorious defenses both as to substance and
procedure and as to the amount of damages claimed by the holders of
the Pipe Claims.
In addition to the Pipe Claims, various of the claims that have been
filed against Madison in the bankruptcy proceeding (and included in
the $485.0 million estimate above) allege environmental (including
Super Fund) liabilities and certain obligations for health and
welfare, as well as pension benefits to former employees of
predecessor companies. With respect to the pension benefit
obligations, GAMI has entered into an agreement with the Trustee
whereby GAMI will assume the obligation of the two pension plans (the
"Pension Plans") that Madison was previously sponsoring. The most
recent actuarial valuation completed on the Pension Plans (as of
January 1, 1993), disclosed that the present value of the future
obligations of one plan exceeded the fair market value of its assets
by $2.1 million and that the fair market value of the assets of the
other plan exceeded the present value of its future obligations by
$1.2 million. Since these plans only cover retirees, the only factors
that may impact the ultimate liabilities under the Pension Plans are
the performance of plan assets and changes in actuarial assumptions.
On December 31, 1992, a complaint (the "Complaint") was filed by the
Trustee with the Bankruptcy Court. The Complaint, which was filed
against the Company, GAFG and certain present and former officers and
directors of the Company and Madison, seeks monetary and equitable
relief from the named defendants. The Trustee alleged in the
Complaint that: (i) in connection with the initial acquisition by a
subsidiary of the Company of the predecessor business of Madison (the
"Predecessor Business"), the issuance of approximately $113.0 million
in notes by the Predecessor Business to the Company was a fraudulent
conveyance; (ii) two dividends totaling approximately $8.3 million
made by the Predecessor Business and Madison were fraudulent
conveyances and improper dividends under state law; (iii) the sale by
Madison to GAFG of 67.5% of Eagle's outstanding common stock owned by
Madison for cash consideration of $28.7 million was a fraudulent
conveyance; (iv) the approval of such sale of Eagle stock by Madison
to GAFG by former directors of Madison constituted a breach of their
fiduciary duty and duty of loyalty to Madison; (v) the payment by
Madison to GAFG of $45.2 million to cause GAFG to assume $40.5 million
of subordinated notes of Madison was a fraudulent conveyance; and (vi)
Madison was a mere instrumentality and alter ego of the Company.
Pursuant to the Company's bylaws, officers and directors are
indemnified for actions brought against them relating to the
performance of their duties for the Company and its subsidiaries. The
Company believes that it, GAFG and the officers and directors of the
Company and Madison named as defendants have substantial meritorious
defenses against the actions brought by the Trustee. More
specifically, the Company and GAFG, after reviewing applicable legal
standards with its counsel and after reviewing pertinent facts,
believe that in connection with the transaction outlined in (i), (iii)
and (v), facts exist to support the conclusion that fair consideration
was paid; the transaction outlined in (ii) and (iv) were permitted
under applicable laws; and with respect to (vi), facts exist to
support the corporate separateness of Madison, GAFG and GAMI. The
41
<PAGE> 42
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
Company believes that the ultimate resolution of the Complaint could
take an extended period of time and could involve significantly
greater expense (including legal fees and related expenses) than the
Company's previous estimates. During calendar 1993 and 1992, the
Company expended $1.8 million and $1.6 million, respectively in
pension payments, legal fees and other costs relating to the
Complaint. In addition, the Company believes that based upon the
continued decline in interest rates, its potential net obligation
(excess of net present value of future obligations to the pensioners
of both plans minus the fair market value of Pension Plans' assets)
may have increased.
The Company intends to vigorously defend itself in connection with the
Complaint. However, it would consider reasonable alternatives to
protracted litigation. During calendar 1993, the Company conducted
substantive settlement negotiations with the Trustee and certain
creditors of Madison. As a result of these factors, the Company
believed that the amount of previously established reserves was not
sufficient to cover the costs required to resolve the Complaint,
including obligations relating to the Pension Plans. Accordingly,
during calendar 1993, the Company increased its reserves relating to
the Complaint by $28.3 million. After giving effect to the increase
in its reserves, GAMI does not expect that the outcome of this
litigation will have a material adverse effect on the Company's
financial condition or results of operations. The Company believes
that it has adequate resources to satisfy the reasonably likely
outcome of the Complaint.
The Company and its subsidiaries have, from time to time, become a
party to other claims and lawsuits in the ordinary course of business.
Except for the matter discussed in the preceding paragraphs, there are
no other material lawsuits against the Company and its subsidiaries
and, to the Company's knowledge, there are no material threatened
lawsuits against the Company and its subsidiaries.
Environmental Matters
The Company and its subsidiaries 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 the Company's expenditures for environmental matters;
however, the Company anticipates that future environmental
requirements will become more stringent, which may result in increased
expenditures. It is the Company's policy to take all reasonable
measures to control and eliminate pollution resulting from its
operations. The Company 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.
The Company 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 the Company's
financial position, results of operations or competitive position.
The Company believes that it has adequate reserves. The amounts spent
on environmental expenditures were not material to the results of
operations and financial position in the year ended December 31, 1993
and the five months ended December 31, 1992. 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 the Company conducts its
business.
42
<PAGE> 43
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
(19) 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, the
Company 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 3.
(20) BUSINESS SEGMENT DATA
Business segment information for the year ended December 31,
1993 and the five months ended December 31, 1992 is summarized as
follows (in millions):
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
(RESTATED)
<S> <C> <C>
Net sales:
Building Products Group . . . . . . . . . . . . $ 372.3 $ 150.1
Electrical Products Group . . . . . . . . . . . 176.8 66.2
Industrial Products Group . . . . . . . . . . . 241.4 100.5
Automotive Products Group . . . . . . . . . . . 164.2 58.9
Specialty Products Group . . . . . . . . . . . . 205.9 90.4
Financial Services Group . . . . . . . . . . . . 14.4 6.5
------------- ---------
Total . . . . . . . . . . . . . . . . . . . . $ 1,175.0 $ 472.6
------------- ---------
------------- ---------
Operating (loss) income:
Building Products Group . . . . . . . . . . . . $ 47.5 $ 18.6
Electrical Products Group . . . . . . . . . . . 14.9 4.4
Industrial Products Group . . . . . . . . . . . (2.9) 0.5
Automotive Products Group . . . . . . . . . . . 6.2 0.5
Specialty Products Group . . . . . . . . . . . . (63.9) 3.4
Financial Services Group . . . . . . . . . . . . (7.6) 1.7
Corporate . . . . . . . . . . . . . . . . . . . (13.6) (7.5)
Other charges . . . . . . . . . . . . . . . . . (28.6) (0.4)
------------- ---------
Total . . . . . . . . . . . . . . . . . . . . $ (48.0) $ 21.2
------------- ---------
------------- ---------
</TABLE>
43
<PAGE> 44
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
<TABLE>
<CAPTION>
FIVE
YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ -------------
(RESTATED)
<S> <C> <C>
Depreciation and amortization:
Building Products Group . . . . . . . . . . . $ 12.1 $ 5.0
Electrical Products Group . . . . . . . . . . 13.3 5.1
Industrial Products Group . . . . . . . . . . 9.4 4.1
Automotive Products Group . . . . . . . . . . 3.6 1.3
Specialty Products Group . . . . . . . . . . 6.7 2.6
Financial Services Group . . . . . . . . . . 0.6 0.6
Corporate . . . . . . . . . . . . . . . . . . 6.2 2.9
------------ -------------
Total . . . . . . . . . . . . . . . . . . $ 51.9 $ 21.6
------------ -------------
------------ -------------
Capital expenditures:
Building Products Group . . . . . . . . . . . $ 10.1 $ 2.5
Electrical Products Group . . . . . . . . . . 8.1 6.3
Industrial Products Group . . . . . . . . . . 4.0 1.8
Automotive Products Group . . . . . . . . . . 2.4 2.4
Specialty Products Group . . . . . . . . . . 3.3 0.5
Financial Services Group . . . . . . . . . . 0.3 ---
Corporate . . . . . . . . . . . . . . . . . . 0.7 0.2
------------ -------------
Total . . . . . . . . . . . . . . . . . . $ 28.9 $ 13.7
------------ -------------
------------ -------------
Identifiable assets:
Building Products Group . . . . . . . . . . . $ 203.7 $ 208.6
Electrical Products Group . . . . . . . . . . 288.2 287.6
Industrial Products Group . . . . . . . . . . 233.2 260.2
Automotive Products Group . . . . . . . . . . 109.8 100.5
Specialty Products Group . . . . . . . . . . 145.0 176.5
Financial Services Group . . . . . . . . . . 75.6 104.4
Net assets of discontinued operations . . . . 38.9 86.9
------------ -------------
Total identifiable assets . . . . . . . . . 1,094.4 1,224.7
Corporate . . . . . . . . . . . . . . . . . . 232.1 185.1
------------ -------------
Total assets . . . . . . . . . . . . . . . $ 1,326.5 $ 1,409.8
------------ -------------
------------ -------------
</TABLE>
Corporate depreciation and amortization is principally amortization of
debt issuance costs. Corporate assets are principally cash and cash
equivalents and debt issuance costs.
The following tables show certain financial information relating to
the Company's operations in various geographic areas (in millions):
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
------------ ------------
(RESTATED)
<S> <C> <C>
Sales to unaffiliated customers from:
United States and Canada. . . . . . . $1,105.8 $436.4
Europe. . . . . . . . . . . . . . . . 62.1 29.6
Central and South America . . . . . . 7.1 6.6
------------ ------------
Total. . . . . . . . . . . . . . . $1,175.0 $472.6
------------ ------------
------------ ------------
</TABLE>
44
<PAGE> 45
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
DECEMBER 31, 1993
Export sales from the United States to other geographic areas were
$17.4 million in the year ended December 31, 1993 and $8.0 million for
the five months ended December 31, 1992.
<TABLE>
<CAPTION>
FIVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1993 1992
---------- ----------
(RESTATED)
<S> <C> <C>
Operating (loss) income: (IN MILLIONS)
United States and Canada......................... $ (6.6) $ 29.4
Europe........................................... 1.0 (0.3)
Central and South America........................ (0.2) ---
Corporate........................................ (13.6) (7.5)
Other charges.................................... (28.6) (0.4)
--------- --------
Operating income.............................. $ (48.0) $ 21.2
--------- --------
--------- --------
Identifiable assets:
United States and Canada......................... $ 983.5 $1,062.0
Europe........................................... 62.6 65.0
Central and South America........................ 9.4 10.8
Net assets of discontinued operations............ 38.9 86.9
--------- --------
Total identifiable assets..................... 1,094.4 1,224.7
Corporate........................................ 232.1 185.1
--------- --------
Total assets.................................. $1,326.5 $1,409.8
--------- --------
--------- --------
</TABLE>
(21) SUBSEQUENT EVENTS - REFINANCING
On January 31, 1994, Eagle completed the Refinancing of substantially
all of its outstanding debt except for the Notes. Through a newly
formed subsidiary, Eagle Industrial, Eagle entered into the Eagle
Credit Facility with a group of banks. Eagle also entered into an
asset securitization program (the "Securitization") whereby it sold
certain of its accounts receivable for approximately $110.0 million.
In addition, GAMI contributed $50.0 million to Eagle in the form of a
capital contribution. Total proceeds were $485.0 million.
The proceeds were used to retire the Senior Bank Credit Facilities.
In addition, proceeds were used to retire the 13.75% Notes and the
13.0% Notes, both of which were called for redemption in January 1994.
The call price for the 13.75% Notes and 13.0% Notes was $1,055 and
$1,040 per $1,000 principal amount, respectively. Eagle will record
an extraordinary pretax charge of approximately $26.0 million in the
first quarter of 1994 in connection with the Refinancing.
In connection with the Securitization, Eagle entered into a
receivables sale agreement whereby Eagle 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 $145.0 million and is subject to change based on the
level of eligible receivables and restrictions on concentrations of
receivables.
45
<PAGE> 46
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
QUARTERLY STOCK INFORMATION
The following table sets forth for the period indicated the high and low bid
prices for the Company's common stock ("Common Stock") in the national
over-the-counter securities market as reported by the National Association of
Securities Dealers, Inc. Automated Quotations Systems under the trading symbol
GAMI. The over-the-counter quotations represent inter-dealer quotations
without adjustment for retail markup, markdown or commissions, and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
BID PRICES
------------------------------------------
High Low Dividends
------------------------------------------
<S> <C> <C> <C>
Fourth Quarter Ended December 31, 1993 $32.50 $30.00 ---
Third Quarter Ended September 30, 1993 33.50 27.75 ---
Second Quarter Ended June 30, 1993 27.75 26.00 ---
First Quarter Ended March 31, 1993 26.50 25.50 ---
Five Months Ended December 31, 1992 27.00 24.50 ---
</TABLE>
The number of holders of Common Stock of record at December 1993 was
approximately 970.
The Company's loan agreements (see Note 9 to Consolidated Financial
Statements), restrict the payment of any dividends until such loans are fully
paid.
46
<PAGE> 47
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
CORPORATE INFORMATION
BOARD OF DIRECTORS
SAMUEL ZELL
Chairman of the Board
Great American Management and Investment, Inc.
and Equity Group Investments, Inc.
Chicago, Illinois
ROD F. DAMMEYER
President and Chief Executive Officer
Great American Management and Investment, Inc.
and Itel Corporation
Chicago, Illinois
BRADBURY DYER, III
Partner
Paragon Associates
Dallas, Texas
DAVID A. GARDNER
President
Gardner Capital Corporation
New York, New York
WILLIAM K. HALL
President and Chief Executive Officer
Eagle Industries, Inc.
Chicago, Illinois
F. PHILIP HANDY
President
Winter Park Capital Company
Winter Park, Florida
F. WARREN HELLMAN
General Partner
Hellman & Friedman
San Francisco, California
JOHN M. PASQUESI
General Partner
Hellman & Friedman
San Francisco, California
SHELI Z. ROSENBERG
President
Rosenberg & Liebentritt, P.C.
Chicago, Illinois
JOSEPH P. SULLIVAN
Chairman of the Board
The Vigoro Corporation
Chicago, Illinois
47
<PAGE> 48
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
CORPORATE INFORMATION
OFFICERS
SAMUEL ZELL
Chairman of the Board
ROD F. DAMMEYER
President and Chief Executive Officer
ARTHUR A. GREENBERG
Executive Vice President and Chief Financial Officer
NORMAN M. FIELD
Vice President and Treasurer
THOMAS P. HENEGHAN
Vice President and Controller
SHELI Z. ROSENBERG
Vice President, General Counsel and Assistant Secretary
GERALD A. SPECTOR
Vice President - Administration
RICHARD F. TROTTER
Vice President - Internal Audit
JOHN M. ZOELLER
Vice President - Taxes
SUSAN OBUCHOWSKI
Secretary
48
<PAGE> 49
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
CORPORATE INFORMATION
CORPORATE DATA
TRANSFER AGENT
Chemical Trust Company of California
San Francisco, California
Common Stock Shares Listed
Over-the-Counter Market
Through NASDAQ
TRADING SYMBOL - GAMI
INDEPENDENT AUDITORS
Arthur Andersen & Co.
Chicago, Illinois
10-K Availability
Any inquiries from individuals and institutional investors should be directed
to:
Susan Obuchowski
Great American Management and Investment, Inc.
Investor Relations Department
Two North Riverside Plaza
Chicago, Illinois 60606
312/466-4010
49
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
By: /s/Norman M. Field
-------------------------------------
Norman M. Field
Vice President and Treasurer
Dated:May 16, 1994
50
