<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
Commission file number: 0-5256
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 58-1351398
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two North Riverside Plaza
Chicago, Illinois 60606
(Address of Principal Executive Office)
(312) 648-5656
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
11,175,919 shares of Common Stock outstanding as of May 1, 1994
<PAGE> 2
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1994
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I. Financial Information: PAGE NO.
--------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . 10
PART II. Other Information:
Item 6. Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 3
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------------- -------------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 34.0 $ 89.7
Trade receivables, net . . . . . . . . . . . . . . 28.1 170.2
Inventories, net . . . . . . . . . . . . . . . . . 199.5 193.1
Other current assets . . . . . . . . . . . . . . . 89.4 42.7
Net current assets of discontinued operations . . 25.6 38.9
------------ ------------
Total current assets . . . . . . . . . . . . . 376.6 534.6
Investments accounted for by the equity method. . . . . 60.3 59.7
Loans receivable and real estate, net . . . . . . . . . 79.5 79.4
Property, plant and equipment, net. . . . . . . . . . . 219.0 222.1
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . 335.0 337.5
Other long-term assets. . . . . . . . . . . . . . . . . 91.2 93.2
------------ ------------
Total assets . . . . . . . . . . . . . . . . . $ 1,161.6 $ 1,326.5
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion long-term debt . . . . . . . . . . $ 25.0 $ 19.1
Accounts payable . . . . . . . . . . . . . . . . . 83.4 75.7
Accrued liabilities . . . . . . . . . . . . . . . 131.8 146.2
------------ ------------
Total current liabilities . . . . . . . . . . 240.2 241.0
Long-term debt. . . . . . . . . . . . . . . . . . . . . 499.5 644.8
Accrued employee benefit obligations. . . . . . . . . . 98.3 96.7
Other long-term liabilities . . . . . . . . . . . . . . 92.3 93.1
------------ ------------
Total liabilities . . . . . . . . . . . . . . 930.3 1,075.6
------------ ------------
Commitments (Note 5)
Redeemable preferred stock of subsidiary. . . . . . . . 44.4 43.6
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock (5,000,000 shares authorized, none
issued) . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, (40,000,000 shares authorized,
12,059,000 issued) . . . . . . . . . . . . . . . . 0.1 0.1
Additional paid-in capital. . . . . . . . . . . . . . . 195.0 194.8
Retained earnings . . . . . . . . . . . . . . . . . . . 13.9 35.5
Pension liability adjustment, net . . . . . . . . . . . (4.6) (4.6)
Cumulative translation adjustments. . . . . . . . . . . (4.1) (5.0)
Common stock in treasury, at cost . . . . . . . . . . . (13.4) (13.5)
------------ ------------
Total stockholders' equity . . . . . . . . . . 186.9 207.3
------------ ------------
Total liabilities and stockholders' equity . . $ 1,161.6 $ 1,326.5
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
------------------------------
1994 1993
----------- -----------
(RESTATED)
<S> <C> <C>
Net sales and revenues . . . . . . . . . . . . . . . . . $ 301.3 $ 263.4
---------- ---------
Operating expenses:
Cost of goods and services sold . . . . . . . . . . 237.1 206.5
Selling and administrative . . . . . . . . . . . . . 45.8 47.6
Goodwill amortization . . . . . . . . . . . . . . . 2.5 2.7
---------- ---------
Total operating expenses . . . . . . . . . . . . . . . . 285.4 256.8
---------- ---------
Operating income . . . . . . . . . . . . . . . . . . . . 15.9 6.6
Earnings accounted for by the equity method . . . . . . . 1.7 2.0
Net interest expense . . . . . . . . . . . . . . . . . . (11.8) (18.0)
---------- ---------
Income (loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . 5.8 (9.4)
Income tax expense from continuing operations . . . . . . 1.1 1.2
---------- ---------
Income (loss) from continuing operations . . . . . . . . 4.7 (10.6)
(Loss) from discontinued operations, net of income tax
benefit of $0.7 in 1993 . . . . . . . . . . . . . . -- (1.4)
---------- ---------
Income (loss) before extraordinary item . . . . . . . . . 4.7 (12.0)
Extraordinary (loss) from early retirement of debt, net of
income tax benefit of $0.5 in 1994 . . . . . . . . . (25.5) --
---------- ---------
(Loss) before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . (20.8) (12.0)
Cumulative effect of change in accounting principle . . . -- 8.6
---------- ---------
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . (20.8) (3.4)
Dividends on subsidiary preferred stock . . . . . . . . . (0.8) (0.7)
---------- ---------
Net (loss) to common stockholders . . . . . . . . . . . . $ (21.6) $ (4.1)
---------- ---------
---------- ---------
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . 11.2 11.1
---------- ---------
---------- ---------
(Loss) income per common share:
Continuing operations . . . . . . . . . . . . . . . $ 0.35 $ (1.02)
Discontinued operations . . . . . . . . . . . . . . -- (0.13)
Extraordinary item . . . . . . . . . . . . . . . . . (2.28) --
Cumulative effect of change in accounting principle . -- 0.78
---------- ---------
Net (loss) . . . . . . . . . . . . . . . . . . . . . $ (1.93) $ (0.37)
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
-----------------------------
1994 1993
---------- ----------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations . . . . . . . . . . . . $ 4.7 $ (10.6)
Adjustments to reconcile income (loss) from continuing operations to
net cash flow from operations:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 7.9 8.2
Amortization . . . . . . . . . . . . . . . . . . . . . . 3.8 4.9
Undistributed earnings of investments accounted for
under the equity method . . . . . . . . . . . . (0.6) (0.4)
Valuation adjustments . . . . . . . . . . . . . . . . . -- 8.1
Accretion of discount on senior subordinated notes . . . 5.2 --
Proceeds from sale of accounts receivable . . . . . . . 110.3 --
Cash effects of changes in other working capital
balances, accrued employee benefit obligations, and
other long-term liabilities (excluding the effects
of dispositions of businesses) . . . . . . . . . . . . (28.0) 1.5
--------- ---------
Net cash flow from continuing operating activities . 103.3 11.7
Net cash flow from (used by) discontinued operations 2.9 (8.9)
--------- ---------
Net cash flow from operations . . . . . . . . . . . 106.2 2.8
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenses from sale of securities . . . . . . . . . . . . . . . . (0.7) --
Proceeds from sale of businesses . . . . . . . . . . . . . . . . -- 23.1
Loan principal repayments and proceeds from sale of real estate . 1.2 2.3
Loan disbursements . . . . . . . . . . . . . . . . . . . . . . . (0.5) --
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (6.3) (5.4)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) 0.7
--------- ---------
Net cash flow (used by) from investing activities . (6.5) 20.7
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . 325.0 --
Reduction of debt . . . . . . . . . . . . . . . . . . . . . . . . (480.7) (38.1)
Exercise of options . . . . . . . . . . . . . . . . . . . . . . . 0.3 --
--------- ---------
Net cash flow (used by) financing activities . . . . (155.4) (38.1)
--------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . (55.7) (14.6)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . 89.7 48.0
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . $ 34.0 $ 33.4
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(AMOUNTS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION:
QUARTER ENDED
MARCH 31,
1994 1993
-------- ------
<S> <C> <C>
CASH PAID DURING THE PERIOD FOR (RELATING TO CONTINUING AND
DISCONTINUED OPERATIONS):
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14.7 $ 11.5
------- --------
------- --------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.0 $ 0.8
------- --------
------- --------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
<PAGE> 7
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The accompanying unaudited Condensed Consolidated Financial Statements
of Great American Management and Investment, Inc. (the "Company" or
"GAMI") have been prepared pursuant to the Securities and Exchange
Commission ("SEC") rules and regulations and should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto included in the Company's Annual Report for the year ended
December 31, 1993. The following notes to the Condensed Consolidated
Financial Statements highlight significant changes to the notes
included in the Annual Report and such interim disclosures as required
by the SEC. The accompanying Condensed Consolidated Financial
Statements reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the interim financial statements.
All such adjustments are of a normal and recurring nature, except for
the effect of the item described in Note 3. Operating results for the
interim periods presented are not necessarily indicative of results
that may be expected for the full year.
Certain amounts in the 1993 Condensed Consolidated Financial
Statements have been reclassified to conform with the classifications
presented in the 1994 Condensed Consolidated Financial Statements.
(2) INVENTORIES
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Raw materials and supplies .................. $ 58.3 $ 58.9
Work in process ............................. 60.6 56.9
Finished goods .............................. 80.6 77.3
----------- ----------
$ 199.5 $ 193.1
----------- ----------
----------- ----------
<CAPTION>
(3) LONG-TERM DEBT
Components of long-term debt were as follows (in millions):
MARCH 31, DECEMBER 31,
1994 1993
------------- ---------------
<S> <C> <C>
Senior Debt:
GAMI ...................................... $ 0.2 $ 0.2
Eagle ..................................... 306.0 224.0
------------- --------------
306.2 224.2
------------- --------------
Subordinated Debt:
GAMI ...................................... -- --
Eagle ..................................... 203.1 421.6
------------- --------------
203.1 421.6
------------- --------------
Other:
GAMI ...................................... 4.3 4.3
Eagle ..................................... 10.9 13.8
------------- --------------
15.2 18.1
------------- --------------
Total debt .................................. 524.5 663.9
Less current portion ........................ (25.0) (19.1)
------------- --------------
Total long-term debt ........................ $ 499.5 $ 644.8
------------- --------------
------------- --------------
</TABLE>
Refer to the Company's Annual Report for the year ended December 31,
1993 for a more detailed description of all the Company's short-term
and long-term debt.
7
<PAGE> 8
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
During the first quarter of 1994, Eagle Industries, Inc. ("Eagle")
consummated a refinancing, involving the repayment and redemption of
all of its then existing senior bank credit facilities (the "Senior
Facilities"), its 13% Senior Subordinated Notes due October 1998 (the
"13% Notes") and its 13.75% Senior Subordinated Notes due March 1998
(the "13.75% Notes") (collectively, the "Refinancing"). In January
1994, the Senior Facilities were fully repaid and the agreements
terminated. The 13% Notes were redeemed on February 27, 1994 at 104%
of their principal amount plus accrued interest. The 13.75% Notes
were redeemed on March 15, 1994 at 105.5% of their principal amount
plus accrued interest. The Company recorded an extraordinary charge
of $25.5 million, which is net of income tax benefits of $0.5 million,
in the first quarter of 1994 in connection with the Refinancing.
A portion of the proceeds to consummate the Refinancing were derived
from a new $425.0 million senior bank credit facility (the "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. The Credit
Facility consists of: (1) a $225.0 million term loan due in quarterly
installments, commencing with the quarter ending June 30, 1994,
increasing from $6.5 million per quarter during 1994 to $15.0 million
per quarter in 1999; (2) a $65.0 million term loan due in equal
quarterly installments aggregrating $0.5 million per year in 1994 and
1995, $1.0 million per year in 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 Credit Facility bear interest at alternative
floating rate structures, at management's option (5.3% at March 31,
1994), and are secured by substantially all domestic property, plant,
equipment, inventory and certain receivables of Eagle Industrial and
its subsidiaries. The Credit Facility requires an annual commitment
fee of 0.5% on the average daily unused amount of the revolving
portion of the Credit Facility. At March 31, 1994, $16.0 million and
$290.0 million were outstanding under the revolving credit portion and
term loan portions of the Credit Facility, respectively.
Additionally, the Credit Facility provides for a letter of credit
facility of up to $50.0 million. Borrowing availability under the
revolving portion of the Credit Facility is reduced by the outstanding
amount of letters of credit. At March 31, 1994, an additional $44.5
million was available to borrow under the Credit Facility.
The Credit Facility contains various financial covenants, the more
restrictive requirements of which being the maintenance of minimum
levels of net worth; limitations on incurring additional indebtedness;
restrictions on the payments of dividends or the making of loans to
Eagle; maintenance of certain ratios of cash flow to interest expense
and indebtedness; maintenance of a minimum level of cash flow to fixed
charges; and a prohibition on payments to Eagle for management
services in excess of $3.0 million per year. Eagle has provided a
guarantee as to the repayment of amounts outstanding under the Credit
Facility. Additionally, the Credit Facility requires that the
Company's majority shareholder and affiliates 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 owns 100% of Eagle
Industrial.
Refer to Note 4 for a further discussion of other sources of proceeds
utilized to complete the Refinancing.
The Company and its subsidiaries complied with all covenants of their
respective debt agreements at March 31, 1994.
(4) SECURITIZATION AND CAPITAL CONTRIBUTION
As discussed in Note 3, during the first quarter of 1994, Eagle
consummated the Refinancing. In addition to the establishment of the
Credit Facility, proceeds for the Refinancing were derived from an
asset securitization program (the "Securitization") whereby Eagle sold
certain of its accounts receivable for
8
<PAGE> 9
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)
$110.3 million plus a residual interest in a trust. Eagle also
received a $50.0 million capital contribution (the "Capital
Contribution") from GAMI. Aggregate proceeds from the Credit
Facility, the Securitization and the Capital Contribution amounted to
$485.0 million.
In connection with the Securitization, Eagle entered into a receivable
sale agreement whereby it will sell, with limited recourse, on a
continuous basis, an undivided interest in certain of its account
receivables. Under the agreement, which expires in June 1999, the
maximum amount of proceeds which may be accessed through this
agreement at any one time is $145.0 million and is subject to change
based on the level of eligible receivables and restrictions on
concentrations of receivables. At March 31, 1994, uncollected account
receivables sold under the agreement amounted to $160.0 million.
Total cash proceeds for the quarter ended March 31, 1994 of $265.0
million (including the initial proceeds of $110.3 million) were
reported as a component of cash flows from operating activities. The
loss on the sale of account receivables under this program was $0.7
million in the quarter ended March 31, 1994, and is included in
selling and administrative expenses. The difference between the
amount of receivables sold and proceeds received at March 31, 1994
(the "Residual Interest") was $48.1 million. This Residual Interest
is reflected in other current assets.
(5) COMMITMENTS, CONTINGENCIES AND LITIGATION
Madison Management Group, Inc. ("Madison"), a non-consolidated
subsidiary of GAMI, is currently under the protection of Chapter 7 of
the United States Bankruptcy Code. On December 31, 1992, the court
appointed trustee (the "Trustee") for Madison filed a complaint (the
"Complaint") against the Company, a subsidiary and certain present and
former officers and directors of the Company and Madison. Refer to
GAMI's Annual Report for the year ended December 31, 1993 for
additional information related to Madison and the Complaint.
(6) STOCK OPTIONS
During the quarter ended March 31, 1994, options to acquire 10,999
shares of the Company's common stock were exercised, with total
proceeds of $0.3 million realized.
(7) SUBSEQUENT EVENTS
On May 13, 1994, GAMI's board of directors (the "Board") approved the
filing of a registration statement with the SEC with respect to the
potential sale of less than 50% of the shares of its Building Products
Group in the form of an initial public offering. The completion of
the offering will be subject to, among other things, consent of the
Board, consent of lenders, market conditions, satisfactory valuations
and other factors. There can be no assurance that the initial public
offering will be consummated.
9
<PAGE> 10
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1994
Capitalized terms not defined herein, are defined in the Notes to Condensed
Consolidated Financial Statements.
The following discusses the results of operations and financial condition for
the first three months of 1994 as compared to the first three months of
1993. This section should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
and audited Consolidated Financial Statements included in the Company's
Annual Report for the year ended December 31, 1993.
The Company's continuing operations are comprised of 17 manufacturing and
distribution businesses and a financial services business. These 17
manufacturing and distribution businesses generally are low and medium
technology industrial companies in niche markets. They primarily service the
residential construction, electric utility, chemical and pharmaceutical markets
and the automotive aftermarket. The financial services business manages a
portfolio of real estate investments. 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 & Heating, Ventilation and Air Residential and Commercial
Cooley") Conditioning Accessories Construction
Mansfield Plumbing Products, Inc. Bathroom Fixtures & Plumbing Residential Construction
("Mansfield") Fittings
DeVilbiss Air Power Company Light Duty Air Compressors Home Improvement
("DeVilbiss Air Power")
ELECTRICAL PRODUCTS GROUP
Elastimold Underground Medium and High Electric Utility
Voltage Cable Accessories
Hendrix Wire and Cable ("Hendrix") Power Cables and Cable Electric Utility
Accessories
Industrial Electrical Products Interconnect, Control and Electrical/Electronic
("IEP") Timing Devices; Airport
Lighting Transformers; and
Electrical Connectors
INDUSTRIAL PRODUCTS GROUP
The Pfaudler Companies, Inc. Glass-lined Industrial Chemical/Pharmaceutical
("Pfaudler") Vessels
Chemineer, Inc. Fluid Processing Agitators and Chemical/Pharmaceutical
Mixers
Burns Aerospace Corporation Commercial Aircraft Seating Commercial Aviation
("Burns")
AUTOMOTIVE PRODUCTS GROUP
Mighty Distributing Systems of Auto Parts Distribution Automobile Aftermarket
America, Inc.
The Parts House, Inc. Auto Parts Distribution Automobile Aftermarket
Denman Tire Corporation ("Denman") Specialty Pneumatic Tires Aftermarket Tires
Clevaflex Multi-ply, Flexible Tubing Automotive OEM
SPECIALTY PRODUCTS GROUP
Hill Refrigeration ("Hill") Refrigerated Display Cases Commercial Refrigeration
Caron International, Inc. ("Caron") Knitting Yarns and Craft Kits Crafts and Consumer Yarns
Gerry Sportswear Corporation Rugged Outerwear and Ski Retail Apparel
Apparel
Equality Specialties Decorative Wrappings for Retail Accessories
Packaging Gifts
</TABLE>
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table shows net sales and revenues and operating income by
business group (in millions):
<TABLE>
<CAPTION>
NET SALES AND REVENUES OPERATING INCOME
------------------------------ ------------------------------
QUARTER ENDED MARCH 31, QUARTER ENDED MARCH 31,
------------------------------ ------------------------------
1994 1993 1994 1993
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Building Products Group . . . $ 100.5 $ 75.9 $ 12.5 $ 9.4
Electrical Products Group . . 45.2 38.4 3.4 2.7
Industrial Products Group . . 59.1 64.0 1.5 3.3
Automotive Products Group . . 40.9 35.4 1.6 0.7
Specialty Products Group . . 51.6 45.0 (0.3) 0.2
Financial Services Group . . 4.0 4.7 2.0 (7.7)
Corporate Expenses . . . . . --- --- (4.8) (2.0)
----------- ----------- ---------- -----------
Total . . . . . . . . . $ 301.3 $ 263.4 $ 15.9 $ 6.6
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
NET SALES AND REVENUES
Net sales and revenues of $301.3 million for the first quarter of 1994 were
$37.9 million or 14.4% higher than net sales and revenues for the first quarter
of 1993. This increase was primarily due to increased volume in most of the
Company's businesses partially offset by declines in the Industrial Products
Group.
Net sales of $100.5 million for the Building Products Group were $24.6 million
or 32.3% higher than net sales for the 1993 period. This increase was due to
increased volume as a result of increased market penetration by Hart & Cooley
in its flexible duct product line, increased sales to Sears, Roebuck and Co. by
DeVilbiss Air Power and increased sales of ultra-low-flush toilets by
Mansfield. Improved pricing at Hart & Cooley also contributed to the increase.
Net sales of $45.2 million for the Electrical Products Group were $6.8 million
or 17.7% higher than net sales for the 1993 period. This increase was primarily
due to increased sales volume at IEP whose net sales in the 1993 period were
negatively affected by the relocation of its manufacturing facilities. Also
contributing to this increase was an improvement in volume at Elastimold due to
increased housing starts as well as the acquisition of a product line in 1993.
Hendrix also contributed to the increase with increased volume, and to a lesser
extent, improved pricing.
Net sales of $59.1 million for the Industrial Products Group were $4.9 million
or 7.6% lower than net sales for the 1993 period. This decrease was
primarily due to decreased volume at Pfaudler's U.S. and European operations as
a result of orders in 1993 which were not repeated in 1994, and to a lesser
extent, decreased volume at Burns caused by declines in the airline industry.
Net sales of $40.9 million for the Automotive Products Group were $5.5 million
or 15.4% higher than net sales for the 1993 period. This increase was
primarily due to increased volume at the automotive parts distribution
businesses as a result of increased market penetration as well as lower sales
recorded in 1993 due to inclement weather in March 1993 in the Southeastern
U.S. Denman also contributed to this increase due to price increases
established in January 1994 as well as increased market penetration.
Net sales of $51.6 million for the Specialty Products Group were $6.6 million or
14.7% higher than net sales for the 1993 period. This increase was
primarily due to increased volume at Hill partially offset by decreased volume
at Caron.
Revenues of $4.0 million for the Financial Services Group were $0.7 million or
14.9% lower than revenues for the 1993 period. The decrease was primarily due
to the effect of the sale of one hotel and one apartment complex in 1993,
partially offset by the effect of the foreclosure of one hotel loan
receivable during 1993, and reductions in interest income on the Company's loan
portfolio resulting from principal repayments.
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OPERATING INCOME
Operating income of $15.9 million for the first quarter of 1994 was $9.3 million
or 140.9% higher than in the 1993 period. The increase was due primarily to
valuation adjustments of $8.1 million on the Company's loan portfolio recorded
in 1993. Increases in the Building Products, Electrical Products and Automotive
Products Groups were partially offset by declines in the Industrial Products
Group and increased corporate expenses.
Operating income of $12.5 million for the Building Products Group was $3.1
million or 34.2% higher than in the 1993 period. This increase was due to the
increased volume at all of the Company's businesses within this group. Improved
pricing at Hart & Cooley and the increased sales of higher margin
ultra-low-flush toilets at Mansfield also contributed to the increase in
operating income.
Operating income of $3.4 million for the Electrical Products Group was $0.7
million or 25.9% higher than in the 1993 period. This increase was primarily
due to the increased volume and improved pricing at Hendrix.
Operating income of $1.5 million for the Industrial Products Group was $1.8
million or 52.8% lower than in the 1993 period. This decrease was primarily due
to the decreased volume at Pfaudler.
Operating income of $1.6 million for the Automotive Products Group was $0.9
million or 128.6% higher than in the 1993 period. This increase was primarily
due to increased volume at all of the businesses within this group coupled with
lower manufacturing costs at Denman.
The operating loss for the Specialty Products Group was $0.3 million as compared
to operating income of $0.2 million in the 1993 period. This decrease was
primarily due to lower volume and unfavorable product mix at Caron, partially
offset by increased volume at Hill.
Operating income for the Financial Services Group was $2.2 million as compared
to an operating loss of $7.7 million in the 1993 period. This increase was
primarily due to valuation reserves recorded in 1993 as previously mentioned
and the recognition of $0.5 million of partnership management fees in 1994
previously expected to be uncollectible.
Corporate expenses of $4.8 million were $2.8 million higher than in the 1993
period. This increase was primarily due to $0.7 million of expenses
associated with Eagle's asset securitization program in 1994. In addition, in
1993 the Company recorded a one time curtailment gain associated with a pension
plan as well as a gain on the sale of marketable equity securities.
EARNINGS ACCOUNTED FOR BY THE EQUITY METHOD
Earnings accounted for by the equity method were $1.7 million and $2.0 million
for the quarters ended March 31, 1994 and 1993, respectively. A decrease in
the Company's share of earnings from The Vigoro Corporation ("Vigoro") of $0.1
million was primarily caused by the Company's decrease in ownership from 47% to
30% of Vigoro's outstanding common stock. This decrease was substantially
offset by record earnings reported by Vigoro in the 1994 quarter caused by
higher volumes for nitrogen-based fertilizers due to favorable spring weather
conditions and a slight increase in fertilizer application rates, partially
offset by decreased potash sales caused by a decrease in the average sales
price on export sales. A decrease in the Company's share of earnings from The
Commodore Corporation of $0.2 million was caused by increased lumber prices and
adverse winter weather in 1994 in the Midwest and Northeast U.S. which affected
production.
INTEREST EXPENSE
Net interest expense was $11.8 million for the quarter ended March 31, 1994
compared to $18.0 million for the comparable 1993 period, a decrease of $6.2
million or 34.4%. This decrease was primarily due to the overall decrease
in the level of debt coupled with a decrease in interest rates associated with
the Refinancing which was completed on January 31, 1994.
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PROVISION FOR INCOME TAXES
The effective tax rate for the first quarter of 1994 and 1993 reflected the
effect of foreign and state income taxes. Due to limited net operating loss
carryback availability, the Company did not recognize federal income tax
benefits for losses from continuing operations recognized during 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its debt service, capital expenditure
requirements and operating needs through a combination of operating cash flow
and external financing. Cash flow from continuing operating activities was
$103.3 million for the quarter ended March 31, 1994, compared to $11.7 million
in the comparable 1993 period. This increase was primarily the result of $110.3
million in proceeds from the sale of accounts receivable in connection with the
Securitization (see Note 4 to the Condensed Consolidated Financial Statements).
Excluding the effects of these proceeds, cash flow used by continuing operations
was $7.0 million for the quarter ended March 31, 1994 or $18.7 million less than
the comparable period of 1993. This decrease was primarily the result of
increases in other working capital requirements.
As discussed in Note 3 to the Condensed Consolidated Financial Statements, in
the first quarter of 1994, Eagle consummated a refinancing, involving the
repayment and redemption of its subsidiaries' then existing Senior Facilities,
its 13% Notes and its 13.75% Notes (collectively, the "Refinancing"). A
portion of the proceeds utilized for the Refinancing were derived from the
Credit Facility. Eagle also entered into the Securitization, whereby it sold
certain of its accounts receivable for $110.3 million. In addition, Eagle
received the Capital Contribution from GAMI of $50.0 million. Aggregate
proceeds from the Credit Facility, the Securitization and the Capital
Contribution amounted to $485.0 million. The impact of the Refinancing is
expected to generate a reduction of interest expense in excess of $20.0 million
in 1994 compared to 1993. In connection with the Refinancing, the Company
recorded an extraordinary charge of $25.5 million, which is net of a $0.5
million income tax benefit, in the first quarter of 1994.
The Credit Facility consists of: (1) a $225.0 million term loan due in
quarterly installments, commencing with the quarter ending June 30, 1994,
increasing from $6.5 million per quarter during 1994 to $15.0 million per
quarter 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 in 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
Credit Facility bear interest at alternative floating rate structures, at
management's option (5.3% at March 31, 1994), and are secured by substantially
all domestic property, plant, equipment, inventory and certain receivables of
Eagle Industrial and its subsidiaries. At March 31, 1994, $16.0 million and
$290.0 million were outstanding under the revolving credit portion and term
loan portions of the Credit Facility, respectively. Additionally, the Credit
Facility provides for a letter of credit facility of up to $50.0 million.
Borrowing availability under the revolving portion of the Credit Facility is
reduced by the outstanding amount of letters of credit. At March 31, 1994, an
additional $44.5 million was available to borrow under the Credit Facility.
In connection with the Securitization, Eagle entered into a receivable sale
agreement whereby it will sell, with limited recourse, on a continuous basis, an
undivided interest in certain of its account receivables. Under the agreement,
which expires in June 1999, the maximum amount of proceeds which may be accessed
through this agreement at any one time is $145.0 million and is subject to
change based on the level of eligible receivables and restrictions on
concentrations of receivables. At March 31, 1994, uncollected account
receivables sold under the agreement amounted to $160.0 million. Total cash
proceeds for the quarter ended March 31, 1994 of $265.0 million (including the
initial proceeds of $110.3 million) were reported as a component of cash flows
from operating activities. The difference between the amount of receivables
sold and proceeds received at March 31, 1994 (the "Residual Interest") was $48.1
million. This Residual Interest is reflected in other current assets.
Management believes that its current cash balance, cash flow from
continuing operations and availability under its revolving credit facilities
will be sufficient to pay interest on outstanding debt, meet current debt
maturities, pay income taxes, fund capital expenditures and meet other operating
needs.
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PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
None
b. Reports on Form 8-K:
Great American Management and Investment, Inc. (the "Company")
filed a Form 8-K dated May 16, 1994 relating to Item 5 -
"Other Events". As a result of the change in its year end
from July 31 to December 31, the Company filed its 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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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/ Arthur A. Greenberg
Arthur A. Greenberg
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Norman M. Field
Norman M. Field
Vice President and Treasurer
(Principal Accounting Officer)
Dated: May 16, 1994
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