<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from August 1, 1993 to December 31, 1993
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.
11,158,588 shares of Common Stock outstanding as of February 1, 1994
<PAGE> 2
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
FORM 10-Q
DECEMBER 31, 1993
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information: PAGE NO.
--------
<S> <C> <C>
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 . . . . . . . . . . . . . . . . . . . . 13
PART II. Other Information:
Item 5. Other Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE> 3
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1993 1993
------------ ------------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 89.8 $ 43.1
Trade receivables, net.......................... 170.1 176.7
Inventories, net................................ 193.1 205.6
Other current assets............................ 42.9 33.1
Net current assets of discontinued operations... 38.9 66.5
----------- -----------
Total current assets.......................... 534.8 525.0
Investments accounted for by the equity method....... 59.7 89.3
Loans receivable and real estate, net................ 37.0 45.5
Property, plant and equipment, net................... 222.2 246.5
Goodwill............................................. 337.4 365.6
Other long-term assets............................... 135.6 139.9
----------- -----------
Total assets.................................. $ 1,326.7 $ 1,411.8
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Current liabilities:
Current portion long-term debt.................... $ 19.1 $ 47.9
Accounts payable.................................. 75.7 81.9
Accrued liabilities............................... 144.2 101.5
----------- -----------
Total current liabilities....................... 239.0 231.3
Long-term debt....................................... 644.8 668.0
Accrued employee benefit obligations................. 96.7 96.8
Other long-term liabilities.......................... 92.1 83.6
----------- -----------
Total liabilities.............................. 1,072.6 1,079.7
----------- -----------
Commitments (Note 8)
Redeemable preferred stock of subsidiary ............ 43.6 42.4
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock (5,000,000 shares authorized,
0 issued).......................................... -- --
Common stock, (40,000,000 shares authorized,
12,059,000 issued)................................. 0.1 0.1
Additional paid-in capital........................... 194.8 193.4
Retained earnings.................................... 38.7 115.3
Pension liability adjustment, net.................... (4.6) --
Cumulative translation adjustments................... (5.0) (4.2)
Common stock in treasury, at cost.................... (13.5) (14.9)
----------- -----------
Total stockholders' equity..................... 210.5 289.7
----------- -----------
Total liabilities and stockholders' equity..... $ 1,326.7 $ 1,411.8
----------- -----------
----------- -----------
</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
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
DECEMBER 31,
--------------------------
1993 1992
---------- ---------
<S> <C> <C>
Net sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 517.9 $ 472.6
----------- ----------
Operating expenses:
Cost of goods and services sold . . . . . . . . . . . . . . . . . . . . 410.6 372.6
Selling and administrative . . . . . . . . . . . . . . . . . . . . . . . 73.8 72.2
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 4.5
Restructuring and other charges . . . . . . . . . . . . . . . . . . . . 89.1 2.1
----------- ----------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 577.9 451.4
----------- ----------
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . (60.0) 21.2
Earnings accounted for by the equity method . . . . . . . . . . . . . . . . 4.2 5.5
Gain on sales of securities . . . . . . . . . . . . . . . . . . . . . . . 48.9 --
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (24.6) (28.4)
----------- ----------
(Loss) from continuing operations before
income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (31.5) (1.7)
Income tax expense (benefit) from continuing operations . . . . . . . . . . 6.2 (0.9)
----------- ----------
(Loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . (37.7) (0.8)
Discontinued operations (Note 2):
(Loss) from discontinued operations, net of tax . . . . . . . . . . . . (2.5) (1.9)
(Loss) on disposal of businesses, net of tax . . . . . . . . . . . . . (32.2) (3.0)
----------- ----------
(Loss) before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . . . . . . . . . (72.4) (5.7)
Cumulative effect of change in accounting principle . . . . . . . . . . . . (3.0) --
----------- ----------
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (75.4) (5.7)
Dividends on subsidiary preferred stock . . . . . . . . . . . . . . . . . . (1.2) (1.1)
----------- ----------
Net (loss) to common stockholders . . . . . . . . . . . . . . . . . . . . $ (76.6) $ (6.8)
----------- ----------
----------- ----------
Weighted average common and common equivalent shares outstanding . . . . . 11.1 11.1
----------- ----------
----------- ----------
(Loss) per common share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . $ (3.50) $ (0.17)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . (3.13) (0.44)
Cumulative effect of change in accounting principle . . . . . . . . . . (0.27) --
----------- ----------
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (6.90) $ (0.61)
----------- ----------
----------- ----------
</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
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
DECEMBER 31,
------------------------------------
1993 1992
--------------- -----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
(Loss) from continuing operations................................ $ (37.7) $ (0.8)
Adjustments to reconcile (loss) from continuing operations to net
cash flow from (used by) operations:
Depreciation............................................ 14.2 13.0
Amortization............................................ 7.7 8.6
Noncash post retirement benefits expense................ -- 0.7
Undistributed earnings of investments accounted for
under the equity method............................... (3.2) (2.7)
Valuation adjustments................................... 1.3 0.2
Gain on sale of securities.............................. (48.9) --
Accretion of discount on senior subordinated notes...... 8.3 --
Restructuring and other non-cash charges................ 89.1 1.7
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)........................ (4.0) (5.5)
------------ -----------
Net cash flow from continuing operating activities.. 26.8 15.2
Net cash flow from (used by) discontinued operations 5.4 (23.0)
------------ -----------
Net cash flow from (used by) operations............. 32.2 (7.8)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities................................. 82.5 --
Proceeds from sale of businesses................................. 3.0 --
Loan principal repayments and proceeds from sale of real estate.. 8.3 13.1
Capital expenditures............................................. (14.2) (13.7)
Other............................................................ (7.3) (9.5)
------------ -----------
Net cash flow from (used by) investing activities... 72.3 (10.1)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in debt................................................. -- 60.4
Reduction of debt................................................ (60.6) (40.0)
Exercise of options.............................................. 2.8 --
Purchase of treasury stock....................................... -- (0.7)
------------ -----------
Net cash flow (used by) from financing activities... (57.8) 19.7
------------ -----------
CHANGE IN CASH AND CASH EQUIVALENTS.............................. 46.7 1.8
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD................... 43.1 46.2
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD......................... $ 89.8 $ 48.0
------------ -----------
------------ -----------
</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
(DOLLARS IN MILLIONS)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
DECEMBER 31,
----------------------------------
1993 1992
-------------- ----------------
<S> <C> <C>
CASH PAID DURING THE PERIOD FOR (RELATING TO CONTINUING AND
DISCONTINUED OPERATIONS):
Interest......................................................... $ 22.9 $ 34.5
----------- -----------
----------- -----------
Income taxes..................................................... $ 5.4 $ 6.7
----------- -----------
----------- -----------
</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
DECEMBER 31, 1993
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
In October 1993, Great American Management and Investment, Inc. (the
"Company" or "GAMI") changed its fiscal year end from July 31 to
December 31. The results of operations for the period from August 1,
1993 to December 31, 1993 reflected operations from the previous year
end to the new year end. This period is referred to herein as the
"Transition Period" and has been presented with the comparable period
of the prior year.
The accompanying unaudited Condensed Consolidated Financial Statements
of the Company 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 on Form 10-K for the
fiscal year ended July 31, 1993. In addition, due to the change in
accounting for Eagle Industries, Inc. ("Eagle"), as discussed below,
reference is made to Eagle's transition report on Form 10-K for the
five months ended December 31, 1992. The accompanying Condensed
Consolidated Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
Transition Period financial statements. All such adjustments are of a
normal and recurring nature, except for the effects of those items
described in Notes 2, 5, 6, 7 and 8. Operating results for the
Transition Periods presented are not necessarily indicative of results
that may be expected for the full year.
In September 1992, GAMI's Board of Directors (the "Board") authorized
the distribution (the "Distribution") of the common stock of Eagle to
GAMI's shareholders. 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, GAMI's 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,
GAMI would discontinue its intention to complete the Distribution.
Accordingly, Eagle's financial condition and results of operations
have been consolidated in GAMI's Condensed Consolidated Financial
Statements. Eagle is a diversified holding company with businesses
producing capital goods and other products serving industrial,
commercial and consumer markets. For a further description of Eagle's
businesses, see Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(2) DISCONTINUED OPERATIONS
Eagle is currently pursuing options for the sale of Lapp
Insulator Company ("Lapp"). Eagle sold Power Structures, Inc. ("Power
Structures") and Underground Technologies, Inc. ("Underground
Technologies") during the five months ended December 31, 1993 for cash
and notes totalling $3.5 million. Accordingly, Lapp, Power Structures
and Underground Technologies have been reflected as discontinued
operations in the Condensed Consolidated Financial Statements. To
provide for the estimated losses from operations and from the ultimate
disposition of these businesses, a provision of $32.2 million was
included in the Condensed Consolidated Financial Statements for the
five months ended December 31, 1993. These charges were reflected as
loss on disposal of businesses in the Condensed Consolidated Financial
Statements. Included in the loss on disposal of businesses was the
write-off of approximately $10.0 million of goodwill related to Lapp
and Underground Technologies.
In February 1993, Eagle sold, through an indirect wholly owned
subsidiary, a 60% interest in Signet Armorlite, Inc. ("Signet") to
Galileo Industries, 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 $22.9 million, which were used to reduce
debt outstanding under one of its credit facilities. 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
7
<PAGE> 8
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
(UNAUDITED)
acquire the remaining 40% interest (the "Call") held by Eagle any time
prior to February 26, 1998. The price under either the Put or Call is
based on the book value of Signet at February 25, 1993. The
operations of Signet have been reflected as discontinued operations in
the accompanying Condensed Consolidated Financial Statements. No
activity for Signet was recorded in 1993 as the estimated loss from
operations for this period was reserved for at 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 at any time 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.
Due to the limited net operating loss carry back availability, the
Company did not recognize income tax benefits on $2.5 million of
losses from discontinued operations for the five months ended December
31, 1993. Losses from discontinued operations of $1.9 million for the
five months ended December 31, 1992 have been reflected net of
applicable income tax benefits of $0.4 million. Due to the limited
net operating loss carryback availability, the Company did not
recognize income tax benefits on $32.2 million of losses on disposal
of businesses for the five months ended December 31, 1993. Losses on
disposal of businesses for the five months ended December 31, 1992 of
$3.0 million, have been reflected net of applicable income tax benefit
of $2.0 million.
(3) INVENTORIES
Inventories consisted of the following (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1993 1993
------------- ------------
<S> <C> <C>
Raw materials and supplies................ $ 58.9 $ 66.3
Work in process........................... 56.9 53.7
Finished goods............................ 77.3 85.6
------------- ------------
$ 193.1 $ 205.6
------------- ------------
------------- ------------
</TABLE>
(4) LONG-TERM DEBT
Components of long-term debt were as follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1993 1993
------------- ------------
<S> <C> <C>
Senior Debt:
GAMI ................................... $ 0.2 $ 18.8
Eagle................................... 226.2 236.9
------------- ------------
226.4 255.7
------------- ------------
Subordinated Debt:
GAMI.................................... -- 24.7
Eagle................................... 421.6 413.4
------------- ------------
421.6 438.1
------------- ------------
Other:
GAMI.................................... 4.3 4.5
Eagle................................... 11.6 17.6
------------- ------------
15.9 22.1
------------- ------------
Total debt................................ 663.9 715.9
Less current portion...................... (19.1) (47.9)
------------- ------------
Total long-term debt...................... $ 644.8 $ 668.0
------------- ------------
------------- ------------
</TABLE>
Refer to GAMI's July 31, 1993 report on Form 10-K and to Eagle's
December 31, 1992 transition report on Form 10-K for a more detailed
description of all the Company's short-term and long-term debt.
8
<PAGE> 9
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(UNAUDITED)
In April 1993, Eagle commenced a tender offer for $151.0 million
aggregate principal amount of its 13% Senior Subordinated Notes due
1998 ("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, for
proposed amendments to the indenture governing the 13% Notes ("Note
Indenture"). Eagle received sufficient consents to adopt the proposed
amendments to the Note Indenture and consummated the tender offer on
July 12, 1993, concurrent with the offering of its Senior Deferred
Coupon Notes due 2003 (the "Notes"). The issue price of each of the
Notes was $598.97 per $1,000 principal amount at maturity, which
represented a per annum yield to July 15, 1998, of 10.5%. The
aggregate principal amount of the Notes issued was $315.0 million.
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 per annum rate of 10.5% commencing on January 15, 1999 and until
maturity on July 15, 2003. The net proceeds, after deducting the
tender premium, consent payments, interest on the 13% Notes tendered,
and other fees and expenses, amounted to approximately $167.0 million,
and were used to retire $151.0 million of the 13% Notes and to reduce
borrowings under Eagle's bank credit agreements.
On August 16, 1993, GAMI redeemed the $25.0 million principal amount
10% Subordinated Notes due September 15, 1993 at par plus accrued
interest using available cash as of such date.
During the five months ended December 31, 1993, GAMI made voluntary
and required net principal payments totaling $18.6 million on its
senior debt.
The Company and its subsidiaries complied with all covenants of their
respective debt agreements at December 31, 1993.
In January 1994, Eagle consummated a refinancing of substantially all
of its long-term debt. For further information, see Note 10,
"Subsequent Events".
(5) RESTRUCTURING AND OTHER CHARGES
In the five months ended December 31, 1993, the Company recorded $89.1
million of restructuring and other charges related primarily to the
write-down of certain assets at Hill Refrigeration, a division of
Falcon Manufacturing, Inc. ("Hill") and Burns Aerospace Corporation,
the closing of Hill's Canadian plant and Caron International, Inc.'s
("Caron") London, Kentucky plant, the downsizing of certain of The
Pfaudler Companies, Inc.'s foreign operations and a provision for
litigation matters (as further described in Note 8). These charges
consisted of the following (in millions):
<TABLE>
<S> <C>
Write-down of property, plant and equipment . . . . . $25.9
Write-down of goodwill . . . . . . . . . . . . . . . . 25.8
Provision for severance, plant closure,
plant disposition costs and downsizing . . . . . . 18.9
Provision for litigation costs . . . . . . . . . . . . 10.0
Write-down of inventory . . . . . . . . . . . . . . . 5.7
Other . . . . . . . . . . . . . . . . . . . . . . . . 2.8
---
$89.1
-----
-----
</TABLE>
The closure of the Hill and Caron manufacturing facilities were
substantially complete at December 31, 1993.
9
<PAGE> 10
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(UNAUDITED)
(6) INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
In August 1993, The Vigoro Corporation ("Vigoro") filed a registration
statement with the SEC under which the Company publicly offered 3.0
million shares of Vigoro common stock that the Company owned. In
addition, Vigoro agreed to repurchase 0.5 million shares of Vigoro
common stock directly from the Company. On September 23, 1993, the
offering was completed at a price of $24.625 per share. The closing
and funding of the offering and repurchase were completed on September
30, 1993 with the Company realizing net proceeds (net of costs
expected to be paid subsequent to the sale date) of approximately
$81.5 million. $50.0 million of the proceeds from these sales was
paid to Eagle in January 1994 as a capital contribution and payments
under a tax sharing agreement (see Note 10). The remaining proceeds
are intended to be used for other corporate purposes. After these
sales of 3.5 million shares of Vigoro common stock, the Company owned
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.
On July 1, 1993, Vigoro adopted the provisions of SFAS 109 (as defined
in Note 7) and restated its prior period financial statements.
Accordingly, the Company has restated its investment in Vigoro based
on Vigoro's restated financial statements. 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.
(7) CHANGES IN ACCOUNTING PRINCIPLE
Due to the change in the year end from July 31 to December 31, the
Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109")
effective January 1, 1993. The January 1, 1993 financial statements
reflected an increase in the net deferred tax assets of $8.6 million
and a corresponding benefit of $8.6 million, which was reflected in
January 1993 as "Cumulative effect of change in accounting principle".
As part of the adoption of SFAS 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
tax assets of approximately $12.0 million.
At January 1, 1993, after having given effect to the adoption of SFAS
109, the Company's net deferred tax assets were as follows (in
millions):
<TABLE>
<S> <C>
Deferred tax assets $ 100.6
Less:
Valuation allowance (1.3)
---------------
Deferred tax assets net of
valuation allowance 99.3
Deferred tax liabilities (71.6)
---------------
Net deferred tax assets $ 27.7
---------------
---------------
</TABLE>
Deferred tax assets at January 1, 1993 related principally to:
inventory and bad debt reserves - $12.0 million; accrued employee
benefit obligations - $31.3 million; net operating loss and
alternative minimum tax credit carryforwards - $13.4 million;
divestiture reserves - $9.0 million; restructuring reserves - $3.0
million; and other reserves not yet deducted for tax purposes - $31.9
million. Deferred tax liabilities related principally to: property,
plant and equipment basis difference - $42.8 million, investment in
equity investees - $17.4 million and other - $11.4 million.
10
<PAGE> 11
GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(UNAUDITED)
Under the provisions of SFAS 109, during the Transition Period the
Company has recorded a deferred tax asset of $10.2 million related to
the income tax benefits derived from discontinued operations (see Note
2) and the change in accounting principle. The Company has also
recorded a deferred tax asset of $4.3 million related to the federal
income tax benefits derived from continuing operations. Due to the
limited availability of net operating loss carrybacks, the Company has
recognized a valuation allowance of $14.5 million. In future periods,
if the Company concludes that such deferred tax assets will be
realized, it will adjust the valuation allowance accordingly.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 112 "Employer's Accounting for Postemployment
Benefits" ("SFAS 112") effective December 31, 1993. The December 31,
1993 Condensed Consolidated Financial Statements reflected a charge of
$3.0 million reflected as "Cumulative effect of change in accounting
principle." This charge was primarily for workers' compensation,
short and long-term disability, and medical insurance.
(8) 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. During the
five months ended December 31, 1993, the Company has conducted
substantive settlement negotiations with the Trustee and certain
creditors of Madison. Based upon management's evaluation of these
matters, the Company has increased its reserve by $10.0 million for
the five months ended December 31, 1993. Refer to GAMI's July 31,
1993 report on Form 10-K for additional information related to Madison
and the Complaint.
(9) STOCK OPTIONS
During the five months ended December 31, 1993, options to acquire
106,327 shares of the Company's common stock were exercised, with
total proceeds of $2.8 million realized.
(10) SUBSEQUENT EVENT
On January 31, 1994, Eagle completed a refinancing of substantially
all of its outstanding debt except for the Notes. Through a newly
formed subsidiary, Eagle entered into a $425.0 million bank credit
facility (the "Credit Facility"), with a group of banks. Eagle also
entered into an asset securitization program (the "Securitization")
whereby it sold for approximately $110.0 million certain of its
accounts receivable. Eagle also received $50.0 million from GAMI in
the form of a capital contribution and payments under a tax sharing
agreement. The transactions referenced above are collectively
hereafter referred to as the "Refinancing." Total proceeds from the
Refinancing were $485.0 million.
Proceeds from the Refinancing were used to retire Eagle's senior debt
and a portion of its subordinated debt. A pre-tax extraordinary
charge of approximately $26.0 million or $2.34 per share will be
recorded in the first quarter of 1994 in connection with the
Refinancing.
The Credit Facility consists of a $290.0 million term loan due in
quarterly installments of $5.0 million, in 1994 and increasing to
$15.0 million per quarter in 1999 and 2000, and a revolving credit
facility of $135.0 million (subject to borrowing base availability)
which expires in December 1999. Borrowings under the Credit Facility
bear interest at alternative floating rate structures at management's
option (4.9% at January 31, 1994). The initial borrowing under the
revolving portion of the Credit Facility was $35.0 million. An
additional $28.0 million was available to borrow at January 31, 1994.
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GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993
(UNAUDITED)
In connection with the Securitization, Eagle entered into a
receivables sale agreement (the "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.
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GREAT AMERICAN MANAGEMENT AND INVESTMENT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DECEMBER 31, 1993
Capitalized terms not defined herein, are defined in the Notes to Condensed
Consolidated Financial Statements.
As discussed in Note 1 to the Condensed Consolidated Financial Statements, in
October 1993, GAMI changed its fiscal year end from July 31 to December 31.
The results of operations for the period from August 1, 1993 to December 31,
1993 reflected the operations from previous year end to the new year end. In
addition, GAMI's Board voted to discontinue its intention to complete the
Distribution. Accordingly, Eagle's financial condition and results of
operations have been consolidated in GAMI's Condensed Consolidated Financial
Statements. The following should be read in conjunction with the Condensed
Consolidated Financial Statements included herein, GAMI's Management's
Discussion and Analysis and audited Consolidated Financial Statements included
on Form 10-K for the year ended July 31, 1993 and Eagle's Management's
Discussion and Analysis and audited Consolidated Financial Statements included
on Form 10-K for the transition period from August 1, 1992 to December 31,
1992.
The Company's continuing operations are compromised of 19 manufacturing and
distribution businesses and a financial services business. These 19
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 companies
comprising the Company's manufacturing and distribution operations:
<TABLE>
<CAPTION>
Company Description of Product
- --------------------------------------------------------------------------------------------- ------------------------------
<S> <C>
Hart & Cooley, Inc. ("Hart & Cooley") HVAC accessories
Mansfield Plumbing Products, Inc. ("Mansfield") Bathroom fixtures and plumbing
fittings
DeVilbiss Air Power Company Light duty air compressors
Elastimold, a division of Amerace Corporation ("Elastimold") Underground voltage cable
accessories
Hendrix Wire and Cable, a division of Conductron Corporation ("Hendrix") Power cables and cable
accessories
Industrial Electrical Products, a division of Amerace Corporation Interconnect, control and timing
devices
Amerace Ltd. (Canada) Airport lighting transformers
Amerace Limited (United Kingdom) Electrical connectors
The Pfaudler Companies, Inc. ("Pfaudler") Glass-lined industrial vessels
Chemineer, Inc. ("Chemineer") Fluid processing agitators and
mixers
Burns Aerospace Corporation ("Burns") Commercial aircraft seating
Clevaflex, a division of Eagle Industries, Inc. Multi-ply flexible tubing
Denman Tire Corporation ("Denman") Specialty pneumatic tires
The Parts House, Inc. ("Parts House") Automobile parts aftermarket
distribution
Mighty Distributing Systems of America, Inc. ("Mighty") Automobile parts aftermarket
(Note: hereinafter, Parts House and Mighty are distribution
referred to collectively as "Automotive Parts
Distribution Businesses")
Hill Refrigeration, a division of Falcon Manufacturing, Inc. ("Hill") Refrigerated display cases
Caron International, Inc. ("Caron") Knitting yarns and craft kits
Gerry Sportswear Corporation Rugged outerwear and ski apparel
Equality Specialties, a division of Great American Decorative wrappings for
Management and Investment, Inc. packaging gifts
</TABLE>
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RESULTS OF OPERATIONS
NET SALES AND REVENUES
Net sales and revenues of $517.9 million for the five months ended December 31,
1993 were $45.3 million or 9.6% higher than net sales and revenues for the same
period in 1992. This increase was primarily due to increased volume and to a
lesser extent improved pricing primarily in the Company's manufacturing
businesses. The most material increases were recorded by Hart & Cooley --
$11.6 million, Hill -- $6.9 million, the Automotive Parts Distribution
Businesses -- $6.7 million, Mansfield -- $6.6 million, Chemineer -- $5.8
million, Elastimold -- $4.4 million, Denman -- $4.3 million and Hendrix -- $3.2
million. The increase in volume was primarily attributable to the improved
economy, increased residential housing starts, and continued market
penetration. Partially offsetting these increases was lower sales volume at
Burns of $8.2 million due to decreased expenditures in the commercial aviation
industry and a large order in 1992 not repeated in 1993.
OPERATING (LOSS) INCOME
For the five months ended December 31, 1993, the Company had an operating loss
of $60.0 million as compared to operating income of $21.2 million for the
comparable 1992 period. The 1993 operating loss included restructuring and
other charges of $89.1 million of which $78.3 million related primarily to the
write-down of certain assets at Hill and Burns, the closing of Hill's Canadian
plant and Caron's London, Kentucky plant and the downsizing of certain of
Pfaudler's foreign operations. Included in these charges were severance costs,
plant closure costs, disposition costs for property, plant and equipment, the
write-down of goodwill and property, plant and equipment and certain other non-
cash charges. Also included was a $10.0 million increase in the reserve for
various costs related to the Madison bankruptcy case (see Note 8 to the
Condensed Consolidated Financial Statements). $1.7 million of restructuring
charges were recorded in the comparable period of 1992.
Excluding restructuring and other charges, operating income for 1993 was $29.1
million which was $5.8 million or 24.9% higher than the comparable period of
1992. The increase in operating income was primarily attributable to the
increased volume and improved pricing at certain manufacturing businesses as
previously discussed and decreased operating expenses at certain manufacturing
businesses. These increases were partially offset by continued price
discounting at Hill, decreased joint venture earnings at Elastimold and a mix
of lower margin products and higher manufacturing expenses at certain
manufacturing businesses.
EARNINGS ACCOUNTED FOR BY THE EQUITY METHOD
As disclosed in Note 6 to the Condensed Consolidated Financial Statements, in
September 1993, the Company publicly sold 3.0 million shares of Vigoro common
stock that the Company owned. In addition, Vigoro repurchased 0.5 million
shares of Vigoro common stock directly from the Company. Net proceeds from
these sales (net of costs expected to be paid subsequent to the sale date)
amounted to $81.5 million. The Company realized a pretax gain of approximately
$48.9 million on these sales. These sales reduced the Company's ownership of
Vigoro's outstanding common stock from approximately 47% to 30% and was the
primary cause of reduced equity in earnings for Vigoro of $0.8 million for the
periods under comparison.
NET INTEREST EXPENSE
Net interest expense of $24.6 million decreased $3.8 million or 13.4% for the
five months ended December 31, 1993 when compared to the comparable 1992 period
due primarily to an overall decrease in the total outstanding debt.
PROVISION FOR INCOME TAXES
The effective tax rate for the five months ended December 31, 1993 and 1992
differed from the U.S. federal statutory rate. The 1993 income tax rate
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 recognized in the five months ended December 31,
1993. The effective tax rate for the five months ended December 31, 1992
reflected the effect of foreign and state income taxes and assumptions
regarding the realization
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of earnings accounted for by the equity method (as
more fully described in Note 6 to the Condensed Consolidated Financial
Statements).
CHANGES IN ACCOUNTING PRINCIPLE
The Company adopted the provisions of SFAS 109 effective January 1, 1993. The
January 1, 1993 financial statements reflected an increase in the net deferred
tax assets of $8.6 million and a corresponding benefit of $8.6 million which
was reflected in January 1993 as "Cumulative effect of change in accounting
principle". As part of the adoption of SFAS 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 tax assets of approximately $12.0 million.
The Company adopted the provisions of SFAS 112 effective December 31, 1993.
The December 31, 1993 Condensed Consolidated Financial Statements reflected a
charge of $3.0 million as "Cumulative effect of change in accounting
principle." This charge was primarily for workers' compensation, short and
long-term disability, and medical insurance.
DISCONTINUED OPERATIONS
During the five months ended December 31, 1993, Eagle classified Lapp, Power
Structures and Underground Technologies as discontinued operations. A
provision for estimated losses from operations and from the ultimate
disposition of these businesses amounted to $32.2 million and was recorded in
the five months ended December 31, 1993. Power Structures and Underground
Technologies were sold for cash and notes totalling $3.5 million during the
five months ended December 31, 1993. Eagle is currently pursuing options for
the sale of Lapp.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating cash requirements, including working capital, are met
through internally generated funds supplemented with line of credit borrowings.
Cash flow from continuing operating activities was $26.8 million for the five
months ended December 31, 1993, compared to cash flow from continuing operating
activities of $15.2 million in the comparable 1992 period. The increase was
primarily due to savings achieved in cash interest as a result of the
refinancing of $151.0 million of Eagle's 13% Notes in July 1993 and other debt
reductions.
At December 31, 1993, the Company had available cash and cash equivalents of
$89.8 million. Subject to borrowing base availability, the maximum additional
borrowings under Eagle and GAMI's revolving credit facilities at December 31,
1993 were $40.4 million and $21.6 million, respectively. In addition to
revolving credit facilities, additional capital resources included dividends
and potentially the proceeds from sales or borrowings secured by all or a
portion of the Company's investment in Vigoro. The Company and its
subsidiaries were in compliance with the covenants contained in their
respective credit agreements at December 31, 1993.
As discussed in Note 6 to the Condensed Consolidated Financial Statements, in
September 1993, the Company sold 3.5 million shares of its common stock in
Vigoro. The Company realized proceeds of approximately $82.5 million. The
Company estimates costs of $1.0 million will be paid in connection with the
sale. $50.0 million of the proceeds from these sales was paid to Eagle in
January 1994 as a capital contribution and payments under a tax sharing
agreement (see Note 10 to the Condensed Consolidated Financial Statements).
The remaining proceeds are intended for other corporate purposes. After the
sale of 3.5 million shares of Vigoro common stock, the Company owned
approximately 5.8 million shares of Vigoro common stock, or approximately 30%
of Vigoro's outstanding common stock.
As disclosed in Note 10 to the Condensed Consolidated Financial Statements, on
January 31, 1994, Eagle completed the Refinancing. Total proceeds of $485.0
million from the Refinancing were used to retire Eagle's revolving credit
facilities and a portion of its subordinated debt. The initial borrowing under
the revolving portion of this facility was $35.0 million. An additional $28.0
million was available to borrow at January 31, 1994. Management believes that
its current cash balance, cash flow from continuing operations and its
availability under
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revolving credit facilities will be sufficient to pay interest on outstanding
debt, meet current debt maturities, pay income taxes and fund anticipated
capital expenditures.
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PART II -- OTHER INFORMATION
Item 5. Other Events
At its February 16, 1994 meeting, the Board of Directors (the "Board")
of Great American Management and Investment, Inc. (the "Company")
elected Rod F. Dammeyer as President and Chief Executive Officer of
the Company effective immediately. Mr. Dammeyer has been a director
of the Company since December 1992.
Samuel Zell, who previously held these positions, remains the
Company's Chairman of the Board.
Item 6. Reports on Form 8-K
The Company filed a Form 8-K dated October 12, 1993:
Under Item 5 - "Other Events" to announce that its Board approved the
Company making an additional investment in its wholly owned subsidiary
Eagle Industries, Inc. ("Eagle") concurrent with Eagle completing a
refinancing of its debt on more favorable terms and conditions than
exist under its present capital structure. In addition, the Company's
Board resolved that, due to a variety of factors which occurred since
the August 1992 receipt of the ruling from the Internal Revenue
Service, the Company will not complete the spin-off of Eagle.
Under Item 8 - "Change in Fiscal Year", the Company announced that its
Board approved a change in the Company's fiscal year from July 31, to
December 31.
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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: February 21, 1994
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