<PAGE>
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
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-20416
EAGLE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3384361
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Two North Riverside Plaza
Chicago, Illinois 60606
(Address of Principal Executive Office)
(312) 906-8700
(Registrant's telephone number, including area code)
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.
1,000 shares of Common Stock as of November 1, 1994
<PAGE>
EAGLE INDUSTRIES, INC.
FORM 10-Q
SEPTEMBER 30, 1994
INDEX
PART I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition
PART II. Other Information:
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
SEPTEMBER 30, DECEMBER 31,
1994 1993
(UNAUDITED) (RESTATED)
ASSETS
Current assets:
Cash and cash equivalents $ 37.7 $ 4.4
Accounts receivable, net 25.1 109.0
Inventories, net 115.1 112.0
Other current assets 79.8 44.9
Net assets of discontinued operations 26.7 173.7
Total current assets 284.4 444.0
Property, plant and equipment, net 157.9 158.9
Goodwill 292.5 299.0
Other long-term assets 127.0 82.9
Total assets $ 861.8 $ 984.8
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion long-term debt $ 25.5 $ 17.8
Accounts payable 66.9 50.1
Accrued liabilities 79.1 68.8
Total current liabilities 171.5 136.7
Senior subordinated notes 198.9 421.9
Other long-term debt 240.3 217.3
Accrued employee benefit obligations 57.1 47.9
Other long-term liabilities 84.1 68.9
Total liabilities 751.9 892.7
Stockholder's equity:
Common stock ---- ----
Additional paid-in capital 188.7 138.7
Accumulated deficit (73.0) (37.0)
Cumulative translation adjustments (1.2) (5.0)
Pension liability adjustment (4.6) (4.6)
Total stockholder's equity 109.9 92.1
Total liabilities and stockholder's
equity $ 861.8 $ 984.8
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
(UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
(RESTATED) (RESTATED)
Net sales $ 244.3 $ 199.8 $ 682.3 $ 561.3
Cost of sales 194.7 158.1 537.5 443.8
Gross earnings 49.6 41.7 144.8 117.5
Selling and administrative expenses 27.8 24.7 90.1 68.7
Goodwill amortization 2.2 2.1 6.5 6.6
Operating income 19.6 14.9 48.2 42.2
Net interest expense 7.9 13.5 28.7 44.7
Income (loss) from continuing
operations before income taxes 11.7 1.4 19.5 (2.5)
Provision (benefit) for income
taxes from continuing operations 4.5 (3.9) 8.2 (4.8)
Income from continuing operations 7.2 5.3 11.3 2.3
Discontinued Operations:
Loss from discontinued
operations, less income tax
benefit of $0.7 in the nine
months ended September 1994 and
$6.7 and $7.1, respectively for
the quarter and nine months ended
September 1993 ---- (16.0) (3.8) (17.3)
Loss on disposal of businesses,
net of applicable income tax
benefit of $7.9 in the nine
months ended September 1994 and
$6.5 in both the quarter and
nine months ended
September 1993 ---- (21.9) (27.2) (21.9)
Income (loss) before extraordinary
item 7.2 (32.6) (19.7) (36.9)
Extraordinary gain (loss) from early
retirement of debt, net of income tax
provision (benefit) of $0.2 and $(9.2),
respectively, in the quarter and nine
months ended September 1994 and $(5.6)
in both the quarter and nine months
ended September 1993 0.3 (8.4) (16.3) (8.4)
Income (loss) before cumulative effect
of change in accounting principle 7.5 (41.0) (36.0) (45.3)
Cumulative effect of change in
accounting principle ---- ---- ---- (4.0)
Net income (loss) $ 7.5 $ (41.0) $ (36.0) $ (49.3)
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 11.3 $ 2.3
Adjustments to reconcile income from continuing
operations to net cash flow used in operations:
Depreciation 17.2 16.3
Amortization 9.4 11.0
Accretion of discount on subordinated debt 15.7 4.3
Proceeds from sales 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) 19.4 (19.5)
Net cash flow from continuing operating
activities 183.3 14.4
Net cash flow used in discontinued
operations (23.9) (10.9)
Net cash flow from operations 159.4 3.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses 71.7 22.9
Capital expenditures (16.6) (12.7)
Other (12.6) (3.1)
Net cash flow from investing activities 42.5 7.1
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (retirement) of senior deferred coupon notes (14.1) 184.0
Repayment of senior subordinated debt (234.1) (156.5)
Repayment of senior credit facilities (221.1) ----
Capital contribution 50.0 ----
Proceeds from bank credit facility 325.0 ----
Payments on long-term debt (32.9) (27.4)
Net payment on revolving credit facilities (41.4) (14.9)
Net cash flow used in financing activities (168.6) (14.8)
CHANGE IN CASH AND CASH EQUIVALENTS 33.3 (4.2)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4.4 12.7
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37.7 $ 8.5
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The accompanying unaudited Condensed Consolidated Financial Statements of
Eagle Industries, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for a
complete set of financial statements. In the opinion of management, all
adjustments considered necessary, consisting only of normal recurring
adjustments, are included for fair presentation. Operating results for
the quarter and nine months ended September 30, 1994 are not necessarily
indicative of results that may be expected for the full year. The
unaudited Condensed Consolidated Financial Statements for the quarters and
nine months ended September 30, 1994 and 1993 should be read in
conjunction with the audited Consolidated Financial Statements of the
Company for the year ended December 31, 1993. The historical statements
of the Company have been restated for companies being reported as
discontinued operations.
(2) DISCONTINUED OPERATIONS
During the second quarter of 1994, the Company decided to pursue the sales
of certain of the businesses in the Industrial Products Group and all of
the businesses in the Specialty Products Group. As a result of this
decision, the Company has reflected the net assets and results of
operations of Pfaudler, Inc. (worldwide operations) ("Pfaudler"),
Chemineer, Inc. ("Chemineer"), Hill Refrigeration, Inc. ("Hill"), Caron
International, Inc. ("Caron") and Gerry Sportswear, Inc. ("Gerry") as
discontinued operations. The Company recorded a pretax provision of $53.2
million and applicable tax benefits of $12.9 million in June 1994 for
estimated losses from operations and the ultimate disposition of Hill,
Caron and Gerry. In addition, in June 1994 the Company recorded a pretax
provision of $6.8 million and applicable tax benefits of $2.5 million
related to Lapp Insulator Company ("Lapp"), which has been previously
reported as a discontinued operation. The Company also recorded pretax
charges in June 1994 of $5.8 million and applicable tax benefits of $2.3
million to establish additional self-insurance reserves for businesses
previously sold by the Company.
In September 1994, the Company sold certain assets of Caron to a
subsidiary of National Spinning Co. for cash proceeds of $3.0 million
and a $4.0 million note. In August 1994, the Company completed the sale
of certain assets and liabilities of Hill to an indirect subsidiary of
Dover Corporation for cash proceeds of $8.8 million. In June 1994, the
Company sold the stock of Pfaudler and Chemineer to Robbins & Myers,
Inc. The Company received cash proceeds of $59.9 million and a $50.0
million, 5.5%, subordinated note (which the Company recorded at a
discounted value of $40.0 million). In addition, the Company received
stock appreciation rights with respect to 2.0 million shares of common
stock of Robbins & Myers, Inc. The Company recorded a pretax gain of
$30.7 million and applicable taxes of $9.8 million with respect to the
sale of Pfaudler and Chemineer.
<PAGE>
The following table summarizes key financial data related to the
discontinued operations of Lapp (1993), Chemineer, Pfaudler, Caron, Gerry
and Hill (in millions):
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
Net sales $ 162.9 $ 340.5
Operating loss (3.0) (16.5)
Allocated interest expense 1.5 8.4
Income tax benefit applicable to
discontinued businesses (0.7) (7.1)
Change in accounting principle ---- 0.5
Loss from operations of discontinued
businesses, net of applicable income
taxes (3.8) (17.3)
The net current assets of discontinued operations included in the
Condensed Consolidated Balance Sheet at September 30, 1994 and December
31, 1993 amounted to $26.7 million and $173.7 million, respectively, and
consisted primarily of inventories and property, plant and equipment net
of trade payables, accrued liabilities and accrued employee benefit
obligations. These amounts have all been classified as current based on
the intent to dispose of them within one year.
(3) INVENTORIES
Inventory consists of the following (in millions):
SEPTEMBER 30, DECEMBER 31,
1994 1993
(UNAUDITED) (RESTATED)
Raw materials and supplies $ 37.6 $ 36.1
Work in process 25.9 25.1
Finished goods 51.6 50.8
$ 115.1 $ 112.0
(4) LONG-TERM DEBT
In January 1994, the Company consummated a refinancing (the
"Refinancing"), involving the repayment and redemption of all of its
senior bank credit facilities, its 13% Senior Subordinated Notes ("13%
Notes") and its 13.75% Senior Subordinated Notes ("13.75% Notes"). In
January 1994, the senior bank credit facilities were fully repaid and
the agreements terminated. The 13% Notes were called for redemption on
February 27, 1994 at 104% of their principal amount plus accrued
interest. The 13.75% Notes were called for redemption on March 15, 1994
at 105.5% of their principal amount plus accrued interest. The Company
recorded an extraordinary pretax charge of $26.0 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 senior
bank credit facility made available to Eagle Industrial Products
Corporation, ("Eagle Industrial") a newly formed wholly-owned subsidiary
of the Company which owns all of the operating subsidiaries of the
Company. Refer to Note 5 for a further discussion of other sources of
proceeds for the Refinancing.
On January 31, 1994, Eagle Industrial entered into a new $425 million
senior credit facility consisting of a $290 million term loan and a $135
million revolving credit facility with a group of banks (the "Credit
Facility"). As a result of the sale of Pfaudler and Chemineer, an
additional term loan payment of $18.0 million was made and the Credit
Facility was amended. The Credit Facility consists of: (i) a $204.5
million term loan due in quarterly installments increasing from $5.9
million per quarter during 1994 to $13.8 million in 1999 commencing with
the quarter ending September 30, 1994; (ii) a $60.8 million term loan due
in equal quarterly installments aggregating $0.3 million in 1994, $0.5
million in 1995, $0.9 million per year in 1996 through 1999 and $56.3
million in 2000; and (iii) a $135 million revolving credit facility
(subject to borrowing base availability) that expires in 1999, which may
be extended through 2000.
Borrowings under the Credit Facility bear interest at alternative floating
rate structures, at management's option (6.73% at September 30, 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 September 30, 1994, the revolving credit portion
was unused and $259.3 million was outstanding under the term loan
portion of the Credit Facility. Additionally, the Credit Facility
provides for a letter of credit facility of up to $50 million.
Borrowing availability under the revolving portion of the Credit
Facility is reduced by the outstanding amount of letters of credit. At
September 30, 1994, an additional $36.1 million was available to borrow
under the Credit Facility.
The Credit Facility contains various financial covenants, the more
restrictive requirements being; the maintenance of minimum levels of net
worth; limitations on incurring additional indebtedness; restrictions on
the payment of dividends or the making of loans to the Company;
maintenance of certain ratios of cash flow to interest expense and
indebtedness; maintenance of a minimum level of cash flow to fixed
charges; and a prohibition on payments to the Company for management
services in excess of $3 million per year. The Company has provided a
guarantee as to the repayment of amounts outstanding under the Credit
Facility. Additionally, the Credit Facility requires that the Samuel
Zell Group (as defined in the Credit Facility) directly or indirectly
maintain at least 30% of the voting power to elect members of the board
of directors of the Company and that the Company directly own 100% of
Eagle Industrial. As a result of the Falcon IPO, hereinafter defined,
$52 million of outstanding amounts under the Credit Facility were repaid
and the Credit Facility was amended. See Note 7.
In March 1994, the Company entered into an unsecured revolving credit
agreement with GAMI whereby the Company may borrow up to $20.0 million.
Advances under this credit facility bear interest at the London Eurodollar
Interbank Offered Rate plus 0.75%. The agreement is scheduled to mature
in March 1999, however, GAMI may request partial or full repayment of
amounts outstanding by giving not less than three days notice. There
were no amounts outstanding under this facility at September 30, 1994.
In July 1994, the Company retired $22.0 million face value ($14.6 million
accreted value) of its Senior Deferred Coupon Notes. In conjunction with
this retirement, the Company recorded an extraordinary pretax gain of $0.5
million.
Amounts outstanding under the Company's Senior Subordinated Notes are as
follows (in millions):
SEPTEMBER 30, DECEMBER 31,
1994 1993
(UNAUDITED)
Senior Deferred Coupon Notes $ 198.9 $ 197.9
13% Notes ---- 149.0
13.75% Notes ---- 75.0
$ 198.9 $ 421.9
Components of other long-term debt are as follows (in millions):
SEPTEMBER 30, DECEMBER 31,
1994 1993
(UNAUDITED) (RESTATED)
Eagle Industrial Credit Facility $ 259.3 $ ----
Senior Bank Credit Facilities ---- 224.0
Industrial Revenue Bonds and
Debentures 2.5 2.5
Other 4.0 8.6
265.8 235.1
Less current portion (25.5) (17.8)
Total other long-term debt $ 240.3 $ 217.3
The Company and its subsidiaries complied with all covenants of their
respective debt agreements at September 30, 1994.
(5) REFINANCING AND SECURITIZATION
As discussed in Note 4, in January 1994 the Company consummated the
Refinancing. In addition to the establishment of the Credit Facility,
proceeds for the Refinancing were derived from a $50 million capital
contribution from GAMI and an asset securitization program (the
"Securitization") whereby the Company sold certain of its accounts
receivable for proceeds of $110.3 million and a residual interest in a
trust to which the receivables were transferred. Total cash proceeds for
the Refinancing were $485 million.
In connection with the Securitization, the Company entered into a
receivable sale agreement whereby it will sell, with limited recourse, on
a continuous basis, an undivided interest in certain of its accounts
receivable. 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 million and is subject to change based on the level of
eligible receivables and restrictions on concentration of receivables. At
September 30, 1994, uncollected receivables sold under the agreement were
$136.0 million. The cash proceeds for the period ended September 30, 1994
of $837.2 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 receivables under this program was $3.4 million and $1.3
million in the nine months and three months ended September 30, 1994,
respectively, and is included in selling and administrative expenses. The
difference between the amount of receivables sold and proceeds received at
September 30, 1994 was $33.3 million. This residual interest in the trust
is reflected in other current assets.
(6) OTHER
In June 1994, the Company recorded pretax charges of $6.0 million to
establish additional self-insurance reserves related to continuing
operations. In addition, as discussed in Note 2, the Company recorded
pretax charges of $5.8 million and applicable tax benefits of $2.3 million
to establish additional self-insurance reserves for businesses previously
sold by the Company. These revisions in estimated self-insurance reserves
for workers' compensation, product liability and general liability were
the result of a comprehensive review of existing self-insurance reserves
related to continuing operations and retained liabilities related to
previously owned businesses.
(7) SUBSEQUENT EVENTS
On November 9, 1994, Falcon Building Products, Inc. ("Falcon"), a wholly-
owned subsidiary of the Company, completed an initial public offering of
6,000,000 shares (30%) of its common stock ("Falcon IPO"), including
196,500 shares sold to Falcon management. The offering price of $12.00
per share is expected to generate net proceeds of approximately $65
million consisting of approximately $63 million in cash and
approximately $2 million in notes. Substantially all of the cash
proceeds were used to reduce the Company's outstanding indebtedness.
The Company expects to record a net gain of approximately $40 million in
conjunction with the Falcon IPO. Falcon is a domestic manufacturer and
distributor of products for the residential and commercial construction
and home improvement markets and is comprised of the businesses in the
Company's Building Products Group.
As a result of the Falcon IPO, the Credit Facility was bifurcated into two
separate bank credit facilities, including a $165 million facility for
Falcon ("Falcon Credit Facility") and an amended and restated facility for
Eagle Industrial ("Eagle Industrial Credit Facility"). The Falcon Credit
Facility consists of a $115.0 million term loan due in quarterly
installments increasing from $2.5 million per quarter beginning December
31, 1994 to $6.3 million per quarter beginning in December 1998 and a
$50.0 million revolving credit facility. The Falcon Credit Facility
contains a $25.0 million letter of credit facility.
The Eagle Industrial Credit Facility consists of a $92.0 million term loan
due in quarterly installments increasing from $2.5 million per quarter
beginning December 31, 1994 to $5.5 million per quarter beginning in
December 1999 and an $85.0 million revolving credit facility. The Eagle
Industrial Credit Facility contains a $50.0 million letter of credit
facility.
Each of the credit facilities will terminate in 2000 unless extended for
an additional year. The covenants contained in each of these credit
facilities are consistent with those contained in the Credit Facility
described in Note 4.
<PAGE>
EAGLE INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following is a discussion of the results of operations of Eagle
Industries, Inc. (the "Company") and subsidiaries for the quarter and nine
months ended September 30, 1994 as compared to the quarter and nine months
ended September, 1993 and should be read in conjunction with the Condensed
Consolidated Financial Statements included herein and the Company's Annual
Report on Form 10-K for the year ended December 31, 1993 and the audited
Consolidated Financial Statements of the Company for the year ended
December 31, 1993 included therein.
As discussed in Note 2, in the second quarter of 1994, the Company decided
to pursue the sales of all the businesses in the Specialty Products Group
and certain businesses in the Industrial Products Group. As a result, the
Company has three reportable segments. The operations of Burns Aerospace
are now combined with Corporate.
QUARTER ENDED SEPTEMBER 30, 1994 COMPARED TO THE QUARTER ENDED SEPTEMBER
30, 1993
The following table shows net sales and operating income by business group
(in millions):
NET SALES OPERATING INCOME
QUARTER ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
Building Products Group $ 117.9 $ 97.4 $ 15.2 $ 12.7
Electrical Products Group 51.8 45.4 7.1 4.4
Automotive Products Group 48.8 44.2 2.5 2.3
Corporate and Other 25.8 12.8 (5.2) (4.5)
Total $ 244.3 $ 199.8 $ 19.6 $ 14.9
NET SALES
Net sales of $244.3 million for the third quarter of 1994 were $44.5
million or 22.3% higher than net sales for the third quarter of 1993.
This increase was primarily due to increased volume in most of the
Company's businesses.
Net sales of $117.9 million for the Building Products Group were $20.5
million or 21.1% higher than net sales for the 1993 period. This increase
was due to increased volume at Hart & Cooley primarily in its flexible
duct product line due to increased market penetration, the improved
construction market and to a lesser extent improved pricing, increased
sales to Sears Roebuck and Co. ("Sears") by DeVilbiss Air Power and
increased sales of ultra-low-flush toilets by Mansfield.
Net sales of $51.8 million for the Electrical Products Group were $6.4
million or 14.0% higher than net sales for the 1993 period. This increase
was primarily due to increased volume at Hendrix and Elastimold due to an
improvement in the economy and a product line acquisition at Elastimold in
1993. In addition, an improvement in pricing at Elastimold also
contributed to the increase. These increases were partially offset by
decreased volume at other businesses within this group.
<PAGE>
Net sales of $48.8 million for the Automotive Products Group were $4.6
million or 10.3% 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 increased volume due to improved availability of product at Denman.
Other net sales of $25.8 million were $13.0 million or 102.2% higher than
net sales for the 1993 period. This increase was primarily due to
shipments under a major order at Burns Aerospace.
GROSS EARNINGS
Gross earnings of $49.6 million were $7.9 million or 18.7% higher than
gross earnings for the 1993 period. This increase was primarily due to
the higher volume in the 1994 period. Gross margin was 20.3% in 1994
and 20.9% in 1993. This decrease was primarily due to inventory and
warranty reserve adjustments, partially offset by the increased volume.
OPERATING INCOME
Operating income of $19.6 million for the third quarter of 1994 was $4.7
million or 31.2% higher than operating income for the comparable period
in 1993. Increases in the Building Products, Electrical Products and
Automotive Products Group were partially offset by increased corporate and
other expenses.
Operating income of $15.2 million for the Building Products Group was $2.5
million or 19.5% 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 $7.1 million for the Electrical Products Group was
$2.7 million or 61.8% higher than in the 1993 period. This increase was
primarily due to the increased volume at Elastimold and Hendrix and to a
lesser extent improved pricing at Elastimold.
Operating income of $2.5 million for the Automotive Products Group was
$0.2 million or 10.8% higher than in the 1993 period. This increase was
primarily due to increased volume at all businesses within this group.
Corporate expenses and other of $5.2 million were $0.7 million higher than
in the 1993 period. This increase was primarily due to $1.3 million of
expenses associated with the Company's asset securitization program in
1994. Despite increased sales at Burns Aerospace, operating losses
increased slightly due to an inventory reserve adjustment.
INTEREST EXPENSE
Net interest expense was $7.9 million for the quarter ended September 30,
1994 compared to $13.5 million for the comparable 1993 period, a decrease
of $5.6 million or 41.9%. This decrease was primarily due to the overall
decrease in the level of debt coupled with the decrease in interest rates
associated with the Refinancing which was completed on January 31, 1994.
PROVISION FOR INCOME TAXES
The effective tax rate for the third quarter of 1994 reflects non-
deductible expenses, primarily goodwill amortization and state and non
U.S. income taxes.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1993
The following table shows net sales and operating income by business group
(in millions):
NET SALES OPERATING INCOME
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
Building Products Group $ 330.5 $ 261.8 $ 39.8 $ 33.8
Electrical Products Group 148.3 127.5 16.2 11.5
Automotive Products Group 136.3 122.2 6.2 5.3
Corporate and Other 67.2 49.8 (14.0) (8.4)
Total $ 682.3 $ 561.3 $ 48.2 $ 42.2
NET SALES
Net sales of $682.3 million for the nine months ended September 30, 1994
were $121.0 million or 21.6% higher than net sales for the comparable
period in 1993. This increase was primarily due to increased volume at
most of the Company's businesses with the most significant increases in
the Building Products Group.
Net sales of $330.5 million for the Building Products Group were $68.7
million or 26.3% higher for the first nine months of 1994 compared to the
first nine months of 1993. This increase was primarily due to increased
volume at Hart & Cooley primarily in its flexible duct product line due to
increased market penetration and the improved construction market,
increased sales to Sears 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 $148.3 million for the Electrical Products Group were $20.8
million or 16.3% higher in the first nine months of 1994 compared to the
first nine months of 1993. This increase was primarily due to increased
volume, and to a lesser extent, improved pricing at Hendrix and Elastimold
as a result of an improvement in the economy and the acquisition of a
product line at Elastimold in 1993. IEP also had higher volume levels.
Net sales of $136.3 million for the Automotive Products Group were $14.1
million or 11.5% higher in the first nine months of 1994 compared to the
first nine months of 1993. This increase was primarily due to increased
volume at the automotive parts distribution businesses as a result of new
distribution channels and increased market penetration. Denman also had
increased volume as a result of improved availability of product.
Other net sales increased $17.4 million or 34.7% compared to 1993. This
increase was primarily due to shipments under a major order at Burns
Aerospace.
GROSS EARNINGS
Gross earnings of $144.8 million were $27.3 million or 23.3% higher than
gross earnings for the first nine months of 1993. This increase was
primarily due to the increased volume in the 1994 period. Gross margin
was 21.2% in the first nine months of 1994 compared to 20.9% in the
comparable 1993 period. This increase was due to improved pricing at
some of the Company's businesses, partially offset by charges for
inventory and warranty reserve adjustments.
<PAGE>
OPERATING INCOME
Operating income of $48.2 million for the nine months ended September 30,
1994 was $6.0 million or 14.2% higher than operating income for the
comparable period in 1993. This increase was due to increases at most of
the Company's businesses, partially offset by increased corporate expenses
due primarily to $6.9 million of charges recorded to establish self-
insurance reserves.
Operating income of $39.8 million for the Building Products Group was $6.0
million or 17.7% higher than in the 1993 period. This increase was
primarily due to increased volume at all of the Company's businesses
within this group as well as improved pricing at Hart & Cooley. The
contribution of increased sales of higher margin ultra-low-flush toilets
at Mansfield was partially offset by competitive pricing. These
increases were partially offset by $3.9 million of charges to establish
self-insurance reserves.
Operating income of $16.2 million for the Electrical Products Group was
$4.7 million or 41.3% higher than in the 1993 period. This increase was
primarily due to increased volume at most of the businesses within this
group and, to a lesser extent, improved pricing at Elastimold and Hendrix
partially offset by charges of $0.9 million recorded in 1994 to establish
self-insurance reserves.
Operating income of $6.2 million for the Automotive Products Group was
$0.9 million or 17.3% higher than in the 1993 period. This increase was
due to increased volume at all the businesses within this group
partially offset by charges of $0.5 million recorded in 1994 to
establish self-insurance reserves.
Corporate expenses and other of $14.0 million were $5.6 million higher
than in the 1993 period. This increase was primarily due to $1.6
million of charges recorded to establish self-insurance reserves and
$3.4 million of expenses associated with the Company's asset
securitization program. 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 equity securities which totaled $1.7 million.
Despite increased sales at Burns Aerospace, operating losses increased
slightly due to an inventory reserve adjustment.
INTEREST EXPENSE
Net interest expense was $28.7 million for the nine months ended September
30, 1994 compared to $44.7 million for the comparable 1993 period. This
decrease was primarily due to the overall decrease in the level of debt
coupled with the decrease in interest rates associated with the
Refinancing which was completed on January 31, 1994.
PROVISION FOR INCOME TAXES
The effective tax rate for the nine months ended September 30, 1994
reflects non-deductible expenses, primarily goodwill amortization and
state income taxes.
DISCONTINUED OPERATIONS
During the quarter ended June 30, 1994, the Company decided to pursue the
sales of certain of the businesses in the Industrial Products Group and
all of the businesses in the Specialty Products Group. As a result of
this decision, the Company has reflected the net assets and results of
operations of Pfaudler, Inc. (worldwide operations) ("Pfaudler"),
Chemineer, Inc. ("Chemineer"), Hill Refrigeration, Inc. ("Hill"), Caron
International, Inc. ("Caron") and Gerry Sportswear, Inc. ("Gerry") as
discontinued operations. The Company recorded a pretax provision of $53.2
million and applicable tax benefits of $12.9 million in the quarter ended
June 30, 1994 for estimated losses from operations and the ultimate
disposition of Hill, Caron and Gerry. Net losses recorded by these
businesses were $3.8 million in 1994. In addition, in June 1994 the
Company recorded a pretax provision of $6.8 million and applicable tax
benefits of $2.5 million related to Lapp Insulator Company ("Lapp"),
which has been previously reported as a discontinued operation. The
Company also recorded pretax charges in June 1994 of $5.8 million and
applicable tax benefits of $2.3 million to establish additional
self-insurance reserves for businesses previously sold by the Company.
These revisions in estimated self-insurance reserves for workers'
compensation, product liability and general liability were the result of
a comprehensive review of existing self-insurance reserves related to
continuing operations and retained liabilities related to previously
owned businesses.
In June 1994, the Company sold the stock of Pfaudler and Chemineer to
Robbins & Myers, Inc. The Company received cash proceeds of $59.9 million
and a $50.0 million, 5.5%, subordinated note (which the Company recorded
at a discounted value of $40.0 million). In addition, the Company
received stock appreciation rights with respect to 2.0 million shares of
common stock of Robbins & Myers, Inc. The Company recorded a pretax
gain of $30.7 million, and applicable taxes of $9.8 million with respect
to the sale of these businesses. In August 1994, the Company completed
the sale of certain assets of Hill to an indirect subsidiary of Dover
Corporation for cash proceeds of $8.8 million. In September 1994, the
Company sold certain assets of Caron to a subsidiary of National
Spinning Co. for cash proceeds of $3.0 million and a $4.0 million note.
The Company is pursuing the sales of Gerry and Lapp.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOW
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 $183.3 million and $14.4 million for the nine months ended
September 30, 1994 and 1993, respectively. The increase was primarily due
to proceeds received from the sale of accounts receivable as part of the
Company's asset securitization program. Excluding the effects of these
proceeds, cash flow from continuing operating activities was $73.0 million
for the nine months ended September 30, 1994, compared to $14.4 million in
the comparable 1993 period. This increase was primarily due to the
increased level of operating income, improved working capital management
and a reduction in the amount of interest paid as a result of the
Refinancing described in Note 4 of the Company's Condensed Consolidated
Financial Statements.
CREDIT FACILITIES
In January 1994, the Company's senior bank credit facilities were
refinanced and a new credit facility was entered into (the "Credit
Facility"). The Credit Facility consists of: (i) a $204.5 million term
loan due in quarterly installments increasing from $5.9 million per
quarter during 1994 to $13.8 million in 1999 commencing with the
quarter ending September 30, 1994; (ii) a $60.8 million term loan due in
equal quarterly installments aggregating $0.3 million in 1994, $0.5
million in 1995, $0.9 million per year in 1996 through 1999 and $56.3
million in 2000; and (iii) a $135 million revolving credit facility
(subject to borrowing base availability) that expires in 1999, which may
be extended through 2000.
Borrowings under the Credit Facility bear interest at alternative floating
rate structures, at management's option (6.73% at September 30, 1994), and
are secured by substantially all domestic property, plant, equipment,
inventory and certain receivables of Eagle Industrial and its
subsidiaries. At September 30, 1994, the revolving credit portion was
unused and $259.3 million was outstanding under the term loan portion of
the Credit Facility. Additionally, the Credit Facility provides for a
letter of credit facility of up to $50 million. Borrowing availability
under the revolving portion of the Credit Facility is reduced by the
outstanding amount of letters of credit. At September 30, 1994, an
additional $36.1 million was available to borrow under the Credit
Facility. The Company and its subsidiaries complied with all covenants
of their respective debt agreements at September 30, 1994.
In connection with the Falcon initial public offering (described in Other
Liquidity Considerations), the Credit Facility was bifurcated into two
separate bank credit facilities, including a $165 million facility for
Falcon ("Falcon Credit Facility") and an amended and restated facility for
Eagle Industrial ("Eagle Industrial Credit Facility"). The Falcon Credit
Facility consists of a $115.0 million term loan due in quarterly
installments increasing from $2.5 million per quarter beginning December
31, 1994 to $6.3 million per quarter beginning in December 1998 and a
$50.0 million revolving credit facility. The Falcon Credit Facility
contains a $25.0 million letter of credit facility.
The Eagle Industrial Credit Facility consists of a $92.0 million term loan
due in quarterly installments increasing from $2.5 million per quarter
beginning December 31, 1994 to $5.5 million per quarter beginning in
December 1999 and an $85.0 million revolving credit facility. The Eagle
Industrial Credit Facility contains a $50.0 million letter of credit
facility.
Each of the credit facilities will terminate in 2000 unless extended for
an additional year. The covenants contained in each of these credit
facilities are consistent with those contained in the Credit Facility
described in Note 4 to the Condensed Consolidated Financial Statements.
In July 1994, the Company retired $22.0 million face value ($14.6 million
accreted value) of its Senior Deferred Coupon Notes.
OTHER LIQUIDITY CONSIDERATIONS
On November 9, 1994, Falcon Building Products, Inc. ("Falcon"), a wholly-
owned subsidiary of the Company, completed an initial public offering of
6,000,000 shares (30%) of its common stock. The offering price of $12.00
per share is expected to generate net proceeds of approximately $65
million consisting of approximately $63 million in cash and
approximately $2 million in notes. Substantially all of the cash
proceeds were used to reduce the Company's outstanding indebtedness.
Falcon is a domestic manufacturer and distributor of products for the
residential and commercial construction and home improvement markets
comprised of the businesses in the Company's Building Products Group.
Management believes that cash flow from continuing operations along with
availability under the credit facilities will be sufficient to pay
interest on outstanding debt, meet current maturities, pay income
taxes, fund capital expenditures and meet other operating needs.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) Reports on Form 8-K
Current Report on Form 8-K dated September 2, 1994 regarding the sale
of Caron International, Inc. to a subsidiary of National Spinning Co.
<PAGE>
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.
EAGLE INDUSTRIES, INC.
By: /s/ Sam A. Cottone
____________________
Sam A. Cottone
Senior Vice President and
Chief Financial Officer
Dated: November 14, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 30, 1994 quarterly report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 26
<ALLOWANCES> (1)
<INVENTORY> 115
<CURRENT-ASSETS> 284
<PP&E> 269
<DEPRECIATION> (111)
<TOTAL-ASSETS> 862
<CURRENT-LIABILITIES> 172
<BONDS> 439
<COMMON> 0
0
0
<OTHER-SE> 110
<TOTAL-LIABILITY-AND-EQUITY> 862
<SALES> 682
<TOTAL-REVENUES> 682
<CGS> 537
<TOTAL-COSTS> 537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 19
<INCOME-TAX> 8
<INCOME-CONTINUING> 11
<DISCONTINUED> (31)
<EXTRAORDINARY> (16)
<CHANGES> 0
<NET-INCOME> (36)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
