<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 3, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number 0-10181
ELJER INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2270874
- - ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
17120 Dallas Parkway, Dallas, Texas 75248
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 407-2600
------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No _____
At August 8, 1994 there were 7,129,626 shares of registrant's
common stock outstanding.
<PAGE>
ELJER INDUSTRIES, INC.
----------------------
FORM 10-Q
---------
July 3, 1994
------------
INDEX
-----
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the six
months ended July 3, 1994 and July 4, 1993
Condensed Consolidated Statements of Income for the three
months ended July 3, 1994 and July 4, 1993
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Cash Flows
Notes to Unaudited Condensed Consolidated Financial
Statements
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II--OTHER INFORMATION
ITEM 1--LEGAL PROCEEDINGS
ITEM 2--CHANGES IN SECURITIES
ITEM 3--DEFAULTS UPON SENIOR SECURITIES
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
-----------
(In thousands, except per share amounts)
----------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
July July
3, 1994 4, 1993
------- -------
<S> <C> <C>
NET SALES $194,231 $180,155
COST OF SALES 142,528 130,137
-------- --------
GROSS PROFIT 51,703 50,018
SELLING & ADMINISTRATIVE EXPENSES 40,325 38,360
LITIGATION COSTS 3,271 3,738
-------- --------
INCOME FROM OPERATIONS 8,107 7,920
OTHER EXPENSE, net 757 799
INTEREST INCOME 743 800
INTEREST EXPENSE 6,399 7,485
-------- --------
INCOME BEFORE INCOME TAXES 1,694 436
INCOME TAX (BENEFIT) EXPENSE (1,052) 1,008
-------- --------
NET INCOME (LOSS) $ 2,746 $ (572)
======== ========
NET INCOME (LOSS) PER SHARE $ 0.39 $ (0.08)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,110 7,078
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Unaudited)
-----------
(In thousands, except per share amounts)
----------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
July July
3, 1994 4, 1993
------- -------
<S> <C> <C>
NET SALES $103,356 $84,507
COST OF SALES 75,921 60,519
-------- -------
GROSS PROFIT 27,435 23,988
SELLING & ADMINISTRATIVE EXPENSES 20,415 19,152
LITIGATION COSTS 1,911 1,793
-------- -------
INCOME FROM OPERATIONS 5,109 3,043
OTHER EXPENSE, net 432 399
INTEREST INCOME 367 278
INTEREST EXPENSE 2,946 3,731
-------- -------
INCOME (LOSS) BEFORE INCOME TAXES 2,098 (809)
INCOME TAX (BENEFIT) EXPENSE (288) 637
-------- -------
NET INCOME (LOSS) $ 2,386 $(1,446)
======== =======
NET INCOME (LOSS) PER SHARE $ 0.34 $ (0.20)
======== =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,121 7,081
======== =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(In thousands)
--------------
<TABLE>
<CAPTION>
July January
A S S E T S 3, 1994 2, 1994
----------- ------- -------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & temporary cash investments $ 20,861 $ 23,439
Restricted cash 16,038 15,966
Trade accounts receivable, net of
reserves of $8,872 and $8,890 58,196 49,995
Insurance receivable 7,729 6,621
Inventories 61,027 59,548
Other current assets 8,053 7,202
-------- --------
Total current assets 171,904 162,771
PROPERTIES & EQUIPMENT, net of accumulated
depreciation of $98,254 and $94,793 57,844 58,015
COST IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, net 11,501 11,879
OTHER ASSETS 3,020 2,758
-------- --------
$244,269 $235,423
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
July January
LIABILITIES AND SHAREHOLDERS' EQUITY 3, 1994 2, 1994
- - ------------------------------------ ------- -------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt $ 22,978 $ 18,430
Trade accounts payable 14,680 18,933
Prepetition liabilities subject to compromise 18,616 --
Accrued contingencies covered by insurance 2,669 6,621
Accrued expenses 53,536 63,687
-------- --------
Total current liabilities 112,479 107,671
LONG-TERM DEBT 102,554 103,114
POSTRETIREMENT BENEFITS 41,432 40,743
OTHER LIABILITIES 13,131 13,144
DEFERRED INCOME TAXES 876 871
-------- --------
Total liabilities 270,472 265,543
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value,
50,000,000 shares authorized;
7,129,626 and 7,092,326 shares
outstanding 7,186 7,186
Additional capital 78,936 78,700
Accumulated deficit (104,500) (107,246)
Foreign currency translation adjustments (7,768) (8,666)
Treasury stock (57) (94)
-------- --------
Total shareholders' equity (deficit) (26,203) (30,120)
-------- --------
$244,269 $235,423
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
-----------
(In thousands)
--------------
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
July July
3, 1994 4, 1993
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,746 $ (572)
Adjustments to reconcile net income to
net cash used in operating activites-
Depreciation and amortization 5,171 5,202
Loss (gain) on disposition of fixed assets 283 (28)
Stock issued as compensation 273 180
Change in assets and liabilities-
Trade accounts receivable (10,762) 1,073
Inventories (908) (2,864)
Trade accounts payable and accrued
expenses 559 (10,931)
Accrued litigation - Kowin Development 2,053 (12,871)
Postretirement benefits 689 1,566
Other assets (1,761) (1,619)
Other, net 711 813
-------- --------
Net cash used in operating activities (946) (20,051)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (4,943) (3,236)
Proceeds from disposition of properties
and equipment 196 95
-------- --------
Net cash used in investing activities (4,747) (3,141)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 10,296 (2,623)
Decrease in long-term debt (6,547) (413)
Collateralization of letters of credit (533) (1,450)
Taxes paid on dividends from foreign
subsidiaries -- (3,974)
-------- --------
Net cash provided by (used in)
financing activities 3,216 (8,460)
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH (101) (1,195)
-------- --------
NET DECREASE IN CASH & TEMPORARY
CASH INVESTMENTS (2,578) (32,847)
CASH & TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 23,439 46,808
-------- --------
CASH & TEMPORARY CASH INVESTMENTS,
END OF PERIOD $20,861 $ 13,961
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
---------------------
The condensed consolidated financial statements include the
accounts of Eljer Industries, Inc. and its wholly-owned subsid-
iaries (the "Company") after the elimination of intercompany
transactions and balances.
Accounting policies used in the preparation of the quarterly
condensed consolidated financial statements, except as indicated
below, are consistent in all material respects with the accounting
policies described in the notes to financial statements appearing
in the Company's Annual Report on Form 10-K for the year ended
January 2, 1994. In the opinion of management, the interim
financial statements reflect all adjustments which are necessary
for a fair presentation of the Company's financial position,
results of operations and cash flows for the interim periods
presented. The results for such interim periods are not neces-
sarily indicative of results for the full year. These financial
statements should be read in conjunction with the consolidated
financial statements and the accompanying notes to consolidated
financial statements included in the aforementioned Form 10-K.
During the first quarter of 1994, the Company adopted the
provisions of Financial Accounting Standards Board Interpretation
No. 39 ("FIN 39"). FIN 39 requires the Company to present
separately in its balance sheet its contingent liabilities which
can be estimated and the related recoverable assets. Accordingly,
the accompanying condensed balance sheet as of January 2, 1994, and
condensed statement of cash flows for the year ended January 2,
1994, have been reclassified to conform to the 1994 presentation.
In addition, approximately $5.1 million of accrued contingencies
covered by insurance are included in prepetition liabilities
subject to compromise as of July 3, 1994 (see Note (2) for
additional discussion).
Certain other reclassifications have also been made to the
prior year financial statements to conform to the 1994
presentation.
(2) BANKRUPTCY OF AN INDIRECT WHOLLY-OWNED SUBSIDIARY:
-------------------------------------------------
As discussed in the Company's Report on Form 8-K dated May 27,
1994, on May 23, 1994 (the "Petition Date"), United States Brass
Corporation ("U.S. Brass"), an indirect, wholly-owned subsidiary of
the Company, filed a voluntary petition for reorganization under
Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the Eastern District of
Texas (the "Bankruptcy Court"). The purpose of the filing is to
resolve systematically the issues raised in the Celcon/Qest
polybutylene plumbing system (the "Qest System") and related
litigation and to seek confirmation of a plan of reorganization
which, among other things, will provide for the payment,
satisfaction and discharge of all claims against U.S. Brass
involving the Qest System. Pursuant to the Bankruptcy Code, U.S.
Brass is conducting its business and affairs as a debtor-in-
possession by its officers and directors, subject to the
supervision and orders of the Bankruptcy Court.
Under the Bankruptcy Code, claims against U.S. Brass that were
or could have been commenced prior to the Petition Date are stayed
while U.S. Brass continues business operations as a debtor-in-
possession. Certain of these claims are reflected in the July 3,
1994 balance sheet as "prepetition liabilities subject to
compromise." Additional claims (liabilities subject to compromise)
may arise subsequent to the Petition Date resulting from rejection
of executory contracts or unexpired leases, and from the
determination by the Bankruptcy Court, or agreed to by parties in
interest, of allowed claims for contingencies and other disputed
amounts. U.S. Brass received approval from the Bankruptcy Court to
pay or otherwise honor certain of its prepetition obligations,
including its secured working capital facility, employee wages,
commissions, sales incentive programs, existing product warranties
and outstanding checks. See Note (4) for additional discussion.
U.S. Brass participates in various intercompany transactions with
its parent, Eljer Manufacturing, Inc. ("Eljer Manufacturing") and
an affiliated Canadian company and, at July 3, 1994, U.S. Brass was
in a net creditor position of approximately $1.6 million.
Selected financial data for U.S. Brass as of July 3, 1994 and
January 2, 1994 and the six-month periods ended July 3, 1994 and
July 4, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
July 3, July 4,
1994 1993
------- -------
<S> <C> <C>
Net Sales to Customers $41,813 $34,642
Sales to Affiliates 7,529 8,921
Income from Operations 2,409 1,317
Income Before Income Taxes 1,774 830
Net Income 1,040 384
Cash (Used in) Provided by Operating
Activities (6,185) 152
Cash Used in Investing Activities (1,191) (516)
Cash Provided by Financing Activities 8,019 982
Total Cash Flow 643 618
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
As of July As of January
3, 1994 2, 1994
---------- -------------
<S> <C> <C>
Total Current Assets $42,581 $35,194
Total Assets 58,331 51,363
Total Liabilities 35,490 29,562
Total Shareholders' Equity 22,841 21,801
</TABLE>
Reorganization items for the periods presented are not material to
the financial condition of U.S. Brass.
(3) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
July January
3, 1994 2, 1994
------- -------
<S> <C> <C>
Finished goods $34,649 $33,572
Work in process 8,404 8,529
Raw materials 17,974 17,447
------- -------
Total inventories $61,027 $59,548
======= =======
</TABLE>
(4) CONTINGENCIES:
U.S. BRASS
On May 23, 1994, U.S. Brass filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. The purpose of the filing is to resolve systematically the
issues raised in the Qest System and related litigation and to seek
confirmation of a plan of reorganization which, among other things,
will provide for the payment, satisfaction and discharge of all
claims against U.S. Brass involving the Qest System. Pursuant to
the Bankruptcy Code, U.S. Brass is conducting its business and
affairs as a debtor-in-possession by its officers and directors,
subject to the supervision and orders of the Bankruptcy Court.
By reason of the filing of its voluntary Chapter 11 petition,
U.S. Brass is the subject of an automatic stay, applicable to all
entities, of certain litigation and other action directed at U.S.
Brass or its property. Among other things, the automatic stay
applies to the commencement or continuation, including the issuance
or employment of process, of judicial, administrative or other
actions or proceedings against U.S. Brass that were or could have
been commenced before the commencement of the Chapter 11 case, or
to recover a claim against U.S. Brass that arose before the
commencement of the case. The automatic stay also applies to any
act to obtain possession of property of the estate in the
bankruptcy of U.S. Brass or to exercise control over property of
the estate. Creditors and other persons affected by the automatic
stay have the right to seek relief from the stay by making a motion
to the Bankruptcy Court. U.S. Brass believes the automatic stay
extends also to claims made in those lawsuits against the Company,
Eljer Manufacturing and Household International, Inc. ("Household")
based upon alter ego and related theories of liability. U.S. Brass
contends that under bankruptcy law, such claims are property of
U.S. Brass by reason of its Chapter 11 filing.
On May 27, 1994, a committee of unsecured creditors consisting
of lawyers representing various plaintiffs in pending Qest System
litigation against U.S. Brass was appointed in the Chapter 11 case.
On June 3, 1994, a separate committee of unsecured creditors was
appointed consisting of trade creditors of U.S. Brass. The
committees have each retained counsel and have the right to seek to
retain other professional persons. Subject to approval of the
Bankruptcy Court, payment of compensation and reimbursement of
expenses of these counsel and other professionals will be made by
U.S. Brass.
Following the Petition Date, a number of individual lawsuits
against the Company, Eljer Manufacturing, U.S. Brass and other
defendants involving Qest Systems were removed from state courts to
bankruptcy courts for the districts in which the state court
actions were pending. U.S. Brass has opposed the removal of these
actions at the present time and supported remand of the lawsuits to
state court. On July 7, 1994, the United States District Court for
the Southern District of California issued a decision in certain
removed Qest System lawsuits remanding the litigation to California
state court. Certain other removed Qest System lawsuits are
awaiting disposition on removal, transfer and remand motions in the
Bankruptcy Court.
Also following the Petition Date, the Company, U.S. Brass and
Eljer Manufacturing commenced an adversary proceeding in the
Bankruptcy Court for declaratory and other relief against their
liability insurance carriers that provided coverage with respect to
Qest System liabilities. U.S. Brass also removed pending state
court litigation in Illinois brought by a number of these insurers
to the bankruptcy court in the Northern District of Illinois, and
currently is seeking the transfer of all Qest System insurance
coverage litigation to the Bankruptcy Court.
On June 27, 1994, U.S. Brass filed a motion with the
Bankruptcy Court for the appointment of an examiner in its Chapter
11 case to investigate the merits and value, if any, of certain
Qest System claims against the Company, Eljer Manufacturing and
Household based upon alter ego and related theories of liability.
U.S. Brass contends that under bankruptcy law, such claims are
property of U.S. Brass by reason of its Chapter 11 filing. In the
motion, U.S. Brass submits that a prompt, independent investigation
of the merits and value, if any, of such claims is essential to the
formulation of a plan of reorganization for U.S. Brass. U.S. Brass
believes that the derivative Qest System claims have no merit and
no economic value, but recognizes that because its parent companies
are current and potential defendants with respect to such claims,
an independent investigation would be appropriate.
The Company believes that any attempts to disregard the
corporate separateness of U.S. Brass, Eljer Manufacturing and the
Company, and any direct claims that may be asserted against the
Company and Eljer Manufacturing relating to the Qest System cases,
would be without merit, and the Company would vigorously contest
any such claims. However, if any such derivative and/or direct
claims were successfully asserted against the Company or Eljer
Manufacturing during the pendency of the U.S. Brass bankruptcy
proceeding, it could, depending upon the availability of insurance
coverage for costs and indemnity, have a material adverse effect on
the Company's liquidity and financial condition and on its ability
to continue to meet its financial obligations. No assurances can
be given that the reorganization of U.S. Brass will successfully be
concluded or, if it is concluded, what the effects to U.S. Brass
and the Company would be.
OTHER
On June 10, 1994, the United States Supreme Court denied the
petition for certiorari filed by Eljer Manufacturing in the
previously disclosed Kowin Development Company ("Kowin")
litigation. The litigation resulted from a failed manufacturing
joint venture in the People's Republic of China. On June 30, 1994,
a final judgment was entered and Kowin was paid approximately $11.6
million of the $13.2 million cash bond previously posted by Eljer
Manufacturing for any payments it might ultimately owe in this
litigation. The amount of the judgment and related costs were
included in a charge against earnings in 1992. Two related
lawsuits, as discussed in Note (13) "Contingencies" to the
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the year ended January 2, 1994, remain pending.
Reference is made to Note (13) "Contingencies" and Note (14)
"Relationship with Household" to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended January 2, 1994, as filed with the Securities and Exchange
Commission.
(5) INCOME TAXES:
------------
The Company's income tax benefit is a result of European and
Canadian pretax losses in 1994 and the Company's utilization of
previously reserved deferred tax benefits in the United States.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Results of Operations
- - ---------------------
Net sales increased by approximately $14.1 million to $194.2
million for the six-month period ended July 3, 1994, compared to
the six-month period ended July 4, 1993, a 7.8% increase. Net
sales increased by approximately $18.8 million, or 22.3% for the
three-month period ended July 3, 1994, compared to the same period
in 1993. The significant increase is the result of strong
performances in substantially all North American markets where the
Company benefitted from an improving housing economy and has
further penetrated its traditional channels of distribution and
retail chains. Sales of products in North America in the first
half of 1994 increased $18.6 million over the first half of 1993.
Gross profit margin decreased to 26.6% for the six-month
period ended July 3, 1994, from 27.8% for the comparable 1993
period and decreased to 26.5% for the second quarter of 1994
compared to 28.4% for the same period in 1993. These declines were
the result of a significant reduction in the level of sales of
higher margin products in Europe, where the market has remained
soft. The Company is in the process of reengineering the European
operations to reduce costs and anticipates that the benefits of
these changes may be realized as early as the fourth quarter of
1994. Gross profit margins in North America improved to 25.9% in
the first six months of 1994 from 24.6% in the 1993 period.
Total selling and administrative expenses through July 3,
1994, were $2.0 million and $1.3 million higher, respectively, for
the six-month and three-month periods then ended, as compared to
the 1993 levels. The increases resulted primarily from higher
research, development and selling costs related to the
implementation of new plumbing products in North America and higher
sales commissions due to the increased level of sales volume in
that market. Litigation costs were approximately $467,000 lower in
the first six months of 1994 compared to the same period in 1993
due to the settlement of certain 1993 legal issues and the
Company's ongoing efforts to control litigation costs. However,
litigation costs are expected to increase in the second half of
1994 due to the bankruptcy filing of U.S. Brass.
Other expense, net, remained relatively stable, declining only
$42,000 in the first six months of 1994 compared to the same period
in 1993, and increasing $33,000 in the second quarter of 1994 over
the 1993 quarter. Interest expense in the first six months of 1994
decreased $1.1 million or 14.5% from the 1993 period. The decrease
is due to the April 1994 expiration of an unfavorable interest rate
swap agreement. Interest expense related to the swap agreement was
approximately $1.3 million in the first six months of 1994 and
approximately $2.2 million in the first six months of 1993.
Income tax expense was reduced from $1.0 million and $637,000
in the first six months and second quarter of 1993, respectively,
to tax benefits of $1.1 million and $288,000 for the comparable
1994 periods. This was due to European and Canadian pretax losses
in 1994 and the Company's utilization of previously reserved
deferred tax benefits in the United States.
<PAGE>
Liquidity and Capital Resources
- - -------------------------------
The net cash used in operating activities of $946,000 for the
six months ended July 3, 1994, was $19.1 million less than the net
cash used in operating activities for the comparable 1993 period.
The cash usage in the 1993 period included a deposit of
approximately $12.6 million in lieu of an appeal bond for the
previously disclosed Kowin litigation, in addition to other costs
and fees associated with this lawsuit. On June 30, 1994, following
refusal of the United States Supreme Court to review the opinion of
the Appeals Court, a final judgment was entered in this suit,
approximately $11.6 million was paid to Kowin and approximately
$2.1 million of related amounts previously paid, including interest
thereon, was reimbursed to the Company.
Capital expenditures for the first six months of 1994 were
$4.9 million, primarily for the replacement and improvement of
capital equipment at various locations.
The Company experienced an increase in short-term borrowings
during the first half of 1994 related mainly to revolving debt at
the Company's indirect, wholly-owned subsidiary, U.S. Brass and the
Company's Selkirk subsidiaries in Europe. The Company reduced its
long-term borrowings by $6.5 million due primarily to the principal
repayment required under the First Amendment to Amended and
Restated Credit Agreement (the "Amendment") as discussed in the
Company's Annual Report on Form 10-K for the year ended January 2,
1994. Under the terms of the Amendment, $2.0 million, $4.0 million
and $11.0 million principal payments are scheduled for October 5,
1994, December 30, 1994 and December 29, 1995, respectively, with
the balance becoming due at the April 30, 1996 maturity date. The
Company will be working toward some manner of debt restructuring
prior to the maturity of the Amendment in April 1996. Neither the
Company nor any of it subsidiaries has any commitment with respect
to restructurings or other sources of financing and there can be no
assurance that any such commitments can be obtained prior to the
maturity of the Amendment.
In connection with the Amendment, the maturity date related to
the accounts receivable sale program was accelerated to September
30, 1994. The Company is currently having discussions with other
potential lenders to replace this facility and, while there can be
no assurance in this regard, anticipates it will be successful.
The structure of a new facility may be different from that of the
current program.
As discussed in the Company's Report on Form 8-K dated May 27,
1994, and in Note (2) to the Condensed Consolidated Financial
Statements in Item 1, on May 23, 1994, U.S. Brass filed a voluntary
petition for reorganization under Chapter 11 of the Bankruptcy
Code. On June 28, 1994, U.S. Brass obtained a final order from
the Bankruptcy Court authorizing U.S. Brass to enter into a debtor-
in-possession financing agreement (the "DIP Financing Agreement")
with Congress Financial Corporation (Southwest) ("Congress"), which
had provided secured financing for working capital purposes prior
to the Petition Date. Pursuant to the DIP Financing Agreement,
Congress has agreed to provide loans and advances in an amount not
to exceed $20 million when added to the outstanding amount of
advances made by Congress prior to the Petition Date. As of July
3, 1994, the outstanding principal amount of such advances was
approximately $12.0 million. As security for the financing under
the DIP Financing Agreement, the Bankruptcy Court authorized U.S.
Brass to grant first priority liens and security interests to
Congress over certain present and future accounts receivable and
inventory of U.S. Brass generated on and after the Petition Date
and certain other assets. U.S. Brass believes that it will have
sufficient cash resources and financing to meet trade obligations
and cover operating and restructuring expenses during the pendency
of its reorganization proceedings. During the pendency of its
reorganization proceedings, U.S. Brass intends to pay all post-
Petition Date operating expenses (including trade obligations) in
the ordinary course of business.
U.S. Brass believes that a substantial portion of its non-
trade prepetition liabilities are covered by insurance. However,
U.S. Brass is currently unable to estimate the potential liability,
if any, for which it may ultimately be responsible. If the
ultimate liability exceeds available insurance coverage and the
Company is found to be either directly or indirectly responsible
under an alter ego or related theory of liability, it could have a
material and adverse impact on the Company's liquidity and
financial condition and on its ability to continue to meet its
financial obligations. No assurances can be given that the
reorganization of U.S. Brass will successfully be concluded or, if
it is concluded, what the effects to U.S. Brass and the Company
would be. (See also Note (4) to the Condensed Consolidated
Financial Statements in Part I, Item 1 in this report and Note (13)
"Contingencies" to the Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended January 2,
1994.)
PART II--OTHER INFORMATION
- - --------------------------
Item 1. LEGAL PROCEEDINGS
-----------------
See Note (4) to the Condensed Consolidated Financial
Statements in Part I, Item 1 of this report and Note (13)
"Contingencies and Note (14) "Relationship with Household" to the
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the fiscal year ended January 2, 1994, as filed with
the Securities and Exchange Commission, which are made a part
hereof by this reference.
On June 1, 1994, a federal district judge in Oklahoma City,
Oklahoma, entered an order denying U.S. Brass' motions for judgment
notwithstanding verdict and for a new trial in a previously-
announced lawsuit involving a modified "crimping tool" used in the
installation of the Qest Systems. A jury in 1993 had returned a
judgment in the amount of $1.2 million against U.S. Brass.
Plaintiffs' request for approximately $450,000 in lawyers fees has
not been ruled upon by the court. U.S. Brass believes that the
judgment is erroneous and has filed its notice of appeal with the
Court of Appeals for the 10th Circuit.
As discussed in Note (4) to the Condensed Consolidated
Financial Statements in Part I, Item 1, on June 10, 1994, the
United States Supreme Court denied the petition for certiorari
filed by Eljer Manufacturing in the previously disclosed Kowin
litigation. The litigation resulted from a failed manufacturing
joint venture in the People's Republic of China. On June 30, 1994,
a final order was entered and Kowin was paid approximately $11.6
million of the $13.2 million bond previously posted by Eljer
Manufacturing for any payments it might ultimately owe in this
litigation. The award and related costs were included in a charge
against earnings in 1992. Two related lawsuits, as discussed in
Note (13) "Contingencies" to the Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the year ended
January 2, 1994, remain pending.
The Consumer Product Safety Commission ("CPSC") has initiated
an investigation under Section 15 of the Consumer Product Safety
Act as to whether a vent pipe product manufactured by Plexco
Performance Pipe Division-Chevron Chemical Company poses a
substantial product hazard under the Act. The vent is used to
exhaust combustion gases from mid- and high-efficiency small water
boilers and central heating furnaces. Eljer Manufacturing's
Selkirk division ("Selkirk") distributed the Plexco vent pipe from
mid-1990 until the end of 1993. Selkirk then began manufacturing
and selling a vent pipe product in January, 1994. Selkirk has
responded to an informal request for information from the CPSC and
has also sent samples, as requested, of its own vent pipe product.
The status, as well as the scope and extent of the CPSC
investigation are unknown. However, by law, the CPSC may
direct repair, replacement or refund of any product that it
believes poses a substantial product hazard. Selkirk believes that
its vent product does not exhibit the same characteristics as the
Plexco product, but is continuing to test and monitor its product.
Item 2. CHANGES IN SECURITIES
---------------------
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) The annual meeting of shareholders of the Company
was held at 9:00 a.m., local time, on Tuesday,
June 21, 1994 in Addison, Texas.
(b) Proxies were solicited by the Board of Directors of
the Company pursuant to Regulation 14A under the
Securities Exchange Act of 1934. There was no
solicitation in opposition to the Board of Directors'
nominee as listed in the proxy statement and such
nominee was duly elected.
(c) Out of a total of 7,107,326 shares of common stock
of the Company outstanding and entitled to vote,
6,314,836 shares were present in person or by proxy,
representing approximately 89%. Matters voted on by
the shareholders, as fully described in the proxy
statement for the annual meeting, were as follows:
(1) C.A. Rundell, Jr. was nominated to serve a
three-year term on the Board of Directors of
the Company. The results of voting on Messr.
Rundell were as follows:
Number of Shares
Number of Shares WITHHOLDING AUTHORITY
Voting FOR Election to Vote for Election
as Director as Director
------------------- ----------------------
6,143,732 171,104
(2) Shareholders also voted on a proposal to ratify
the appointment of Arthur Andersen & Co. as the
independent auditors of the Company. There were
no broker nonvotes with respect to this matter.
The results of voting were as follows:
For - 6,239,476 Against - 41,115 Withhold Authority - 34,245
Item 5. OTHER INFORMATION
-----------------
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
A report on Form 8-K was filed on May 27, 1994, related
to the announcement that U.S. Brass filed a voluntary
petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code. See Note (2) and Note (4) to
the Condensed Consolidated Financial Statements in Part
I, Item 1 for additional discussion.
<PAGE>
Subsequent Reports on Form 8-K:
None
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
ELJER INDUSTRIES, INC.
Date August 16, 1994 By /s/ Henry W. Lehnerer
------------------------- ---------------------------
Henry W. Lehnerer
Vice President - Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
