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 2, 1995
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 11, 1995 there were 7,136,652 shares of registrant's common stock
outstanding.
<PAGE>
ELJER INDUSTRIES, INC.
FORM 10-Q
July 2, 1995
INDEX
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
CondensedConsolidated Statements of Income for the six months
ended July 2, 1995 and July 3, 1994.
CondensedConsolidated Statements of Income for the three
months ended July 2, 1995 and July 3, 1994
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
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<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
2, 1995 3, 1994
----------- ----------
<S> <C> <C>
NET SALES $ 191,471 $ 194,231
COST OF SALES 145,263 142,528
---------- ----------
GROSS PROFIT 46,208 51,703
SELLING & ADMINISTRATIVE EXPENSES 38,419 40,325
LITIGATION AND RELATED COSTS 2,251 3,271
---------- ----------
INCOME FROM OPERATIONS 5,538 8,107
OTHER EXPENSE, net 931 757
INTEREST INCOME 994 743
INTEREST EXPENSE 7,659 6,399
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (2,058) 1,694
INCOME TAX EXPENSE (BENEFIT) 30 (1,052)
---------- ----------
NET INCOME (LOSS) $ (2,088) $ 2,746
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.29) $ 0.39
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,130 7,110
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
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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
2, 1995 3, 1994
----------- ----------
<S> <C> <C>
NET SALES $ 92,416 $ 103,356
COST OF SALES 69,606 75,921
---------- ----------
GROSS PROFIT 22,810 27,435
SELLING & ADMINISTRATIVE EXPENSES 18,938 20,415
LITIGATION AND RELATED COSTS 758 1,911
---------- ----------
INCOME FROM OPERATIONS 3,114 5,109
OTHER EXPENSE, net 827 432
INTEREST INCOME 417 367
INTEREST EXPENSE 3,953 2,946
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (1,249) 2,098
INCOME TAX BENEFIT (43) (288)
---------- ----------
NET INCOME (LOSS) $ (1,206) $ 2,386
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.17) $ 0.34
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,130 7,121
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
July January
A S S E T S 2, 1995 1, 1995
----------- --------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & temporary cash investments $ 6,546 $ 26,109
Restricted cash 17,160 17,266
Trade accounts receivable, net of
reserves of $8,352 and $7,696 68,425 65,332
Inventories 73,735 68,249
Other current assets 6,127 5,603
-------- --------
Total current assets 171,993 182,559
PROPERTIES & EQUIPMENT, net of accumulated
depreciation of $106,287 and $101,328 63,175 59,924
COST IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, net 11,103 11,281
OTHER ASSETS 3,111 3,293
-------- --------
$249,382 $257,057
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
July January
LIABILITIES AND SHAREHOLDERS' EQUITY 2, 1995 1, 1995
------------------------------------ ------------ ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt $ 40,566 $ 43,065
Trade accounts payable 16,311 17,705
Prepetition liabilities subject to compromise 29,958 32,868
Accrued expenses 60,064 64,675
---------- ----------
Total current liabilities 146,899 158,313
LONG-TERM DEBT 87,928 83,021
POSTRETIREMENT BENEFITS 40,391 40,353
OTHER LIABILITIES 14,399 14,067
DEFERRED INCOME TAXES 1,000 882
---------- ----------
Total liabilities 290,617 296,636
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value,
50,000,000 shares authorized;
7,136,652 and 7,129,626 shares outstanding 7,186 7,186
Additional capital 78,965 78,936
Accumulated deficit (121,558) (119,470)
Foreign currency translation adjustments (5,778) (6,174)
Treasury stock (50) (57)
---------- ----------
Total shareholders' equity (deficit) (41,235) (39,579)
---------- ----------
$ 249,382 $ 257,057
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
July July
2, 1995 3, 1994
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,088) $ 2,746
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Depreciation and amortization 4,870 5,171
Loss on disposition of fixed assets 74 283
Stock issued as compensation 36 273
Changes in assets and liabilities-
Trade accounts receivable (2,516) (10,762)
Inventories (4,876) (908)
Trade accounts payable and accrued
expenses (8,605) 559
Accrued litigation - Kowin Development (40) 2,053
Postretirement benefits 38 689
Other assets (436) (1,761)
Other, net (1,456) 711
---------- ----------
Net cash used in operating activities (14,999) (946)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (7,899) (4,943)
Proceeds from disposition of properties
and equipment 241 196
---------- ----------
Net cash used in investing activities (7,658) (4,747)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 3,127 10,296
Decrease in long-term debt (778) (6,547)
Collateralization of letters of credit 200 (533)
---------- ----------
Net cash provided by financing activities 2,549 3,216
---------- ----------
EFFECTS OF EXCHANGE RATES ON CASH 545 (101)
---------- ----------
NET DECREASE IN CASH & TEMPORARY
CASH INVESTMENTS (19,563) (2,578)
CASH & TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 26,109 23,439
---------- ----------
CASH & TEMPORARY CASH INVESTMENTS,
END OF PERIOD $ 6,546 $ 20,861
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<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. ("Eljer Industries") and its wholly-owned subsidiaries
(collectively, the "Company") after the elimination of intercompany transactions
and balances.
Accounting policies used in the preparation of the quarterly condensed
consolidated financial statements 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 1, 1995,
as filed with the Securities and Exchange Commission (the "Company's 1994 Form
10-K"). 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 necessarily 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 Company's 1994 Form
10-K.
(2) BANKRUPTCY OF UNITED STATES BRASS CORPORATION:
As previously reported, on May 23, 1994, (the "Petition Date") Eljer
Industries' indirect, wholly-owned subsidiary, United States Brass Corporation
("U.S. Brass") 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 resulting from the
Qest polybutylene plumbing systems (the "Qest system") and related litigation
and to seek confirmation of a plan of reorganization ("Plan") which, among other
things, provides for the payment, satisfaction and discharge of all claims
against U.S. Brass involving the Qest system. U.S. Brass is conducting its
business and managing its properties as a debtor-in-possession under Section
1108 of the Bankruptcy Code subject to the supervision and orders of the
Bankruptcy Court. See the Company's 1994 Form 10-K for a discussion of the U.S.
Brass bankruptcy, including discussion of the Qest system litigation, related
insurance coverage, claims filed in the U.S. Brass bankruptcy proceeding and
claims against the Company.
As previously disclosed, on March 22, 1995, U.S. Brass, Eljer
Industries and Eljer Manufacturing, Inc. ("Eljer Manufacturing") filed with the
Bankruptcy Court a proposed Plan for U.S. Brass under Chapter 11 of the
Bankruptcy Code (the "Brass Plan") and a proposed disclosure statement (the
"Brass Disclosure Statement"). The Brass Plan provided, among other things, for
the establishment of a trust to be used to liquidate claims against U.S. Brass
arising out of the Qest system. The Brass Plan provided that persons, subject to
Bankruptcy Court approval, could make contributions to the trust (such
contributors to the trust being known as "Settling Parties"). The Brass Plan
included proposed settlements with Eljer Industries, Eljer Manufacturing and
Shell Chemical Company ("Shell") as Settling Parties. Holders of claims
involving the Qest system would be enjoined from pursuing claims against
Settling Parties. On May 16, 1995, the Bankruptcy Court denied approval of the
Brass Disclosure Statement because
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<PAGE>
it did not believe that it could approve a Plan that precluded actions against
Settling Parties to the trust.
Eljer Industries and Eljer Manufacturing have filed a Petition for
Reconsideration to the ruling of the Bankruptcy Court. The Petition for
Reconsideration is pending. Additionally, U.S. Brass, Eljer Manufacturing and
the Company have filed an Amended Plan of Reorganization (the "Amended Brass
Plan") and an Amended Disclosure Statement (the "Amended Brass Disclosure
Statement") on June 16, 1995. As with the Brass Plan, the Amended Brass Plan
contains proposed settlements with Eljer Industries, Eljer Manufacturing and
Shell as Settling Parties. The Amended Brass Plan is different in several
respects from the Brass Plan. If the Amended Brass Plan is confirmed and the
Settling Parties are approved, then holders of claims involving the Qest
system are enjoined from pursuing claims against Settling Parties only as
long as the trust contains assets. When and if the trust contains no more
assets, the injunctions may be lifted and persons with claims involving the
Qest system may pursue actions directly against any Settling Party. The
Amended Brass Plan may be confirmed even if the proposed settlements are not
approved. The Amended Brass Disclosure Statement is currently set for hearing on
August 22, 1995.
As previously reported in the Company's Form 10-Q for the quarterly
period ended April 2, 1995, on April 7, 1995, the Official Polybutylene
Claimants Committee (the "PB Committee") in the U.S. Brass Bankruptcy filed a
proposed plan of reorganization ("the PB Committee Plan") and proposed
disclosure statement (the "PB Committee Disclosure Statement"). On June 20,
1995, a hearing was held on the PB Committee Disclosure Statement during which
the Bankruptcy Court heard objections previously filed by various parties,
including U.S. Brass, Eljer Manufacturing and the Company, to the PB Committee
Disclosure Statement. The Bankruptcy Court has given no indication of when it
will rule on the objections.
On June 20, 1995, in response to the PB Committee Plan, Hoechst
Celanese Corporation ("Hoechst Celanese") filed a motion to convert the Chapter
11 reorganization case of U.S. Brass to a Chapter 7 liquidation. The Hoechst
Celanese motion asserts that a reorganization of U.S. Brass is not feasible
under the PB Committee Plan, but does not address the Amended Brass Plan. A unit
of Hoechst Celanese made the resin from which U.S. Brass molded Celcon acetal
fittings formerly used in the polybutylene plumbing systems. A hearing has been
set to be held on the Hoechst Celanese motion on August 22, 1995.
Also on June 20, 1995, the PB Committee withdrew its previously filed
motion to spend approximately $6.8 million on a proposed notice program for
claimants whose claims are based on or arise from the manufacture, marketing or
sale of the Qest system because such a notice campaign was not in the best
financial interest of U.S. Brass. Although it is likely that a notice program
will be implemented, the scope, cost or timing of that program has not been
determined.
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 as Prepetition liabilities subject to compromise on the Condensed
Consolidated Balance Sheets. 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 from the agreement of parties in interest, to allow claims
for contingencies and other disputed amounts. U.S. Brass will continue to
evaluate the claims filed in the bankruptcy proceeding and may make adjustments
in Prepetition liabilities subject to compromise. 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. U.S. Brass participates in various
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<PAGE>
intercompany transactions with its parent, Eljer Manufacturing and an affiliated
Canadian company and, at July 2, 1995, U.S. Brass had a net affiliate receivable
of approximately $1.7 million.
As previously reported, as a result of the uncertainties related to the
availability of insurance coverage and the ultimate outcome of the bankruptcy
proceeding, U.S. Brass recorded a charge against earnings in 1994 which reduced
its net book value to zero. U.S. Brass intends on adjusting its litigation
reserves during the course of the bankruptcy in order to maintain an equity
balance of zero. Accordingly, for the three month and six month periods, ended
July 2, 1995, U.S. Brass litigation reserves were reduced by approximately $1.0
million and $2.2 million, respectively, which also reduced U.S. Brass'
litigation expenses.
Selected financial data for U.S. Brass are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
July July
2, 1995 3, 1994
--------- --------
<S> <C> <C>
Net Sales to Nonaffiliate Customers .............. $ 39,644 $ 41,813
Sales to Affiliates .............................. 6,652 7,529
Reorganization Expenses .......................... 1,700 166
Income from Operations ........................... 702 2,409
Income Before Income Taxes ....................... -- 1,774
Net Income ....................................... -- 1,040
Cash Used in Operating Activities ................ (5,004) (6,185)
Cash Used in Investing Activities ................ (803) (1,191)
Cash Provided by Financing Activities ............ 6,277 8,019
Total Cash Flow .................................. 470 643
As of July As of January
2, 1995 1, 1995
--------- --------
Total Current Assets ............................. $ 38,560 $ 35,966
Total Assets ..................................... 55,223 52,725
Total Liabilities ................................ 55,223 52,725
Total Shareholders' Equity ....................... -- --
</TABLE>
Cash payments of reorganization expenses made during the six months ended July
2, 1995, were approximately $1.4 million.
(3) INVENTORIES:
Inventories consisted of the following (in thousands):
July January
2, 1995 1, 1995
------- -------
Finished goods $38,602 $35,105
Work in process 10,584 9,617
Raw materials 24,549 23,527
------- -------
Total inventories $73,735 $68,249
======= =======
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(4) LIQUIDITY AND CAPITAL RESOURCES:
In August 1995, the Company amended its U.S. term debt agreement to
extend the maturity date to January 31, 1997. Under the terms of the amendment,
a $3.0 million principal repayment was made in August 1995 in addition to a
$200,000 extension fee. Scheduled principal payments under the terms of the
amendment are $2.0 million in January 1996, $3.0 million in August 1996, and
$3.0 million in December 1996, with the remaining balance of $67.5 million due
at the January 31, 1997 maturity date. The $3.0 million December 1996 principal
payment may be accelerated to April 1996 if certain conditions related to the
U.S. Brass bankruptcy proceeding are not met.
(5) CONTINGENCIES:
Relationship with Household
On June 19, 1995, the Delaware Chancery Court enjoined the Company and
Eljer Manufacturing from proceeding with litigation against Household
International, Inc. ("Household") in any court other than the Superior Court in
Delaware. As a result, the Company and Eljer Manufacturing may not proceed with
their litigation against Household in Texas District Court where a trial had
been scheduled for September 1995. The Company has decided not to appeal the
Delaware Chancery Court ruling and the Superior Court in Delaware has set
November 27, 1995 as the date for a trial in Delaware.
On July 26, 1995, the Superior Court in Delaware heard arguments on
Household's motions for complete and partial summary judgment in the litigation
between Household, the Company and Eljer Manufacturing. The Superior Court did
not indicate when it would rule on Household's motions.
Kowin Development Company and Related Litigation
As reported in the Company's 1994 Form 10-K on October 24, 1994,
Winston and Dorothy Ko (the "Kos"), owners of Kowin Development Company and
Croft Investments, Ltd., filed a complaint in the Circuit Court of Cook County,
Illinois seeking individual damages of approximately $24 million from the
Company, Eljer Manufacturing and certain individual defendants flowing out of a
failed joint venture in the Peoples Republic of China. The defendants filed a
motion to dismiss which was granted by order entered on August 1, 1995. The
Circuit Court concluded that the action brought by the Kos was time barred and
dismissed the action. It is not known if the Kos will appeal the ruling.
Environmental Matters
PROPOSITION 65. As previously disclosed, the Company, Eljer
Manufacturing, U.S. Brass and approximately 15 other manufacturers and sellers
of residential and commercial brass faucets are defendants in lawsuits brought
by the Attorney General of the State of California and the Natural Resources
Defense Council and the Environmental Law Foundation alleging violations of
California's Safe Drinking Water and Toxic Enforcement Act of 1986. A
tentative settlement has been reached pursuant to which in exchange for
dismissal of both lawsuits, Eljer Manufacturing will pay $30,000, U.S. Brass
will allow the plaintiffs a general, unsecured $30,000
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claim in the U.S. Brass bankruptcy, both Eljer Manufacturing and U.S. Brass will
phase out the sale in California of leaded, brass faucets that exceed specified
NSF ("National Sanitation Foundation") standards, and, in the interim, warning
tags will be placed on faucets that exceed the specified NSF protocol. Under the
proposed settlement, neither Eljer Manufacturing nor U.S. Brass has any
affirmative obligation to market alternative brass faucets. It is not known when
the proposed settlement will become final.
MARYSVILLE, OHIO, FACILITY. As previously disclosed, the Company
received correspondence from the Ohio Attorney General threatening commencement
of a lawsuit for the Company's failure to renew financial assurance obligations
for the Marysville site under Ohio law. On July 7, 1995, the Company was
informed that the Ohio Attorney General intended to assess a $2.5 million civil
penalty for alleged past financial assurance violations for the Marysville site.
The Company continues to believe that it has meritorious defenses to the
imposition of the penalty and intends to vigorously defend against such penalty.
The Company has offered to place $8.5 million in cash in a trust which would be
used to pay for the clean-up at the Marysville site in order to meet the
financial assurance requirements. Negotiations with the Ohio Attorney General
regarding this matter are currently in the preliminary stages. Therefore, the
Company is unable to estimate the amount, if any, of penalty that may be
ultimately assessed.
The Company and certain of its subsidiaries are involved in litigation
related to the Qest system, environmental matters, and other matters which, if
determined adversely to the Company, may have a material adverse effect on its
financial condition or results of operations. Reference is made to Note (2)
"Bankruptcy of United States Brass Corporation", Note (13) "Contingencies" and
Note (14) "Relationship with Household" to the Consolidated Financial Statements
in the Company's 1994 Form 10-K, which is incorporated herein, for additional
discussion of contingencies and legal matters involving the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales decreased by approximately $2.8 million for the six month
period ended July 2, 1995, compared to the six month period ended July 3, 1994,
a 1.4% decrease. Net sales decreased by approximately $10.9 million to $92.4
million for the three-month period ended July 2, 1995, compared to the same
period in 1994. The sales declines were due primarily to a weaker North American
housing market. The second quarter decline is also due to the timing of sales
promotions between the first and second quarter. European operations achieved
increased sales of $2.8 million, or 10.6% substantially as a result of favorable
exchange rates, which partially offset the North American sales decreases.
Gross profit margin decreased to 24.1% for the six-month period ended
July 2, 1995, from 26.6% for the comparable 1994 period. The reduction in margin
was attributable to significant increases, both in North America and Europe, in
the cost of raw material, including brass, aluminum, stainless steel, copper and
polybutylene resin. The Company has implemented price increases on all product
lines during the first half of 1995. However, due to the significant levels of
increase in material costs and competitive pressures on the price of the
Company's products, the Company has not yet been able to fully offset the
material cost increases.
Total selling and administrative expenses through July 2, 1995, were
approximately $1.9 million and $1.5 million lower, respectively, for the six
month and three month periods then ended
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compared to the 1994 periods. As a percentage of sales, selling and
administrative expenses were reduced from 20.8% in the first six months of 1994
to 20.1% in the first six months of 1995. The reduction in expense is
attributable to reduced advertising expenses as well as lower costs throughout
the Company's European operations as a result of the successful completion of
the reengineering efforts in the latter part of 1994.
As previously reported, as a result of the uncertainties related to the
availability of insurance coverage and the ultimate outcome of the bankruptcy
proceeding, U.S. Brass recorded a charge against earnings in 1994 which reduced
its net book value to zero. U.S. Brass intends on adjusting its litigation
reserves during the course of the bankruptcy in order to maintain an equity
balance of zero. Accordingly, U.S. Brass litigation expense was reduced by
approximately $2.2 million and $1.0 million, respectively, for the six-month and
three-month period ended July 2, 1995, through a reduction of certain U.S. Brass
litigation reserves. Total litigation and related costs of $4.4 million were
reduced by this $2.2 million adjustment, resulting in net litigation and related
costs of $2.2 million in the first half of 1995 compared to $3.2 million in the
first half of 1994. The increase in total litigation costs is primarily a result
of the increased legal costs associated with the U.S. Brass bankruptcy
proceeding. See Note (2) "Bankruptcy of United States Brass Corporation" to the
Condensed Consolidated Financial Statements in Part I, Item 1 for additional
discussion.
Other expense, net, increased approximately $174,000 in the first six
months of 1995 compared to the comparable 1994 period, and increased $395,000 in
the second quarter of 1995 over the 1994 quarter. The increase is primarily due
to foreign currency transaction losses in the Company's European operations. In
1994, other expense for the first six months included $444,000 associated with a
$13 million accounts receivable sale program which was repaid during the fourth
quarter of 1994 from the proceeds of a new revolving credit agreement (the
"Revolver"). Interest expense in the first six months of 1995 increased
approximately $1.3 million over the same period in 1994, which is primarily
attributable to scheduled rate increases on debt and an amendment to the U.S.
term debt agreement effected in late 1994 to improve liquidity and higher prime
interest rates over the same period in 1994. These increases were offset
somewhat by the expiration of an unfavorable interest rate swap agreement in
April 1994, which added interest expense of $1.3 million to the first half of
1994.
Income tax expense increased to $30,000 for the first six months of
1995 from a benefit of $1.1 million for the same period in 1994. The tax benefit
in 1994 was due to European and Canadian pretax losses in the first half of
1994, and the Company's ability to utilize deferred tax benefits in the United
States. No tax benefit was recorded for the U.S. loss in the first half of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The net cash used in operating activities of $15.0 million for the six
months ended July 2, 1995, was $14.1 million more than the net cash used in
operating activities for the comparable 1994 period. The cash usage in the first
half of 1995 and 1994 included payments previously accrued of approximately $8.0
million and $5.4 million, respectively, to customers under purchase incentive
programs. The Company's inventories also increased by $4.8 million due to
increased cost of raw materials and build ups of certain materials prior to
announced price increases. The 1994 period included a $2.1 million reimbursement
of amounts previously paid in connection with the Kowin Development Company
litigation.
12
<PAGE>
Capital expenditures for the first six months of 1995 were $7.9 million
and included payments related to a new state-of-the-art kiln and dryers at the
Company's Tupelo, Mississippi, chinaware plant, enameling robots at the
Company's Salem, Ohio, cast iron plant, and new welded dual wall chimney
manufacturing equipment at the Company's United Kingdom plant.
The Company experienced an increase in short-term borrowings during the
first half of 1995 related mainly to an increase of $6.3 million in the
debtor-in-possession financing of U.S. Brass offset by a reduction in the
outstanding balance in the Revolver.
Overall, cash and temporary cash investments decreased $19.6 million
during the first six months of 1995. The decrease in cash and temporary cash
investments is primarily a seasonal decline due to the success of the annual
extended terms program, which allows customers to make purchases in the first
half of the year and defer payment until second half of the year, and normal
cash payments occurring in the first half of the year that do not repeat in the
second half of the year. Further, the Company continues to maintain
approximately $25 million of borrowing availability for its liquidity needs.
Eljer Manufacturing had term debt of $78.5 million outstanding at July
2, 1995. In August 1995, the Company amended its U.S. term debt agreement to
extend the maturity date to January 31, 1997. Under the terms of the amendment,
a $3.0 million principal repayment was made in August 1995 in addition to a
$200,000 extension fee. Scheduled principal payments are $2.0 million in
January 1996, $3.0 million in August 1996 and $3.0 million in December 1996,
with the balance becoming due at the January 31, 1997 maturity date. The $3.0
million December 1996 principal payment may be accelerated to April 1996 if
certain conditions related to the U.S.
Brass bankruptcy proceeding are not met.
As previously reported in the Company's 1994 Form 10-K, after March 31,
1992, the Company was unable to demonstrate financial responsibility for
closure, post-closure and third party liability with respect to its Salem, Ohio,
facility and its Marysville, Ohio, site. On September 30, 1994, the U.S.
Department of Justice ("DOJ") proposed payment related to the Salem site of a
cash penalty of $175,000 with an additional fine of $912,000 to be held in
abeyance pending completion of the site closure activities. The deferred amount
would then be waived if the Company continues to comply with the financial
responsibility requirements of the December 1990 consent decree. On October 19,
1994, the Company accepted the DOJ offer pending agreement on a modification to
the December 1990 consent decree which has not yet been reached. The Company
believes it currently meets its financial responsibility requirements regarding
the Salem site although the Ohio Environmental Protection Agency ("Ohio EPA")
has asserted that the Company has not posted sufficient collateral to cover the
cost of post-closure care. The Company disputes the Ohio EPA's contention and
intends to resolve this issue prior to entering into final agreement with the
DOJ on the penalties discussed above.
In addition, as previously disclosed, the Company received
correspondence from the Ohio Attorney General threatening commencement of a
lawsuit for the Company's failure to renew financial assurance obligations for
the Marysville site under Ohio law. On July 7, 1995, the Company was informed
that the Ohio Attorney General intended to assess a $2.5 million civil penalty
for alleged past financial assurance violations for the Marysville site. The
Company continues to believe that it has meritorious defenses to the imposition
of the penalty and intends to vigorously defend against such penalty. The
Company has offered to place $8.5 million in cash in a trust which will be used
to pay for the clean-up at the Marysville site in order to meet the financial
assurance requirements. Negotiations with the Ohio Attorney General regarding
this
13
<PAGE>
matter. are currently in the preliminary stages. Therefore, the Company is
unable to estimate the amount, if any, of penalty that may be ultimately
assessed.
As previously reported, U.S. Brass filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
The purpose of the filing is to resolve systematically the issues resulting from
the Qest system and related litigation and to seek confirmation of a Plan which,
among other things, will provide for the payment, satisfaction and discharge of
all claims against U.S. Brass involving the Qest system. There have been two
proposed Plans filed with the Bankruptcy Court, which are discussed more fully
in Note (2) "Bankruptcy of United States Brass Corporation" to the Condensed
Consolidated Financial Statements in Part I, Item 1. The Amended Brass Plan was
filed on June 16, 1995. A hearing date of August 22, 1995, has been set for the
amended Brass Disclosure Statement which was filed in connection with the
Amended Brass Plan.
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, Eljer Industries and Eljer Manufacturing would be. The resolution of the
U.S. Brass bankruptcy could involve the Company losing its control over U.S.
Brass. The possibility also exists that settlement of claims against the
Company, as previously discussed in the Company's 1994 Form 10-K, could, among
other things, result in a change in the Company's equity structure. These
matters create a substantial doubt about the Company's ability to continue as a
going concern in its present consolidated form.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note (2) "Bankruptcy of United States Brass Corporation" to the
Condensed Consolidated Financial Statements in Part I, Item 1 of this report and
Note (2) "Bankruptcy of United States Brass Corporation", Note (13)
"Contingencies" and Note (14) "Relationship with Household" to the Consolidated
Financial Statements in the Company's 1994 Form 10-K, which are made a part
hereof by this reference.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
14
<PAGE>
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4 Third Amendment to Amended and Restated
Credit Agreement dated as of August 15, 1995
27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on May 25, 1995, related to
United States Bankruptcy Court's ruling denying approval of
the U.S. Brass disclosure statement.
Subsequent Reports on Form 8-K
None
15
<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 autho- rized.
ELJER INDUSTRIES, INC.
Date: AUGUST 16, 1995 By:/S/ BROOKS F. SHERMAN
-------------------------- ---------------------
Brooks F. Sherman
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<PAGE>
THIRD AMENDMENT
THIS THIRD AMENDMENT (this "AMENDMENT") is entered into as of August
15, 1995, among the undersigned. Terms not defined in this Amendment have the
respective meanings given such terms in the Credit Agreement defined below.
RECITALS
A. Reference is made to that certain AMENDED AND RESTATED CREDIT
AGREEMENT (as amended, supplemented, or replaced, the "CREDIT AGREEMENT") dated
as of December 11, 1992, executed by ELJER MANUFACTURING, INC., a Delaware
corporation (the "BORROWER"); ELJER INDUSTRIES, INC., a Delaware corporation
(the "PARENT GUARANTOR"); the financial institutions from time to time parties
thereto; NATIONSBANK OF TEXAS, N.A., ("NATIONSBANK"), as a Bank and a co-agent
and the administrative agent for itself and the other Banks; and MORGAN GUARANTY
TRUST COMPANY OF NEW YORK ("MORGAN GUARANTY"), as a Bank and a co-agent for
itself and the other Banks.
B. The undersigned desire to amend the Credit Agreement.
NOW THEREFORE, the undersigned agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, all capitalized
terms shall have the same meanings as in the Credit Agreement.
2. CHANGES TO DEFINITIONS.
(a) The definition of "Applicable Margin" in SECTION 1.1
of the Credit Agreement is amended to read as follows:
APPLICABLE MARGIN means, for any day, the margin of interest
over the Prime Rate that is applicable when any interest rate is
determined under this Agreement, as follows:
Applicable
Time Period Margin
------------- ----------
From March 25, 1994, through September 30, 1994 .......................1.5%
From October 1, 1994, through March 31, 1995 ..........................3.0%
From April 1, 1995, through September 30, 1995 ........................3.5%
From October 1, 1995, through March 31, 1996 ..........................4.0%
From April 1, 1996, through September 30, 1996 ........................4.5%
From October 1, 1996, through January 1, 1997 .........................5.0%
<PAGE>
(b) The definition of "Maturity Date" in SECTION 1.1 of
the Credit Agreement is amended to read as follows:
MATURITY DATE means the earlier of (a) January 1,
1997, and (b) the effective date that the Banks' obligations
to extend or maintain credit hereunder are otherwise canceled
or terminated in accordance with provisions herein.
(c) SECTION 1.2 of the Credit Agreement is amended to
read as follows:
SECTION 1.2 ACCOUNTING TERMS AND DETERMINATIONS.
Subject to the last sentence of this SECTION 1.2 and as
otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder
shall be made, and all financial statements required to be
delivered hereunder shall be prepared, in accordance with
United States generally accepted accounting principles as in
effect from time to time, applied on a basis consistent
(except for changes concurred in by the Parent Guarantor's
independent public accountants) with the most recent audited
consolidated financial statements of the Parent Guarantor and
its Consolidated Subsidiaries delivered to the Banks; provided
that, if the Borrower notifies the Administrative Agent that
the Borrower wishes to amend any covenant contained in SECTION
6, 7, or 8 to eliminate the effect of any change in generally
accepted accounting principles on the operation of such
covenant (or if the Administrative Agent notifies the Borrower
that the Required Banks wish to amend any such covenant for
such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of generally
accepted accounting principles in effect immediately before
the relevant change in generally accepted accounting
principles became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory
to the Borrower and the Required Banks. Notwithstanding the
fact that this sentence may reflect a departure from United
States generally accepted accounting principles, to the extent
that calculation of any financial covenants in the Loan Papers
involve foreign currency translations from United States
dollars to British pounds sterling, Italian lira, German
deutsche marks, or French francs (or vice versa), such foreign
currency translations shall occur at the following translation
rate regardless of when made:
One United States dollar equals 0.625 British
pounds sterling, 1538 Italian lira, 1.49 German
deutsche marks, and 5.12 French francs
One British pound sterling equals 1.60 United States
dollars
One Italian lira equals .00065 United States dollars
-2-
<PAGE>
One German deutsche mark equals .671 United
States dollars
One French franc equals .195 United States
dollars
3. PAYMENTS; PREPAYMENTS; ORDER OF APPLICATION. SECTION 2.5(E)
of the Credit Agreement is amended to read as follows:
(e) On or before January 31, 1996, the Borrower shall
pay as a mandatory prepayment of the Obligation an amount sufficient to
reduce the Principal Debt outstanding on that date by at least
$2,000,000. On or before August 31, 1996, the Borrower shall pay as a
mandatory prepayment of the Obligation an amount sufficient to reduce
the Principal Debt outstanding on that date by at least $3,000,000. On
or before December 31, 1996, the Borrower shall pay as a mandatory
prepayment of the Obligation an amount sufficient to reduce the
Principal Debt outstanding on that date by at least $3,000,000;
provided that if (i) an Order confirming a Plan of Reorganization or
(ii) an Order approving a settlement with a court-appointed trustee,
shall not have been entered in the bankruptcy proceedings of U.S. Brass
presently pending in the United States Bankruptcy Court for the Eastern
District of Texas on or before April 30, 1996, such mandatory
prepayment of $3,000,000 shall be due and payable on or before May 1,
1996.
4. COVENANTS. Section 8 of the Credit Agreement is amended in its
entirety to read as follows:
SECTION 8
FINANCIAL COVENANTS
Until the Obligation has been paid and performed in full, and
unless a deviation therefrom is permitted by the Required Banks, the
Parent Guarantor and the Borrower, for themselves and the other Related
Companies, jointly and severally agree as follows:
SECTION 8.1 CAPITAL EXPENDITURES. No Related Company
(including, without limitation, U.S. Brass) will, directly or
indirectly, make expenditures for the acquisition, construction,
improvement, or replacement of land, buildings, equipment, or other
fixed or capital assets or leaseholds (excluding expenditures properly
chargeable to repairs or maintenance), other than expenditures which
are for or related to assets or leaseholds used or useful in the normal
business operations of such Related Company and which, together with
all other such expenditures by any other Related Company, do not exceed
the following limits (which, for calendar year 1995, may be adjusted
upward by the unused amount of the previous year's maximum amount to
the extent that in 1994 the following projects, designated to the Bank
as "high priority" by the Borrower and Parent Guarantor were not
completed: the addition of new chinaware capacity, including new kilns
at the Ford City and Tupelo plants, welded chimney equipment at Selkirk
Europe
-3-
<PAGE>
U.S.A., Inc., Eljer Industries, Ltd. and their subsidiaries, and
robotics improvements in the area of cast iron tub production):
Calendar Year Maximum Amount
1995 $11,593,000
1996 $12,000,000
SECTION 8.2 MINIMUM ADJUSTED TANGIBLE NET WORTH - PARENT
GUARANTOR. At the end of any fiscal quarter listed below, the Adjusted
Tangible Net Worth - Parent Guarantor shall not be less than the
applicable minimum amount set forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
6/30/95 $(34,260,000)
9/30/95 $(30,225,000)
12/31/95 $(26,085,000)
3/31/96 $(23,123,000)
6/30/96 $(24,303,000)
9/30/96 $(20,446,000)
12/31/96 $(17,091,000)
For purposes of the calculations in this SECTION 8.2 and in SECTION
8.3, below, accruals for post-retirement benefits according to
Financial Accounting Standards No. 106 will be reflected after December
31, 1993.
SECTION 8.3 MINIMUM ADJUSTED TANGIBLE NET WORTH - U.S. ONLY.
At the end of any fiscal quarter listed below, the Adjusted Tangible
Net Worth - U.S. Only shall not be less than the applicable minimum
amount set forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
6/30/95 $(111,822,000)
9/30/95 $(110,014,000)
12/31/95 $(108,015,000)
3/31/96 $( 98,899,000)
6/30/96 $( 98,576,000)
9/30/96 $( 96,551,000)
12/31/96 $( 94,658,000)
-4-
<PAGE>
SECTION 8.4 MINIMUM CONSOLIDATED CASH FLOW FROM OPERATING
ACTIVITIES - Parent Guarantor. For the period of four consecutive
fiscal quarters ending with the fiscal quarter listed below, the
consolidated Cash Flow From Operating Activities for the Parent
Guarantor and its Consolidated Subsidiaries (excluding U.S. Brass and
any compensation earned from U.S. Brass under the U.S. Brass - EMI Tax
Sharing Agreement) shall not be less than the applicable minimum amount
set forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
6/30/95 $( 300,000)
9/30/95 $(1,500,000)
12/31/95 $(3,000,000)
3/31/96 $ 7,000,000
6/30/96 $10,000,000
9/30/96 $ 8,000,000
12/31/96 $ 5,000,000
SECTION 8.5 MINIMUM CONSOLIDATED CASH FLOW FROM OPERATING
ACTIVITIES - U.S. Only. For the period of four consecutive fiscal
quarters ending with the fiscal quarter listed below, the consolidated
Cash Flow From Operating Activities for the Parent Guarantor and its
Consolidated Subsidiaries (excluding U.S. Brass and any foreign
Subsidiaries, any interest income resulting from the Permitted Debt
described in ITEMS 7 AND 8 on SCHEDULE 5.15, and any compensation
earned from U.S. Brass under the U.S. Brass - EMI Tax Sharing
Agreement) shall not be less than the applicable minimum amount set
forth below opposite such fiscal quarter:
Fiscal Quarter Minimum
Ending On Or About Amount
6/30/95 $(8,000,000)
9/30/95 $(7,000,000)
12/31/95 $(7,000,000)
3/31/96 $ 6,000,000
6/30/96 $ 5,000,000
9/30/96 $ 5,000,000
12/31/96 $ 500,000
SECTION 8.6 MINIMUM CURRENT RATIO - PARENT GUARANTOR. At no
time after the date hereof shall the ratio of the consolidated current
assets (excluding any compensation payable by U.S. Brass under the U.S.
Brass - EMI Tax Sharing Agreement) to the consolidated current
liabilities (excluding current maturities of Restricted Debt and any
-5-
<PAGE>
amounts accrued in connection with the Kowin-Simonds Lawsuit) of the
Parent Guarantor and its Consolidated Subsidiaries (excluding U.S.
Brass) be less than 1.60 to 1.00.
SECTION 8.7 FIXED CHARGE COVERAGE RATIO - PARENT GUARANTOR.
For any fiscal quarter listed below, the Fixed Charges Coverage Ratio
for the Parent Guarantor and its Consolidated Subsidiaries (excluding
U.S. Brass) for the period of four consecutive fiscal quarters ending
with such fiscal quarter shall not be less than (i) the number set
forth below opposite such fiscal quarter to (ii) 1.00:
Fiscal Quarter
Ending On Or About Number
6/30/95 0.75
9/30/95 0.55
12/31/95 0.75
3/31/96 0.80
6/30/96 0.80
9/30/96 0.85
12/31/96 0.85
SECTION 8.8 FIXED CHARGE COVERAGE RATIO - U.S. ONLY. For any
fiscal quarter listed below, the Fixed Charges Coverage Ratio for the
Parent Guarantor and its Consolidated Subsidiaries (excluding U.S.
Brass and any foreign Subsidiaries) for the period of four consecutive
fiscal quarters ending with such fiscal quarter shall not be less than
(i) the number set forth below opposite such fiscal quarter to (ii)
1.00:
Fiscal Quarter
Ending On Or About Number
6/30/95 0.45
9/30/95 0.45
12/31/95 0.50
3/31/96 0.55
6/30/96 0.65
9/30/96 0.65
12/31/96 0.85
For purposes of the provisions of SECTIONS 8.4, 8.5 and 8.6 of the
Credit Agreement and the calculations on the Financial Report
Certificate with respect to those Sections, the principal amount of
debt outstanding under the Congress Receivables Facility shall be
excluded.
5. PARTIES; ADDRESSES; WIRING INFORMATION. SCHEDULE 1 is amended
as of the date hereof to read as set forth in the SCHEDULE 1 attached hereto.
-6-
<PAGE>
6. REPRESENTATIONS AND WARRANTIES. The Borrower and the Parent
Guarantor jointly and severally represent and warrant to each Agent and to each
Bank that as of this date:
(a) the execution and delivery of this Amendment have
been authorized by all requisite corporate action and will not violate
its organizational documents;
(b) except for matters heretofore disclosed in writing by any
Related Company, the representations and warranties in each Loan Paper
(as affected by this Amendment) to which it is a party are true and
correct in all material respects on and as of the date hereof as though
made on and as of the date hereof (except to the extent that (i) such
representations and warranties speak to a specific date or (ii) the
facts on which such representations and warranties are based have been
changed by transactions contemplated by the Credit Agreement); and
(c) no Default or Event of Default exists.
7. CONDITIONS. This Third Amendment shall not become effective
unless:
(a) The Administrative Agent shall have received a certificate
from a Responsible Officer certifying, based on due inquiry, that all
of the representations and warranties in PARAGRAPH 6, above, are true
and correct;
(b) Administrative Agent shall have received executed
counterparts of this Third Amendment from the Borrower, the Parent
Guarantor, and all Banks, and a certificate from a Responsible Officer
of each of the Borrower and Parent Guarantor certifying as to (i) the
due incumbency of its officers authorized to execute this Third
Amendment, (ii) resolutions duly adopted by its directors approving and
authorizing execution of this Third Amendment, and (iii) any changes to
its corporate charter or bylaws since October 17, 1994;
(c) The Borrower shall have made payments of
(i) $3,000,000 in Principal Debt, plus
(ii) any outstanding amounts payable under
SECTION 6.6 of the Credit Agreement, plus
(iii) an amendment fee in the amount of $200,000 to
the Administrative Lender for the account of the Banks
according to the Pro Rata Part of each Bank;
(d) The Borrower shall have executed, to the extent required
by the Administrative Agent or Required Banks, other Loan Papers to
continue the perfected lien on, charge against and security interest in
the Collateral, as presently in effect,
-7-
<PAGE>
subject only to the first security interest of Congress in accounts
receivable and proceeds thereof, including inventory returns; and
(e) The Administrative Agent shall have obtained a first,
perfected Lien (or equivalent under Mexican Law) in all stock of Eljer
de Mexico, S.A. de C.V., and an opinion of counsel to the Borrower to
the effect that such first, perfected Lien (or equivalent) shall have
been obtained.
8. RELEASE. In consideration of the agreement of the parties hereto to
enter into this Amendment, (a) the Parent Guarantor and the Borrower each
release the Administrative Agent, each Agent, each Bank, and their respective
parents, subsidiaries, directors, officers, employees, representatives, agents,
successors, assigns, and attorneys from all claims and causes of action existing
on or before the date hereof under or in connection with the Existing Credit
Facilities, the Morgan Guaranty Swap Agreement, or the Existing Letters of
Credit, or arising in connection with the execution, negotiation, and
preparation of this Amendment, the Credit Agreement and the other Loan Papers,
and (b) the Administrative Agent, each Agent, and each Bank each release the
Borrower, the Parent Guarantor, and their respective parents, subsidiaries,
directors, officers, employees, representatives, agents, successors, assigns,
and attorneys from all claims and causes of action existing on or before the
date hereof under or in connection with the Existing Credit Facilities, the
Morgan Guaranty Swap Agreement, the Existing Letters of Credit or the Loan
Papers, or arising in connection with the execution, negotiation, and
preparation of this Amendment, the Credit Agreement and the other Loan Papers;
provided that, nothing herein shall be deemed to be a waiver of any Default or
Event of Default under the Loan Papers.
9. MISCELLANEOUS. This Amendment is a Loan Paper, and, therefore, this
Amendment is subject to the applicable provisions of SECTION 11 of the Credit
Agreement, all of which applicable provisions are incorporated herein by
reference the same as if set forth herein verbatim. Except as affected by this
Amendment, the Loan Papers are unchanged and continue in full force and effect.
Borrower and Parent Guarantor each agree that all Loan Papers to which it is a
party remain in full force and effect and continue to evidence its legal, valid,
and binding obligations enforceable in accordance with their terms (as affected
by this Amendment), except as enforceability may be limited by applicable Debtor
Relief Laws and general principles of equity. This Amendment shall be binding
upon and inure to the benefit of each of the undersigned and their respective
successors and permitted assigns.
THE LOAN PAPERS, INCLUDING THIS AMENDMENT, REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-8-
<PAGE>
10. COUNTERPARTS. This Amendment may be executed in more than one
counterpart, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK. SIGNATURE PAGES FOLLOW.]
-9-
<PAGE>
EXECUTED as of the date first written above.
ELJER MANUFACTURING, INC.,
as Borrower
By:/S/ BROOKS F. SHERMAN
Name: Brooks F. Sherman
Title: VP-Finance, CFO, Treasurer
ELJER INDUSTRIES, INC.,
as Parent Guarantor
By:/S/ BROOKS F. SHERMAN
Name: Brooks F. Sherman
Title: VP-Finance, CFO, Treasurer
NATIONSBANK OF TEXAS, N. A.,
as Administrative Agent, an Agent,
and a Bank
By:/S/ WILLIAM E. LIVINGSTONE, IV
Name: William E. Livingstone, IV
Title: Sr. Vice President
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
as an Agent and a Bank
By:/S/ UNN BOUCHER
Name: Unn Boucher
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank
By:/S/ DENNIS SALETTA
Name: Dennis Saletta
Title: Vice President
<PAGE>
THE BANK OF TOKYO, LTD.,
DALLAS AGENCY,
as a Bank
By:/S/ JOHN M. MEARNS
Name: John M. Mearns
Title: VP & Manager
DK ACQUISITION PARTNERS,
as a Bank
By: M.H. Davidson & Co., a general partner
By:/S/ MICHAEL LEFFELL
Name: Michael Leffell
Title: General Partner
FOOTHILL CAPITAL CORPORATION,
as a Bank
By:/S/ DENNIS R. ASCHER
Name: Dennis R. Ascher
Title: Vice President
THIRD AVENUE VALUE FUND, INC.,
as a Bank
By:/S/ MICHAEL CARNEY
Name: Michael Carney
Title: Chief Financial Officer, Treasurer
COMAC PARTNERS
as a Bank
By:/S/ CHRISTOPHER M. MACKEY
Name: Christopher M. Mackey
Title: General Partner
DA952140033
168:9766-86
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JULY 2, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> JUL-02-1995
<CASH> 6,546
<SECURITIES> 0
<RECEIVABLES> 76,777
<ALLOWANCES> 8,352
<INVENTORY> 73,735
<CURRENT-ASSETS> 171,993
<PP&E> 169,462
<DEPRECIATION> 106,287
<TOTAL-ASSETS> 249,382
<CURRENT-LIABILITIES> 146,899
<BONDS> 87,928
<COMMON> 7,186
0
0
<OTHER-SE> (48,421)
<TOTAL-LIABILITY-AND-EQUITY> 249,382
<SALES> 191,471
<TOTAL-REVENUES> 191,471
<CGS> 145,263
<TOTAL-COSTS> 145,263
<OTHER-EXPENSES> 40,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,665
<INCOME-PRETAX> (2,058)
<INCOME-TAX> 30
<INCOME-CONTINUING> (2,088)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,088)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
