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 April 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 May 8, 1995 there were 7,129,626 shares of registrant's common stock
outstanding.
<PAGE>
ELJER INDUSTRIES, INC.
FORM 10-Q
April 2, 1995
INDEX
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the three
months ended April 2, 1995 and April 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
1
<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 Three Months Ended
April April
2, 1995 3, 1994
-------- --------
<S> <C> <C>
NET SALES $ 99,055 $ 90,875
COST OF SALES 75,657 66,607
-------- --------
GROSS PROFIT 23,398 24,268
SELLING & ADMINISTRATIVE EXPENSES 19,481 19,910
LITIGATION AND RELATED COSTS 1,493 1,360
-------- --------
INCOME FROM OPERATIONS 2,424 2,998
OTHER EXPENSE, net 104 325
INTEREST INCOME 577 376
INTEREST EXPENSE 3,706 3,453
-------- --------
LOSS BEFORE INCOME TAXES (809) (404)
INCOME TAX EXPENSE (BENEFIT) 73 (764)
-------- --------
NET INCOME (LOSS) $ (882) $ 360
======== ========
NET INCOME (LOSS) PER SHARE $ (0.12) $ 0.05
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,130 7,100
======== ========
See notes to unaudited condensed consolidated financial statements.
2
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
April January
A S S E T S 2, 1995 1, 1995
----------- --------- ---------
(Unaudited)
CURRENT ASSETS:
Cash & temporary cash investments $ 11,808 $ 26,109
Restricted cash 17,352 17,266
Trade accounts receivable, net of
reserves of $8,317 and $7,696 67,395 65,332
Inventories 73,355 68,249
Other current assets 5,493 5,603
--------- ---------
Total current assets 175,403 182,559
PROPERTIES & EQUIPMENT, net of accumulated
depreciation of $104,426 and $101,328 62,010 59,924
COST IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, net 11,191 11,281
OTHER ASSETS 3,015 3,293
--------- ---------
$ 251,619 $ 257,057
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 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 $ 46,641 $ 43,065
Trade accounts payable 16,265 17,705
Prepetition liabilities subject to compromise 31,492 32,868
Accrued expenses 58,771 64,675
---------- ----------
Total current liabilities 153,169 158,313
LONG-TERM DEBT 82,674 83,021
POSTRETIREMENT BENEFITS 40,751 40,353
OTHER LIABILITIES 14,122 14,067
DEFERRED INCOME TAXES 895 882
---------- ----------
Total liabilities 291,611 296,636
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value,
50,000,000 shares authorized;
7,129,626 shares outstanding 7,186 7,186
Additional capital 78,936 78,936
Accumulated deficit (120,352) (119,470)
Foreign currency translation adjustments (5,705) (6,174)
Treasury stock (57) (57)
---------- ----------
Total shareholders' equity (deficit) (39,992) (39,579)
---------- ----------
$ 251,619 $ 257,057
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
April April
2, 1995 3, 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (882) $ 360
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Depreciation and amortization 2,685 2,476
Stock issued as compensation -- 116
Changes in assets and liabilities-
Trade accounts receivable (1,705) (1,184)
Inventories (4,637) (2,190)
Trade accounts payable and accrued
expenses (8,541) (7,323)
Postretirement benefits 398 229
Other assets 302 (1,042)
Other, net 192 525
----------- -----------
Net cash used in operating activities (12,188) (8,033)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (4,424) (1,714)
Proceeds from disposition of properties
and equipment 62 16
----------- -----------
Net cash used in investing activities (4,362) (1,698)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 3,220 8,413
Decrease in long-term debt (19) (6,012)
----------- -----------
Net cash provided by financing activities 3,201 2,401
----------- -----------
EFFECTS OF EXCHANGE RATES ON CASH (952) (361)
----------- -----------
NET DECREASE IN CASH & TEMPORARY
CASH INVESTMENTS (14,301) (7,691)
CASH & TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 26,109 23,439
----------- -----------
CASH & TEMPORARY CASH INVESTMENTS, $ 11,808 $ 15,748
END OF PERIOD =========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<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 disclosed in the Company's 1994 Form 10-K, 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 provides for, among other
things, the liquidation and treatment of claims against U.S. Brass involving the
Qest system through a trust to be established under the Brass Plan. The Brass
Plan provides that the trust will be assigned rights under certain historical
insurance policies maintained for the benefit of Eljer Manufacturing, U.S. Brass
and, in some cases, Eljer Industries. The proceeds of certain litigation may
also be assigned to the trust. The Brass Plan also provides that other persons,
subject to Bankruptcy Court approval, may make contributions to the trust. Shell
Chemical Company ("Shell"), a subsidiary of Shell Oil Company, has proposed a
settlement wherein it would contribute up to $200 million to the trust. The
Brass Plan provides that holders
6
<PAGE>
of claims involving the Qest system will be prevented, through an injunction,
from pursuing any such claims against Eljer Industries, Eljer Manufacturing,
U.S. Brass and any other person who makes a contribution to the trust as
approved by the Bankruptcy Court. Each holder of a general unsecured claim
(other than Qest system claims) may either receive an immediate one time cash
payment of 50% of its claim or receive 100% over time. Under the Brass Plan,
Eljer Manufacturing will retain its equity interest in U.S. Brass if the
Bankruptcy Court determines, in connection with the confirmation of the Brass
Plan, that all classes of claims are paid in full or have accepted the Brass
Plan. Otherwise, the Brass Plan provides that the existing equity interest in
U.S. Brass will be cancelled, and the new equity interests in U.S. Brass will be
transferred to the trust to be held for sale within 120 days of the Brass Plan's
effective date. If such an event occurs, Eljer Manufacturing could reacquire
U.S. Brass through a successful bid at the time of such sale. The Brass
Disclosure Statement submitted with the Brass Plan is subject to approval by the
Bankruptcy Court and the proposed Brass Plan is subject to a vote of U.S. Brass'
creditors. Objections to the Brass Disclosure Statement have been filed by the
Official Polybutylene Claimants Committee (the "PB Committee"); two members of
the PB Committee, one purportedly on behalf of "100,000 polybutylene plaintiffs"
and the other purportedly on behalf of "350,000 claimants"; E.I. DuPont de
Nemours Co., Inc. ("DuPont"); Household International, Inc., ("Household"); the
Official Trade Creditors' Committee (the "Trade Committee"); certain of the
Company's insurance carriers and others. The Bankruptcy Court has set May 16,
1995, as the hearing date on the Brass Disclosure Statement.
On April 7, 1995, the PB Committee filed with the Bankruptcy Court a
proposed plan of reorganization for U.S. Brass under the Bankruptcy Code (the
"PB Committee Plan"). The PB Committee Plan provides that, among other things, a
trust would be established to hold certain assets transferred by U.S. Brass and
to make distribution of these assets to creditors as required under the PB
Committee Plan. The initial assets of the trust under the PB Committee Plan
would be 100% of the stock of a new entity formed to own U.S. Brass' operating
assets ("Newco") and 100% of the stock of a reorganized U.S. Brass ("Reorganized
Brass"), an entity which would exist only to pursue certain litigation claims
discussed below, the recoveries of which would be turned over to the trust. As a
result, neither U.S. Brass, Reorganized Brass, nor Newco would be owned by the
Company. Under the PB Committee Plan, Newco would continue to engage in U.S.
Brass' pre-petition business, although the PB Committee Plan states that it is
expected that Newco would phase out the manufacture and sale of polybutylene for
plumbing purposes. Operating proceeds from Newco would be used to fund the
trust. Through Reorganized Brass, the PB Committee Plan provides that the trust
would engage in litigation claims including claims against insurance carriers
for insurance coverage of Qest system claims; claims against Household; claims
against Eljer Industries and Eljer Manufacturing; and claims against co-liable
parties, including Shell and Hoechst Celanese Corporation ("Celanese").
Objections to the disclosure statement filed in connection with the PB
Committee Plan (the "PB Committee's Disclosure Statement") have been filed by
U.S. Brass, Eljer Industries, Eljer Manufacturing, Household, the Trade
Committee, Celanese, certain of the Company's insurance carriers, Shell and
DuPont. The Bankruptcy Court has set May 16, 1995, as the hearing date on the
PB Committee's Disclosure Statement.
On April 26, 1995, the PB Committee filed a motion with the Bankruptcy
Court (the "Notice Motion") seeking to have approved a proposed notice program
for claimants whose claims are based on or arise from the manufacture, marketing
or sale of the Qest system. The PB Committee states that the estimated cost of
such a notice program would be approximately $6.8 million dollars. If approved
by the Bankruptcy Court, the cost of the notice campaign will be borne by U.S.
Brass. U.S. Brass, Eljer Manufacturing and Eljer Industries expect to oppose the
Notice Motion.
7
<PAGE>
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 intercompany transactions
with its parent, Eljer Manufacturing and an affiliated Canadian company and, at
April 2, 1995, U.S. Brass had a net affiliate receivable of approximately $2.6
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 period ended April 2, 1995,
U.S. Brass litigation reserves were reduced by approximately $1.2 million which
also reduced U.S. Brass' litigation expenses for the quarter.
Selected financial data for U.S. Brass are as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended
April April
2, 1995 3, 1994
---------- ---------
<S> <C> <C>
Net Sales to Nonaffiliate Customers ........................ $ 20,480 $ 20,727
Sales to Affiliates ........................................ 5,285 3,588
Reorganization Expenses .................................... 1,350 --
Income (Loss) from Operations .............................. (384) 1,434
Income (Loss) Before Income Taxes .......................... (711) 1,201
Net Income ................................................. -- 712
Cash Used in Operating Activities .......................... (2,332) (5,595)
Cash Used in Investing Activities .......................... (536) (484)
Cash Provided by Financing Activities ...................... 2,715 4,863
Total Cash Flow ............................................ (153) (1,216)
</TABLE>
<TABLE>
<CAPTION>
As of April As of January
2, 1995 1, 1995
---------- ---------
<S> <C> <C>
Total Current Assets ....................................... $ 36,888 $ 35,966
Total Assets ............................................... 53,857 52,725
Total Liabilities .......................................... 53,857 52,725
Total Shareholders' Equity ................................. -- --
</TABLE>
Cash payments of reorganization items made during the three months ended April
2, 1995, are immaterial.
8
<PAGE>
(3) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
April January
2, 1995 1, 1995
-------- --------
<S> <C> <C>
Finished goods $ 38,446 $ 35,105
Work in process 10,169 9,617
Raw materials 24,740 23,527
-------- --------
Total inventories $ 73,355 $ 68,249
======== ========
</TABLE>
(4) CONTINGENCIES:
The Company and certain of its subsidiaries are involved in litigation
related to the Qest system, environmental matters, Kowin Development Company 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 increased by approximately $8.1 million to $99.1 million for
the three-month period ended April 2, 1995, compared to the three-month period
ended April 3, 1994, a 9.0% increase. The sales increase was due primarily to
increased sales of heating, ventilating and air conditioning ("HVAC") products
during the annual extended terms program, which reduces the seasonality impacts
of the HVAC business, and increased retail market sales of plumbing products.
The Company expects some softening of housing starts in the United States during
1995, which may effect the current sales trend. In addition, European operations
achieved increased sales of $1.3 million, or 10.4%, including a favorable
exchange rate impact of $702,000, in the first quarter of 1995 compared to the
same period a year ago, which is also attributable to the strengthening U.K.
economy and the successful introduction of a new chimney product into certain
target European markets.
Gross profit margin decreased to 23.6% for the three-month period ended
April 2, 1995, from 26.7% 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, over the prior year. Price increases to offset
raw material cost increases were, in general, implemented late in the first
quarter of 1995.
On May 5, 1995, Shell, the sole supplier of polybutylene resin to U.S.
Brass, sent notification to its domestic customers that it will increase the
price of polybutylene resin by 50% effective June 4, 1995. U.S. Brass is
currently evaluating the impact of such an increase and is investigating
several alternative methods for dealing with the price increase.
9
<PAGE>
Total selling and administrative expenses through April 2, 1995, were
approximately $429,000 lower for the three-month period then ended compared to
the 1994 period. As a percentage of sales, selling and administrative expenses
were reduced from 21.9% in the first quarter of 1994 to 19.7% in the first
quarter 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, for the three month period ended April 2, 1995,
U.S. Brass litigation expense was reduced by approximately $1.2 million through
a reduction of certain U.S. Brass litigation reserves. Total litigation and
related costs of $2.7 million were reduced by this $1.2 million adjustment,
resulting in net litigation and related costs of $1.5 million in the first
quarter of 1995 compared to $1.4 million in the first quarter 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, decreased approximately $221,000 in the first three
months of 1995 compared to the comparable 1994 period. The first quarter 1994
expense included $211,000 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
three months of 1995 increased approximately $253,000 over the same period in
1994, which is primarily attributable to borrowings under the Revolver and
higher interest rates on substantially all North American borrowings due to
increases in 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 $1.1 million to the
first quarter of 1994.
Income tax expense increased $837,000 to $73,000 for the first three
months of 1995 from a benefit of $764,000 for the same period in 1994. The tax
benefit in 1994 was due to European and Canadian pretax losses in the first
quarter 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
quarter of 1995.
Liquidity and Capital Resources
The net cash used in operating activities of $12.2 million for the
three months ended April 2, 1995, was $4.2 million more than the net cash used
in operating activities for the comparable 1994 period. The cash usage in the
first quarters of 1995 and 1994 included payments previously accrued of
approximately $8.0 million and $5.4 million, respectively, to customers under
purchase incentive programs.
Capital expenditures for the first three months of 1994 were $4.4
million and included payments related to a new state-of-the-art kiln and dryers
at the Company's Tupelo, Mississippi, chinaware plant and enameling robots at
the Company's Salem, Ohio, cast iron plant.
10
<PAGE>
The Company experienced an increase in short-term borrowings during the
first quarter of 1995 related mainly to an increase of $2.7 million in the
debtor-in-possession financing of U.S.
Brass.
Eljer Manufacturing had term debt of $78.5 million outstanding at the
end of the first quarter of 1995. Pursuant to the term debt agreement, Eljer
Manufacturing is scheduled to make an $11.0 million principal payment on
December 29, 1995. However, the payment may be reduced by amounts paid related
to certain environmental matters. The balance of the term debt is due April 30,
1996.
The Company intends to explore some manner of debt restructuring or
extension of existing debt prior to the April 1996 term debt maturity date.
Neither the Company nor any of its subsidiaries has any commitment with respect
to restructuring or other sources of financing or extension of existing debt and
there can be no assurance that any such commitment or extension can be obtained
prior to the term debt maturity date. Failure to obtain such a commitment or
extension or failure to pay the term debt when due would constitute an event of
default thereunder, and would give the lenders the right, if they elect to do
so, to foreclose on the collateral which constitutes essentially all the
domestic assets of the Company (except that pledged under the Revolver and
assets of U.S. Brass), including the stock of its foreign subsidiaries. Failure
to pay the term debt when due, would also be an event of default under the
Revolver.
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 Ohio EPA has informed the
Company that its failure to renew financial responsibility assurances for the
Marysville site was being referred to the United States Environmental Protection
Agency ("U.S. EPA") on this matter. Although Ohio EPA and U.S. EPA may attempt
to impose significant civil and criminal penalties for failure to renew
financial assurances for the Marysville site, the Company continues to believe
that it has meritorious defenses to the imposition of any penalties and intends
to vigorously defend against such penalties and that any penalties ultimately
imposed are likely to be less than the maximum potential penalties authorized
under the law. However, the Company may be required 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 are
currently being held with the Ohio EPA regarding this matter.
As previously reported in the Company's 1994 Form 10-K, U.S. Brass
filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy
Code in the Bankruptcy Court. The
11
<PAGE>
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 Brass Plan was filed on
March 22, 1995, and the PB Committee Plan was filed on April 7, 1995. A hearing
date of May 16, 1995, has been set for both the Brass Disclosure Statement and
the PB Committee's Disclosure Statement which were filed in connection with
these Plans.
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
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
12
<PAGE>
(b) Reports on Form 8-K
None
Subsequent Reports on Form 8-K
None
13
<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: May 16, 1995 By /s/ Henry W. Lehnerer
----------------------- -----------------------
Henry W. Lehnerer
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED APRIL 2, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-02-1995
<CASH> 11,808
<SECURITIES> 0
<RECEIVABLES> 75,712
<ALLOWANCES> 8,317
<INVENTORY> 73,355
<CURRENT-ASSETS> 175,403
<PP&E> 166,436
<DEPRECIATION> 104,426
<TOTAL-ASSETS> 251,619
<CURRENT-LIABILITIES> 153,169
<BONDS> 82,674
<COMMON> 7,186
0
0
<OTHER-SE> (47,178)
<TOTAL-LIABILITY-AND-EQUITY> 251,619
<SALES> 99,055
<TOTAL-REVENUES> 99,055
<CGS> 75,657
<TOTAL-COSTS> 75,657
<OTHER-EXPENSES> 20,974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,706
<INCOME-PRETAX> (809)
<INCOME-TAX> 73
<INCOME-CONTINUING> (882)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (882)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
