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 March 31, 1996
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 (Zip Code)
principal executive offices)
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 13, 1996 there were 7,154,810 shares of registrant's common stock
outstanding.
<PAGE>
ELJER INDUSTRIES, INC.
FORM 10-Q
March 31, 1996
INDEX
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the three
months ended March 31, 1996 and April 2, 1995
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
March April
31, 1996 2, 1995
-------- --------
<S> <C> <C>
NET SALES $ 93,414 $ 99,055
COST OF SALES 71,770 75,657
-------- --------
GROSS PROFIT 21,644 23,398
SELLING & ADMINISTRATIVE EXPENSES 18,491 19,481
LITIGATION AND RELATED COSTS 1,040 1,493
-------- --------
INCOME FROM OPERATIONS 2,113 2,424
OTHER EXPENSE, net 164 104
INTEREST INCOME 353 577
INTEREST EXPENSE 3,434 3,706
-------- --------
LOSS BEFORE INCOME TAXES (1,132) (809)
INCOME TAX EXPENSE (BENEFIT) (185) 73
-------- --------
NET INCOME (LOSS) $ (947) $ (882)
======== ========
NET INCOME (LOSS) PER SHARE $ (0.13) $ (0.12)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,169 7,130
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE>
ELJER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March December
A S S E T S 31, 1996 31, 1995
----------- -------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash & temporary cash investments $ 16,438 $ 22,957
Restricted cash 12,248 10,449
Trade accounts receivable, net of
reserves of $7,477 and $6,908 64,950 69,038
Inventories 64,443 64,565
Other current assets 4,228 4,344
-------- --------
Total current assets 162,307 171,353
PROPERTIES & EQUIPMENT, net of accumulated
depreciation of $110,621 and $108,777 62,787 64,283
COST IN EXCESS OF NET TANGIBLE ASSETS
ACQUIRED, net 10,757 10,874
OTHER ASSETS 2,455 2,449
-------- --------
$238,306 $248,959
======== ========
</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>
March December
LIABILITIES AND SHAREHOLDERS' EQUITY 31, 1996 31, 1995
- ------------------------------------ --------- --------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt $ 38,666 $ 35,907
Trade accounts payable 15,593 17,112
Prepetition liabilities subject to compromise 30,889 31,209
Accrued expenses 52,714 60,927
Long-term debt subject to restructure 67,512 --
--------- ---------
Total current liabilities 205,374 145,155
LONG-TERM DEBT 14,099 81,696
POSTRETIREMENT BENEFITS 39,359 39,409
OTHER LIABILITIES 14,200 15,537
DEFERRED INCOME TAXES 1,600 1,620
--------- ---------
Total liabilities 274,632 283,417
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par value,
50,000,000 shares authorized;
7,152,252 and 7,129,626 shares outstanding 7,186 7,186
Additional capital 79,097 78,965
Accumulated deficit (115,528) (114,581)
Foreign currency translation adjustments (7,046) (5,978)
Treasury stock (35) (50)
--------- ---------
Total shareholders' equity (deficit) (36,326) (34,458)
--------- ---------
$ 238,306 $ 248,959
========= =========
</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
March April
31, 1996 2, 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (947) $ (882)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 2,293 2,685
Changes in assets and liabilities-
Trade accounts receivable 3,913 (1,705)
Inventories (100) (4,637)
Trade accounts payable and accrued
expenses (10,349) (8,541)
Other assets 958 302
Other, net (1,494) 590
-------- --------
Net cash used in operating activities (5,726) (12,188)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (868) (4,424)
Proceeds from disposition of properties
and equipment -- 62
-------- --------
Net cash used in investing activities (868) (4,362)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt 4,798 3,220
Repayment of long-term debt (1,999) (19)
Restricted cash for environmental clean-up (2,500) --
-------- --------
Net cash provided by financing activities 299 3,201
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH (224) (952)
-------- --------
NET DECREASE IN CASH & TEMPORARY
CASH INVESTMENTS (6,519) (14,301)
CASH & TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 22,957 26,109
-------- --------
CASH & TEMPORARY CASH INVESTMENTS, $ 16,438 $ 11,808
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 December 31,
1995, as filed with the Securities and Exchange Commission (the "Company's 1995
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 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
Company's 1995 Form 10-K.
(2) BANKRUPTCY OF UNITED STATES BRASS CORPORATION:
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 polybutylene 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 polybutylene 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 1995 Form 10-K for a discussion of
the U.S. Brass bankruptcy, including discussion of the Qest polybutylene system
litigation, related insurance coverage, claims filed in the U.S. Brass
bankruptcy proceeding and claims against the Company.
As previously disclosed, on August 22, 1995, Eljer Industries, Eljer
Manufacturing, Inc. ("Eljer Manufacturing"), and U.S. Brass filed with the
Bankruptcy Court the Second Amended Plan of Reorganization (the "Amended Brass
Plan") and the Second Amended Disclosure Statement (the "Amended Brass
Disclosure Statement"). The Amended Brass Plan contains proposed settlements
with Eljer Industries, Eljer Manufacturing and Shell Chemical Company, a
subsidiary of Shell Oil Company ("Shell Chemical").
The Official Polybutylene Claimants Committee (the "PB Committee") in
the U.S. Brass Bankruptcy has filed a proposed plan of reorganization and
proposed disclosure statement (the "PB Committee Disclosure Statement"). A
hearing was held on June 20, 1995, by the Bankruptcy Court on objections filed
by various parties to the PB Committee Disclosure Statement.
6
<PAGE>
In connection with settlements reached by various parties in two
national class actions dealing with polybutylene plumbing systems, Tina Cox et
al. v. Shell Oil Company et al., and Garria Spencer, et al. v. Shell Oil
Company, et al. (the "Cox-Spencer Agreement"), Eljer Industries, Eljer
Manufacturing and U.S. Brass entered into a tentative settlement contingent upon
confirming a plan of reorganization in the U.S. Brass bankruptcy embodying the
terms of the tentative settlement and finalization of an agreement with the
parties to the Cox-Spencer Agreement. The tentative settlement provides that
Eljer Manufacturing and U.S. Brass will contribute an amount equal to any
proceeds of their insurance policies; the Company will contribute 75 percent of
the net proceeds of the Household litigation (subject to approval of the
Company's bank group); $3 million in cash; a non-interest bearing note for $20
million payable over 10 years; and 17.5 percent of the equity of Eljer
Industries in exchange for which Eljer Industries, Eljer Manufacturing and U.S.
Brass will receive relief satisfactory to them from claims arising from
polybutylene sales to date and U.S. Brass will remain an indirect, wholly-owned
subsidiary of Eljer Industries. The Company has provided to the PB Committee,
Shell Chemical and Hoechst Celanese a term sheet for a proposed third amended
Plan which would include the terms of the tentative settlement discussed above.
Although discussions concerning the term sheet have taken place, no final
agreements have been reached and the third amended Plan has not been filed. The
timing or likelihood of approval of such a third amended Plan cannot be
predicted. The Company believes it has previously made adequate accruals for the
terms of this settlement. Until a third amended Plan is filed, the Amended Brass
Plan discussed above remains pending with the Bankruptcy Court.
On April 8, 1996, the Bankruptcy Court issued an opinion approving both
the Amended Brass Disclosure Statement and the PB Committee Disclosure
Statement. The Bankruptcy Court's opinion instructs the parties to file with the
Bankruptcy Court proposed orders approving the Disclosure Statements and
containing the appropriate blanks for the Bankruptcy Court to fill-in deadlines
for voting, objecting to plans and hearings on confirmations of plans. Upon
receipt of the proposed orders, the Bankruptcy Court indicated that it would set
a status conference with plan proponents to determine the schedule for mailing
out ballots, disclosure statements and plans.
Neither of the Disclosure Statements approved by the Bankruptcy Court
has been updated to reflect or address material developments that have occurred
during the last nine months with respect to the business of U.S. Brass, and the
efforts to negotiate a global settlement that would be reflected in a consensual
plan of reorganization. Accordingly, it is expected that Eljer Industries, Eljer
Manufacturing, U.S. Brass and the PB Committee will jointly submitt an
order to the Court proposing that the Bankruptcy Court enter an order
establishing a schedule for filing supplements to bring the Disclosure
Statements current; filing objections to such supplements; conducting a hearing
on any objections filed; and setting a status conference to establish
solicitation procedures, fix voting and objection deadlines, and set
confirmation hearings. Approval of this procedure by the Bankruptcy Court will
also give the parties a known schedule to conclude their efforts to negotiate a
consensual plan. It is not known how or when the Bankruptcy Court will rule on
the proposed order expected to be submitted to the 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 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
7
<PAGE>
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 March 31, 1996, U.S. Brass had a net
affiliate receivable of approximately $1.6 million.
As a result of the uncertainties related to the availability of
insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S.
Brass continues to adjust its litigation reserves to maintain an equity balance
of zero. Accordingly, for the three-month periods ended March 31, 1996 and April
2, 1995, U.S. Brass reduced its litigation reserves by approximately $348,000
and $1.2 million, respectively.
Selected financial data for U.S. Brass are as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended
March April
31, 1996 2, 1995
-------- --------
<S> <C> <C>
Net Sales to Nonaffiliate Customers ........................$ 19,714 $ 20,480
Sales to Affiliates ........................................ 4,671 5,285
Reorganization Expenses .................................... 200 1,350
Income (Loss) from Operations .............................. 383 (384)
Income (Loss) Before Income Taxes .......................... -- (711)
Net Income ................................................. -- --
Cash Provided (Used) in Operating Activities ............... 16 (2,332)
Cash Used in Investing Activities .......................... (113) (536)
Cash Provided by Financing Activities ...................... 841 2,715
Total Cash Flow ............................................ 741 (153)
As of March As of December
31, 1996 31, 1995
-------- --------
Total Current Assets .......................................$ 37,949 $ 36,826
Total Assets ............................................... 53,925 53,210
Total Liabilities .......................................... 53,925 53,210
Total Shareholders' Equity ................................. -- --
</TABLE>
Cash payments of reorganization items made during the three months ended March
31, 1996 and April 2, 1995, were not material.
(3) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March December
31, 1996 31, 1995
------- -------
<S> <C> <C>
Finished goods $33,074 $32,887
Work in process 8,818 9,201
Raw materials 22,551 22,477
------- -------
Total inventories $64,443 $64,565
======= =======
</TABLE>
8
<PAGE>
(4) LIQUIDITY AND CAPITAL RESOURCES
Eljer Manufacturing had term debt of $73.5 million outstanding at the
end of the first quarter of 1996. Pursuant to the term debt agreement, a $2.0
million principal payment was made in January 1996 and the $3.0 million
principal payment scheduled for December 1996 was made on May 1, 1996, since
certain conditions related to the U.S. Brass bankruptcy were not met. Another
$3.0 million principal payment is scheduled for August 1996 with the balance of
$67.5 million due at the maturity date of January 31, 1997.
The Company is negotiating to extend the maturity date of the term debt
beyond January 31, 1997. There are no assurances that the extension will be
obtained. If an extension is not granted, the Company intends to explore some
manner of debt restructuring of the existing debt prior to the January 1997 term
debt maturity date. Neither the Company nor any of its subsidiaries has any
commitment with respect to restructuring or other sources of financing and there
can be no assurance that any such commitment 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 those assets pledged under a revolving credit agreement and the
assets of U.S. Brass), including a majority of the stock of its foreign
subsidiaries. Failure to pay the term debt when due, would also be an event of
default under the revolving credit agreement.
(5) CONTINGENCIES:
The Company and certain of its subsidiaries are involved in litigation
related to the Qest polybutylene 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 1995
Form 10-K, which is incorporated herein, for additional discussion of
contingencies and legal matters involving the Company.
In connection with the litigation pending between Eljer Industries,
Eljer Manufacturing and Household International, Inc., the former parent company
of Eljer Industries, the parties have been engaged in settlement discussions.
A definitive and final settlement has not been reached and there
can be no assurances that a settlement will be reached. The case remains set for
trial to begin on May 20, 1996, in Delaware Superior Court.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales decreased by approximately $5.6 million to $93.4 million for
the three-month period ended March 31, 1996, compared to the three-month period
ended April 2, 1995, a 5.7% decrease. The sales decrease was due primarily to
unusually harsh weather conditions experienced early in the first quarter of
1996. Sales in March recovered from the weak levels encountered in January and
February. Sales through the retail channel of distribution continue to increase,
approximately 8% in the quarters compared, partially offsetting the negative
impact of the bad weather. Sales in Europe remained relatively flat with last
year's first quarter level despite the severe weather experienced in the United
Kingdom and Germany early in the quarter and declines in both commercial and
residential construction.
9
<PAGE>
Income from operations decreased $311,000 for the three months ended
March 31, 1996, from the comparable 1995 period due to lower sales volume offset
by lower selling and administrative expenses and litigation costs. Lower sales
volume in the first quarter of 1996 compared to the same period of 1995 caused
the gross profit margin to decrease to 23.2% for the three-month period ended
March 31, 1996, from 23.6% for the comparable 1995 period. The continuing strike
at our Salem, Ohio, cast iron facility, which commenced on March 5, 1996, also
contributed to the decline in the gross profit margin, as fixed costs could not
be fully absorbed into inventory. However, offsetting the negative impact of the
lower sales volume and the strike, the price increases fully instituted in the
second half of 1995 in response to the significant raw material price increases
that began the first quarter of 1995 continue to have a favorable impact on
margins. Selling and administrative expenses through March 31, 1996, were $1.0
million lower for the three-month period then ended compared to the 1995 period.
As a percentage of sales, selling and administrative expenses slightly increased
from 19.7% in the first quarter of 1995 to 19.8% in the first quarter of 1996.
As a result of the uncertainties related to the availability of
insurance coverage and the ultimate outcome of the bankruptcy proceeding, U.S.
Brass continues to adjust its litigation reserves to maintain an equity balance
of zero. Accordingly, for the three-month periods ended March 31, 1996 and April
2, 1995, U.S. Brass reduced its litigation reserves by approximately $348,000
and $1.2 million, respectively. Excluding the impact of the litigation reserve
adjustment, total litigation and related costs totaled $1.4 million for the
three-month period ended March 31, 1996 compared to $2.7 million in the first
quarter of 1995. The decrease in total litigation costs is primarily a result of
the lower 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.
Interest expense in the first three months of 1996 decreased
approximately $272,000 over the same period in 1995, which is attributable to
lower debt levels in the first quarter of 1996 compared to the first quarter of
1995.
Income tax expense decreased to a benefit of $185,000 for the first
three months of 1996 from expense of $73,000 for the same period in 1995. The
tax benefit in 1996 was due to Canadian pretax losses in the first quarter of
1996. No tax benefit was recorded for the United States losses in the first
quarter of both 1996 and 1995.
Liquidity and Capital Resources
The net cash used in operating activities of $5.7 million for the three
months ended March 31, 1996, was $6.5 million more favorable than the net cash
used in operating activities for the com parable 1995 period. At the end of the
first quarter of 1995, there were $14.5 million of receivables with extended
payment terms compared with $10.3 million at the end of the first quarter 1996.
In addition, during the first quarter of 1995, inventories increased $4.6
million due to increased cost of certain raw materials and increased ordering of
these materials prior to announced price increases. The Company utilized these
increased orders later in 1995 and further, has successfully reduced inventories
from the end of March 1995 level of $73.4 million down to $64.4 million at the
end of March 1996.
In accordance with a settlement agreement with the Ohio Attorney
General, the Company is required to fund a trust account, which will be used to
pay for implementation of a closure plan for the Marysville, Ohio, site. A total
of $8.5 million is scheduled to be funded to this trust account in three
installments during 1996. In January 1996, the Company made the first scheduled
payment of $2.5 million to the trust account.
10
<PAGE>
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 polybutylene 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 polybutylene
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. U.S. Brass, Eljer Industries and Eljer Manufacturing have tentatively agreed
to participate in a global polybutylene settlement related to the two certified
national class actions dealing with polybutylene claims. As part of the
settlement, Shell Oil and Hoechst Celanese, who were suppliers of the resins
used in the manufacture of the polybutylene plumbing systems, have agreed to
make up to $950 million available to repair such systems. The settlement was
approved on November 9, 1995, by the Chancery Court for Obion County at Union
City, Tennessee.
Eljer Industries' and U.S. Brass' participation in the settlement is
conditioned on the confirmation of a plan of reorganization in the U.S. Brass
bankruptcy proceeding and finalization of an agreement with the parties to the
global polybutylene settlement. Under the terms of its proposed agreement, the
Company will contribute an amount equal to the proceeds it receives from certain
insurance coverage; 75 percent of the net proceeds, if any, resulting from the
litigation with its former parent, Household (subject to approval of the
Company's bank group); $3.0 million in cash; a non-interest bearing note for
$20.0 million payable over 10 years; and 17.5 percent of the equity of Eljer
Industries. Following an expected finalization of an agreement with the parties
in the global polybutylene settlement, a third amended plan of reorganization
containing terms of the tentative agreement will be filed with the Bankruptcy
Court. However, the timing or likelihood of approval of such an amended plan
cannot be predicted. The Company believes it has previously made adequate
accruals for the terms of this agreement based on the average market price of
the Company's stock.
No assurances can be given that the proposed agreement will be
finalized and a related plan or reorganization be confirmed and agreed to by the
Bankruptcy Court and U.S. Brass creditors. As a result, 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. If the proposed agreement is not finalized, the ultimate
resolution of the U.S. Brass bankruptcy could involve the Company losing its
control over U.S. Brass. As previously discussed, the possibility also exists
that settlement of claims against the Company could, among other things, result
in a change in the Company's equity structure. Until these matters are further
resolved, they continue to create a substantial doubt about the Company ability
to continue as a going concern in its present consolidated form.
Eljer Manufacturing had term debt of $73.5 million outstanding at the
end of the first quarter of 1996. Pursuant to the term debt agreement, a $2.0
million principal payment was made in January 1996 and the $3.0 million
principal payment scheduled for December 1996 was made on May 1, 1996, since
certain conditions related to the U.S. Brass bankruptcy were not met. Another
$3.0 million principal payment is scheduled for August 1996 with the balance of
$67.5 million due at the maturity date of January 31, 1997.
The Company is negotiating to extend the maturity date of the term debt
beyond January 31, 1997. There are no assurances that the extension will be
obtained. If an extension is not granted, the Company intends to explore some
manner of debt restructuring of the existing debt prior to the
11
<PAGE>
January 1997 term debt maturity date. Neither the Company nor any of its
subsidiaries has any commitment with respect to restructuring or other sources
of financing and there can be no assurance that any such commitment 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 those assets pledged
under a revolving credit agreement and the assets of U.S. Brass), including a
majority of the stock of its foreign subsidiaries. Failure to pay the term debt
when due, would also be an event of default under the revolving credit
agreement. Management does believe it has adequate cash resources and debt
availability to meet its obligations until the January 1997 term debt maturity
date.
12
<PAGE>
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 1995 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
(a) The annual meeting of shareholders of the Company was
held at 8:00 a.m., local time, on Tuesday, April 16,
1996 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' nominees as
listed in the proxy statement and such nominees were
duly elected.
(c) Out of a total of 7,152,252 shares of common stock of
the Company outstanding and entitled to vote, 6,827,768
shares were present in person or by proxy, representing
approximately 95%. Matters voted on by the
shareholders, as fully described in the proxy statement
for the annual meeting, were as follows:
(1) Frank J. Morgan and John H. Deininger were nominated to serve
three-year terms on the Board of Directors of the Company.
The results of voting on Messrs. Morgan and Deininger were as
follows:
<TABLE>
<CAPTION>
Number of Shares
Number of Shares WITHHOLDING AUTHORITY
Voting FOR Election to Vote for Election
as Director as Director
-------------------- ---------------------
<S> <C> <C>
Frank J. Morgan 5,995,823 831,944
John H. Deininger 6,704,553 123,214
</TABLE>
(2) Shareholders voted on an amendment to the
Long-Term Executive Compensation Plan. There were
no broker nonvotes with respect to this matter.
The results of voting were as follows:
For - 4,742,111 Against - 1,998,738 Abstain - 86,918
13
<PAGE>
(3) Shareholders also voted on a proposal to ratify
the appointment of Arthur Andersen LLP 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 - 6,730,009 Against - 73,732 Abstain - 24,026
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
-------- --------------------------------
11 Calculation of Primary and
Fully Diluted Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Subsequent Reports on Form 8-K
None
14
<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 15, 1996 By:/S/ Brooks F. Sherman
----------------------- ---------------------
Brooks F. Sherman
Vice President - Finance, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
15
EXHIBIT 11
ELJER INDUSTRIES, INC.
CALCULATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND APRIL 2, 1995
<TABLE>
<CAPTION>
For the Three Months Ended
March April
31, 1996 2, 1995
----------- -----------
<S> <C> <C>
Primary Earnings Per Share:
Net Income (loss) $ (947,000) $ (882,000)
----------- -----------
Weighted average common shares outstanding 7,143,509 7,129,626
Dilutive effect of stock options considered
common stock equivalents 25,643 --
----------- -----------
Weighted average number of common and
common equivalent shares 7,169,152 7,129,626
Primary earnings (loss) per share $ (0.13) $ (0.12)
=========== ===========
Fully Diluted Earnings Per Share:
Net income (loss) $ (947,000) $ (882,000)
----------- -----------
Weighted average common shares outstanding 7,143,509 7,129,626
Dilutive effect of stock options considered
common stock equivalents 25,643 --
----------- -----------
Weighted average number of common and
common equivalent shares 7,169,152 7,129,626
Fully diluted earnings (loss) per share $ (0.13) $ (0.12)
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1996, 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-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,438
<SECURITIES> 0
<RECEIVABLES> 72,427
<ALLOWANCES> 7,477
<INVENTORY> 64,443
<CURRENT-ASSETS> 162,307
<PP&E> 173,408
<DEPRECIATION> 110,621
<TOTAL-ASSETS> 238,306
<CURRENT-LIABILITIES> 205,374
<BONDS> 14,099
0
0
<COMMON> 7,186
<OTHER-SE> (43,512)
<TOTAL-LIABILITY-AND-EQUITY> 238,306
<SALES> 93,414
<TOTAL-REVENUES> 93,414
<CGS> 71,770
<TOTAL-COSTS> 71,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,434
<INCOME-PRETAX> (1,132)
<INCOME-TAX> (185)
<INCOME-CONTINUING> (947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (947)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
