1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended MayAugust 31, 2001 Commission file number 333-49957-01
-------------
EAGLE-PICHER HOLDINGS, INC.
-
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
-
--------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
- -----------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
---------------------------
(Not Applicable)
-
-----------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
EAGLE-PICHER HOLDINGS, INC. IS FILING THIS REPORTRPEORT VOLUNTARILY IN ORDER TO
COMPLY WITH THE REQUIREMENTS OF THE TERMS OF ITS 9 3/8% SENIOR SUBORDINATED
NOTES AND 11 3/4% SERIES B CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND IS NOT
REQUIRED TO FILE THIS REPORT PURSUANT TO EITHER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. (See explanatory note immediately above.)
Yes No X
No
--- ------- ----
Indicate by check mark whether the additional registrant, Eagle-Picher
Industries, Inc., has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes X No
--- ---
625,001---- ----
1,000,000 shares of Class A common capital stock, $.01 par value each, were outstanding
at July 12,October 13, 2001.
374,999 shares of Class B common capital stock, $.01 par value each, were
outstanding at July 12, 2001.1
2
TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ---------------- --------------- -------------------------- ------ ------
Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
EPMR Corporation (f/k/a Michigan
Automotive Research Corp.) Michigan 333-49957-08 38-2185909
2
3
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..........................................Statements......................................... 4
Condensed Consolidated Statements of Income (Loss)(Unaudited)......... 4
Condensed Consolidated Balance Sheets (Unaudited)................................. 5
Condensed Consolidated Statements of Cash Flows (Unaudited)............. 7
Notes to Condensed Consolidated Financial Statements (Unaudited)... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 21Operations..............................20
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 29Risk.. 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................Proceedings........................................... 31
Item 6. Exhibits and Reports on Form 8-K..............................8-K............................ 31
Signatures.............................................................Signatures........................................................... 32
Exhibit Index.......................................................... 41Index........................................................ 39
3
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended SixNine Months Ended
MayAugust 31 MayAugust 31
--------------------- ------------------- ----------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales $ 184,127 $ 197,851 $ 348,156 $ 400,116$169,520 $176,243 $517,676 $576,359
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 147,499 156,091 277,627 316,259139,673 141,287 417,300 457,546
Selling and administrative 13,611 17,438 24,871 34,94913,054 14,438 37,925 49,387
Depreciation 11,379 10,562 21,632 21,58111,250 9,830 32,882 31,411
Amortization of intangibles 4,149 4,097 8,105 8,2084,135 3,955 12,240 12,163
Proceeds from insurance settlement -- -- --- - - (16,000)
Divestitures - 2,089 500 (4,333) 500 (14,309)(12,220)
Management compensation - special 1,889 1,560 1,889609 - 2,498 1,560
Other (62) (226) (269) (388)
--------- --------- --------- ---------
178,965 185,189 334,355 351,860
--------- --------- --------- ---------107 (51) (162) (439)
------- ------- ------- -------
168,828 171,548 503,183 523,408
------- ------- ------- -------
Operating Income 5,162 12,662 13,801 48,256692 4,695 14,493 52,951
Interest expense (10,078) (10,932) (20,250) (23,024)(9,920) (10,454) (30,170) (33,478)
Other income(expense) (66) (246) 839 (377)
--------- --------- --------- ---------1,600 775 2,439 398
----- ------ ------ ------
Income(Loss)from Continuing Operations
Before Taxes (4,982) 1,484 (5,610) 24,855(7,628) (4,984) (13,238) 19,871
Income Taxes (Benefit) (1,645) 3,000 (1,775) 14,900
--------- --------- --------- ---------(2,525) (1,000) (4,300) 13,900
------ ----- ------ ------
Income (Loss) from Continuing Operations (3,337) (1,516) (3,835) 9,955(5,103) (3,984) (8,938) 5,971
Discontinued Operations:
Loss from operations of discontinued
segment, net of income taxes (benefit)tax benefit of
$ - , ($250), $(900)$1,150, $900 and $(1,150) -- 87$2,300 - (183) (1,657) (787)(970)
Loss on disposal of business segment including provisions of $682$1,733 and
$1,768$4,138 for operating losses during phase-out periods, net of income tax
benefits of $1,575$2,000 and $9,800 (2,925) -- (18,200) --
--------- --------- --------- ---------$11,800 (5,500) - (23,700) -
------- ------ ------ ------
Net Income (Loss) $(10,603) $(4,167) $(34,295) $ (6,262) $ (1,429) $ (23,692) $ 9,168
========= ========= ========= =========
Income (Loss)5,001
====== ===== ====== =====
Loss Applicable to
Common Shareholders $ (9,580) $ (4,224) $ (30,144) $ 3,413
========= ========= ========= =========$(13,921) $(7,127) $(44,065) $(3,714)
====== ===== ====== =====
Comprehensive Income (Loss) $(12,180) $(4,200) $(36,769) $ (7,082) $ (1,847) $ (24,589) $ 7,732
========= ========= ========= =========3,532
====== ===== ====== =====
Earnings per Share:
Income (loss)Loss from continuing operations $ (6.77)(8.58) $ (4.31)(6.95) $ (10.45)(19.02) $ 4.20
Discontinued(2.74)
Loss from discontinued operations net
income (loss) (2.97) .09 (20.17) (.79)
--------- --------- --------- ---------(5.60) (.18) (25.79) (.97)
----- ------ ----- ----
Net Income (loss)Loss $(14.18) $ (9.74)(7.13) $(44.81) $ (4.22) $ (30.62) $ 3.41
========= ========= ========= =========(3.71)
===== ====== ===== =====
See accompanying notes to the condensed consolidated financial
statements.
4
5
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
May 31 November 30
ASSETS 2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 8,310 $ 7,467
Receivables, less allowances 119,354 104,875
Inventories:
Raw materials and supplies 25,863 32,664
Work in process 35,000 37,034
Finished goods 17,110 13,821
-------- --------
77,973 83,519
Net assets of discontinued operations 14,540 44,080
Prepaid expenses 6,186 7,141
Deferred income taxes 22,326 12,860
-------- --------
Total current assets 248,689 259,942
-------- --------
PROPERTY, PLANT AND EQUIPMENT 340,909 316,981
Less accumulated depreciation 114,080 90,977
-------- --------
Net property, plant and equipment 226,829 226,004
-------- --------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $49,878 and
$41,798, respectively 187,582 195,575
-------- --------
OTHER ASSETS 84,329 86,178
-------- --------
Total Assets $747,429 $767,699
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 65,661 $ 57,865
Long-term debt - current portion 65,416 65,358
Income taxes 2,161 2,682
Other current liabilities 63,945 65,235
-------- --------
Total current liabilities 197,183 191,140
LONG-TERM DEBT - less current portion 394,318 392,573
DEFERRED INCOME TAXES 6,272 10,278
OTHER LONG-TERM LIABILITIES 26,347 24,707
-------- --------
Total Liabilities 624,120 618,698
-------- --------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;
issued and outstanding 14,191 shares 116,256 109,804
-------- --------
August 31 November 30
ASSETS 2001 2000
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 14,755 $ 7,467
Receivables, less allowances 111,301 104,875
Inventories:
Raw materials and supplies 29,359 32,664
Work in process 34,155 37,034
Finished goods 17,106 13,821
------- -------
80,620 83,519
Net assets of discontinued operations 7,553 44,080
Prepaid expenses 8,409 7,141
Deferred income taxes 24,326 12,860
------ -------
Total current assets 246,964 259,942
------- -------
PROPERTY, PLANT AND EQUIPMENT 351,954 316,981
Less accumulated depreciation 125,364 90,977
------- -------
Net property, plant and equipment 226,590 226,004
------- -------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $53,667 and
$42,089, respectively 183,626 195,575
------- -------
OTHER ASSETS 87,378 86,178
------ -------
Total Assets $744,558 $767,699
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 70,920 $ 57,865
Long-term debt - current portion 65,163 65,358
Income taxes 2,526 2,682
Other current liabilities 60,418 65,235
------- -------
Total current liabilities 199,027 191,140
LONG-TERM DEBT - less current portion 405,018 392,573
DEFERRED INCOME TAXES 2,302 10,278
OTHER LONG-TERM LIABILITIES 27,672 24,707
------ -------
Total Liabilities 634,019 618,698
------- -------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;
issued and outstanding 14,191 shares 119,573 109,804
------- ---------
5
6
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
MayAugust 31 November 30
2001 2000
---- ----
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 1,000,000 shares $.01 par
value each; issued and outstanding 1,000,000 shares 10 -
Class A Common stock, authorized 625,001 shares,
$.01 par value each; issued and outstanding
625,001 shares 6- 6
Class B Common stock, authorized 374,999 shares,
$.01 par value each; issued and outstanding
374,999 shares 4- 4
Additional paid-in capital 99,991 99,991
Deficit (86,284)(100,205) (56,140)
Other comprehensive income (3,190)loss (4,767) (2,293)
--------- ---------
10,527------- -------
(4,971) 41,568
Treasury Stock, at cost: 16,50022,750 and 11,500 shares (3,474)(4,063) (2,371)
--------- ---------------- -------
Total Shareholders' Equity 7,053(Deficit) (9,034) 39,197
--------- ---------------- -------
Total Liabilities and Shareholders' Equity (Deficit) $744,558 $767,699
======= =======
See accompanying notes to the condensed consolidated financial statements.
6
7
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended
August 31
------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(34,295) $5,001
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Provision for discontinued operations 23,700 -
Depreciation and amortization 47,611 45,999
Divestitures 500 (12,220)
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures:
Receivables (6,447) 13,038
Inventories 2,899 (5,405)
Accounts payable 13,055 2,529
Accrued liabilities (5,317) (7,821)
Other (9,314) (4,000)
------ ------
Net cash provided by
operating activities 32,392 37,121
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions - 84,833
Acquisitions - (11,796)
Capital expenditures (34,874) (30,193)
Other (966) 1,604
---- ------
Net cash provided by (used in)
investing activities (35,840) 44,448
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (14,322) (19,093)
Net borrowings (repayments) under revolving
credit agreements 26,765 (63,482)
Other (2,734) (902)
------ -------
Net cash provided by (used in)
financing activities 9,709 (83,477)
------ ------
Net cash provided by discontinued operations 1,027 663
----- -----
7
8
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended
August 31
---------
2001 2000
---- ----
Net increase (decrease) in cash and cash equivalents 7,288 (1,245)
Cash and cash equivalents, beginning of period 7,467 10,071
------ ------
Cash and cash equivalents, end of period $14,755 $ 747,4298,826
====== ======
Supplemental cash flow information: 2001 2000
---- ----
Cash paid during the three months ended August 31:
Interest paid $ 767,699
========= =========4,431 $ 5,294
Income taxes paid (refunded) $ 207 $ 3,037
Cash paid during the nine months ended August 31:
Interest paid $23,135 $28,655
Income taxes paid (refunded) $(1,695) $ 6,827
See accompanying notes to the condensed consolidated financial statements.
6
7
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Ended
May 31
------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(23,692) $ 9,168
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 31,360 31,405
Provision for discontinued operations 18,200 --
Divestitures 500 (14,309)
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures:
Receivables (14,492) 7,979
Inventories 5,546 (2,420)
Accounts payable 7,796 5,657
Accrued liabilities (1,790) (11,298)
Other (1,562) 8,137
-------- --------
Net cash provided by
operating activities 21,866 34,319
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions -- 83,880
Acquisitions -- (6,839)
Capital expenditures (22,344) (17,522)
Other (2,022) 1,012
-------- --------
Net cash provided by (used in)
investing activities (24,366) 60,531
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (9,548) (7,315)
Net borrowings (repayments) under revolving
credit agreements 11,556 (82,398)
Other (205) (779)
-------- --------
Net cash provided by (used in)
financing activities 1,803 (90,492)
-------- --------
NET CASH PROVIDED BY (USED IN) DISCONTINUED
OPERATIONS 1,540 (3,147)
-------- --------
7
8
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Ended
May 31
----------------
2001 2000
---- ----
Net increase in cash and cash equivalents 843 1,211
Cash and cash equivalents, beginning of period 7,467 10,071
------- -------
Cash and cash equivalents, end of period $ 8,310 $11,282
======= =======
Supplemental cash flow information: 2001 2000
---- ----
Cash paid during the three months ended May 31:
Interest paid $ 14,468 $ 15,976
Income taxes paid (refunded), net $ (135) $ 2,984
Cash paid during the six months ended May 31:
Interest paid $ 18,704 $ 23,361
Income taxes paid (refunded), net $ (1,902) $ 3,255
See accompanying notes to the condensed consolidated financial statements.
8
9
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Eagle-Picher Holdings, Inc. (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto for the
fiscal year ended November 30, 2000 presented in the Company's Form 10-K filed
with the SEC on February 28, 2001, as amended on March 8, 2001.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the
three months and sixnine months ended MayAugust 31, 2001 and MayAugust 31, 2000. Results
of operations for interim periods are not necessarily indicative of results to
be expected for an entire year. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
B. BASIC EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding, which was 983,500981,417 in the three months ended
MayAugust 31, 2001, 984,333983,361 in the sixnine months ended MayAugust 31, 2001 and 1,000,000
in the three months and sixnine months ended MayAugust 31,2000. The net loss
applicable to common shareholders represents the net income reduced by, or the
net loss increased by, accreted dividends on preferred stock of $3,318 and
$6,452$9,770 for the three and sixnine months ended MayAugust 31, 2001, respectively, and
$2,795$2,960 and $5,755$8,715 for the three and sixnine months ended MayAugust 31, 2000,
respectively. No potential common stock was outstanding during the three months
ended MayAugust 31, 2001 or 2000.
C. DISCONTINUED OPERATIONS
The Board of Directors authorized Management to sell the assets and
business of the Construction Equipment Division, which comprises the Machinery
Segment. The Company has engaged Seale & Associates, LLCentered into a letter of intent to assistsell the Company
in selling the Segment.Segment,
which is subject to certain contingencies. The sale is now expected to be
completed by September 1,November 30, 2001.
Sales were $18,102$18,677 and $23,629$21,671 in the Machinery Segment in the three
months ended MayAugust 31, 2001 and May 31, 2000, respectively, and $31,891$50,568 and $43,207$64,878 in
the sixnine months ended MayAugust 31, 2001 and 2000, respectively. The Company
recorded provisions of $15,275$7,500 and $2,925,$35,500, net of income tax benefits of $8,225$2,000
and $1,575,$11,800, in the firstthree months and second quarters ofnine months ended August 31, 2001,
respectively. These provisions include estimated losses and costs to be incurred
in connection with the disposition of the Machinery Segment, including an
aggregate of $2,450$4,183 of expected losses during the phase-out period from March 1
through September 1,November 30, 2001. An operating loss of $1,657, net of tax, was incurred
in the first quarter of 2001. The results of the Machinery Segment's operations
have been reported separately as discontinued operations in the consolidated
statement of income (loss). Prior year amounts have been restated to present the
operations of the Machinery Segment
9
10
as a discontinued operation.
9
10
The net assets of the discontinued operations have been recorded at their
estimated net realizable value under the caption "Net assets of discontinued
operations" in the accompanying Condensed Consolidated Balance Sheets at MayAugust
31, 2001 and November 30, 2000. At MayAugust 31, 2001, total assets of the
Machinery Segment, which consisted primarily of accounts receivable, inventory,
property, plant and equipment and goodwill, were $49,186.$48,297. Total liabilities of
the Machinery Segment were $34,646$40,744 and consisted of accounts payable and accrued
liabilities.
D. LEGAL MATTERS
For other information on legal proceedings, see Item 3 of the Company's
Annual Report on Form 10-K/A10-K for the fiscal year ended November 30, 2000 and Part
II, Item 1 of the Company's Quarterly ReportReports on Form 10-Q for the quarterquarters
ended February 28, 2001 and May 31, 2001.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit
against the Company's wholly owned subsidiary, Eagle-Picher Industries, Inc.
("EPI") in the United States District Court for the Northern District of Georgia
(the "Georgia Court") alleging breach of contract, negligent misrepresentation,
and contributory infringement and seeking contribution and indemnification in an
amount not less than $10 million (the "Caradon suit"). The Caradon suit arose
out of patent infringement litigation between Caradon and Therma-Tru Corporation
extending over the 1989-1996 time period, the result of which was for Caradon to
be held liable for patent infringement in an amount believed to be in excess of
$10 million. In June 1997, EPI filed a Motion with the United States Bankruptcy
Court for the Southern District of Ohio, Western Division, ("Bankruptcy Court")
seeking an order enforcing EPI's plan of reorganization as confirmed by the
Bankruptcy Court in November 1996 (the "Plan") against Caradon, and enjoining
the Caradon suit from going forward. The Bankruptcy Court in a decision entered
on December 24, 1997, held that the Caradon suit did violate the Plan and
enjoined Caradon from pursuing the Caradon suit. Caradon appealed the Bankruptcy
Court's decision to the United States District Court for the Southern District
of Ohio (the "District Court"), and in a decision entered on February 3, 1999,
the District Court reversed and remanded the matter back to the Bankruptcy
Court. On January 5, 2001,The Bankruptcy Court held a hearing on this matter on September 24 and
25, 2001. EPI filedanticipates a Motion for Summary Judgmentdecision on the issue
of whether Caradon was afforded notice of the Plan and the hearing when the Plan
was confirmed, a motion which was deniedbankruptcy related issues by the Bankruptcy Court on April 5,
2001 based on the Bankruptcy Court's finding that factual issues remain in
dispute.end
of this calendar year. EPI intends to contest this suit vigorously. EPI does not
believe that resolution of this suit will have a material adverse effect on
EPI's financial condition, results of operations or cash flows.
On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired the
depleted zinc distribution business (the "DZ Business") of Isonics Corporation
("Isonics") for approximately $8.2 million, payable $6.7 million at closing and
$1.5 million in three installments of $500,000 each payable on the first three
anniversaries of the closing. At the time of the acquisition, a single customer
represented approximately 55% of the DZ Business. Following the completion of
the acquisition, this customer informed EPT that it would no longer be
purchasing depleted zinc from an outside supplier. EPT initiated binding
arbitration against Isonics on March 26, 2001 with the American Arbitration
Association in Dallas, Texas pursuant to contractual dispute resolution
procedures. EPT'SEPT's arbitration demand is based on breach of representations and
warranties in the purchase and sale agreement for the DZ Business as well as
fraud and negligent misrepresentation, and seeks to recover damages in excess of
$10 million and other remedies. While the companyCompany believes it has a meritorious
claim against Isonics, there can be no assurance that the companyCompany will obtain
any recovery as a result of this claim.
10
11
In connection with the sale of the DZ Business, EPT agreed to sell 200 kg of
isotopically purified silicon-28 to Isonics. Due to various factors, EPT has not
yet
10
11 delivered any silicon-28 to Isonics. Isonics has asserted a counterclaim
against EPT in the DZ Business arbitration described above for failure to
deliver silicon-28, seeking damages in excess of $10 million. EPT believes that
any obligation to deliver silicon-28 has been excused by, among other things, a
force majeure clause in the purchase and sale agreement for the DZ Business.
Contemporaneously with the purchase and sale of the DZ Business, EPT and Isonics
entered into a supply agreement (the "Supply Agreement") pursuant to which EPT
agreed that, commencing upon delivery of 200 kg of silicon-28, EPT would devote
the capacity of a pilot plant used to produce such material to producing
silicon-28 and sell all silicon-28 produced in such pilot plant and meeting
certain specifications, as well as any silicon-29 or silicon-30 actually
produced as a byproduct, to Isonics for a ten year term. Isonics amended its
counterclaim in the DZ Business arbitration to assert a claim that the Supply
Agreement requires EPT to produce a certain amount of silicon-28, silicon-29 and
silicon-30 and alleging damages of not less than $75 million for anticipatory
breach of such alleged obligation. EPT believes that the terms of the Supply
Agreement and applicable law clearly establish that the Supply Agreement does
not impose any obligation to produce any quantity of silicon-28, silicon-29 or
silicon-30 and that Isonics' claims are without merit. Isonics also amended its
counterclaim to allege that EPT's parent company, Eagle-Picher Industries, Inc.
("EPI") is liable for any damages of EPT under an "alter ego" theory, a claim
which EPI and EPT believe is also without merit.
EPT and EPI intend to assert other defenses as well and to defend this
counterclaim vigorously. EPT continues to explore alternative processes that may
enable it to produce silicon-28, but there is no assurance that such efforts
will be successful.
In addition, the Company is involved in routine litigation, environmental
proceedings and claims pending with respect to matters arising out of the normal
course of business. In management's opinion, the ultimate liability resulting
from all claims, individually or in the aggregate, will not materially affect
the Company's consolidated financial position, results of operations or cash
flows.
E. SEGMENT REPORTING
The Company has the following reportable segments: Automotive,
Technologies, Machinery and Minerals. Please see discussion in Note C regarding
the discontinuance of the Machinery Segment. The method for determining what
information to report is based on the way management organizes the operating
segments within the company for making operational decisions and assessing
performance. The operations in the Automotive Segment provide mechanical and
structural parts and raw materials for passenger cars, vans, trucks and sport
utility vehicles for original equipment manufacturers and replacement markets.
The operations in the Technologies Segment produce a variety of products for the
aerospace, nuclear, telecommunications, electronics, and other industrial
markets. The operations in the Minerals Segment mine and refine diatomaceous
earth products.
The accounting policies used to develop segment information correspond to
those disclosed in the Company's consolidated financial statements for the year
ended November 30, 2000 included in Form 10-K/A.10-K with the exception that interest
is allocated at a higher rate in 2001. Sales between segments are not material.
The Company does not allocate certain corporate expenses to its segments.
11
12
Information about reported segment income or loss is as follows for the
three months and nine months ended MayAugust 31, 2001 and 2000:
11
12
Three Months Ended SixNine Months Ended
MayAugust 31 MayAugust 31
------------------ ------------------------------------- --------------------
2001 2000 2001 2000
---- ---- ---- ----
(In thousands of dollars)
Net Sales
Automotive $ 114,751 $ 122,800 $ 215,538 $ 237,487$104,494 $109,591 $320,032 $347,078
Technologies 52,460 46,813 100,327 88,60248,681 49,477 149,008 138,079
Minerals 16,916 17,467 32,291 32,85316,345 15,590 48,636 48,443
Divested Divisions -- 10,771 -- 41,174
--------- --------- --------- ---------- 1,585 - 42,759
------- ------- -------- --------
Total $ 184,127 $ 197,851 $ 348,156 $ 400,116
========= ========= ========= =========$169,520 $176,243 $517,676 $576,359
======= ======= ======= =======
Income (Loss) from Continuing
Operations Before Taxes:
Automotive $(5,367) $ (2,054)(473) $(7,777) $ 1,073 $ (2,410) $ 4,0663,593
Technologies (788) (649) (207) (270)(1,348) (927) (1,555) (1,197)
Minerals 126 929 (432) 542(155) (170) (587) 372
Divested Divisions - (2,489) (500) 3,028 (500) 9,7777,288
Corporate (1,766) (2,897) (2,061) 10,740
--------- --------- --------- ---------
$ (4,982) $ 1,484 $ (5,610) $ 24,855
========= ========= ========= =========(758) (925) (2,819) 9,815
------ ------- ------- -------
$(7,628) $(4,984) $(13,238) $19,871
====== ====== ======= ======
Total
Depreciation and Amortization:
Automotive $ 10,1339,982 $ 8,807 $ 19,383 $ 17,0928,418 $29,365 $25,510
Technologies 3,776 3,482 7,363 6,9583,803 3,562 11,166 10,520
Minerals 1,390 1,488 2,740 2,9771,466 1,490 4,206 4,467
Divested Divisions -- 685 -- 2,370- 43 - 2,413
Corporate 229 197 251 392
--------- --------- --------- ---------134 272 385 664
------- ------- ------ -------
Total $ 15,528 $ 14,659 $ 29,737 $ 29,789
========= ========= ========= =========$15,385 $13,785 $45,122 $43,574
====== ====== ====== ======
Interest Expense:
Automotive $ 5,3085,311 $ 6,174 $ 10,856 $ 9,7805,053 $16,167 $14,833
Technologies 3,787 3,301 7,528 6,2333,762 3,086 11,290 9,319
Minerals 1,060 678 2,131 1,5931,041 809 3,172 2,402
Divested Divisions -- 1,080 -- 2,669- 103 - 2,772
Corporate/Intersegment (77) (301) (265) 2,749
--------- --------- --------- ---------(194) 1,403 (459) 4,152
------- ------- ------- -------
Total $ 10,0789,920 $10,454 $ 10,932 $ 20,250 $ 23,024
========= ========= ========= =========30,170 $33,478
====== ====== ====== ======
The Company sold its Ross Aluminum, MARCO and Fluid Systems Divisions in the
first quarter of 2000. The Rubber Molding Division was sold in the second
quarter of 2000 and the Cincinnati Industrial Machinery Division was sold in the
third quarter of 2000. These divisions are referred to collectively herein as
the "Divested Divisions."
F. FINANCIAL INSTRUMENTS
Effective December 1, 2000, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS
133." Under this guidance, all derivatives,
12
13
including foreign currency exchange contracts and interest rate swaps, are
recognized in the consolidated balance sheet at fair value.
On the date the derivative contract is entered into, the company designates
the derivative as either a hedge of the fair value of a recognized asset or
liability (fair value hedge), a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge) or hedge of a
12
13 net investment in a foreign
operation (net investment hedge). Changes in the fair value of derivatives that
are designed as fair value hedges are recorded in the consolidated statement of
income along with the loss or gain on the hedged asset or liability. Changes in
the fair value of derivatives that are designated as cash flow hedges are
recorded in other comprehensive income, until the underlying transactions occur.
Changes in the fair value of derivatives that are designated as net investment
hedges are recorded as a component of other comprehensive income. The
ineffective portion of derivatives that are hedges are recorded in the
consolidated statement of income.
Upon initial application of SFAS 133, the Company recorded the fair value of
existing foreign currency exchange contracts and interest rate swaps on the
consolidated balance sheet and a corresponding unrecognized gain of $327, net of
tax, as a cumulative effect adjustment of accumulated other comprehensive
income.
G. CAPITAL STOCK
On August 31, 2001, the Company adopted an amendment to its Amended and
Restated Certificate of Incorporation to change its capital structure. Effective
with this amendment, the total number of shares of common stock which the
Company is authorized to issue is 1,000,000 shares, par value $0.01 per share
(the "Common Stock"). The holders of shares of Common Stock are entitled to one
vote per share on all matters which may be submitted to the holders of Common
Stock of the Company. At the effective time of this amendment, each share of
Class A Common Stock of the Company and each share of Class B Common Stock of
the Company outstanding immediately prior to the effective time changed into and
was reclassified as one share of Common Stock of the Company.
H. SUPPLEMENTAL GUARANTOR INFORMATION
The indebtedness of the Company's wholly-owned subsidiary, EPI, includes a
syndicated secured loan facility ("Credit Agreement") and $220.0 million in
senior subordinated notes ("Subordinated Notes"). Both the Credit Agreement and
the Subordinated Notes are guaranteed on a full, unconditional and joint and
several basis by the Company and certain of EPI'S wholly-owned domestic
subsidiaries ("Subsidiary Guarantors") including Carpenter Enterprises Ltd.,
which was acquired in 1999, and Eagle-Picher Acceptance Corporation, which was
formed in 1999. Management has determined that full financial statements and
other disclosures concerning EPI or the Subsidiary Guarantors would not be
material to investors and such financial statements are not presented. The
following supplemental condensed combining financial statements present
information regarding EPI, the Subsidiary Guarantors and the subsidiaries that
did not guarantee the debt.
EPI and the Subsidiary Guarantors are subject to restrictions on the payment
of dividends under the terms of both the Credit Agreement and the Indenture
supporting the Subordinated Notes, both of which were filed with the Company's
Form S-4 Registration Statement No. 333-49957-01 filed on April 11, 1998 and
amended on May 20, 1998 and June 5, 1998, and both of which were incorporated by
reference to the Company's Form 10-K which was filed on February 28, 2001 and
amended on March 8, 2001.
13
14
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED MAYAUGUST 31, 2001
GUARANTORS
--------------------------------------------
EAGLE-PICHER SUBSIDIARY
ISSUER HOLDINGS, INC. GUARANTORS
------------------ ------------------- -----------------------Guarantors Non-Guarantors
---------------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------------ --------------- --------------- ------------ -------------- ---------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 11,91411,536 $ --- $ 149,951137,332 $ 20,652 $ - $ 169,520
Intercompany 3,520 -- 3,6524,522 - 3,099 - (7,621) -
Operating Costs and Expenses:
Cost of products sold 9,123 -- 128,0439,890 - 120,215 16,981 (7,413) 139,673
Selling administrative 5,979 -- 5,647& Administrative 5,208 4 5,966 1,965 (89) 13,054
Intercompany charges (1,792) -- 1,753(1,642) - 1,618 (65) 89 -
Depreciation 1,029 -- 9,389950 - 9,427 873 - 11,250
Amortization of intangibles 930 -- 2,860936 - 2,846 353 - 4,135
Other 2,378 -- (44)
--------- --------- ---------630 - 112 (26) - 716
-------- -------- -------- -------- ------- --------
Total 17,647 -- 147,648
--------- --------- ---------15,972 4 140,184 20,081 (7,413) 168,828
======== ======== ======== ======== ======= ========
Operating Income (2,213) -- 5,95586 (4) 247 571 (208) 692
Other Income (Expense)
Interest expense (2,717) -- (8,872)(2,482) - (8,923) (344) 1,829 (9,920)
Other income (expense) 943 -- 1,607438 - 2,349 73 (1,260) 1,600
Equity in earnings of
consolidated subsidiaries (809) (6,261) 40
--------- --------- ---------(7,127) (10,599) (390) - 18,116 -
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuting (4,796) (6,261) (1,270)(9,085) (10,603) (6,717) 300 18,477 (7,628)
Operations Before Taxes
Income Taxes (Benefit) (2,512) -- (16)
--------- --------- ---------
Net(3,275) - 7 743 - (2,525)
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations (2,284) (6,261) (1,254)(5,810) (10,603) (6,724) (443) 18,477 (5,103)
Discontinued Operations (2,925) -- --
--------- --------- ---------(5,500) - - 40 (40) (5,500)
-------- -------- -------- -------- ------- --------
Net Income (Loss) $ (5,209)(11,310) $ (6,261)(10,603) $ (1,254)
========= ========= =========
NON-GUARANTORS
FOREIGN
SUBSIDIARIES ELIMINATIONS TOTAL
--------------------- ----------------- ----------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers(6,724) $ 22,262(403) $ --18,437 $ 184,127
Intercompany -- (7,172) --
Operating Costs and Expenses:
Cost of products sold 17,712 (7,379) 147,499
Selling administrative 2,072 (87) 13,611
Intercompany charges (48) 87 --
Depreciation 961 -- 11,379
Amortization of intangibles 359 -- 4,149
Other (7) -- 2,327
--------- --------- ---------
Total 21,049 (7,379) 178,965
--------- --------- ---------
Operating Income 1,213 207 5,162
Other Income (Expense)
Interest expense (480) 1,991 (10,078)
Other income (expense) (56) (2,560) (66)
Equity in earnings of
consolidated subsidiaries -- 7,030 --
--------- --------- ---------
Income (Loss) from Continuting 677 6,668 (4,982)
Operations Before Taxes
Income Taxes (Benefit) 883 -- (1,645)
--------- --------- ---------
Net Income (Loss) from Continuing
Operations (206) 6,668 (3,337)
Discontinued Operations (10) 10 (2,925)
--------- --------- ---------
Net Income (Loss) $ (216) $ 6,678 $ (6,262)
========= ========= =========(10,603)
======== ======== ======== ======== ======= ========
14
15
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIXNINE MONTHS ENDED MAYAUGUST 31, 2001
GUARANTORS
--------------------------------------------
EAGLE-PICHER SUBSIDIARY
ISSUER HOLDINGS, INC. GUARANTORS
------------------ ------------------- -----------------------Guarantors Non-Guarantors
-----------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------------ -------------- ------------ ------------ ------------ ------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 24,78436,320 $ --- $ 277,381414,713 $ 66,643 $ - $ 517,676
Intercompany 7,370 -- 7,52111,892 - 10,620 1 (22,513) -
Operating Costs and Expenses:
Cost of products sold 18,563 -- 237,21228,453 - 357,427 53,933 (22,513) 417,300
Selling administrative 10,813 -- 10,085& Administrative 16,021 4 16,051 6,113 (264) 37,925
Intercompany charges (3,321) -- 3,243(4,963) - 4,861 (162) 264 -
Depreciation 2,155 -- 17,6933,105 - 27,120 2,657 - 32,882
Amortization of intangibles 1,864 -- 5,5262,800 - 8,372 1,068 - 12,240
Other 2,237 -- (100)2,867 - 12 (43) - 2,836
--------- --------- ----------------- ------- -------- ----------
Total 32,311 -- 273,65948,283 4 413,843 63,566 (22,513) 503,183
--------- --------- ----------------- ------- -------- ----------
Operating Income (157) -- 11,243(71) (4) 11,490 3,078 - 14,493
Other Income (Expense)
Interest expense (4,960) -- (18,181)(7,442) - (27,104) (1,375) 5,751 (30,170)
Other income (expense) 905 -- 3,4861,343 - 5,835 1,012 (5,751) 2,439
Equity in earnings of
consolidated subsidiaries (1,817) (23,692) 701(8,944) (34,291) 311 - 42,924 -
--------- --------- ----------------- ------- -------- ----------
Income (Loss) from Continuting (6,029) (23,692) (2,751)(15,114) (34,295) (9,468) 2,715 42,924 (13,238)
Operations Before Taxes
Income Taxes (Benefit) (3,283) -- (15)(6,558) - (8) 2,266 - (4,300)
--------- --------- ---------
Net-------- ------- -------- ----------
Income (Loss) from Continuing
Operations (2,746) (23,692) (2,736)(8,556) (34,295) (9,460) 449 42,924 (8,938)
Discontinued Operations (19,857) -- --(25,357) - - 67 (67) (25,357)
--------- --------- ----------------- ------- -------- ----------
Net Income (Loss) $ (22,603)(33,913) $ (23,692)(34,295) $ (2,736)(9,460) $ 516 $ 42,857 $ (34,295)
========= ========= ======== ======= ======== =========
15
16
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF AUGUST 31, 2001
NON-GUARANTORS
FOREIGN
SUBSIDIARIES ELIMINATIONS TOTAL
--------------------- ----------------- ----------------Guarantors Non-Guarantors
------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ ------------------------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Assets
Cash and cash equivalents $ 8,040 $ 1 $ 540 $ 6,103 $ 71 $ 14,755
Receivables, net (12,750) - 109,066 14,985 - 111,301
Intercompany accounts receivable 5,616 - 2,996 448 (9,060) -
Inventories 4,267 - 64,570 13,018 (1,235) 80,620
Net Sales
Customers $ 45,991 $ -- $ 348,156
Intercompany 1 (14,892) --
Operating Costs and Expenses:
Costassets of products sold 36,952 (15,100) 277,627
Selling administrative 4,148 (175) 24,871
Intercompany charges (97) 175 --
Depreciation 1,784 -- 21,632
Amortization of intangibles 715 -- 8,105
Other (17) -- 2,120discontinued operations 7,720 - - 6,143 (6,310) 7,553
Prepaid expenses 1,275 - 4,027 3,837 (730) 8,409
Deferred income taxes 24,660 - - - (334) 24,326
--------- --------- --------- --------- --------- ---------
Total 43,485 (15,100) 334,355current assets 38,828 1 181,199 44,534 (17,598) 246,964
Property, Plant & Equipment, net 25,125 - 170,533 30,971 (39) 226,590
Investment in Subsidiaries 82,462 120,266 15,038 11,616 (229,382) -
Excess of Acquired Net Assets Over Cost, net 42,873 - 123,636 20,257 (3,140) 183,626
Other Assets 93,957 - 15,731 538 (22,848) 87,378
--------- --------- --------- Operating Income 2,507 208 13,801
Other Income (Expense)
Interest expense (1,031) 3,922 (20,250)
Other income (expense) 939 (4,491) 839
Equity in earnings of
consolidated subsidiaries -- 24,808 --
--------- --------- ---------
Total Assets $ 283,245 $ 120,267 $ 506,137 $ 107,916 $(273,007) $ 744,558
========= ========= ========= ========= ========= =========
Liabilities and Shareholders' Equity
Accounts payable $ 8,010 $ - $ 51,322 $ 11,588 $ - $ 70,920
Intercompany accounts payable 540 - 17 8,476 (9,033) -
Long-term debt - current portion 24,375 - 40,750 5,784 (5,746) 65,163
Income (Loss) from Continuting 2,415 24,447 (5,610)
Operations Before Taxes
Income Taxes (Benefit) 1,523 -- (1,775)taxes 1,587 - - 939 - 2,526
Other current liabilities 38,449 - 18,902 3,067 - 60,418
--------- --------- --------- Net Income (Loss) from Continuing
Operations 892 24,447 (3,835)
Discontinued Operations 27 (27) (19,857)
--------- --------- ---------
NetTotal current liabilities 72,961 - 110,991 29,854 (14,779) 199,027
Long-term Debt - less current portion 402,837 - 23,222 2,181 (23,222) 405,018
Deferred Income (Loss)Taxes 5,175 - - - (2,873) 2,302
Other Long-Term Liabilities 25,465 18 1,000 1,189 - 27,672
--------- --------- --------- --------- --------- ---------
Total Liabilities 506,438 18 135,213 33,224 (40,874) 634,019
Intercompany Accounts (322,291) - 290,276 37,386 (5,371) -
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock - 119,573 - - - 119,573
Shareholders' Equity 99,098 676 80,648 37,306 (226,762) (9,034)
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 919283,245 $ 24,420120,267 $ (23,692)
========= ========= =========506,137 $ 107,916 $(273,007) $ 744,558
1516
1617
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
SIXNINE MONTHS ENDED MAYAUGUST 31, 2001
GUARANTORS
------------------------------------------------
EAGLE-PICHER SUBSIDIARY
ISSUER HOLDINGS, INC. GUARANTORS
--------------- ------------------------ ----------------Guarantors Non-Guarantors
--------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Flows From Operating Activities:
Net Income (Loss) $(22,603) $(23,692) $ (2,736)(33,913) $ (34,295) $ (9,460) $ 516 $ 42,857 $ (34,295)
Equity in earnings of consolidated subsidiaries 8,944 34,291 (311) - (42,924) -
Depreciation and amortization 8,070 - 35,816 3,725 - 47,611
Provision for discontinued operations 23,700 - - - - 23,700
Divestitures 500 500
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated subsidiaries 1,817 23,692 (701)
DepreciationWorking capital and amortization 5,432 -- 23,429
Provision for discontinued operations 18,200 -- --
Divestitures 500 -- --
Changes in assets and liabilities, net of
effects of acquisitions and divestitures 3,525 -- (12,712)other (1,595) 4 (13,789) 4,608 5,648 (5,124)
--------- --------- -------- ----- -------- -----------------
Net cash provided by
operating activities 6,871 -- 7,280
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:5,706 - 12,256 8,849 5,581 32,392
Cash Flows From Investing Activities:
Capital expenditures (4,739) -- (12,492)(7,013) - (16,602) (11,259) - (34,874)
Other (1,116) (1,103) --1,578 - - (2,544) - (966)
--------- --------- -------- ----- -------- -----------------
Net cash used inprovided by (used in)
investing activities (5,855) (1,103) (12,492)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:(5,435) - (16,602) (13,803) - (35,840)
Cash Flows From Financing Activities:
Reduction of long-term debt (9,548) -- --(14,322) - - - - (14,322)
Borrowings (repayments) on revolving
credit agreements 11,340 -- 1,000agreement 30,340 - (2,000) (1,575) - 26,765
Other -- -- --(2,541) - - (193) - (2,734)
--------- --------- -------- ----- -------- -----------------
Net cash provided by (used in)
financing activities 1,792 -- 1,00013,477 - (2,000) (1,768) - 9,709
--------- --------- -------- ----- -------- -----------------
Net cash provided by
(used in) discontinued operations 1,540 -- --
-------- -------- --------1,027 - - - - 1,027
Increase (decrease) in cash and& cash equivalents 4,348 (1,103) (4,212)14,775 - (6,346) (6,722) 5,581 7,288
Intercompany accounts (3,657) 1,103 4,195
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD(8,032) - 6,347 8,512 (6,827) -
Cash & cash equivalents,
beginning of period 1,297 1 539 4,313 1,317 7,467
--------- --------- -------- ----- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD---------
Cash & cash equivalents, end of period $ 1,9888,040 $ 1 $ 522540 $ 6,103 $ 71 $ 14,755
========= ========= ======== ======== ========
NON-GUARANTORS
FOREIGN
SUBSIDIARIES ELIMINATIONS TOTAL
------------------ ---------------- -----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 919 $ 24,420 $(23,692)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated subsidiaries -- (24,808) --
Depreciation and amortization 2,499 -- 31,360
Provision for discontinued operations -- -- 18,200
Divestitures -- -- 500
Changes in assets and liabilities, net of
effects of acquisitions and divestitures 1,706 2,979 (4,502)
-------- -------- --------
Net cash provided by operating activities 5,124 2,591 21,866
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,113) -- (22,344)
Other 197 -- (2,022)
-------- -------- --------
--
Net cash used in investing activities (4,916) -- (24,366)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt -- -- (9,548)
Borrowings (repayments) on revolving
credit agreements (784) -- 11,556
Other (205) -- (205)
-------- -------- --------
Net cash provided by (used in) financing
activities (989) -- 1,803
-------- -------- --------
Net cash provided by (used in) discontinued
operations -- -- 1,540
-------- -------- --------
Increase (decrease) in cash and
cash equivalents (781) 2,591 843
Intercompany accounts 1,992 (3,633) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,313 1,317 7,467
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,524 $ 275 $ 8,310
======== ======== ========
16
17
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF MAY 31, 2001
GUARANTORS
--------------------------------------------
EAGLE-PICHER SUBSIDIARY
ISSUER HOLDINGS, INC. GUARANTORS
----------- --------------------- ----------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 1,988 $ 1 $ 522
Receivables, net (11,496) -- 115,301
Intercompany accounts receivable 4,496 -- 4,904
Inventories 3,963 -- 63,012
Net assets of discontinued operations 14,380 -- --
Prepaid expenses 1,367 -- 2,759
Deferred income taxes 22,660 -- --
--------- --------- ---------
Total current assets 37,358 1 186,498
Property, Plant & Equipment, net 24,755 -- 177,042
Investment in Subsidiaries 81,874 126,506 12,301
Excess of Acquired Net Assets Over Cost, net 43,807 -- 126,304
Other Assets 102,677 -- 13,340
--------- --------- ---------
Total Assets $ 290,471 $ 126,507 $ 515,485
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 8,068 $ -- $ 50,947
Intercompany accounts payable 504 -- --
Long-term debt - current portion 20,795 -- 43,750
Income taxes 1,611 -- --
Other current liabilities 42,609 -- 18,161
--------- --------- ---------
Total current liabilities 73,587 -- 112,858
Long-term Debt - less current portion 392,191 -- 32,562
Deferred Income Taxes 8,450 -- --
Other Long-Term Liabilities 23,694 14 1,000
--------- --------- ---------
Total Liabilities 497,922 14 146,420
Intercompany Accounts (320,726) -- 281,778
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 116,256 --
Shareholders' Equity 113,275 10,237 87,287
--------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 290,471 $ 126,507 $ 515,485
========= ========= =========
NON-GUARANTORS
FOREIGN
SUBSIDIARIES ELIMINATIONS TOTAL
---------------- -------------- ---------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 5,524 $ 275 $ 8,310
Receivables, net 15,549 -- 119,354
Intercompany accounts receivable 128 (9,528) --
Inventories 12,257 (1,259) 77,973
Net assets of discontinued operations 6,484 (6,324) 14,540
Prepaid expenses 2,597 (537) 6,186
Deferred income taxes -- (334) 22,326
--------- --------- ---------
Total current assets 42,539 (17,707) 248,689
Property, Plant & Equipment, net 25,075 (43) 226,829
Investment in Subsidiaries 10,857 (231,538) -0-
Excess of Acquired Net Assets Over Cost, net 20,611 (3,140) 187,582
Other Assets 669 (32,357) 84,329
--------- --------- ---------
Total Assets $ 99,751 $(284,785) $ 747,429
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 6,646 $ -- $ 65,661
Intercompany accounts payable 8,301 (8,805) --
Long-term debt - current portion 4,050 (3,179) 65,416
Income taxes 550 -- 2,161
Other current liabilities 3,175 -- 63,945
--------- --------- ---------
Total current liabilities 22,722 (11,984) 197,183
Long-term Debt - less current portion 2,127 (32,562) 394,318
Deferred Income Taxes -- (2,178) 6,272
Other Long-Term Liabilities 1,639 -- 26,347
--------- --------- ---------
Total Liabilities 26,488 (46,724) 624,120
Intercompany Accounts 37,262 1,686 --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- -- 116,256
Shareholders' Equity 36,001 (239,747) 7,053
--------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 99,751 $(284,785) $ 747,429
========= ========= =========
17
18
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED MAYAUGUST 31, 2000
GUARANTORS
--------------------------------------------
EAGLE-PICHER SUBSIDIARY
ISSUER HOLDINGS, INC. GUARANTORSGuarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- -------------------------------------------------------- ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 22,351 $ -- $ 153,068
Intercompany 3,963 -- 4,493
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) 18,335 -- 127,984
Selling and administrative 9,519 2 5,496
Management compensation 1,560 -- --
Intercompany charges (3,298) -- 3,298
Depreciation 1,450 -- 8,282
Amortization of intangibles 1,077 -- 2,780
(Gain) loss on sales of divisions (1,100) -- --
(Gain) loss on sales of assets (34) -- (202)
--------- --------- ---------
Total 27,509 2 147,638
--------- --------- ---------
Operating Income (Loss) (1,195) (2) 9,923
Other Income (Expense)
Interest expense (1,950) -- (8,347)
Other income (expense) 174 -- 532
Equity in earnings of
consolidated subsidiaries 2,198 (1,427) 419
--------- --------- ---------
Income (Loss) Before Taxes (773) (1,429) 2,527
Income Taxes (Benefit) 296 -- 3,180
--------- --------- ---------
Net Income (Loss) from Continuing Operations (1,069) (1,429) (653)
Discontinued Operations 87 -- --
--------- --------- ---------
Net Income (Loss) $ (982) $ (1,429) $ (653)
========= ========= =========
NON-GUARANTORS
FOREIGN
SUBSIDIARIES ELIMINATIONS TOTAL
---------------- --------------- -----------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 22,43214,964 $ -- $ 197,851140,508 $ 20,771 $ -- $ 176,243
Intercompany (1) (8,455)4,676 -- 2,973 2,476 (10,125) --
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) 18,227 (8,455) 156,09113,181 -- 118,854 19,377 (10,125) 141,287
Selling and administrative 2,421 -- 17,438
Management compensation -- -- 1,5607,260 1 5,254 1,990 (67) 14,438
Intercompany charges (3,221) -- --3,221 (67) 67 --
Depreciation 8301,055 -- 10,5627,923 852 -- 9,830
Amortization of intangibles 935 -- 2,780 240 -- 4,097
(Gain) loss3,955
Loss on sales of divisions (3,233)2,043 -- (4,333)
(Gain) loss-- 46 -- 2,089
Gain on sales of assets 10(3) -- (226)(48) -- -- (51)
--------- --------- --------- --------- --------- ---------
Total 18,495 (8,455) 185,18921,250 1 137,984 22,438 (10,125) 171,548
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) 3,936(1,610) (1) 5,497 809 -- 12,6624,695
Other Income (Expense)
Interest expense (1,132) 497 (10,932)(2,945) -- (7,101) (753) 345 (10,454)
Other income (expense) (455) (497) (246)123 -- 692 305 (345) 775
Equity in earnings of
consolidated subsidiaries (177) (2,566) 754 -- (1,190)1,989 --
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Taxes 2,349 (1,190) 1,484(4,609) (2,567) (158) 361 1,989 (4,984)
Income Taxes (Benefit) (476)(1,380) -- 3,00013 367 -- (1,000)
--------- --------- --------- Net--------- --------- ---------
Income (Loss) from Continuing Operations 2,825 (1,190) (1,516)(3,229) (2,567) (171) (6) 1,989 (3,984)
Discontinued Operations 26 (26) 87(183) -- -- -- -- (183)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 2,851(3,412) $ (1,216)(2,567) $ (1,429)(171) $ (6) $ 1,989 $ (4,167)
========= ========= ========= ========= ========= =========
18
19
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIXNINE MONTHS ENDED MAYAUGUST 31, 2000
GUARANTORS
------------------------------------------ NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES
---------- -------------------- ---------------- --------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 46,939 $ -- $ 295,039 $ 58,138
Intercompany 8,128 -- 7,048 --
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) 37,762 -- 244,065 49,608
Selling and administrative 17,824 7 11,672 5,484
Management compensation 1,560 -- -- --
Intercompany charges (6,692) -- 6,691 (37)
Depreciation 3,053 -- 16,322 2,206
Amortization of intangibles 2,206 -- 5,522 480
Proceeds from insurance settlement (16,000) -- -- --
(Gain) loss on sales of subsidiaries 1,260 -- (3,976) (11,593)
(Gain) loss on sales of assets (34) -- (394) 7
--------- --------- --------- ---------Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total 40,939 7 279,902 46,155
--------- --------- --------- ---------
Operating Income (Loss) 14,128 (7) 22,185 11,983
Other Income (Expense)
Interest expense (5,689) -- (15,799) (2,639)
Other income (expense) 403 -- 1,058 (735)
Equity in earnings of
consolidated subsidiaries 11,312 9,175 770 --
--------- --------- --------- ---------
Income (Loss) Before Taxes 20,154 9,168 8,214 8,609
Income Taxes 9,314 -- 5,465 121
--------- --------- --------- ---------
Net Income (Loss) from Continuing Operations 10,840 9,168 2,749 8,488
Dicontinued Operations (787) -- -- 78
--------- --------- --------- ---------
Net Income (Loss) $ 10,053 $ 9,168 $ 2,749 $ 8,566
========= ========= ========= =========
ELIMINATIONS TOTAL
-------------- ---------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ -- $ 400,116
Intercompany (15,176) --
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) (15,176) 316,259
Selling and administrative (38) 34,949
Management compensation -- 1,560
Intercompany charges 38 --
Depreciation -- 21,581
Amortization of intangibles -- 8,208
Proceeds from insurance settlement -- (16,000)
(Gain) loss on sales of subsidiaries -- (14,309)
(Gain) loss on sales of assets 33 (388)
--------- ---------
Total (15,143) 351,860
--------- ---------
Operating Income (Loss) (33) 48,256
Other Income (Expense)
Interest expense 1,103 (23,024)
Other income (expense) (1,103) (377)
Equity in earnings of
consolidated subsidiaries (21,257) --
--------- ---------
Income (Loss) Before Taxes (21,290) 24,855
Income Taxes -- 14,900
--------- ---------
Net Income (Loss) from Continuing Operations (21,290) 9,955
Dicontinued Operations (78) (787)
--------- ---------
Net Income (Loss) $ (21,368) $ 9,168
========= =========
19
20
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MAY 31, 2000
GUARANTORS
----------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------- ----------------- ----------- --------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) 10,053 9,168 2,749 8,566 (21,368) 9,168
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries (11,312) (9,175) (770) -- 21,257 --
Depreciation and amortization 6,669 -- 22,050 2,686 -- 31,405
(Gain) loss on sales of divisions 1,260 -- (3,976) (11,593) -- (14,309)
Changes in assets and liabilities, net of
effect of acquisitions and divestitures 20,469 7 5,290 (11,517) (6,194) 8,055
-------- ------- ------- -------- ------- -------
Net cash provided by (used in)
operating activities 27,139 -- 25,343 (11,858) (6,305) 34,319
-------- ------- ------- -------- ------- -------
Cash Flows From Investing Activities:
Proceeds from sales of divisions 45,834 -- 10,430 27,616 -- 83,880
Acquisition of division -- -- (6,839) -- -- (6,839)
Capital expenditures (653) -- (13,666) (3,203) -- (17,522)
Other 2,269 -- 372 (559) (1,070) 1,012
-------- ------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities 47,450 -- (9,703) 23,854 (1,070) 60,531
-------- ------- ------- -------- ------- -------
Cash Flows From Financing Activities:
Reduction of long-term debt (7,315) -- -- -- -- (7,315)
Net borrowings(repayments)under revolving
credit agreements (63,000) -- (9,250) (10,148) -- (82,398)
Other (6) -- -- (773) -- (779)
-------- ------- ------- -------- ------- -------
Net cash financing activities (70,321) -- (9,250) (10,921) -- (90,492)
-------- ------- ------- -------- ------- -------
Net Cash Used in Discontinued Operations (3,147) -- -- -- -- (3,147)
Increase (decrease) in cash 1,121 -- 6,390 1,075 (7,375) 1,211
Intercompany accounts (776) -- (6,517) (220) 7,513 --
Cash and cash equivalents,
beginning of period 4,064 1 870 5,088 48 10,071
-------- ------- ------- -------- ------- -------
Cash and cash equivalents,
end of period 4,409 1 743 5,943 186 11,282
======== ======= ======= ======== ======= =======
20
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2000
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
ASSETSNet Sales
Customers $ 61,903 $ -- $ 435,547 $ 78,909 $ -- $ 576,359
Intercompany 12,804 -- 10,021 7,635 (30,460) --
Operating Costs and Expenses:
Cost of products sold (exclusive of depreciation) 51,123 -- 362,919 73,886 (30,382) 457,546
Selling and administrative 25,084 8 16,926 7,474 (105) 49,387
Management compensation - special 1,560 -- -- -- -- 1,560
Intercompany charges (9,913) -- 9,912 (104) 105 --
Depreciation 3,928 -- 24,245 3,238 -- 31,411
Amortization of intangibles 3,141 -- 8,302 720 -- 12,163
Proceeds from insurance settlement (16,000) -- -- -- -- (16,000)
(Gain) loss on sales of divisions 3,303 -- (3,976) (11,547) -- (12,220)
(Gain) loss on sales of assets (37) -- (442) 7 33 (439)
--------- --------- --------- --------- --------- ---------
Total 62,189 8 417,886 73,674 (30,349) 523,408
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) 12,518 (8) 27,682 12,870 (111) 52,951
Other Income (Expense)
Interest expense (9,933) -- (21,601) (3,392) 1,448 (33,478)
Other income (expense) 526 -- 1,750 (430) (1,448) 398
Equity in earnings of
consolidated subsidiaries 12,437 6,609 1,524 -- (20,570) --
--------- --------- --------- --------- --------- ---------
Income (Loss) Before Taxes 15,548 6,601 9,355 9,048 (20,681) 19,871
Income Taxes 7,934 -- 5,478 488 -- 13,900
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations 7,614 6,601 3,877 8,560 (20,681) 5,971
Discontinued Operations (970) -- -- -- -- (970)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 6,644 $ 6,601 $ 3,877 $ 8,560 $ (20,681) $ 5,001
========= ========= ========= ========= ========= =========
19
20
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2000
Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Assets
Cash and cash equivalents $ 1,297 $ 1 $ 539 $ 4,313 $ 1,317 $ 7,467
Receivables, net 3,140 -- 84,004 17,731 -- 104,875
Intercompany accounts receivable 22,266 -- 9,768 980 (33,014) --
Inventories 4,919 -- 67,299 12,630 (1,329) 83,519
Net assets of discontinued operations 43,793 -- -- 6,256 (5,969) 44,080
Prepaid expenses 906 -- 4,999 1,503 (267) 7,141
Deferred income taxes 12,860 -- -- -- -- 12,860
--------- --------- --------- --------- --------- ---------
Total current assets 89,181 1 166,609 43,413 (39,262) 259,942
Property, Plant & Equipment, net 22,191 -- 181,898 21,958 (43) 226,004
Investment in Subsidiaries 118,526 151,302 12,377 -- (282,205) --
Excess of Acquired Net Assets Over Cost, net 45,673 -- 131,637 21,404 (3,139) 195,575
Other Assets 70,021 -- 17,799 8,472 (10,114) 86,178
--------- --------- --------- --------- --------- ---------
Total Assets $ 345,592 $ 151,303 $ 510,320 $ 95,247 $(334,763) $ 767,699
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY--------- --------- --------- --------- --------- ---------
Liabilities and Shareholders' Equity
Accounts payable $ 10,987 $ -- $ 42,119 $ 4,759 $ -- $ 57,865
Intercompany accounts payable 92 -- -- 9,327 (9,419) --
Long-term debt - current portion 20,795 -- 42,750 1,813 -- 65,358
Income taxes 2,162 -- -- 520 -- 2,682
Other current liabilities 41,092 -- 22,046 2,364 (267) 65,235
--------- --------- --------- --------- --------- ---------
Total current liabilities 75,128 -- 106,915 18,783 (9,686) 191,140
Long-Term Debt - less current portion 390,398 -- 22,266 2,175 (22,266) 392,573
Deferred Income Taxes 11,512 -- -- -- (1,234) 10,278
Other Long-Term Liabilities 22,075 14 1,000 1,618 -- 24,707
--------- --------- --------- --------- --------- ---------
Total Liabilities 499,113 14 130,181 22,576 (33,186) 618,698
Intercompany Accounts (290,399) -- 290,081 36,777 (36,459) --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 109,804 -- -- -- 109,804
Shareholders' Equity 136,878 41,485 90,058 35,894 (265,118) 39,197
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 345,592 $ 151,303 $ 510,320 $ 95,247 $(334,763) $ 767,699
========= ========= ========= ========= ========= =========
20
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 2000
Guarantors Non-Guarantors
-------------------------
Eagle-Picher Subsidiary Foreign
Issuer Holdings, Inc. Guarantors Subsidiaries Eliminations Total
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $ 6,644 $ 6,601 $ 3,877 $ 8,560 $(20,681) $ 5,001
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries (12,437) (6,609) (1,524) -- 20,570 --
Depreciation and amortization 9,185 -- 32,856 3,958 -- 45,999
(Gain) loss on sales of divisions 3,349 -- (3,976) (11,593) -- (12,220)
Changes in assets and liabilities, net of
effect of acquisitions and divestitures 2,685 8 4,724 (14,501) 5,425 (1,659)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 9,426 -- 35,957 (13,576) 5,314 37,121
-------- -------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sales of divisions 46,787 -- 10,430 27,616 -- 84,833
Acquisition of divisions -- -- (11,796) -- -- (11,796)
Capital expenditures (3,534) -- (23,034) (3,625) -- (30,193)
Other 2,113 -- 111 (90) (530) 1,604
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 45,366 -- (24,289) 23,901 (530) 44,448
-------- -------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Reduction of long-term debt (19,093) -- -- -- -- (19,093)
Net borrowings(repayments)under revolving
credit agreements (34,700) -- (18,250) (10,532) -- (63,482)
Other (7) -- -- (895) -- (902)
-------- -------- -------- -------- -------- --------
Net cash used in financing activities (53,800) -- (18,250) (11,427) -- (83,477)
-------- -------- -------- -------- -------- --------
Net cash provided by discontinued operations 663 -- -- -- -- 663
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash 1,655 -- (6,582) (1,102) 4,784 (1,245)
Intercompany accounts (4,714) -- 7,143 3,937 (6,366) --
Cash and cash equivalents,
beginning of period 4,064 1 870 5,088 48 10,071
-------- -------- -------- -------- -------- --------
Cash and cash equivalents,
end of period $ 1,005 $ 1 $ 1,431 $ 7,923 $ (1,534) $ 8,826
======== ======== ======== ======== ======== ========
21
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Please refer to Note E. regarding Segment Reporting contained in Item
1. of this report. The Automotive Segment
Sales ofAll references to years or quarters refer to the Automotive Segment declined 6.6% from $122.8 million in
the second quarter of 2000Company's
fiscal year, which is December 1 to $114.8 million in the comparable period of 2001.
In the first six months of 2001, net sales were $215.5 million compared to
$237.5 million in the same period of 2000. The loss from continuing operations
before taxes was $2.1 million and $2.4 million in the quarter and six months
ended May 31, 2001 compared to income from continuing operations before taxes of
$1.1 million and $4.1 million for the comparable periods in 2000, respectively.November 30, unless otherwise indicated.
THE AUTOMOTIVE SEGMENT
The general economic slowdown in the United States has continued to
have a negative impact on volumes and operating results throughout 2001. Automotive Segment Outlook
Sales
declined 4.7% from $109.6 million in the third quarter of the fiscal year are expected2000 to be somewhat
lower than those of the second quarter, which is typical$104.5 million
in the automotive
industry, due to shut-downscomparable period in the automotive industry for model changeovers2001. Year-to-date sales in 2001 are 7.8% below last
year's sales. The loss from continuing operations before tax was $(5.4) million
and retooling. Income before taxes is expected to be somewhat lower$(.5) million in the third quarterquarters of 2001 and 2000, respectively. In the
nine months ended August 31, 2000, income from continuing operations before
taxes was $3.6 million compared to the second quartera loss of fiscal year 2001 due to inefficiencies
arising out of product-launch activities relating to the record amount of new
business achieved in fiscal year 2000 and the effects of the automotive
shut-downs. The outlook for the Automotive Segment for fiscal year 2001 provided
in the Company's Annual Report on Form 10-K/A continues to represent
Management's view of the Automotive Segment.
The Technologies Segment
Sales of the Technologies Segment increased 12.1% from $46.8 million in
the second quarter of 2000 to $52.5$(7.8) million in the comparable
period of 2001. ForBesides the six months ended May 31,negative impact reduced volumes had on results, this
segment also experienced inefficiencies in certain new product launches and
incurred additional expenses in preparation for a potential work stoppage, which
did not occur. Depreciation costs were significantly higher in 2001 than in 2000
due to substantial capital expenditures made in recent years to support the
volume of new business awarded to the Company.
Automotive Segment Outlook
Sales for the Automotive Segment for 2001 are expected to be
approximately $420 million, $10 million less than originally forecast, although
the product mix is different than originally anticipated. While sales of
product to the Company's largest customer, Honda, have remained steady through
2001, production slowdowns at other of the Company's customers in the
automotive industry have been worse than expected. Additionally, contrary to
the Company's earlier estimates, the economy and 2000, net sales were $100.3 million
and $88.6 million, respectively. Approximatelyits effect on production in
the automotive industry have not stabilized or improved during the latter half
of 2001, but instead have worsened. The terrorist attacks that occurred on
September 11, 2001 have also served to exacerbate economic conditions such that
additional production cutbacks were received and are expected throughout the
increase in both
periods is attributable toremainder of 2001. The Company now expects that the salescombination of Eagle-Picher Energy Products
Corporation, which was acquired in June 2000. Otherthese
factors contributing towill have an additional adverse impact of approximately $4 million on
the increase in sales include increased salesoperating income and EBITDA of special purpose batteriesthe Automotive Segment.
THE TECHNOLOGIES SEGMENT
Sales for certain aerospace and defense programs and increased sales of bulk
pharmaceutical products resulting from increased capacity from a recent plant
expansion. Additionally, in the secondthird quarter of 2001 were $48.7 million, a decrease of
1.6% from the Technologies Segment
sold a large amountcomparable period of gallium raw material to a customer at little or no
margin. The gallium raw material will be refined2000, when they were $49.5 million. Demand
for the customer by the
Technologies Segment at a later date. Thesespecial-purpose batteries is growing and demand for fiber-optic materials
has been strong, which has resulted in sales increases in sales have been
partially offset by lower demandthese areas in 2001 for enriched boron products used by the
semi-conductor industry and commercial batteries used in toysthird quarter of 2001 compared to the same periodsperiod of 2000. However, these
increases have been offset by a decline in 2000.
Lossessales resulting from several factors,
including soft demand for semi-conductor products, a fire in a
bulk-pharmaceutical manufacturing plant and a temporary halt in orders from a
large customer in the commercial battery market while it reduced inventory
levels. Year-to-date sales were $149.0 million and $138.1 million in 2001 and
2000, respectively. The largest increases have been in the special-purpose
battery and fiber-optic markets.
22
23
The loss from continuing operations before taxes were $.8 million and .2
Milliontax in the three and six months ended May 31, 2001 compared to lossesthird quarter has
increased from continuing operations before taxes of $.6 million and $.3$(.9) million in the
comparable periods of 2000 respectively. Although sales were higher, margins
have not improved comparably for several reasons. First, a portion of theto $(1.3) million in 2001. The segment has
experienced an increase in sales is attributable to the sale of gallium raw material at little
or no margin as described above. Additionally, a less favorable product mix of
special-purpose batteriesdepreciation and lower sales of boron products throughout 2001 have
decreased margins. Also pressuring profits were adverse workers' compensationamortization and medical claim experience and increased interest expense increasedexpenses
due in
part to the acquisition of Eagle-Picher Energy Products CorporationCorp. (formerly BlueStar
Battery Systems Corporation) in June 2000.
22
232000 and other recent capital investments.
Year-to-date, the loss from continuing operations before tax was $(1.6) million
and $(1.2) million in 2001 and 2000, respectively.
As noted above, during the third quarter, the Company had a fire in a
bulk pharmaceutical manufacturing plant. While the fire may have a short term
impact on results of operations, the Company does not expect the fire to have a
material impact on its financial condition or results of operations due to
casualty insurance, including business interruption insurance.
Technologies Segment Outlook
SalesFor 2001, sales in the Technologies segmentSegment are expected to be
approximately $202 million, slightly lower than the $210 million anticipated at
the beginning of the year. EBITDA for the Technologies Segment for 2001 is
expected to be relatively flat when compared to 2000.
THE MINERALS SEGMENT
The Minerals Segment experienced a sales increase of 4.8% to $16.3
million in the third quarter compared to the second quarter, but improve slightly over the third
quarter for fiscal year 2000. Income before taxes is expected to be flat to
slightly lower in the third quarter, as the unfavorable product mix described
above is expected to continue and the Technologies Segment is expected to focus
additional efforts on developing new products and commercializing existing
products. The outlook for fiscal yearof 2001, for the Technologies Segment provided
in the Company's Annual Report on Form 10-K/A continues to represent
Management's view of the Technologies Segment.
The Minerals Segment
Sales of the Minerals Segment decreased approximately 3.2%, from $17.5
million in the second quarter of 2000 to $16.9$15.6 million in the same periodquarter of
2001. Sales2000. Although volumes are slightly down this year due to general economic
weakness, revenues have increased as a result of a more favorable product mix,
additional value added with product sold and an energy surcharge that was in
effect for part of the quarter to defray a portion of the increased natural gas
costs experienced nationwide. On a year-to-date basis, sales were $32.3 million and $32.9relatively
flat, totaling $48.6 million in the six months ended May 31,
2001 and 2000, respectively. Sales decreases were duecompared to the soft economic
conditions.
Energy prices and currency losses combined to cause a decline$48.4 million in income2000.
The loss from continuing operations before taxes of $.8 million in those quarters was
virtually unchanged at $(.2) million. On a year-to-date basis, the second
quarter of 2001 when compared to the second quarter of 2000. Lossincome (loss)
from continuing operations before taxes was $(.6) million and $.4 million for
2001 and 2000, respectively, a decline of $1.0 million, despite an increase in
the six months ended May
31, 2001 compared to income from continuing operations before taxesenergy costs of $.5$2.7 million in 2001 from the samecomparable period of 2000, for a total decline of $.9 million. During
this same six month period,in 2000. The
increases in energy costs in the Minerals Segment have increased
more than $2.5 million over the same period a year earlier. On a year-to-date
basis, the effect of the higher energy costs on results wasbeen significantly mitigated by cost savings from
production efficiencies, energy surcharges to customers and a reduction of
general and administrative expenses.
Minerals Segment Outlook
Sales inAs originally anticipated, the Minerals Segment for the third quarter of fiscal year 2001 are
expected to be flat to slightly lower thanCompany expects sales for the second quarter and
approximately even with sales for the same period of fiscal year 2000.
Similarly, income before taxes for the Minerals Segment is expected to be flat
compared to income before taxes for the second quarter of fiscal year 2001 and
the third quarter of fiscal year 2000. The outlook for the Minerals
Segment for fiscal year 2001 set forthto be relatively flat when compared to 2000 at approximately
$65 million. As originally forecast, the Minerals Segment's operating margin
will be slightly lower in 2001 as a result of the substantially higher natural
gas prices experienced earlier in the Company's Annual Report on Form 10-K/A
continues to represent Management's view with respect toyear.
Summary of the Minerals Segment.
SUMMARY OF THE COMPANYCompany
Net Sales. The Company's netNet sales were $184.1 million and $197.9of the Company decreased 3.8% from $176.2 million
in the second quartersthird quarter of 2001 and 2000 respectively, a decreaseto $169.5 million in the third quarter of 6.9%. However, after excluding the2001. The
sales of the Divested Divisions in the second
quarter2000 accounted for $1.6 million of 2000 and the sales of Eagle-Picher Energy Products Corporation, which
was acquired in June 2000 in 2001, sales decreased 3.3%. Increased salesthis
decrease. See discussions of the Technologies Segment were more than offset by declines in the Automotive
Segment.various segments for further information.
23
24
Cost of Products Sold. Cost of products sold excluding that of the
Divested Divisions and Eagle-Picher Energy Products Corporation, increased as a percentage
of net sales from 78.7%80.2% in the secondthird quarter of 2000 to 80.0%82.4% in the
comparable period of 2001. This increase is attributable to the increasedIncreased
energy costs have impacted the margins in operations which are heavy consumers
of natural gas in the Minerals Segment,and Automotive Segments. Lower volumes resulting
from the changecurrent economic slump and inefficiencies in certain new product
mix that occurred inlaunches also contributed to the Technologies Segment and higher costs related to starting new programs and lower
volumes in the Automotive Segment.increase.
Selling and Administrative. Selling and administrative expenses excluding those of the Divested Divisions and Eagle-Picher Energy Products
Corporation,have
declined to $13.6from $14.4 million in the secondthird quarter of 2001 from $16.32000 to $13.1 million for
the same period in the comparable period of 2000. On a year-to-date basis, selling and
administrative expenses, excluding those of Eagle-Picher Energy Products
Corporation and2001. Of this amount, $.3 million is attributable to the
Divested Divisions,Division 2000. Other decreases were $24.8 milliondue to fewer personnel at the
Company's headquarters, a new method of funding the Supplemental Executive
Retirement Plan, and $30.5 million in
2001 and 2000, respectively. Selling and administrative expenses have decreased
largely as a result of programs implemented by the Company that were aimed at
reducing these costs.lower consulting fees.
Depreciation and Amortization. Depreciation and amortization expense
excluding those of the Divested Divisions and Eagle-Picher Energy Products, was $15.4 million and $14.0$13.8 million in the secondthird quarters of 2001 and 2000,
respectively, and $29.5 million and $27.4 million in the six months ended May
31, 2001 and 2000,
respectively. The increase is largely attributable to recent capital
expenditures made in the Automotive Segment for new business achieved in 2000
and 2001.
Insurance Settlement. The Company settled claims against a former
insurer regarding environmental remediation costs for $16.0 million and received
such proceeds in the first quarter of 2000.
Divestitures. In 2000, as part of the Company's previously announced
program to focus management, technical and financial resources on core
businesses, the Company completedsold several divisions. The Cincinnati Industrial
Machinery Division was sold in the salethird quarter of its Ross Aluminum Foundries, Fluid
Systems, MARCO and Rubber Molding Divisions2000, resulting in an aggregate gaina loss of
$14.3$2.1 million. Amounts in 2001 are for additional expenses related to sales of
businesses in prior years.
Management Compensation - Special. Management compensation expenses of
$1.9 million and $1.6$.6 million in the second quartersthird quarter of 2001 and 2000,
respectively, relate to compensation to seniorcorporate
officers upon their separation from the Company.
Interest Expense. Interest expense was $10.1declined from $10.5 million in the
secondthird quarter of 2001 and $10.92000 to $9.9 million in the secondcomparable period this year.
Although debt levels have been slightly higher during the third quarter of 2000. Interest
expense was $20.3 million and $23.0 million for the six months ended May 31,
2001 and 2000, respectively. The decrease in interest expense is due to lower
debt levels throughout 2001
than in the same periodsperiod of 2000. In addition,2000, interest rates have been lower in 2001 on variable rate
debt.debt in 2001. The Company has entered into swap agreements to manage its
interest rate risk. The agreement in effect in 2000 fixed the base interest rate
on $150.0 million of debt at 5.805% plus the applicable spread, where the swap
agreement in 2001 fixed $90.0 million of debt at 5.678% plus the applicable
spread. This results in more of the Company's debt being subject to the variable
base rates, which are currently lower than the rates at which the base rates are
fixed per the swap agreements.
Other Income (Expense). Other expenseincome was $.1$1.6 million and $.2$.8 million
in the secondthird quarters of 2001 and 2000, respectively. Other income forThe increase was due to
royalty received on the six
months ended May 31, 2001 was $.8 millionsale of certain product designs and currency gains as
the euro strengthened compared to other expense of $.4
million in the comparable period of 2000. The difference is attributable todollar during the Company experiencing currency gains in the first quarter of 2001 versus currency
losses in the first quarter of 2000.
24
25third quarter.
Income (Loss) from Continuing Operations Before Taxes. Income (loss)Tax. The losses from
continuing operations before taxes was $(5.0)tax were $(7.6) million and $1.5$(5.0) million in the
secondthird quarters of 2001 and 2000, respectively. The difference is primarily due
primarily to:
- - Divestitureto the effect of the Rubber Molding Division inweak economy on the second quarter of 2000
which resulted in a gain of $4.3 million;
- - The effects of the economic downturn in 2001;
- - Reduced interest expense in 2001;Automotive Segment and - - Decreases in selling and administrative expenses throughout the Company.increased
depreciation costs.
Income Taxes (Benefit). Income taxes (benefit)tax benefits were $(1.6)$(2.5) million and
$3.0$(1.0) million in the secondthird quarters of 2001 and 2000, respectively, and $(1.8)
million and $14.9 million in the six months ended May 31, 2001 and 2000, respectively. The
divestitures in 2000 affect comparability of income taxes and the effective tax
rates due to taxable gains resulting from the divestitures.
Discontinued Operations. As previously reported, the Board of Directors
has authorized Managementmanagement to sell the assets and business of the Machinery
Segment. The Company has engaged Seale & Associates, LLCentered into a letter of intent to assistsell the Company
in selling the Segment. At the same time, theSegment,
which is subject to certain contingencies. The Company continues to implement a
plan which initially focuses on
24
25
improving the efficiency of its operations to achieve a lower cost structure rather than achieving new business.structure.
This segment was has been adverselyseverely impacted by general economic conditions in 2001.
Sales of the Machinery Segment declined 26.2%13.8% from $43.2$21.7 million in the sixthree
months ended MayAugust 31, 2000 to $31.9$18.7 million in the comparable period inof 2001.
Sales of both
wheel-tractor scrapers and fork-lift trucks were down significantly, whilethere was a slight decrease
in sales of wheel-tractor scrapers, and sales of component parts for
construction and agricultural machineryequipment were flat. The lower volumes resulted in
lower margins which were mitigated somewhat by both
improvements in efficiency andthrough reductions in general and
administrative costs.
The results of the Machinery Segment's operations have been reported separately
as discontinued operations in the Statement of Operations.
The Company estimates the disposition of the Machinery Segment will
take place by September 1,November 30, 2001 and has recorded an aggregate provision,provisions, net of
tax, of $2.9$5.5 million and $18.2$23.7 million in the three months and sixnine months ended MayAugust
31, 2001, respectively, for estimated losses and costs to be incurred in
connection with the disposition of the Machinery Segment, including expected
losses during the phase-out period.
Net Income (Loss). Net income (loss)The net loss for the secondthird quarters of 2001 and 2000
were $(6.3)was $(10.6) million and $(1.4)$(4.2) million, respectively. The net loss in 2001 was
significantly impacted by the provision for discontinued operations of
$2.9 million as well as
theother factors discussed under Income (Loss) from
Continuing Operations Before Taxes above.
Dividends accreted of $3.3 million and $2.8$3.0 million in the secondthird
quarters of 2001 and 2000, respectively, on the 11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock ("Preferred Stock") increased the loss applicable
to common shareholders to $9.6$(13.9) million and $4.2$(7.1) million, respectively.
Company Outlook
The Company was fortunate in that it did not suffer the loss of any of
its employees or property in the recent terrorist attacks on the United States.
The attacks have exacerbated the general economic slow-down that the country had
been experiencing, however, and the Company, especially the Automotive Segment,
is expected to be adversely impacted in the fourth quarter of 2001 and possibly
beyond. On the other hand, the anticipated prolonged military conflict and
increased defense spending is expected to result in increased business in
certain areas of the Technologies Segment.
Excluding sales of the Machinery Segment, which is being treated as a
discontinued operation, the Company'sCompany expects its sales for 2001 to be
approximately $695 million compared to the $705 million sales estimate
provided by the Company in its fiscal year 2001 are expectedannual report on Form 10-K/A.
Most of the decrease in sales is attributable to be approximately $705 million.the Automotive Segment.
Excluding EBITDA as defined under Financial
Condition below, of the Machinery Segment, the Company now expects its
EBITDA for fiscal yearthe 2001 to be approximatelybetween $85 and $88 million, compared to the $93
million. These estimates are
consistent with the outlook formillion estimate provided by the Company set forthat the beginning of the year.
Substantially all of the decrease in its fiscal year 2000
Annual Report on Form 10-K/A.
25
26EBITDA is attributable to the Automotive
Segment.
FINANCIAL CONDITION
The following are certain financial data regarding EBITDA, as defined
below, cash flows and earnings to fixed charges and preferred stock dividends
(excluding the Machinery Segment):
Six Months Ended
May 31
----------------
2001 2000
---- ----
(In millions of dollars)
EBITDA $46.8 $48.9
Cash provided by operating activities 21.9 34.3
Cash provided by (used in)investing activities (24.4) 60.5
Cash provided by (used in) financing
activities 1.8 (90.5)
Cash provided by (used in)discontinued
operations 1.5 (3.1)
Preferred stock dividends accreted 6.5 5.8
Earnings/fixed charges and preferred stock dividends
.56X 1.65X25
26
Nine Months Ended
August 31
------------------------
2001 2000
---- ----
(In millions of dollars)
EBITDA $65.1 $70.3
Cash provided by operating activities 32.4 37.1
Cash provided by (used in)investing activities (35.8) 44.4
Cash provided by (used in) financing
activities 9.7 (83.5)
Cash provided by discontinued operations 1.0 .7
Preferred stock dividends accreted 9.8 8.7
Earnings/fixed charges and preferred stock dividends
.44X 1.26X
EBITDA
The Company's EBITDA is defined for purposes hereof as earnings before
interest expense, income taxes, depreciation and amortization, certain special
management compensation expenses, insurance proceeds and other non-cash items,
such as gains and losses from divestitures. EBITDA, as defined herein, may not
be comparable to similarly titled measures reported by other companies and
should not be construed as an alternative to operating income or to cash flows
from operating activities, as determined by accounting principles generally
accepted in the United States of America, as a measure of the Company's
operating performance or liquidity, respectively. Funds depicted by EBITDA are
not available for management's discretionary use to the extent they are required
for debt service and other commitments.
The Company's EBITDA for the sixnine months ended MayAugust 31, 2001 and 2000,
excluding the Machinery Segment, was $46.8$65.1 million and $48.9$70.3 million,
respectively. The decrease in EBITDA gains in the Technologies Segment were offset by reduced
EBITDAoccurred primarily in the Automotive
Segment. As stated above, excluding EBITDA of the Machinery Segment EBITDA, for
the Company for 2001 is expected to be between $85 million and Minerals Segments.
26
27$88 million.
Operating Activities
Cash provided by operating activities was $21.9$32.4 million and $34.3$37.1 million
for the sixnine months ended MayAugust 31, 2001 and 2000, respectively, and consisted
of the following:
Six Months Ended MayNINE MONTHS ENDED
AUGUST 31
----------------------------------------
2001 2000
---- ----
(in millions of dollars)
Income (Loss) from continuing
operations before taxes $ (5.6) $ 24.8$(13.2) $19.9
Depreciation and amortization,
excluding amortization of
deferred financing costs 29.7 29.845.1 43.6
Divestitures .5 (14.3)(12.2)
Excess of interest expense
26
27
over interest paid 1.5 (.3)7.0 4.8
Income taxes refunded (paid), net 1.9 (3.3)1.7 (6.8)
Working capital and other (6.1) (2.4)(8.7) (12.2)
---- -----
-----
$ 21.9 $ 34.3
===== =====$32.4 $37.1
==== ====
See "Results of Operations" for discussions concerning income (loss) before
taxes, depreciation and amortization, divestitures and interest expense.
The excess of interest expense over interest paid results primarily from
twothree items. First, semi-annual interest was due September 1 on the Company's
Subordinated Notes. Secondly, interest expense includes amortization of deferred
financing costs, which does not affect cash. Secondly,Finally, the Company's revolving
credit facility consists of numerous notes with varying maturities. In 2001,
certain of the notes matured after May 31, so less interest was paid in the
first six months of 2001 compared to 2000.
The Company received a "quick refund" in the first quarter of 2001 of some
of the income tax payments made in 2000.
The Company has made a concerted effort to improve its working capital
position by monitoring receivables, managing inventory levels and seeking longer
payment terms. However, in the secondthird quarter of 2001, a change at a major
customer from which the Company purchases raw materials resulted in a large
one-time payment for raw materialsmade the final
distribution from EPI's chapter 11 reorganization of approximately $10.6
million, which had been previously offset against the
Company's receivables from such customer. This one-time change offset any
improvements made in working capital.adversely impacted cash provided by operating activities.
Investing Activities
Capital expenditures were $22.3$34.9 million in the sixnine months ended MayAugust
31, 2001. The majority of the capital expenditures were made in the Automotive
Segment. These expenditures related to new product launches for
precision-machined products and a new rubber-to-metal coating line. Investing
activities provided $60.5$44.4 million in cash in the comparable period of 2000. The
Company sold the Ross Aluminum Foundries, MARCO, Fluid Systems and Rubber
MoldingDivested Divisions during the first sixnine months of 2000, which
resulted in aggregate net proceeds of $83.9$84.8 million. Also in the first sixnine
months of 2000, the Company also invested $17.5made capital investments of $30.2 million, in capital expenditures, primarily
in the Automotive Segment, and $6.8acquisitions totaling $11.8 million in the
assets of the depleted zinc
business of Isonics Corporation.Technologies Segment.
Financing Activities
The Company had a net increase in borrowing of $2.0$12.4 million in the
first sixnine months ended August 31, 2001. This was due in part to large amounts of 2001, relatedcash
received on the last day of the month by the Company that we were unable to
apply to debt. The Company had $14.8 million in cash on August 31, which was
$7.3 million more than was held at November 30, 2000. In addition, the workingCompany
spent $34.9 million in capital situation described
above.expenditures, which was $2.5 million more than
was generated by continuing operations. In the first six monthscomparable period of 2000, the
Company applied the proceeds from the divestitures and the insurance proceedssettlement
to debt, reducing the balances on revolving credit facilities by $82.4$63.5 million,
in addition to regularly scheduled debt paymentsrepayments of $7.3$11.1 million and
repayment of an industrial revenue bond of $8.0 million.
Earnings to Fixed Charges and Preferred Stock Dividends
The ratio of earnings from continuing operations to fixed charges and preferred
stock dividends for the sixnine months ended August 31, 2001 and 2000 was .56x.44x and
1.65x,1.26x,
27
28
respectively. In 2001, earnings were insufficient to cover fixed charges and
preferred stock dividends by $12.1$23.0 million. In 2000, the ratio was significantly
impacted by the insurance proceeds of $16.0 million and gains resulting from
divestitures of $14.3$12.2 million. If these items were excluded from the calculation
in 2000, the ratio of earnings from continuing operations to fixed charges and
preferred stock dividends would be .62x.60x and earnings would not have been
sufficient to cover fixed charges and preferred stock dividends by $11.2$17.1
million. On that basis, 2001 and 2000 are fairly comparable.
27
28
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations and available credit facilities
are considered adequate to fund both the short-term and long-term capital needs
of the Company. As of MayAugust 31, 2001, the company had $60.4$45.9 million available
to be drawn under its revolving credit facility and an amount up to $6.3$7.3 million
available to be drawn under its Receivables Loan Agreement, based on a formula
of total receivables outstanding as of a certain date. In addition, the
Company's European operations had several unsecured lines of credit on which
$3.7$4.7 million was available to draw as of MayAugust 31, 2001. The Company was in
compliance with the covenants of its Credit Agreement, Subordinated Notes and
the European credit agreements as of MayAugust 31, 2001.
The Company enters into interest rate swap agreements to manage its
variable interest rate exposure. Per the terms of the swap agreement, the
Company exchanges, at specified intervals, the difference between fixed and
variable interest amounts based on a certain notional amount. During the first
quarter of 2001, the Company entered into various swap agreements effectively
fixing the base interest rate (i.e. before the applicable spread) on $90 million
of the Company's debt under the Credit Agreement at a weighted average interest
rate of 5.678%. These swap agreements mature by December 15, 2003.
The second and final bankruptcy distribution from EPI's Chapterchapter 11
reorganization of approximately $10.6 million was made June 25, 2001. This was
financed from the Company's revolving credit facility.
Although the Company was in compliance with the covenants in its Credit
Agreement at May 31, 2001, the Company amended the financial covenants in the
Credit Agreement effective as of May 31, 2001 as reported in the Company's
Current Report on Form 8-K filed July 9, 2001 (the "July 9 8-K"). The Company
paid total fees to the lenders of approximately $.8 million in connection with
the amendment. The amendment provides for an increase of .50% (.75% if the
Company's leverage ratio exceeds 5.00:1.00) in the interest rate spreads that
the Company pays over the applicable base rates. The amendment also limits the
use of proceeds of certain asset sales to retirement of debt and requires
approval of a majority of lenders for acquisitions. For a more detailed
description of the amendment and the full text of the amendment, please see the
July 9 8-K.
The Company's Receivables Loan Agreement, which was renewed through May 15,
2002, has a term of 364 days and it is expected to be renewed for an additional
364 days upon maturity.
In connection with the renewal of the
Receivables Loan Agreement, the program fee payable by the Company on the
program limit of $50 million was increased by .5% to 1.25%. For a more detailed
description of the renewal of the Receivables Loan Agreement and the full text
of the amendment for such extension, please see the July 9 8-K.
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the euro
as their common legal currency and established fixed conversion rates between
their existing local currencies and the euro. During the transition period,
which runs from January 1, 1999 through December 31, 2002, transactions may take
place using either the euro or a local currency. However, conversion rates are
no longer be computed directly from one local currency to another, but are
converted from one local currency into an amount denominated in euro, then are
converted from the euro denominated amount into the second local currency. On
July 1, 2002, the local currencies will no longer be legal tender for any
transactions.
28
29
The Company has both operating divisions and domestic export customers
located in Europe. In 2000, combined revenues from these sources were
approximately 13% of total revenues. The Company has operations in Germany,
which is participating in the euro conversion, and the United Kingdom, which has
elected not to participate at this time. The Company's operations in Germany
have adopted the euro as their reporting currency, although many transactions,
such as payroll, some billing and vendor invoicing, still occur in local
currencies. The costs associated with the conversion to date have not been
material.
The Company is currently assessing the competitive impact of the euro
conversion on the Company's operations, both in Europe and in the United States.
In markets where sales are made in U.S. dollars, there may be pressures to
denominate sales in the euro, however, exchange risks resulting from these
transactions could be mitigated through hedging. Pressures to price products in
euros may be more urgent for operations located in the United Kingdom,
particularly in the automotive industry, as the European automotive industry is
somewhat dominated by German companies. The currency risk to the operations
located in the United Kingdom could also be hedged, however, the risk is greater
on a regional level that the hedging could result in additional costs that could
harm the cost competitiveness of those operations.
NEW ACCOUNTING STANDARDS
In September 2000, the FASBFinancial Accounting Standards Board ("FASB") issued
SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities - a replacement of FASB Statement No. 125" ("SFAS
140"). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. This Statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. This Statement is effectiveThe Company would be required to adopt this statement for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for the year ending November 30, 2001.
In June 2001, the FASB issued three additional pronouncements. SFAS No.
141, "Business Combinations," requires that all acquisitions be accounted for
using the purchase method. SFAS No. 142, "Goodwill and Intangible Assets,"
presumes that goodwill and other intangible assets have infinite lives and, as
such, prescribes that these assets will not be amortized, but rather tested at
least annually for impairment. This pronouncement also
28
29
provides specific guidance on testing intangible assets. SFAS No. 143,
"Accounting for Asset Retirement Obligations," requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS 141 is effective for all business combinations
initiated after June 30, 2001. We will be required to adopt SFAS No. 142 and
SFAF No. 143 no later than our fiscal yearsyear ending after
December 15, 2000.November 30, 2003.
In September 2001, the FASB issued SFAS No. 144, " Accounting for the
Impairment or Disposal of Long-Lived Assets," which superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The primary difference is that goodwill has been removed from
the scope of SFAS No. 144. It also broadens the presentation of discontinued
operations to include a component of an entity rather than a segment of a
business. A component of an entity comprises operations and cash flows that can
clearly be distinguished operationally and for financial accounting purposes
from the rest of the entity. The Company will be required to adopt the
provisions of SFAF No. 144 no later than the first quarter of our fiscal year
ended November 30, 2003.
The Company is currently analyzing thisthese new standard.pronouncements.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
EPI and the Subsidiary Guarantors are subject to restrictions on the
payment of dividends and other forms of payment in both the Credit Agreement and
the Indenture for the Subordinated Notes. Those restrictions generally prohibit
the payment of dividends to the Company either directly by EPI or indirectly
through any Subsidiary Guarantor. Certain limited exceptions are provided
allowing for payments to the Company. Specifically, EPI is authorized to make
payments to the Company in amounts not in excess of any amounts the Company is
required to pay to meet its consolidated income tax obligations. Additional
payments from EPI to the Company are permitted commencing September 1, 2003 in
amounts not in excess of the Company's obligations to make any cash dividend
payments required to be paid under the Company's Preferred Stock and to make any
cash interest payments required to be paid under any debentures issued by the
Company in exchange for the Company's Preferred Stock ("Exchange Debentures").
FORWARD-LOOKING STATEMENTS
This report contains statements which, to the extent that they are not
statements of historical fact, constitute "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E
of the Securities Exchange Act of 1934. The words "estimate," "anticipate,"
"project," "intend," "believe," "expect," and similar expressions are intended
to identify forward-looking statements. Forward-looking statements include, but
are not limited to, statements under the headings "Automotive 29
30
Segment Outlook,"
"Technologies Segment Outlook," "Minerals Segment Outlook," and "Company
Outlook." Such forward-looking information involves risks and uncertainties that
could cause actual results to differ materially from those expressed in any such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the ability of the Company to maintain existing relationships with
customers, demand for the Company's products, the ability of the Company to
successfully implement productivity improvements and/or cost reduction
initiatives, the ability of the Company to develop, market and sell new
products, the ability of the Company to obtain raw materials, increased
government regulation or changing regulatory policies resulting in higher costs
and/or restricting output, increased price competition, currency fluctuations,
general economic conditions, acquisitions and divestitures, technological
developments and
29
30
changes in the competitive environment in which the Company operates. Persons
reading this report are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company enters into interest rate swap agreements ("Swap Agreements") to
manage interest rate costs and risks associated with changing interest rates.
The differential to be paid or received under these agreements is accrued and
recognized as adjustments to interest expense. During the first quarter ended
February 28, 2001, the Company entered into various interest rate swap
agreements with a commercial bank having a total notional amount of $90 million.
The effective dates of these agreements were March 5, 2001 and March 15, 2001
and they mature December 5, 2003 and December 15, 2003, respectively. These
agreements effectively change the interest rate exposure on $90 million of the
Company's floating debt to a fixed rate of 5.678% plus the applicable spread.
The Company anticipates entering into additional interest rate swap agreements
through the maturity date of the Credit Agreement. The remaining
amount ofBoth the revolving and term
loans outstanding under the Credit Agreement bear interest at the floating rates as described in Note GCompany's option, of an adjusted LIBOR rate plus
2-3/4% or the bank's prime rate plus 1-1/2%. There is a commitment fee on the
facility equal to 1/2% per annum on the Company's Consolidated Financial
Statements asundrawn portion of November 30, 2000.the facility and fees
for letters of credit are equal to 2-3/4% per annum. If the Company meets or
fails to meet certain financial benchmarks, the interest rate spreads,
commitment fees and fees for letters of credit may be reduced or increased.
Loans under the Company's accounts receivable loan agreement
("Receivables Agreement") bear interest at a variable rate equal to market rates
on commercial paper having a term similar to the applicable interest period.period with
fees of 1-1/4% on the maximum amount available. The Company's industrial revenue
bonds ("IRB's") bear interest at variable rates based on the market for similar
issues. Loans under the Receivables Agreement and the IRB's are not covered by
the Swap Agreements.
As of MayAugust 31, 2001, $174.3$188.5 million of revolving and term loans were
outstanding under the Credit Agreement, of which interest on $90.0 million is
essentially fixed by the Swap Agreements. The interest rate risk on the debt
outstanding under the Receivables Agreement, the foreign debt and the IRB's,
which in the aggregate totals $62.5$61.6 million, has not been hedged. Accordingly, a
1% increase in the applicable index rates would result in additional interest
expenses of $1.5$1.6 million per year, assuming no change in the level of borrowing.
Based on the fair value of the Swap Agreements held at MayAugust 31, 2001, the
Company has recorded a loss of $1.5$3.4 million in Other Comprehensive Income.
The Company also enters into various foreign currency forward contracts
to hedge a portion of its forecasted sales, generally within the next 12 months.
The Company manages most of these exposures on a consolidated basis, which
allows for netting certain exposures to take advantage of any natural offsets.
The Company's principal areas of exposure are related to sales denominated in
the currencies of Europe, Mexico and Canada with the majority of this exposure
in European currencies. As of MayAugust 31, 2001, the Company had outstanding
foreign exchange forward contracts with aggregate notional amounts of $14.4$15.2
million. Based on the fair value of the futures contracts being held as of
MayAugust 31, 2001, the Company has recorded a net gainloss of $1.5$.4 million in the second quarternine
months ended August 31, 2001 in Other Comprehensive Income.
30
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note D regarding Legal Matters contained in Item 1 of this
report, which is incorporated by reference in this Part II, as its Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.583.21 - ResignationCertificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of
State of Delaware on August 31, 2001.
10.59 - Executive Employment Agreement effective July 6,15, 2001
between EPI and Michael E. Aslanian.John H. Weber.
(b) Reports on Form 8-K
Form 8-K was filed on July 9, 2001 which contained amendments to the
Company's Credit Agreement and Receivables Loan Agreement.None.
31
32
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER HOLDINGS, INC.
/s/ Philip F. Schultz
----------------------------
Philip F. SchultzAlbert Iedema
-------------------------------
Albert Iedema
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-------------------------------------------------
32
33
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER INDUSTRIES, INC.
/s/ Philip F. Schultz
------------------------------
Philip F. SchultzAlbert Iedema
-------------------------------
Albert Iedema
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-------------------------------------------------
33
34
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS, INC.
/s/ Tom B. Scherpenberg
-----------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-----------------------
34
35
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/s/ Tom B. Scherpenberg
--------------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-----------------------
35
36
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FAR EAST, INC.
/s/ Tom B. Scherpenberg
-----------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-----------------------
36
37
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER MINERALS, INC.
/s/ Tom B. Scherpenberg
------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-----------------------
37
38
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ R. Doug Wright
-------------------------------
R. Doug Wright
Vice President, Controller
and Chief Financial Officer
DATE July 13,October 12, 2001
-----------------------
38
39
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ Tom B. Scherpenberg
----------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE JULY 13,October 12, 2001
-------------------------------------------
39
40
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPMR CORPORATION (F/K/A MICHIGAN
AUTOMOTIVE RESEARCH CORPORATION)
/S//s/ Tom B. Scherpenberg
----------------------------------
Tom B. Scherpenberg
Treasurer
(Principal Financial Officer)
DATE July 13,October 12, 2001
-----------------------
40
41
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10.58 Resignation3.21 Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of
State of Delaware on August 31, 2001.
10.59 Executive Employment Agreement effective July 6,15, 2001 between
EPI and Michael E. Aslanian.
41John H. Weber.