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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 August 31, 1999February 29, 2000 Commission file number 333-49957-01
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EAGLE-PICHER HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
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(Not Applicable)
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Former name, former address and former fiscal year,
if changed since last report
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. Yes 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 shares of Class A common capital stock, $.01 par value each, were
outstanding at September 24, 1999.April 11, 2000.
374,999 shares of Class B common capital stock, $.01 par value each, were
outstanding at September 24, 1999.April 11, 2000.
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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 Fluid Systems, Inc. Michigan 333-49957-05 31-1452637
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
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial 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.......................................23
Item 3. Quantitative and Qualitative Disclosures About Market Risk......31
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................32
Signatures...............................................................33
Exhibit Index............................................................43
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial 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................................. 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 26
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 27
Signatures............................................................... 28
Exhibit Index............................................................ 37
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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
Nine Months Six Months Three Months
August 31 Ended Ended Ended
------------------------ August 31 August 31 February 2829(28)
2000 1999
1998 1999 1998 1998
--------- --------- --------- --------- ---------
Predecessor---- ----
Net Sales $ 231,308 $ 206,356 $ 675,569 $ 426,277 $ 205,842
--------- --------- --------- --------- ---------$221,843 $194,443
------- --------
Operating Costs and Expenses:
Cost of Productsproducts sold (exclusive
of depreciation) 185,283 163,518 534,786 333,093 162,796177,568 151,746
Selling and administrative 17,874 18,042 55,859 38,329 17,141
Management compensation - special -- 4,395 -- 21,716 2,05619,214 18,264
Depreciation 11,836 9,644 33,901 19,417 8,98312,312 10,112
Amortization of intangibles 4,413 4,244 12,828 8,741 3,839
Loss (gain)4,137 4,020
Proceeds from insurance settlement (16,000) --
Gain on sales of divisions (9,976) --
Gain on sales of assets 148 -- 137 -- --
--------- --------- --------- --------- ---------
219,554 199,843 637,511 421,296 194,815
--------- --------- --------- --------- ---------(162) (34)
------- --------
187,093 184,108
------- --------
Operating Income 11,754 6,513 38,058 4,981 11,02734,750 10,335
Interest expense (14,137) (12,132) (37,586) (24,686) (6,940)(13,022) (11,342)
Other income 659 681 985 1,007 820
--------- --------- --------- --------- ---------income(expense) (131) 169
------- --------
Income (Loss) Before Taxes (1,724) (4,938) 1,457 (18,698) 4,90721,597 (838)
Income Taxes (Benefit) 350 (1,135) 2,300 (5,596) 4,100
--------- --------- --------- --------- ---------11,000 300
------- --------
Net Income (Loss) $10,597 $ (2,074) $ (3,803) $ (843) $ (13,102) $ 807
========= ========= ========= ========= =========(1,138)
======= ========
Income (Loss) Applicable to
Common Shareholders $ (4,714)7,637 $ (6,338) $ (8,617) $ (17,990) $ 807
========= ========= ========= ========= =========(3,632)
======= ========
Income (Loss) per Common Share $ (4.71)7.64 $ (6.34) $ (8.62) $ (17.99) $ .08
========= ========= ========= ========= =========(3.63)
======= ========
Comprehensive Income Loss $ (1,561)9,579 $ (4,329) $ (3,035) $ (12,975) $ (1,002)
========= ========= ========= ========= =========(2,109)
======= ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31February 29 November 30
ASSETS 2000 1999
1998
-------- ------------ ----
CURRENT ASSETS
Cash and cash equivalents $ 4,95711,528 $ 13,68110,071
Receivables, less allowances 142,061 144,844120,920 122,499
Inventories:
Raw materials and supplies 60,520 52,38448,355 46,448
Work in process 29,018 20,64129,122 27,669
Finished goods 16,943 15,84817,341 16,382
-------- --------
106,481 88,87394,818 90,499
Net assets of operations to be sold 28,206 64,201
Prepaid expenses 9,649 8,3389,795 7,063
Deferred income taxes 12,129 10,85114,565 16,665
-------- --------
Total current assets 275,277 266,587279,832 310,998
-------- --------
PROPERTY, PLANT AND EQUIPMENT 351,775 279,061323,021 319,778
Less accumulated depreciation 62,301 30,52476,513 67,318
-------- --------
Net property, plant and equipment 289,474 248,537246,508 252,460
-------- --------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $25,128$30,153 and
$12,300,$26,212, respectively 239,230 228,910207,961 205,565
-------- --------
OTHER ASSETS 76,855 72,29370,935 72,977
-------- --------
Total Assets $880,836 $816,327$805,236 $842,000
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 59,32850,911 $ 50,30750,588
Long-term debt - current portion 22,125 25,17374,009 86,318
Income taxes 2,919 6,28210,817 2,291
Other current liabilities 77,673 74,26071,073 63,869
-------- --------
Total current liabilities 162,045 156,022206,810 203,066
LONG-TERM DEBT - less current portion 518,197 459,183408,683 457,761
DEFERRED INCOME TAXES 10,404 8,30410,086 10,086
OTHER LONG-TERM LIABILITIES 25,244 24,81922,811 23,820
-------- --------
Total Liabilities 715,890 648,328648,390 694,733
-------- --------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;
issued and outstanding 14,191 shares 95,161 87,387100,916 97,956
-------- --------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31February 29 November 30
2000 1999
1998
--------- ------------- ----
SHAREHOLDERS' EQUITY
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 (30,363) (21,746)(42,265) (49,902)
Other comprehensive income 147 2,357
--------- ---------(1,806) (788)
-------- --------
Total Shareholders' Equity 69,785 80,612
--------- ---------55,930 49,311
-------- --------
Total Liabilities and Shareholders' Equity $ 880,836 $ 816,327
========= =========$805,236 $842,000
======== ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Six Months Three Months Ended
Ended Ended
August 31 August 31 February 2829(28)
2000 1999
1998 1998
--------- -------- ---------
Predecessor---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (843) $(13,102) $ 807$10,597 $(1,138)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 48,851 29,522 12,822
Proceeds from insurance settlement -- 13,65917,257 14,826
Gain on sales of divisions (9,976) --
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures:
Receivables 7,701 15,848 (3,681)4,634 2,691
Inventories (12,587) 4,435 (2,235)(3,100) (5,494)
Accounts payable (5,677) (6,837) (2,787)10 (2,442)
Accrued liabilities 1,516 25,205 (5,488)(3,696) (1,547)
Other (4,026) (4,784) (8,521)
--------- -------- ---------6,694 (6,377)
------- -------
Net cash provided by
(used in)
operating activities 34,935 63,946 (9,083)
--------- -------- ---------22,420 519
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from salesales of divisiondivisions 52,543 12,400
-- --
Acquisition (60,209) --(6,758) --
Capital expenditures (39,860) (16,053) (5,692)(6,443) (8,753)
Other 517 94 (1,042)
--------- -------- ---------1,088 (220)
------- -------
Net cash used inprovided by
investing activities (87,152) (15,959) (6,734)
--------- -------- ---------40,430 3,427
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- -- 445,000
Reduction of long-term debt (136,522) (2,580) (250,000)(3,657) (10,977)
Net borrowings (repayments) under revolving
credit agreements 180,285 (43,253) 78,740
Redemption of common stock -- -- (446,638)
Issuance of common stock -- -- 100,001
Issuance of preferred stock -- -- 80,005
Debt issuance cost (54) -- (26,062)(57,224) 3,886
Other (216) (23) --
--------- -------- ---------(512) (211)
------- -------
Net cash provided by (used in)used in
financing activities 43,493 (45,856) (18,954)
--------- -------- ---------(61,393) (7,302)
------- -------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Six Months Three Months Ended
Ended Ended
August 31 August 31 February 2829(28)
2000 1999
1998 1998
-------- ------- --------
Predecessor---- ----
Net increase (decrease) in cash and
cash equivalents (8,724) 2,131 (34,771)1,457 (3,356)
Cash and cash equivalents, beginning of period 10,071 13,681 18,968 53,739
--------
------- --------
Cash and cash equivalents, end of period $11,528 $ 4,957 $21,099 $ 18,968
========10,325
======= ========
Supplemental cash flow information: 2000 1999 1998
---- ----
Cash paid during the nine months ended August 31:
Interest paid $29,527 $19,060
Income taxes paid, net $10,122 $ 4,446
Cash paid during the three months ended August 31:February 29(28):
Interest paid $ 7,9687,385 $ 6,2506,201
Income taxes paid, net $ 2,124271 $ 4,1414,778
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements included hereinof
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 accounting
principlesin 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 included
for the fiscal year ended November 30, 19981999 presented in the Company's Form 10-K/A10-K
filed with the SEC on JuneFebruary 28, 1999.2000.
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
nine
months ended August 31, 1999, the six months ended August 31, 1998 and the three months ended August 31, 1999 and 1998,February 29, 2000 and February 28, 1998. (See Note B.)1999. 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.
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting comprehensive income and its components.
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc.
("Subsidiary") was acquired by a subsidiary of Granaria Industries BV,
Eagle-Picher Holdings, Inc. ("Company"), from the Eagle-Picher Industries, Inc.
Personal Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was
established pursuant to the Subsidiary's Plan of Reorganization upon its
emergence from bankruptcy in November 1996. The Company's results of operations
and cash flows approximate those of the Subsidiary, the operating entity.
References will be to the Company except where it is more appropriate to
specifically refer to the Subsidiary.
The unaudited condensed consolidated financial statements as of and for
the three months ended February 28, 1998 include the effects of the Acquisition
as of February 24, 1998. Accordingly, the condensed consolidated statement of
income (loss) for the three months ended February 28, 1998 includes results of
operations from (1) December 1, 1997 through February 24, 1998 of the Company
prior to the consummation of the Acquisition (for clarity, sometimes referred to
herein as the "Predecessor Company") and (2) February 25 through February 28,
1998 of the Company.
The Acquisition was accounted for using the purchase method of accounting.
The purchase price has been allocated to the assets and liabilities of the
Company based on their respective fair values as determined primarily by
independent appraisals. The excess of the purchase price over the assessed
values of the net assets was allocated to excess of acquired net assets over
cost. As a result, the consolidated financial statements relating to operations
after the Acquisition are not comparable to those prior to the Acquisition.
Accordingly, the period prior to the Acquisition has been labeled "Predecessor."
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C. ACQUISITION
On April 14, 1999, the Company acquired all of the outstanding capital
stock of Charterhouse Automotive Group, Inc. ("Charterhouse"), a holding company
whose only operating subsidiary was Carpenter Enterprises, Ltd. ("Carpenter"), a
manufacturer of precision-machined automotive parts. Immediately following the
acquisition, Charterhouse was merged into Carpenter.
The total consideration paid for Charterhouse was approximately $72.0
million consisting of $37.9 million for the stock of Charterhouse, a $3.1
million payment to the former president of Carpenter under a phantom stock plan
and $31.0 million of existing indebtedness of Carpenter, of which approximately
$18.6 million was refinanced from the Company's Revolving Credit Facility.
The acquisition of Charterhouse was effective as of March 1, 1999 for
accounting purposes and was accounted for as a purchase. The preliminary
allocation of the purchase price has been determined based on estimates of fair
value and is subject to change. Appraisals are currently being completed to
value property, plant and equipment. The excess of the purchase price over the
assessed values of those assets has been allocated to goodwill. The Company
expects to finalize the purchase price allocation by November 30, 1999. Other
than adjustments to record property, plant and equipment at fair value,
adjustments are not expected to be material.
The following pro forma information for the nine months ended August
31, 1999 and 1998 gives effect to the acquisition of Carpenter as if it had been
consummated on December 1, 1998 and 1997, respectively. This information is not
necessarily indicative of either the future results of operations or the results
of operations that would have occurred if those events had been consummated on
the indicated dates.
Nine Months Ended
August 31
---------------------------
1999 1998
---- ----
(Dollars in thousands, except per share amounts)
(unaudited)
Net sales $ 707,100 $ 698,200
Net income (loss) $ (1,100) $ (12,100)
Net income (loss) applicable
to common shareholders $ (8,928) $ (16,988)
Net loss per common share $ (8.93) $ (16.99)
Average number of common shares 1,000,000 1,000,000
D. BASIC EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding, which was 1,000,000 in the three months
and nine months ended August 31, 1999 and in the three months and six
months ended August 31, 1998 and 9,600,071 in the three months ended February 29,2000 and February 28, 1998. Prior to the Acquisition, 10,000,000 shares were
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outstanding.1999. 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 $2.6$3.0 million and $7.8 million for the three and nine months ended
August 31, 1999, respectively, and $2.5 million and $4.9 million for the
three months ended February 29(28), 2000 and six months ended August 31, 1998,1999, respectively. No potential
common stock was outstanding during the ninethree months ended August 31, 1999February 29(28), 2000
or 1998.
E. LONG-TERM DEBT1999.
C. ACQUISITIONS AND DIVESTITURES
On May 18,December 1, 1999, the Company amendedacquired the assets of the depleted zinc
business of Isonics Corporation ("Isonics") for $8.2 million; $6.7 million of
which was paid upon closing and $1.5 million of which consists of contingent
cash payments over three years. In addition, the Company negotiated a warrant to
acquire four million shares of common stock of Isonics in exchange for materials
to be delivered in 2000. This acquisition, which was financed from the revolving
credit facility under the Company's credit agreement, was accounted for as a
purchase.
Effective March 15, 2000, the Company elected to exercise its warrant
using a "cashless exercise" feature where the Company will acquire fewer than
four million shares of stock and pay for such shares by surrendering a portion
of the warrant. The number of shares the Company will receive is currently being
negotiated; however, it is expected to be in excess of 3.1 million shares.
On September 1, 1999, the Board of Directors approved a plan to explore
the sale of several smaller divisions in order to focus on core businesses. In
the first quarter of 2000, the Company sold the assets of the Ross Aluminum
Foundries Division ("Ross Aluminum") and the Michigan Automotive Research
Corporation ("MARCO") and its interest in the common stock of both units of the
Fluid Systems Division in three separate transactions. The aggregate proceeds,
which were approximately $52.5 million, were used to reduce outstanding debt.
The aggregate net gain of these transactions was approximately $10.0 million.
Subsequent to the sale of the assets of MARCO, the corporate name of Michigan
Automotive Research Corporation was changed
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to EPMR Corporation. The Company continues to explore the sale of other smaller
divisions, which are expected to take place in 2000.
D. INSURANCE PROCEEDS
On February 24, 2000, the Company settled claims against a former insurer
regarding environmental remediation costs for $16.0 million. The Company
received payment of this amount on February 28, 2000.
E. LEGAL MATTERS
For other information on legal proceedings, see Item 3 of the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
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.
F. SEGMENT REPORTING
The Company has two reportable segments: automotive and industrial
products. 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 for passenger cars,
vans, trucks and sport utility vehicles for original equipment manufacturers and
replacement markets. The operations in the Industrial Products Segment produce a
variety of products for the aerospace, nuclear, telecommunications electronics,
food and beverage and construction industries.
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, 1999 included in Form 10-K. Sales between segments are not
material. The Company does not allocate certain corporate expenses to its
segments.
Information about reported segment income or loss is as follows for the
three months ended February 29(28), 2000 and 1999:
Three Months Ended
February 29 (28)
----------------
2000 1999
---- ----
(In thousands of dollars)
Net Sales
Automotive $142,793 $108,757
Industrial 79,050 85,686
------- -------
Total $221,843 $194,443
======= =======
Income (Loss) Before Taxes:
Automotive $10,308 $2,507
Industrial (2,156) (946)
Corporate 13,445 (2,399)
------ ------
Total $21,597 $ (838)
====== =====
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As previously mentioned, the Company sold its Ross Aluminum, MARCO and
Fluid Systems Divisions in the first quarter of 2000. All were included in the
Automotive Segment. The net assets of these divisions, which were included in
the caption "Net assets of operations to be sold," were $35.1 million as of
November 30, 1999.
G. SUPPLEMENTAL GUARANTOR INFORMATION
The indebtedness of the Company's wholly-owned subsidiary, Eagle-Picher
Industries, Inc. ("Subsidiary") includes a syndicated secured loan facility
("Credit Agreement") to provide for a) a securitization transaction
("Securitization"); b) an increase in the revolving credit facility ("Revolving
Credit Facility") provided under the Credit Agreement; and c) the repayment and
cancellation of a portion of the term loan facility ("Term Loan Facility")
provided under the Credit Agreement. The transaction was funded on June 4, 1999.
In connection with the Securitization, the Company will sell its
domestic trade receivables on an ongoing basis to a wholly-owned, consolidated
subsidiary, Eagle-Picher Acceptance Corporation. The receivables are then used
as security for loans made under a separate revolving credit facility providing
up to $75.0 million. In addition, the Credit Agreement was amended to increase
the amount available for borrowings under the Revolving Credit Facility from
$160.0 million to $220.0 million and allow the Company to repay two of the term
loans under the Term Loan Facility without requiring that the third term loan be
ratably reduced.
Interest rate spreads under the Credit Agreement increased by .25% and
loans outstanding under the Securitization are at variable rates equal to market
rates on commercial paper with fees of .75% on 102% of the maximum amount
available. Approximately $120.5 million in term loans were repaid upon closing
of this transaction with the proceeds from the Securitization of $65.0 million
and additional borrowings under the revolving Credit Facility.
F. SUPPLEMENTAL GUARANTOR INFORMATION
Upon closing of the Acquisition, the Subsidiary issued $220.0 million in senior subordinated notes
("Subordinated Notes") in addition to its borrowings
under the Credit Agreement.. 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 the Subsidiary's wholly-owned domestic subsidiaries ("Subsidiary
Guarantors") including Carpenter Enterprises Ltd., which was acquired in 1999,
and Eagle-Picher Acceptance Corporation.Corporation, which was formed in 1999. Management
has determined that full financial statements and other disclosures concerning
the Subsidiary 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 the
Subsidiary, the Subsidiary Guarantors and the subsidiaries that did not
guarantee the debt.
The Subsidiary 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 both of which were incorporated by reference to the Company's Form 10-K/A10-K
filed on JuneFebruary 28, 1999.2000.
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 1999FEBRUARY 29, 2000
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- ------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 44,166 $ -- $141,971 $35,706 $ -- $221,843
Intercompany 4,165 -- 2,555 2,417 (9,137) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation 36,914 -- 116,081 33,658 (9,085) 177,568
Selling and administrative 10,008 5 6,176 3,063 (38) 19,214
Intercompany charges (3,394) -- 3,393 (37) 38 --
Depreciation 2,809 -- 8,040 1,463 -- 12,312
Amortization of intangibles 1,155 -- 2,742 240 -- 4,137
Proceeds from insurance settlement (16,000) -- -- -- -- (16,000)
(Gain) loss on sales of divisions 2,360 -- (3,976) (8,360) -- (9,976)
(Gain) loss on sales of assets -- -- (192) (3) 33 (162)
-------- ------- -------- ------- -------- --------
Total 33,852 5 132,264 30,024 (9,052) 187,093
-------- ------- -------- ------- -------- --------
Operating Income (Loss) 14,479 (5) 12,262 8,099 (85) 34,750
Other Income (Expense)
Interest expense (4,666) -- (7,455) (1,507) 606 (13,022)
Other income (expense) 229 -- 526 (280) (606) (131)
Equity in earnings of
consolidated subsidiaries 9,114 10,602 351 -- (20,067) --
-------- ------- -------- ------- -------- --------
Income (Loss) Before Taxes 19,156 10,597 5,684 6,312 (20,152) 21,597
Income Taxes 8,118 -- 2,285 597 -- 11,000
-------- ------- -------- ------- -------- --------
Net Income (Loss) $ 11,038 $10,597 $ 3,399 $ 5,715 $(20,152) $ 10,597
======== ======= ======== ======= ======== ========
12
13
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF FEBRUARY 29, 2000
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------------- -------------- ---------- -------------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 53,009 $ -- $ 150,027 $ 28,272 $ -- $ 231,308
Intercompany 2,817 -- 3,101 2,099 (8,017) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 41,039 -- 125,464 26,823 (8,043) 185,283
Selling and administrative 9,933 -- 5,164 2,828 (51) 17,874
Intercompany charges (2,883) -- 2,883 (50) 50 --
Depreciation 2,863 -- 7,717 1,256 -- 11,836
Amortization of intangibles 1,778 -- 2,393 242 -- 4,413
(Gain) loss on sale of assets (4) -- 152 -- -- 148
-------- ------- --------- -------- ------- ---------
Total 52,726 -- 143,773 31,099 (8,044) 219,554
-------- ------- --------- -------- ------- ---------
Operating Income (Loss) 3,100 -- 9,355 (728) 27 11,754
Other Income (Expense)
Interest expense (11,903) -- (2,664) (231) 661 (14,137)
Other income (expense) 213 -- 958 149 (661) 659
Equity in earnings of
consolidated subsidiaries 3,969 (2,074) 301 -- (2,196) --
-------- ------- --------- -------- ------- ---------
Income (Loss) Before Taxes (4,621) (2,074) 7,950 (810) (2,169) (1,724)
Income taxes (benefit) (2,821) -- 2,654 517 -- 350
-------- ------- --------- -------- ------- ---------
Net Income (Loss) $ (1,800) $(2,074) $ 5,296 $ (1,327) $(2,169) $ (2,074)
======== ======= ========= ======== ======= =========
12
13
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 1999
GUARANTORS
----------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 162,812 $ -- $ 430,948 $ 81,809 $ -- $ 675,569
Intercompany 9,962 -- 7,680 6,070 (23,712) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 127,865 -- 354,464 76,273 (23,816) 534,786
Selling and administrative 31,402 -- 16,650 7,962 (155) 55,859
Intercompany charges (8,079) -- 8,078 (161) 162 --
Depreciation 8,700 -- 21,552 3,649 -- 33,901
Amortization of intangibles 4,922 -- 7,179 727 -- 12,828
(Gain) loss on sale of assets (20) -- 152 5 -- 137
--------- ----- --------- -------- -------- ---------
Total 164,790 -- 408,075 88,455 (23,809) 637,511
--------- ----- --------- -------- -------- ---------
Operating Income (Loss) 7,984 -- 30,553 (576) 97 38,058
Other Income (Expense)
Interest expense (34,885) -- (2,737) (625) 661 (37,586)
Other income (expense) 758 -- 994 (106) (661) 985
Equity in earnings of
consolidated subsidiaries 17,795 (843) 561 -- (17,513) --
--------- ----- --------- -------- -------- ---------
Income (Loss) Before Taxes (8,348) (843) 29,371 (1,307) (17,416) 1,457
Income taxes (benefit) (7,969) -- 8,983 1,286 -- 2,300
--------- ----- --------- -------- -------- ---------
Net Income (Loss) $ (379) $(843) $ 20,388 $ (2,593) $(17,416) $ (843)
========= ===== ========= ======== ======== =========
13
14
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF AUGUST 31, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 3834,370 $ 1 $ 1,125571 $ 3,2476,649 $ 201(63) $ 4,95711,528
Receivables, net 14,20911,005 -- 104,271 23,58194,246 15,669 -- 142,061120,920
Intercompany accounts receivable 4,0374,173 -- 3,818 448 (8,303)10,974 323 (15,470) --
Inventories 30,70225,558 -- 57,962 19,192 (1,375) 106,48160,717 9,861 (1,318) 94,818
Net assets of operations to be sold 22,698 -- -- 5,508 -- 28,206
Prepaid expenses 3,6712,233 -- 4,803 1,219 (44) 9,6496,024 1,577 (39) 9,795
Deferred income taxes 12,12914,565 -- -- -- -- 12,129
--------- -------- --------14,565
--------- --------- ----------------- --------- --------- ---------
Total current assets 65,13184,602 1 171,979 47,687 (9,521) 275,277172,532 39,587 (16,890) 279,832
Property, Plant & Equipment, net 61,90339,797 -- 185,682 41,889 -- 289,474179,929 26,815 (33) 246,508
Investment in Subsidiaries 140,523 164,798 6,978117,900 158,656 7,183 -- (312,299)(283,739) --
Excess of Acquired Net Assets Over Cost, net 97,06449,696 -- 129,074 13,092145,791 12,474 -- 239,230207,961
Other Assets 63,47854,464 -- 21,368 614 (8,605) 76,855
--------- -------- --------16,786 4,210 (4,525) 70,935
--------- --------- ----------------- --------- --------- ---------
Total Assets $ 428,099 $164,799 $515,081346,459 $ 103,282 $(330,425) $880,836
========= ======== ========158,657 $ 522,221 $ 83,086 $(305,187) $ 805,236
========= ========= ================= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 12,00311,064 $ -- $ 36,25935,506 $ 11,0664,341 $ -- $ 59,32850,911
Intercompany accounts payable 140179 -- 442 7,673 (8,255)-- 8,958 (9,137) --
Long-term debt - current portion 14,88217,491 -- 54,000 3,018 (500) 74,009
Income taxes 10,410 -- -- 7,243407 -- 22,125
Income taxes 2,524 -- -- 395 -- 2,91910,817
Other current liabilities 48,65343,103 -- 23,794 5,296 (70) 77,673
--------- -------- --------22,420 6,132 (582) 71,073
--------- --------- ----------------- --------- --------- ---------
Total current liabilities 78,20282,247 -- 60,495 31,673 (8,325) 162,045111,926 22,856 (10,219) 206,810
Long-term Debt - less current portion 445,814406,260 -- 71,855 9,133 (8,605) 518,1975,701 2,423 (5,701) 408,683
Deferred Income Taxes 10,934 -- -- (530) -- 10,404
Other Long-Term Liabilities 25,24410,086 -- -- -- -- 25,244
--------- -------- --------10,086
Other Long-Term Liabilities 21,162 10 1,000 639 -- 22,811
--------- --------- ----------------- --------- --------- ---------
Total liabilities 560,194 -- 132,350 40,276 (16,930) 715,890Liabilities 519,755 10 118,627 25,918 (15,920) 648,390
Intercompany Accounts (311,674)(321,105) -- 294,528 31,004 (13,858)302,315 33,492 (14,702) --
11-3/11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 95,161100,916 -- -- -- 95,161100,916
Shareholders' Equity 179,579 69,638 88,203 32,002 (299,637) 69,785
--------- -------- --------147,809 57,731 101,279 23,676 (274,565) 55,930
--------- --------- ----------------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 428,099 $164,799 $515,081346,459 $ 103,282 $(330,425) $880,836
========= ======== ========158,657 $ 522,221 $ 83,086 $(305,187) $ 805,236
========= ========= ================= ========= ========= =========
1413
1514
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 1999FEBRUARY 29, 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) $ (379) $(843)10,909 $ 20,388 $(2,593) $(17,416)10,597 $ (843)3,528 $ 5,715 $(20,152) $ 10,597
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries (9,114) (10,602) (351) -- 20,067 --
Depreciation and amortization 4,669 -- 10,885 1,703 -- 17,257
Gain on sales of divisions 2,360 -- (3,976) (8,360) -- (9,976)
Changes in assets and liabilities, net of effect
of acquisitions and divestitures 13,241 5 1,087 (7,204) (2,587) 4,542
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 22,065 -- 11,173 (8,146) (2,672) 22,420
-------- -------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sales of divisions 24,090 -- 10,430 18,023 -- 52,543
Acquisition -- -- (6,758) -- -- (6,758)
Capital expenditures (494) -- (3,692) (2,257) -- (6,443)
Other 1,142 -- 59 476 (589) 1,088
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 24,738 -- 39 16,242 (589) 40,430
-------- -------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Reduction of long-term debt (3,657) -- -- -- -- (3,657)
Net borrowings (repayments) under
revolving credit agreements (38,500) -- (9,750) (8,974) -- (57,224)
Other (6) -- -- (506) -- (512)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (42,163) -- (9,750) (9,480) -- (61,393)
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 4,640 -- 1,462 (1,384) (3,261) 1,457
Intercompany accounts (4,334) -- (1,761) 2,945 3,150 --
Cash and cash equivalents,
beginning of period 4,064 1 870 5,088 48 10,071
-------- -------- -------- -------- -------- --------
Cash and cash equivalents,
end of period $ 4,370 $ 1 $ 571 $ 6,649 $ (63) $ 11,528
======== ======== ======== ======== ======== ========
14
15
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1999
GUARANTORS
---------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- -------------- ---------- -------------- ------------ ---------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 50,983 $ -- $ 116,749 $ 26,711 $ -- $ 194,443
Intercompany 3,112 -- 2,634 1,879 (7,625) --
Operating Costs and Expenses:
Cost of products sold
(exclusive of depreciation) 40,406 -- 94,740 24,260 (7,660) 151,746
Selling and administrative 10,417 -- 5,342 2,569 (64) 18,264
Intercompany charges (2,357) -- 2,357 (65) 65 --
Depreciation 2,916 -- 6,046 1,150 -- 10,112
Amortization of intangibles 1,385 -- 2,393 242 -- 4,020
Loss on sales of assets (10) -- (12) (12) -- (34)
--------- --------- --------- --------- --------- ---------
Total 52,757 -- 110,866 28,144 (7,659) 184,108
--------- --------- --------- --------- --------- ---------
Operating Income 1,338 -- 8,517 446 34 10,335
Other Income (Expense)
Interest expense (4,738) -- (5,366) (1,238) -- (11,342)
Other income (expense) 147 -- 36 (14) -- 169
Equity in earnings of
consolidated subsidiaries (590) (1,138) 6 -- 1,722 --
--------- --------- --------- --------- --------- ---------
Income (Loss) Before Taxes (3,843) (1,138) 3,193 (806) 1,756 (838)
Income Taxes (2,677) -- 2,413 564 -- 300
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (1,166) $ (1,138) $ 780 $ (1,370) $ 1,756 $ (1,138)
========= ========= ========= ========= ========= =========
15
16
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- -------------- ---------- -------------- ------------ ---------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 4,064 $ 1 $ 870 $ 5,088 $ 48 $ 10,071
Receivables, net 13,428 -- 92,721 16,350 -- 122,499
Intercompany accounts receivable 8,368 -- 12,255 455 (21,078) --
Inventories 24,211 -- 57,014 10,618 (1,344) 90,499
Net assets of operations to be sold 46,641 -- 6,839 10,721 -- 64,201
Prepaid expenses 1,783 -- 4,355 925 -- 7,063
Deferred income taxes 16,665 -- -- -- -- 16,665
--------- --------- --------- --------- --------- ---------
Total current assets 115,160 1 174,054 44,157 (22,374) 310,998
Property, Plant & Equipment, net 42,001 -- 184,295 26,197 (33) 252,460
Investment in Subsidiaries 109,009 148,054 6,834 -- (263,897) --
Excess of Acquired Net Assets Over Cost, net 50,799 -- 142,051 12,715 -- 205,565
Other Assets 49,460 -- 22,859 625 33 72,977
--------- --------- --------- --------- --------- ---------
Total Assets $ 366,429 $ 148,055 $ 530,093 $ 83,694 $(286,271) $ 842,000
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 9,928 $ -- $ 35,837 $ 4,823 -- $ 50,588
Intercompany accounts payable 124 -- -- 7,588 (7,712) --
Long-term debt - current portion 16,374 -- 63,750 6,194 -- 86,318
Income taxes 1,826 -- -- 465 -- 2,291
Other current liabilities 37,870 -- 22,970 3,486 (457) 63,869
--------- --------- --------- --------- --------- ---------
Total current liabilities 66,122 -- 122,557 22,556 (8,169) 203,066
Long-term Debt - less current portion 449,534 -- 7,836 8,227 (7,836) 457,761
Deferred Income Taxes 10,086 -- -- -- -- 10,086
Other Long-Term Liabilities 23,047 5 -- 768 -- 23,820
--------- --------- --------- --------- --------- ---------
Total liabilities 548,789 5 130,393 31,551 (16,005) 694,733
Intercompany Accounts (344,941) -- 324,500 36,660 (16,219) --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 97,956 -- -- -- 97,956
Shareholders' Equity 162,581 50,094 75,200 15,483 (254,047) 49,311
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 366,429 $ 148,055 $ 530,093 $ 83,694 $(286,271) $ 842,000
========= ========= ========= ========= ========= =========
16
17
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1999
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) $ (1,166) $ (1,138) $ 780 $ (1,370) $ 1,756 $ (1,138)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated subsidiaries (17,795) 843 (561)590 1,138 (6) -- 17,513(1,722) --
Depreciation and amortization 15,7444,995 -- 28,731 4,3768,439 1,392 -- 48,85114,826
Changes in assets and liabilities, net of effect
of acquisitions
and divestitures 16,264(4,711) -- (24,254) (5,325) 242 (13,073)
--------- -----(5,751) (3,062) 355 (13,169)
-------- ------- -------- ----------------- -------- -------- --------
Net cash provided by (used in)
operating activities 13,834(292) -- 24,304 (3,542) 339 34,935
--------- -----3,462 (3,040) 389 519
-------- ------- -------- ----------------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400 -- -- -- -- 12,400
Acquisition of division -- -- (60,209) -- -- (60,209)
Capital expenditures (4,055)(1,615) -- (26,772) (9,033)(4,664) (2,474) -- (39,860)(8,753)
Other (757)(585) -- 749 (183) 708 517
--------- -----(82) 90 357 (220)
-------- ------- -------- ----------------- -------- -------- --------
Net cash provided by (used in)
investing activities 7,58810,200 -- (86,232) (9,216) 708 (87,152)
--------- -----(4,746) (2,384) 357 3,427
-------- ------- -------- ----------------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (136,522)(10,977) -- -- -- -- (136,522)
Borrowings(10,977)
Net borrowings (repayments) on
revolving credit agreement 107,175 -- 63,250 9,860 -- 180,285
Other (54)agreements 805 -- -- (216)3,081 -- (270)
--------- -----3,886
Other -- -- -- (211) -- (211)
-------- ------- -------- ----------------- -------- -------- --------
Net cash provided by (used in)
financing activities (29,401)(10,172) -- 63,250 9,644 -- 43,493
--------- -----2,870 -- (7,302)
-------- ------- -------- ----------------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents (7,979)(264) -- 1,322 (3,114) 1,047 (8,724)(1,284) (2,554) 746 (3,356)
Intercompany accounts 898(2,470) -- (909) 1,236 (1,225)1,444 2,106 (1,080) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,464 1 712 5,125 379 13,681
--------- ----- -------- ------- -------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 383 $ 1 $ 1,125 $ 3,247 $ 201 $ 4,957
========= ===== ======== ======= ======== =========
15
16
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 63,628 $ -- $117,887 $ 24,841 $ -- $ 206,356
Intercompany 3,793 -- 2,193 1,012 (6,998) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 51,580 -- 97,338 21,581 (6,981) 163,518
Selling and administrative 11,160 -- 4,487 2,395 -- 18,042
Intercompany charges (2,241) -- 2,241 -- -- --
Depreciation 2,990 -- 5,683 1,046 (75) 9,644
Amortization of intangibles 610 -- 3,634 -- -- 4,244
Management compensation-special 4,395 -- -- -- -- 4,395
-------- ------- -------- -------- ------- ---------
Total 68,494 -- 113,383 25,022 (7,056) 199,843
-------- ------- -------- -------- ------- ---------
Operating Income (Loss) (1,073) -- 6,697 831 58 6,513
Other Income (Expense)
Interest expense (12,005) -- -- (127) -- (12,132)
Other income 434 -- 178 72 (3) 681
Equity in earnings of
consolidated subsidiaries 5,000 (3,803) 80 -- (1,277) --
-------- ------- -------- -------- ------- ---------
Income (Loss) Before Taxes (7,644) (3,803) 6,955 776 (1,222) (4,938)
Income taxes (benefit) (3,866) -- 2,081 650 -- (1,135)
-------- ------- -------- -------- ------- ---------
Net Income (Loss) $ (3,778) $(3,803) $ 4,874 $ 126 $(1,222) $ (3,803)
======== ======= ======== ======== ======= =========
16
17
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED AUGUST 31, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 132,861 $ -- $243,412 $ 50,004 $ -- $ 426,277
Intercompany 7,944 -- 4,824 3,341 (16,109) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 105,862 -- 199,185 44,080 (16,034) 333,093
Selling and administrative 23,254 -- 10,283 4,792 -- 38,329
Intercompany charges (4,538) -- 4,538 -- -- --
Depreciation 6,040 -- 11,468 2,045 (136) 19,417
Amortization of intangibles 1,473 -- 7,268 -- -- 8,741
Management compensation-special 21,716 -- -- -- -- 21,716
--------- -------- -------- -------- -------- ---------
Total 153,807 -- 232,742 50,917 (16,170) 421,296
--------- -------- -------- -------- -------- ---------
Operating Income (Loss) (13,002) -- 15,494 2,428 61 4,981
Other Income (Expense)
Interest expense (24,422) -- -- (264) -- (24,686)
Other income 625 -- 264 121 (3) 1,007
Equity in earnings of
consolidated subsidiaries 11,729 (13,102) 123 -- 1,250 --
--------- -------- -------- -------- -------- ---------
Income (Loss) Before Taxes (25,070) (13,102) 15,881 2,285 1,308 (18,698)
Income taxes (benefit) (12,033) -- 4,906 1,531 -- (5,596)
--------- -------- -------- -------- -------- ---------
Net Income (Loss) $ (13,037) $(13,102) $ 10,975 $ 754 $ 1,308 $ (13,102)
========= ======== ======== ======== ======== =========
17
18
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 61,071 $ 123,181 $ 21,590 $ -- $ 205,842
Intercompany 3,381 2,421 1,451 (7,253) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation 48,329 102,771 18,772 (7,076) 162,796
Selling and administrative 9,673 5,167 2,301 -- 17,141
Intercompany charges (2,172) 2,172 -- -- --
Depreciation 2,823 5,220 940 -- 8,983
Amortization of intangibles 765 3,064 10 -- 3,839
Management compensation-special 2,056 -- -- -- 2,056
-------- --------- -------- ------- ---------
Total 61,474 118,394 22,023 (7,076) 194,815
-------- --------- -------- ------- ---------
Operating Income (Loss) 2,978 7,208 1,018 (177) 11,027
Other Income (Expense)
Interest expense (6,844) -- (96) -- (6,940)
Other income (expense) 812 333 (325) -- 820
Equity in earnings of
consolidated subsidiaries 4,785 (270) -- (4,515) --
-------- --------- -------- ------- ---------
Income (Loss) Before Taxes 1,731 7,271 597 (4,692) 4,907
Income taxes 1,083 2,486 531 -- 4,100
-------- --------- -------- ------- ---------
Net Income (Loss) $ 648 $ 4,785 $ 66 $(4,692) $ 807
======== ========= ======== ======= =========
18
19
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash and cash equivalents $ 7,464 $ 1 $ 712 $ 5,125 $ 379 $ 13,681
Receivables, net 52,197 -- 70,418 22,229 -- 144,844
Intercompany accounts receivable 3,414 -- 3,874 154 (7,442) --
Inventories 30,755 -- 43,708 15,785 (1,375) 88,873
Prepaid expenses 4,073 -- 3,614 651 -- 8,338
Deferred income taxes 10,851 -- -- -- -- 10,851
--------- -------- -------- ------- --------- --------
Total current assets 108,754 1 122,326 43,944 (8,438) 266,587
Property, Plant & Equipment, net 66,500 -- 143,872 38,165 -- 248,537
Investment in Subsidiaries 113,265 165,641 6,416 -- (285,322) --
Excess of Assets Acquired Over Cost, net 78,838 -- 136,253 13,819 -- 228,910
Other Assets 54,187 -- 17,675 431 -- 72,293
--------- -------- -------- ------- --------- --------
Total Assets $ 421,544 $165,642 $426,542 $96,359 $(293,760) $816,327
========= ======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 15,064 $ -- $ 24,648 $10,595 $ -- $ 50,307
Intercompany accounts payable 85 -- 16 7,561 (7,662) --
Long-term debt - current portion 18,777 -- -- 6,396 -- 25,173
Income taxes 5,296 -- -- 986 -- 6,282
Other current liabilities 45,744 -- 24,464 4,052 -- 74,260
--------- -------- -------- ------- --------- --------
Current liabilities 84,966 -- 49,128 29,590 (7,662) 156,022
Long-term Debt - less current portion 458,848 -- -- 335 -- 459,183
Deferred income taxes 8,304 -- -- -- -- 8,304
Other Long-term Liabilities 24,819 -- -- -- -- 24,819
--------- -------- -------- ------- --------- --------
Total Liabilities 576,937 -- 49,128 29,925 (7,662) 648,328
Intercompany Accounts (326,706) -- 309,571 29,768 (12,633) --
11-3/4% Cumulative Exchangeable
Preferred Stock -- 87,387 -- -- -- 87,387
Shareholders' Equity 171,313 78,255 67,843 36,666 (273,465) 80,612
--------- -------- -------- ------- --------- --------
Total Liabilities and
Shareholders' Equity $ 421,544 $165,642 $426,542 $96,359 $(293,760) $816,327
========= ======== ======== ======= ========= ========
19
20
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR SIX MONTHS ENDED AUGUST 31, 1998
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) $(13,037) $(13,102) $ 10,975 $ 754 $ 1,308 $(13,102)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated
subsidiaries (11,729) 13,102 (123) -- (1,250) --
Depreciation and amortization 8,877 -- 18,736 2,045 (136) 29,522
Proceeds from insurance settlement 13,659 -- -- -- -- 13,659
Changes in assets and liabilities 22,315 -- 11,724 (43) (129) 33,867
-------- -------- -------- ------- ------- --------
Net cash provided by (used in)
operating activities 20,085 -- 41,312 2,756 (207) 63,946
-------- -------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,985) -- (5,321) (4,747) -- (16,053)
Other (2,276) -- (275) (878) 3,523 94
-------- -------- -------- ------- ------- --------
Net cash provided by (used in)
investing activities (8,261) -- (5,596) (5,625) 3,523 (15,959)
-------- -------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (2,580) -- -- -- -- (2,580)
Borrowings (repayments) on revolving
credit agreement (44,100) -- -- 847 -- (43,253)
Other -- -- -- (23) -- (23)
-------- -------- -------- ------- ------- --------
Net cash provided by (used in)
financing activities (46,680) -- -- 824 -- (45,856)
-------- -------- -------- ------- ------- --------
Increase (decrease) in cash and
cash equivalents (34,856) -- 35,716 (2,045) 3,316 2,131
Intercompany accounts 36,124 -- (36,151) 3,440 (3,413) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12,115 1 1,145 5,513 194 18,968
-------- -------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 13,3834,730 $ 1 $ 710872 $ 6,9084,677 $ 9745 $ 21,09910,325
======== ======== ======== ======= =============== ======== ========
2017
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
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) $ 648 $ -- $ 4,785 $ 66 $ (4,692) $ 807
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated
subsidiaries (4,785) -- 270 -- 4,515 --
Depreciation and amortization 3,588 -- 8,284 950 -- 12,822
Changes in assets and liabilities,
net of effect of divestitures (16,059) -- (9,247) 2,019 575 (22,712)
--------- --------- ------- ------- --------- ---------
Net cash provided by (used in)
operating activities (16,608) -- 4,092 3,035 398 (9,083)
--------- --------- ------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiary -- (180,005) -- -- 180,005 --
Capital expenditures (2,300) -- (1,833) (1,559) -- (5,692)
Other (956) -- 65 (846) 695 (1,042)
--------- --------- ------- ------- --------- ---------
Net cash provided by (used in)
investing activities (3,256) (180,005) (1,768) (2,405) 180,700 (6,734)
--------- --------- ------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 445,000 -- -- -- -- 445,000
Reduction of long-term debt (250,000) -- -- -- -- (250,000)
Borrowings (repayments) on revolving
credit agreement 79,100 -- -- (360) -- 78,740
Redemption of common stock (446,638) -- -- -- -- (446,638)
Issuance of common stock 180,005 100,001 -- -- (180,005) 100,001
Issuance of preferred stock -- 80,005 -- -- -- 80,005
Debt issue cost (26,062) -- -- -- -- (26,062)
--------- --------- ------- ------- --------- ---------
Net cash provided by (used in)
financing activities (18,595) 180,006 -- (360) (180,005) (18,954)
--------- --------- ------- ------- --------- ---------
Increase (decrease) in cash and
cash equivalents (38,459) 1 2,324 270 1,093 (34,771)
Intercompany accounts 1,740 -- (1,740) 899 (899) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 48,834 -- 561 4,344 -- 53,739
--------- --------- ------- ------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 12,115 $ 1 $ 1,145 $ 5,513 $ 194 $ 18,968
========= ========= ======= ======= ========= =========
21
22
G. LEGAL MATTERS
For other informationFINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Please refer to Note F. regarding Segment Reporting contained in Item 1.
of this report.
Net Sales. The Company's net sales were $221.8 million in the quarter
ended February 29, 2000, compared to $194.4 million in the comparable period in
1999. The increase of 14.1% is primarily due the acquisition of Carpenter
Enterprises Ltd. ("Carpenter"), which occurred in the second quarter of 1999. As
previously mentioned, the Company divested itself of the Ross Aluminum, MARCO
and Fluid Systems Divisions ("Divested Divisions") in the first quarter of 2000.
The Divested Divisions had little impact on legal proceedings, see Item 3the comparability of net sales in
the first quarters of 2000 and 1999 for two reasons. First, with the exception
of Ross Aluminum, which was sold effective January 1, 2000, these divestitures
occurred at or near the end of the quarter. Secondly, certain of the Divested
Divisions experienced revenue gains which nearly offset the loss of revenues
which occurred when Ross Aluminum was sold. Net sales were down 2.4% when the
effects of Carpenter and the Divested Divisions have been considered.
Net sales of the Automotive Group increased 31.3% in the first quarter of
2000 compared to the first quarter of 1999, primarily due to the Carpenter
acquisition. Excluding the effects of Carpenter and the Divested Divisions
(which were included in the Automotive Segment), automotive sales increased
3.0%. In the Automotive Group, the Company is under constant pressure from its
customers to reduce prices. In addition, the products it manufactures become
obsolete from time to time as customers change product designs and the Company
must compete for the replacement business. The North American automotive build
continues to be strong; however, the growth of the Company's Annual Reportautomotive
component sales was tempered primarily by the discontinuation of certain
customer programs. At the same time, the acquisition of Carpenter has expanded
the Company's precision-machined automotive product lines.
In the Industrial Group, sales declined 7.8% in the first quarter of 2000
from the comparable period in 1999. Demand for aerospace products, particularly
related to satellites, has been soft as existing satellite programs have
struggled. In addition, demand for wheel-tractor scrapers weakened in the first
quarter of 2000 compared to the same period in 1999. Declines resulting from
these items were somewhat offset by increases resulting from stronger demand for
heavy-duty forklift trucks, a large shipment of boron in the first quarter of
2000 and the growth of a newer program where parts are manufactured on Form 10-K/Aa
contract basis for the fiscal year ended November 30,
1998.
In addition, the Company is involved in routine litigation,
environmental proceedings and claims pending with respect to matters arising outconstruction equipment industry. The impact of the
normal courseIsonics acquisition was minimal in the first quarter of business. In management's opinion,2000; however, it is
expected that this business will complement the ultimate
liabilityCompany's existing boron
business, which serves the nuclear industry, in the future.
Cost of Products Sold. Cost of products sold (excluding depreciation
expense) was $177.6 million in the three months ended February 29, 2000 and
$151.7 million in the comparable period of 1999. The increase is primarily due
to the acquisition of Carpenter and the effects of the sales of the Divested
Divisions.
Selling and Administrative. Selling and administrative expenses were
$19.2 million and $18.3 million in the first quarters of 2000 and 1999,
respectively. The 4.9% increase in selling and administrative expenses is due to
the expenses incurred in the first quarter of 2000 as a result of the Carpenter
acquisition and the restructuring of European Operations.
18
19
Depreciation. Depreciation expense was $12.3 million in the three months
ended February 29, 2000, a $2.2 million or 21.8% increase over the comparable
period in 1999. The additional depreciation in 2000 is due to the acquisition of
Carpenter in 1999.
Amortization of Intangibles. Amortization of intangibles increased
slightly from $4.0 million in the first quarter of 1999 to $4.1 million in 2000.
Excess of acquired net assets over cost (goodwill) and its related amortization
increased in the first quarter of 2000 due to the Carpenter and Isonics
acquisitions. These increases were partially offset, however, by the decline in
goodwill resulting from all claims, individually orthe write down of impaired goodwill in the aggregate, will not
materially affect the Company's consolidated financial position, resultsfourth
quarter of operations or cash flows.
H. SUBSEQUENT EVENT
On September 1, 1999, the Board of Directors approved a planwhich related to explorecertain divisions which were held for sale,
and the sale of several smaller divisionsthe Divested Divisions.
Proceeds from Insurance Settlement. The Company settled claims against a
former insurer regarding environmental remediation costs for $16.0 and received
such proceeds in addition to the first quarter of 2000.
Gain on Sale of Divisions. In the first quarter of 2000, the Company sold
the assets of its Ross Aluminum Division (which, as previously announced, the Company isand MARCO Divisions and its interest in the
process of
selling) in order to focus on core businesses. Nonecommon stock of the divisions under
consideration had sales in excessunits of the Fluid Systems Division. The aggregate net
proceeds of and gain on these transactions were approximately $35.0$52.5 million and
$10.0 million, respectively.
Interest Expense. Interest expense was $13.0 million and $11.3 million in
the nine
months ended August 31,first quarters of 2000 and 1999, or $40.0respectively. Two factors contributed to
this increase. First, the Company's debt level increased significantly in the
second quarter of 1999 when Carpenter was acquired and remained at a higher
level until the end of the first quarter of 2000 when the proceeds of the sales
of the Divested Divisions and the insurance settlement were received and applied
to the debt. Second, LIBOR rates, on which most of the Company's debt subject to
variable interest is based, were up as much as 75 basis points in the first
quarter of 2000 over the comparable period in 1999.
Income (Loss) Before Taxes. Income (loss) before taxes was $21.6 million
in the twelvethree months ended November 30, 1998. In the aggregate, the divisions under consideration for sale
(including the Ross Aluminum Division) had sales of approximately $95.0February 29, 2000 compared to $(0.8) million in the
nine months ended August 31, 1999same period in 1999. The incremental difference is comprised of basically four
items: 1) the receipt of $16.0 million of insurance proceeds in the first
quarter of 2000; 2) the $10.0 million gain resulting from the sale of the
Divested Divisions; 3) the increase in interest expense of $1.7 million; and $1254)
the operating contribution of Carpenter in the first quarter of 2000.
Income before taxes in the first quarter of 2000 for the Automotive Group
was $10.3 million compared to $2.5 million in 1999. The increase is due
primarily to the twelve months
ended November 30, 1998.$10.0 million gain on the sale of divisions, which was offset
by an aggregate decline in operating income and an increase in interest expense.
The Company had previously entereddecline in a letter of
intent foroperating income was primarily due to the sale of the Ross
Aluminum Division however,and to continued manufacturing inefficiencies at the potential buyer
terminatedFluid
Systems Division, which was sold February 29, 2000. This decline was offset by
the lettercontribution of intent dueCarpenter in 2000 and modest increases in operating income
at other operations, which correspond to a lack of financing.modest increases in net sales. The
Company intends
to continues to pursue the sale of the Ross Aluminum Division. These
divestitures are at an early stage and are subject to acceptable prices being
achieved and there can be no assurances that they will be completed. The
proceeds of such sales will be used to repay debt and finance future growth.
22
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Asincrease in interest costs is a result of both the Acquisition asacquisition of Carpenter and
the overall increase in interest rates.
The Industrial Products Group had net losses before taxes of $(2.2)
million and $(0.9) million in the first quarters of 2000 and 1999, respectively,
due primarily to the lower volumes of wheel-tractor scrapers, which resulted in
poor absorption of fixed overhead. In addition, start-up costs related to the
contract manufacturing of parts were heavier than expected. Interest costs
increased primarily due to higher interest rates.
Corporate income (loss) before taxes was $13.4 million in the three
months ended February 24, 1998, which was
accounted29, 2000 compared to $(2.4) million for as a purchase,the three months
ended February 28, 1999. If the insurance proceeds of $16.0 million are
excluded, the loss before taxes is comparable to that of the three months ended
February 28, 1999. These losses result because the Company does not allocate
certain corporate expenses to its segments.
19
20
Income Taxes. Income taxes and the effective rate of income tax vary for
several reasons, the most significant being the tax deductibility of goodwill. A
portion of the goodwill amortization relating to the Company's resultsacquisition of
operations and financial
positionEagle-Picher Industries, Inc. is deductible, however the amount of goodwill that
has tax basis changes as contingent liabilities that existed for periods after February 24, 1998tax purposes at
the time of that acquisition are resolved. Amortization of the goodwill related
to the acquisition of Carpenter is not comparable to thosedeductible for tax purposes. Goodwill
associated with certain of prior periods. The unaudited condensed consolidatedthe Divisions which were divested was not deductible
for tax purposes, which resulted in a tax gain in excess of the gain on sales of
divisions recognized in the statement of income.
Net Income (Loss). Net income (loss)
aswas $10.6 million in the three months ended
February 29, 2000 compared to a net loss of $(1.1) million in the three months
ended February 28, 1998 includes results of operations from (1) December 1, 1997
through February 24, 1998 of the Predecessor Company and (2) February 25 through
February 28, 1998 of the Company. In addition1999. Factors contributing to the difference (discussed in
detail above) include the effects of the Acquisition,
other factors affecting the comparability of operations are the sale of the Trim
Division in the fourth quarter in 1998 and the acquisition of Carpenter in the second
quarter of 1999.
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated:
Three Months Nine Months Six Months Three Months
Ended August 31 Ended Ended Ended
--------------------- August 31 August 31 February 28
1999, 1998 1999 1998 1998
-------- -------- -------- -------- --------
(In millions of dollars)
Predecessor
Net sales by segment:
Automotive $ 135.8 $ 103.3 $ 390.1 $ 218.0 $ 103.8
Machinery 58.2 68.0 174.9 136.8 64.4
Industrial 37.3 35.1 110.6 71.5 37.6
-------- -------- -------- -------- --------
Total $ 231.3 $ 206.4 $ 675.6 $ 426.3 $ 205.8
======== ======== ======== ======== ========
Operating income by segment:
Automotive $ 8.3 $ 6.0 $ 29.8 $ 16.1 $ 8.2
Machinery 3.7 6.9 11.6 15.1 5.4
Industrial 4.2 3.4 11.7 6.7 3.2
Corporate overhead (4.4) (9.8) (15.0) (32.9) (5.8)
-------- -------- -------- -------- --------
Total $ 11.8 $ 6.5 $ 38.1 $ 5.0 $ 11.0
======== ======== ======== ======== ========
Net Sales. The Company's net sales were $231.3 million for the third
quarter ended August 31, 1999, an increase of $24.9 million or 12.1% from the
comparable period of 1998. Included in the results of the third quarter of 1999
are net sales of Carpenter, which was acquired in the second quarter of 1999,
and included in the second quarter of 1998 are net sales of the Trim Division,
which was sold in the fourth quarter of 1998. If the net sales of the Trim
Division and Carpenter are excluded, the Company's quarterly net sales decreased
1.1%. On a year-to-date basis, net sales increased 6.9% in 1999 from the
comparable period in 1998. However if the net sales of the Trim Division and
Carpenter are excluded, net sales decreased 1.0%.
23
24
The Automotive Group's net sales in the third quarter of 1999,
excluding Carpenter and the Trim Division, increased 5.5% over the same period
in 1998. A substantial part of the increase is due to broader market penetration
of precision-machined components in Europe. Sales of precision-machined
components in the United States were relatively flat as the Company added new
business with different customers to replace programs with Ford which were
discontinued throughout 1999. The acquisition of Carpenter is expected to
further expand the Company's product lines and its customer base for
precision-machined components. Demand for rubber-coated metal products has been
stronger throughout 1999 than 1998, but particularly in the third quarter, due
to improvements in certain Asian markets. Since the 1980's, original equipment
manufacturers ("OEM's"), such as Ford and General Motors, have been outsourcing
an increasing percentage of their production requirements. OEM's benefit from
outsourcing because outside suppliers generally have significantly lower cost
structures and can assist in shortening development periods for new products.
The benefits of this trend have been somewhat offset by the effects of intense
pricing pressures by the OEM's on their supplier base. Net sales for the
Machinery Group in the third quarter of 1999 decreased 14.3% from the comparable
period in 1998 due primarily to the declines in sales of heavy-duty forklift
trucks resulting from a decline in demand coupled with increased competition.
Net sales for the Industrial Group increased 6.3% in the third quarter of 1999.
The increase can be attributed in part to an increase in shipments of boron
products.
Cost of Products Sold. Cost of products sold, which excludes depreciation
expense, increased $21.8 million or 13.3% in the third quarter of 1999 from the
comparable period in 1998. As a percentage of sales, cost of products sold was
80.1% for the three months ended August 31, 1999 compared to 79.2% for the same
period in the prior year. Excluding the results of Carpenter and the Trim
Division, cost of sales as a percentage of sales was 78.9% and 78.8% in the
three month periods ended August 31, 1999 and 1998, respectively, and 78.3% and
78.1% for the nine month periods ended August 31, 1999 and 1998, respectively.
Positive trends in the first quarter, such as changes in product mix in certain
operations in the Machinery Group and productivity improvements, continued into
the second and third quarters, but were offset by the effects of the decline in
shipments of heavy-duty forklift trucks, which resulted in higher fixed costs on
a per unit basis, and costs related to inefficiencies in manufacturing new
multi-layer fuel transfer systems programs in Europe.
Since the Company expects strong price pressure to continue across all
product lines, particularly in the Automotive Group, the Company will continue
to pursue productivity improvements and material cost reductions to mitigate
such price pressures.
Selling and Administrative. Selling and administrative expenses
decreased $0.2 million or 1.0% in the third quarter of 1999 from the same period
in 1998. Excluding those of Carpenter and the Trim Division, selling and
administrative expenses increased $0.4 million or 2.6% from the third quarter of
1998 to the third quarter of 1999. On a year to date basis, selling and
administrative expenses, excluding those of Carpenter and the Trim Division,
have increased 3.7%. This increase is due to expenses incurred by the Company as
a resultdivestiture of the Acquisition in February 1998 which were not incurred inRoss Aluminum, MARCO and
Fluid Systems Divisions, particularly the first quarter of 1998, including management fees to Granaria Holdings B.V. and a
long-term incentive program for managers.
Management Compensation-Special. The management compensation-special of
$21.7 million ingain on the six months ended August 31, 1998 and $2.1 million in the
first quarter of 1998 is a one-time item related to the Acquisition.
Depreciation. Depreciation expense was $11.8 million and $9.6 million
in the third quarters of 1999 and 1998, respectively, and $33.9 million and
$28.4 million in the nine months ended August 31, 1999 and 1998, respectively.
Depreciation is not comparable due to the differences in asset bases as a result
of the Acquisition in February 1998. Purchase accounting allows a company to
take up to a year to allocate the purchase price to its assets and liabilities
based on their fair values. Although the Acquisition took place in February,
final adjustments to the fair values of plant, property and equipment and
depreciation expense in 1998 were not made until November 1998, after appraisals
had been obtained and analyzed. Other factors affecting the comparability of
depreciation expense include the depreciation attributable to Carpenter in 1999
and the Trim Division in 1998.
Amortization. Amortization of intangibles was $4.4 million and $4.2
million in the third quarters of 1999 and 1998, respectively, and $12.8 million
and $12.6 million in the nine months ended August 31, 1999 and 1998,
respectively. Amortization is not comparable
24
25
due to the differences in the asset bases as a result of the Acquisition in 1998
and the acquisition of Carpenter in 1999. In the first quarter of 1998, the
reorganization value in excess of amounts allocable to identifiable assets of
$65.1 million was being amortized over four years. In accordance with purchase
accounting, this asset was not allocated a fair value in the Acquisition. The
excess of acquired net assets over cost of $241.1 million, which resulted from
the Acquisition, is being amortized over 15 years. However, the final adjustment
of the amount of the excess of acquired net assets over cost and amortization
thereof was not made until November 1998.
Operating Income. Operating income was $11.8 million and $6.5 million
for the three months ended August 31, 1999 and 1998, respectively. Many factors
affect the comparability of operating income in 1999 and 1998. Depreciation and
amortization have been computed using different asset bases in 1999 than in
1998. Purchase accounting allows up to one year to allocate the purchase price
to assets and liabilities based on fair valuesale of those assets. The final
adjustments to the fair values of property, plantdivisions,
and equipment were made in the
fourth quarter of 1998. Therefore, depreciation expense in the second and third
quarters of 1998 was computed based on an estimate of those values while 1999
depreciation was computed on fair values based on appraisals. These adjustments
also affected amortization of intangible assets. In addition, there were
management compensation - special expenses of $21.7 million in the six months
ended August 31, 1998 for which there were no comparable expenses in 1999.
Finally, Carpenter was acquired in the second quarter of 1999 and the Trim
Division was sold in the fourth quarter of 1998. After excluding all of these
items, operating income decreased 13.7% in the third quarter of 1999 compared to
the third quarter of 1998.
Operating income of the Automotive Group increased $2.3 million or 39%
in the third quarter of 1999 compared to the same period of the prior year.
Excluding the results of Carpenter and the Trim Division and the effects of the
changes in depreciation and amortization from 1998 to 1999, operating income
decreased 6.4% in the third quarter. Increases in operating income due to
increased volumes of rubber-coated metal products and improved efficiencies at
certain facilities that produce precision machined components have been offset
by operating losses caused by manufacturing inefficiencies related to new
multi-layer fuel transfer systems programs in Europe.
In the Machinery Group, operating income declined $3.2 million or 46.4%
in the third quarter of 1999 from the same quarter in 1998. This decline was
partially the result of a greater portion of the intangible asset associated
with the Acquisition being allocated to the Machinery Group in the final
adjustment of the purchase price allocation with occurred in the fourth quarter
of 1998. Additionally, the majority of the increased depreciation resulting from
the adjustment to asset bases affected the Machinery Group. After considering
these items, the decline in operating income in the Machinery Group was
approximately 35.5% in the third quarter. The majority of this decline is due to
reduced volumes of fork-lift trucks and start-upinterest costs resulting from moving
productionhigher interest rates and increased
levels of fork-lift trucks to another facility. In addition, on a
year-to-date basis, increases in operating income in 1999 resulting from a more
favorable mix of special-purpose batteries sold was offset by losses resulting
from low volumes of industrial cleaning and finishing machinery.
Operating income of the Industrial Group increased $.8 million or 23.5%
in the third quarter of 1999 from the comparable period in 1998. However, the
majority of this increase is due to the reallocation of the intangible asset
which also impacted the Machinery Group. Operating income increased 9.0% in the
third quarter if the effect of the reallocation of the intangible asset is
excluded. This increase is due to modest operating gains in diatomaceous earth
and specialty materials operations.
For the nine months ended August 31, 1999, operating income was $38.1
million. After excluding the effects of the difference in depreciation and
amortization, the acquisition of Carpenter, the divestiture of Trim Division and
the management compensation - special, operating income decreased 12.7% from the
comparable period in 1998 for the same reasons discussed above.
Interest Expense. Interest expense for the three months ended August
31, 1999 and 1998 was $14.1 million and $12.1 million, respectively. This
increase is due to the acquisition of Carpenter. Interest expense was $37.6
million and $31.6 million for the nine months ended August 31, 1999 and 1998,
respectively. Upon the Acquisition in February of 1998, the Company repaid
$250.0 million of subordinated debentures, and borrowed $524.1 million in new
debt, which, together with the additional debt resulting from the acquisition
of Carpenter, accounts for most of the increase in year-to-date interest expense
in 1999.debt.
Income Taxes. Income taxes were $0.4 million and $(1.1) million in the
three months ended August 31, 1999 and 1998, respectively, and $2.3 million and
$(1.5) million in the nine months ended August 31, 1999 and 1998, respectively.
Effective tax rates vary for a number of reasons including: 1) the amortization
of the reorganization value in excess
25
26
of amounts allocable to identifiable assets in the first quarter of 1998 was not
deductible for tax purposes while a substantial portion of the amortization of
the excess of acquired net assets over costs created during the Acquisition is
deductible; 2) the amortization of the excess of acquired net assets over costs
created upon the acquisition of Carpenter is not deductible for tax purposes;
and 3) the effect of income taxes in countries with higher tax rates, such as
Germany, varies as income in those countries varies in proportion to the
Company's total income.
Net Income. The income (loss) for the three months ended August 31,
1999 and 1998 was $(2.1) million and $(3.8) million, respectively, $(0.8)
million for the nine months ended August 31, 1999, $(13.1) million for the six
months ended August 31, 1998 and $0.8 million for the three months ended
February 28, 1998. However, as discussed above, the comparability of net income
has been significantly affected by the Acquisition and the application of
purchase accounting, the effects of the Trim Division divestiture, which was
sold in the fourth quarter of 1998, and the impact of the Carpenter acquisition
in the second quarter of 1999.
The loss applicable to common shareholders was increaseddecreased to $7.6 million by
dividends accreted on the 11 3/4% Cumulative Redeemable Exchangeable Preferred
Stock ("Preferred Stock") of $2.6$3.0 million and $7.8 million forin the three months and
nine months ended August 31, 1999, respectively, to $4.7 million and $8.6
million, respectively.February 29,
2000. The net loss applicable to common shareholders was increased to $(3.6)
million by preferred stock dividends of $2.5 million and $4.9 million in the
three months and six months ended August 31, 1998, respectively, to $6.3 million
and $18.0 million, respectively. Since the Preferred Stock was issued upon the
Acquisition, net income applicable to common shareholders of $0.8 million for the three months ended
February 28, 1998 was not reduced.1999.
LIQUIDITY AND CAPITAL RESOURCES
The following are certain financial data regarding earnings before
interest, taxes, depreciation and amortization ("EBITDA"), cash flows and
earnings to fixed charges and preferred stock dividends:
Nine Months Six Months Three Months Ended
August 31 Ended August 31 Ended February 2829(28)
---------------
2000 1999 1998 1998
---- ----
----
(in million(In millions of dollars)
Predecessor
EBITDA $ 87.1 $ 56.7 $ 27.0$25.0 $25.1
Cash provided by (used in) operating activities 34.9 63.9 (9.1)22.4 0.5
Cash provided by investing activities 40.4 3.4
Cash used in investing activities (87.2) (16.0) (6.7)
Cash provided by (used in) financing activities 43.5 (45.9) (19.0)(61.4) (7.3)
Preferred stock dividends accreted 7.8 4.9 --3.0 2.5
Earnings/fixed charges and preferred
stock dividends .86X .22X 1.69x2.14X .76X
EBITDA
The Company's EBITDA is defined by the terms of the Preferred Stock and
the Indenture for the 9 3/8% Senior Subordinated Notespurposes hereof as earnings before
interest expense, income taxes, depreciation and amortization, certain one-time
management compensation expenses and other non-cash charges.items, such as gains and
losses on sales of divisions. 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 generally accepted accounting principles, as a
measure of the Company's operating performance or liquidity, respectively.
20
21
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 ninethree months ended August 31, 1999February 29, 2000 was
$87.1$25.0 million, an increase of 4.1% overunchanged from the EBITDA of the samecomparable period in 1999 of
the
comparable year of $83.7$25.1 million. Increases in EBITDA resulting from the Carpenter Acquisition, improvements in operating efficiencies in certain
facilities manufacturing precision-machined automotive componentsacquisition and
better
volumesmodest sales volume increases of rubber-coated metal products in the Automotive
Group were partially offset by decreases resulting from lowlower volumes of fork-lift truckswheel tractor
scrapers and satellite components, start up costs 26
27
incurred as a resultrelated to contract
manufacturing of moving productioncomponents for the construction equipment industry, the sale of
such trucks to another facilityRoss Aluminum and inefficiencies related to the production of new multi-layer fuel
transfer systems in Europe.
Operating Activities
Cash provided by operating activities was $34.9$22.4 million and $54.8$0.5 million
for the ninethree months ended August 31,February 29(28), 2000 and 1999, and 1998respectively, and
consisted of the following:
NineThree Months Ended August 31,
----------------------------February 29(28)
2000 1999 1998
---- ----
(in millions of dollars)
Operating income $ 38.1 $ 16.0Income (loss) before taxes $21.6 $(0.8)
Depreciation and amortization,
excluding amortization of
deferred financing costs 46.7 41.016.4 14.1
Gain on sales of divisions (9.9) --
Add back interest expense 13.0 11.3
Interest paid (29.5) (19.1)(7.4) 6.2)
Income taxes paid, net (10.1) (4.4)
Insurance settlement -- 13.7
Funding of management trust upon acquisition -- (10.0)(.3) (4.8)
Working capital and other (10.3) 17.6
------ ------(11.0) (13.1)
----- -----
$22.4 $ 34.9 $ 54.8
====== ======0.5
===== =====
See "Results of Operations" for discussions concerning operating income and(loss)
before taxes, depreciation and amortization.amortization, gain on sales of divisions and
interest expense.
Interest paid has increased in conjunction with2000 due to the increase inacquisition of Carpenter and
higher interest rates. Differences between interest expense describedand interest paid
result from amortization of deferred financing costs and the payment schedule
for interest on the Company's Subordinated Notes. The interest payments are due
semi-annually on March 1 and September 1; therefore, three months of interest
expense was accrued on these notes in "Resultsthe first quarters of Operations." Net
income taxesboth 2000 and 1999,
but was not paid in 1999 have increased in part because: 1) there was a refund
of foreign taxes received early in 1998; 2)until the Predecessorfollowing quarter.
The Company had net
operating loss carryforwards and as a result, there weredetermined that no Federal income taxes
payabletax extension payment was
needed in 2000 for income earned prior to the Acquisition (approximately the first
three months of 1998); and 3) atax year ended November 30, 1999. A portion of the
Federal income tax liability associated with the tax periodyear ended November 30,
1998 was paid in fiscal year 1999.
The proceeds
fromWorking capital generally increases in the insurance settlement in 1998 related to contingent assets at the timefirst quarter of the Acquisitionyear
resulting in a use of cash. Reasons for this include payment of incentives,
which were recognized as adjustments to excess of acquired
net assets over cost when realized. In 1998, the Eagle-Picher Management Trust
was funded upon the Acquisition for the benefit of certain senior management of
the Company. See discussion of this item in "Management Compensation" in the
Company's 10-K/A filed with the SEC on June 28, 1999. The decrease in cash in
1999, due to increases in working capital, versus decreases in working capital
in 1998, can be attributed to several items: 1)in 1998, much of the increase was
because the Company elected to use cash in an employee benefits trust to pay for
such benefits rather than the Company's cash; 2) a major customer changed its
payment schedule fromhad been accrued at the end of the monthyear, and build up of inventories for
anticipated sales in 1998 to the beginningsecond quarter. Typically, the Company's net sales,
particularly in the Automotive Group, are higher in the second and fourth
quarters of the next
month in 1999; 3) the timing of the Thanksgiving holiday at the end of fiscal year 1997 resulted in delayed payments from customers which were received in
early 1998; and 4) inventories have increased at various divisions in 1999 due
to preparation for fourth quarter shipments of boron products and other items,
increased mining activities due to favorable weather conditions, rebuilding of
inventory after a fire at one location, changes in certain shipping schedules
and Year 2000 preparedness.year.
21
22
Investing Activities
Cash used inprovided by investing activities was $87.2$40.4 million and $22.7$3.4 million
in the ninethree months ended August 31,February 29 (28), 2000 and 1999, respectively. In the
first quarter of 2000, the Company sold the Ross Aluminum, MARCO and 1998, respectively.Fluid
Systems Divisions. The aggregate net proceeds of these transactions were $52.5
million. Early in the first quarter of 1999, the Company received $12.4 million
in cash relating to the sale of the Trim Division,Division.
On December 1, 1999, the Company acquired the assets of the depleted zinc
business of Isonics, which required $6.7 million cash at the closing. This
acquisition was effective asfinanced from the Company's revolving credit facility.
Additional payments totaling $1.5 million are due over the next three years
provided certain contingencies are met. The Company also negotiated a warrant to
acquire four million shares of October 31, 1998.common stock of Isonics in exchange for materials
to be delivered in 2000. Effective March 15, 2000, the Company elected to
exercise its warrant using a "cashless exercise" feature, where the Company will
acquire fewer than four million shares of stock and pay for such shares by
surrendering a portion of the warrant. The number of shares the Company will
receive is currently being negotiated; however it is expected to be in excess of
3.1 million shares.
Capital expenditures forwere $6.4 million and $8.8 million in the nine months ended August 31,first
quarters of 2000 and 1999, were $40.0
million compared to $21.7 million for the same period in 1998. Besides
expenditures to complete a new plant in Mt. Pleasant, Michigan for Carpenter andrespectively. Other than a small expansion to a plant manufacturing bulk pharmaceuticalsexpansion in
1999, these expenditures generally related to capital needed for new programs
and maintenance.
The Company anticipates capital expenditures will not exceed $10.0
million for the remainder of 1999.
On April 14, 1999, the Company completed the acquisition of Carpenter,
a manufacturer of precision-machined automotive parts. This acquisition is
expected to expand both the Company's product lines and its customer base for
precision-machined automotive
27
28
products. The total consideration included approximately $41.0 million in cash,
which was financed from the Revolving Credit Facility, and approximately $31.0
million of existing indebtedness of Carpenter, of which approximately $18.6
million was refinanced from the Company's Revolving Credit Facility. The
remainder of Carpenter's debt was assumed. The acquisition was accounted for as
a purchase and was effective March 1, 1999 for accounting purposes.
On September 1, 1999 the Board of Directors approved a plan to explore
the sale of several smaller divisions in addition to the Ross Aluminum Division
(which, as previously announced, the Company is in the process of selling) in
order to focus on core businesses. None of the divisions under consideration had
sales in excess of approximately $35.0 million in the nine months ended August
31, 1999 or $40.0 million in the twelve months ended November 30, 1998. In the
aggregate, the divisions under consideration for sale (including the Ross
Aluminum Divisions) had sales of approximately $95.0 million in the nine months
ended August 31, 1999 and $125.0 million in the twelve months ended November 30,
1998. The Company had previously entered into a letter of intent for the sale of
the Ross Aluminum Division, however, the potential buyer terminated the letter
of intent due to a lack of financing. The Company intends to continue to pursue
the sale of the Ross Aluminum Division. These divestitures are at an early stage
and are subject to acceptable prices being achieved. There can be no assurances
that they will be completed. The proceeds of such sales will be used to repay
debt and finance future growth.
Financing Activities
Cash provided from financing activities was $43.5 million in the first
nine months of 1999, due primarily to borrowings under the Credit Agreement to
finance the acquisition of Carpenter.
Cash used in financing activities was $64.8$61.4 million in the first three
months of 2000, due primarily to repayments of loans under the various credit
agreements. The proceeds of the division sales and the insurance proceeds were
used to repay outstanding debt. Cash used in financing activities was $7.3
million for the comparable period in 1999. The Company made regularly scheduled
debt payments and the 1998 asexcess cash flow payment required by the Company repaid borrowings
incurred as a result of the Acquisition during the second and third quarters of
1998 and used cashCredit
Agreement in connection with the Acquisition transaction itself during
the first quarter of 1998.
As of August 31, 1999, letters of credit outstanding against the
Revolving Credit Facility were $53.0 million, which, coupled with the $127.0
million in outstanding borrowings at August 31, 1999, left the Company with
available borrowing capacity of approximately $40.0 million at that date. The
European operations had $10.7 million of borrowing capacity at August 31, 1999;
however, the Company is in the process of renegotiating certain of its credit
agreements in Europe.period.
Earnings to Fixed Charges and Preferred Stock Dividends
The ratio of earnings to fixed charges and preferred stock dividends for
the ninethree months ended August 31,February 29(28) was 2.14x in 2000 and .76x in 1999. In
1999, were .86X and earnings were insufficient to cover fixed charges and preferred stock
dividends by $6.3 million$3.3 million. The increase in that
period.
The earnings2000 is due primarily to fixed chargesthe receipt
of insurance proceeds and preferred stock dividends for the six
months ended August 31, 1998 is not meaningful. Earningsgain on sales of divisions. If these items were
insufficient to
cover fixed charges and preferred stock dividends by $23.6 million in this
period. However, one time management compensation expensesexcluded from income before taxes, the ratio of $21.7 million are
included in this period. Excluding this item, earnings to fixed charges and
preferred stock dividends would have been .94X.55X and earnings would have been
insufficient to cover fixed charges and preferred stock dividends by $1.9$7.3
million. The resulting decrease from .76X to .55X is due to increased interest
resulting from the Carpenter Acquisition and higher interest rates coupled with
flat or declining operating results as discussed in "Results of Operations."
Liquidity and Capital Resources
The revolving facility under the Credit Agreement of $220.0 million is
available for both borrowings and the issuance of letters of credit. At
February 29, 2000 the Company had outstanding borrowings and letters of credit
under the Facility of $97.5 million and $52.1 million, respectively, leaving the
Company with available borrowing capacity of $70.4 million. The receipt of the
insurance proceeds and the proceeds of the division sales improved the Company's
liquidity since November 30, 1999. In addition, the borrowings outstanding on
the Company's European lines of credit were substantially reduced with the
proceeds of the sale of the Fluid Systems Division. The sale of the Fluid
22
23
Systems Division resolved the situation where the Company had to obtain a waiver
from a lender because a financial covenant to one of the European credit
agreements had not been met. The Company was in compliance with the covenants of
its Credit Agreement and Subordinated Notes at February 29, 2000.
The Company has an accounts receivable loan agreement ("Receivables
Agreement") which has a term of 364 days and which is expected to be renewed
over the term of the Credit Agreement. Excluding the Receivables Agreement,
scheduled debt repayments are $12.3 million in the remaining nine months of
2000. The Credit Agreement, as amended, requires the Company to make mandatory
repayments of 50% of annual cash flow as defined by the Credit Agreement, the
net proceeds from sales of assets (subject to certain conditions), the proceeds
of new debt issued and 50% of the net proceeds of any equity issued. No excess
cash flow payment is due in 2000 for the year ended November 30, 1999, and the
proceeds from the sales of the Divested Divisions are not required to be used to
repay debt if such proceeds are used to purchase assets within the period
specified in the Credit Agreement. Scheduled debt payments under the Credit
Agreement and the industrial revenue bonds for 2001 and 2002 are $20.8 million
and $25.6 million, respectively.
In addition to the sale of the Ross Aluminum, MARCO, and Fluid Systems
Division, the Company continues to explore the sale of other small divisions
which are expected to take place in 2000. Any proceeds resulting from the
eventual sales of the other divisions will be applied to reduce debt or to fund
future growth.
The Subsidiary has reached an agreement in principle to settle the last
remaining claim from its chapter 11 reorganization. It is anticipated the second
and final bankruptcy distribution of approximately $11.3 million will be made in
2000, after the settlement of this last claim is final.
Cash and cash equivalents were $11.5 million at February 29, 2000. The
Company estimates that it needs approximately $10.0 million to $12.0 million in
cash for operations. The Company's liquidity needs are primarily for debt
service and capital maintenance. The Company believes that its cash flows from
operations and available borrowings under its bank credit facilities will be
sufficient to fund its anticipated liquidity requirements for the next twelve
months. In the event that the foregoing sources are not sufficient to fund the
Company's expenditures and service its indebtedness, the Company would be
required to raise additional funds.
YEAR 2000 READINESS DISCLOSURE
The Company completed its Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize areadiness project as scheduled,
including addressing leap year that begins with "20." If not corrected, many
computer programs could fail or cause erroneous results. Failures of this nature
could cause interruptions to manufacturing processes, business and financial
functions and communications with customers and suppliers.
Due to the diverse nature of the Company's operations, each operating
division has its own discrete computer systems.calendar date calculation concerns. The Company
currently hasdid not experience any significant disruptions in its operating or business
systems during the transition from 1999 to 2000 or on February 29, 2000. Based
on operations since January 1, 2000, the Company does not expect any impact to
its ongoing business as a Year
2000 program in place, which included a comprehensive review to identify the
areasresult of concern in each of the systems affected by the Year 2000 issue and
followed up with design and implementation of measures to address those issues.issue. The Company has assessed its information technology systems such as business
computing systems, end user computer systemsspent
approximately $5.2 million (including capital and technical infrastructure, as
well as embedded systems commonly found in manufacturing and service equipment,
testing equipment and environmental operations. The assessments also included
28
29
the Company's products and evaluation of the readiness of its suppliers and
service providers.
The Company's Year 2000 program involves a five step process applied to
each of eight different application areas within each operation and at the
Corporate level. The Company first inventoried areas of potential risk based on
comparison to guidelines published by the Automotive Industry Action Group. Each
component identified in the inventory was then evaluated for its risk of failure
and the impact of potential failure to the Company's operations and its
customers. Once the risksinternal resources that were
assessed, remediation was commenced. Options for
remediation included replacement, modification or continued use depending on
information gathered during the inventory and assessment stages. The remediated
system is then tested and reviewed before the determination is made as to the
readiness of the system. A project committee meets regularly to review the
status of the investigation into and resolution of Year 2000 issues.
The Company's divisions have completed the inventory and assessment
phases and are in the final phases of remediation and testing. The final step of
the program is review by the Company's outside consultant for Year 2000
readiness, a review that is ongoing, to ensure that procedures are properly
documented and that modifications or upgrades will not interfere with the
Company's preparedness. The Company maintains a record of its progress to date,
and publishes reports for each of its divisions on its web site at
www.epcorp.com.
The Company's remaining costs to remediate the Year 2000 problem are
not expected to exceed $1.0 million. Of this amount, approximately $0.3 million
will be spent in the form of capital for systems replacement and approximately
$0.4 million will be incremental costs. The remaining costs relate to the
redeployment of the Company's existing resourcesredeployed) to assess, remediate and remediate the
Year 2000 problem. Projects being deferred by this issue include items such as
system enhancements that would improve performance or functionality. Through
August 31, 1999, the Company estimates it has spent approximately $4.6 million
in assessingtest its computer hardware, software and
remediating the Year 2000 problem, of which $1.3 million was
for capital equipment and $2.1 million related to incremental costs.
The Company suspects its greatest risk lies within its financial
computer systems and Electronic Data Interchange ("EDI") capabilities with its
customers and suppliers. The Company relies on customer requirements and outside
services for most of its EDI capabilities and therefore is dependent on such
parties addressing Year 2000 issues. If these systems were to fail, the Company
would encounter difficulty performing functions such as compiling financial
data, invoicing customers, accepting electronic customer orders or informing
customers electronically of shipments. While some of these functions could be
performed manually, the Company presently is not certain what the extent of the
impact on operations would be. Failures in the Company's supply chain,
particularly in locations where the Company operates in a "just-in-time"
environment, pose another risk. The Company's year 2000 program involves a
cooperative effort with its suppliers to exchange information regarding year
2000 preparedness. Additionally, there are special risks associated with certain
suppliers, including utility companies, due to the Company's limited control
over those critical suppliers.
Each Division has completed and is strengthening its contingency plans
which address issues related to potential failures of critical systems due to
Year 2000 problems. The Company will continue to review and strengthen those
plans throughout the balance of this year. The Company believes that the most
likely worst case scenario will be limited to isolated disruptions that will
affect individual business processes, facilities, suppliers or customers for a
relatively short time.
The Company presently believes that through the planned modification to
existing systems and conversion to new systems, as well as ongoing
correspondence with suppliers and customers, the Year 2000 issue will not
materially impair the Company's ability to conduct business.embedded systems.
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 will
no longer be computed directly from one local 29
30
currency to another, but be
converted from one local currency into an amount denominated in euro, then be
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.
23
24
The Company has both operating divisions and domestic export customers
located in Europe. In 1998,1999, combined revenues from these sources were
approximately 15%11% of total revenues. The Company has operations in Germany the
Netherlands, France and
Spain, which are participating in the euro conversion, and the United Kingdom,
which has elected not to participate at this time. MostCertain of our European
operations have adopted the affectedeuro as their reporting currency, although many
transactions, such as payroll, some billing and vendor invoicing, still occur in
local currencies. The remaining operations located in the participating
countries plan to make the euro the functional currency in
fiscal year 2000, although certain ofsometime during the
Company's European operationstransition period. The costs associated with the conversion to date have already entered into euro-based transactions.
Itnot
been material.
The Company is difficult to assesscurrently 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, or British pounds, 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.
Some customers have initiatedRECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the process to price productsFinancial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
euros, butother contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the processbalance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in the fair value of a derivative depends on the its
intended use and the resulting designation. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." Based on the new
effective date, the Company will adopt the provisions of this statement in the
first quarter of the fiscal year ending November 30, 2001. The Company has not
been progressing
quickly. It is not anticipated that costs incurred for changes to information
technology and other systems which are necessary for the euro conversion will be
material. The Company is currently assessingyet determined the impact the euro conversion maythis statement will have on items such as taxation and other issues.its financial position or
the results of its operations.
Other accounting standards issued by the FASB since June 1998 are not
applicable to the Company.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Subsidiary 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
the Subsidiary or indirectly through any Subsidiary Guarantor. Certain limited
exceptions are provided allowing for payments to the Company. Specifically, the
Subsidiary 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 the Subsidiary 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").
ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in fair value of a derivative depends on its intended use
and the resulting designation. The provisions of this statement become effective
for the Company beginning December 1, 2000. The Company has not yet determined
the impact this statement will have on its financial position or the results of
its operations. Other pronouncements issued by the FASB since June 1998 are not
applicable to the Company.24
25
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of 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 in this report include, but are not limited to (1) statements
regarding the impact of the acquisition of Isonics under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations;" (2) statements regarding the Company's anticipated
ownership interest in Isonics under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Investing
Activities;" (3) statements regarding the anticipated sale of other small
divisions in 2000 under "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources;" (4) statements regarding the anticipated final bankruptcy
distribution in 2000 under "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources;" (5) statements regarding the ability of the Company to fund its
anticipated liquidity requirements for the next twelve months under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources;" (6) statements regarding the
future impact of the Year 2000 issues under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Year 2000 Readiness
Disclosure;" and (7) statements regarding the potential costs associated with
hedging currency risks to the operations and the impact on the competitiveness
of operations in the United Kingdom under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Euro Conversion."
Such forward-looking information involves important risks and uncertainties that
could materially alter results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and 30
31
uncertainties include, but are not limited to, the ability of the Company to
maintain existing relationships with customers,customers; the ability of the Company to
successfully implement productivity improvements, cost reduction initiatives,
facilities expansionexpansion; and the ability of the Company to develop, market and sell
new products and the ability of the Company to continue to comply with
environmental laws, rules and regulations. Other risks and uncertainties include
uncertainties relating to economic conditions, acquisitions and divestitures,
government and regulatory policies, technological developments and changes in
the competitive environment in which the Company operates. Persons reading this
Form 10-Q are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors which could cause actual events or results to differ materially from
those indicated by such forward-looking statements.
25
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On February 26, 1998, the Company entered into a three-year interest rate
swap agreement ("Swap Agreement") with its lead bank to partially hedge its
interest rate exposure on variable rate loans under the Credit Agreement. Both
the Company's Term Loan Facilityterm loans and Revolving Credit Facilityrevolving credit loans under the Credit Agreement bear interest
at a variable rate equal to either (a) the average daily rate on overnight U.S.
federal funds transactions, ("Federal
Funds Rate"), or (b) the London Interbank Offered Rate shown on
Telerate Page 3750 for the applicable interest period ("LIBOR"), plus, in either
case, an applicable spread. On February 26, 1998, the Company entered into a three year interest
rate swap agreement with its lead bank to partially hedge its interest rate risk
on loans under the Credit Agreement. Under this agreement, the Company pays a fixed rate
of 5.805% on a notional amount of $150.0 million and receives LIBOR on that
amount. This swap transactionamount, effectively fixesfixing the interest rate on $150.0 million of debt
outstanding under the Credit Agreement at 5.805% plus the applicable spread for the duration of the interest rate swap.
The Credit Agreement was amended in May 1999 to increase the Revolving
Credit Facility, reduce the Term Loan Facility and provide for the
Securitization. In June 1999, approximately $120.5 million in term loans were
repaid with the proceeds from the Securitization of $65.0 million and
additional borrowings under the Revolving Credit Facility. The interest rate
swap agreement was not impacted by this transaction; however, it does not cover
debt outstanding under the Securitization.spread.
Loans under the SecuritizationCompany'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. 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 Agreement.
As of August 31, 1999, $210.5February 29, 2000, $175.1 million in debt wasof revolving and term loans were
outstanding under the Credit Agreement, of which interest on $150.0 million is
essentially fixed by the Swap Agreement. The interest rate swap agreement. Therisk on the remaining $123.8 million of
debt outstanding bears interest atunder the variable rates under either the Revolving Credit Agreement, or Securitization as described above.well as the debt outstanding
under the Receivables Agreements and the IRB's, which in the aggregate totals
$107.5 million, has not been hedged. Accordingly, a 1% increase in both the
applicable index rates would result in additional interest expenseexpenses of $1.2$1.1
million per year, assuming no change in the level of borrowing.
3126
3227
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:Exhibits
3.19 Restated Articles of Incorporation for EPMR Corporation (f/k/a Michigan
Automotive Research Corporation)
3.20 By Laws for EPMR Corporation (f/k/a Michigan Automotive Research
Corporation)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
3227
3328
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/ Carroll D. Curless
--------------------------------
Carroll D. CurlessPhilip F. Schultz
-----------------------------------------
Philip F. Schultz
Senior Vice President and
ControllerChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
DATE September 24, 1999
--------------------------------
33April 11, 2000
---------------------
28
3429
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/ Carroll D. Curless
--------------------------------
Carroll D. CurlessPhilip F. Schultz
-----------------------------------------
Philip F. Schultz
Senior Vice President and
ControllerChief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
DATE September 24, 1999
--------------------------------
34April 11, 2000
---------------------
29
3530
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/ Gary M. Freytag
-------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
35April 11, 2000
---------------------
30
3631
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/ Gary M. Freytag
------------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
36April 11, 2000
---------------------
31
3732
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/ Gary M. Freytag
------------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
37April 11, 2000
---------------------
32
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 FLUID SYSTEMS, INC.
/s/ Gary M. Freytag
-------------------------------------
Gary M. Freytag
Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
38
3933
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/ Gary M. Freytag
------------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
39April 11, 2000
---------------------
33
4034
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 September 24, 1999
--------------------------------
40April 11, 2000
---------------------
34
4135
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/ Gary M. Freytag
------------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
41April 11, 2000
---------------------
35
4236
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 CORPORATIONCORPORATION)
/s/ Terence J. Rhoades
----------------------------------------
Terence J. Rhoades
Secretary andGary M. Freytag
-----------------------------------------
Gary M. Freytag
Treasurer
(Principal Financial Officer)
DATE September 24, 1999
-----------------------------------
42April 11, 2000
---------------------
36
4337
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.19 Restated Articles of Incorporation for EPMR
Corporation (f/k/a Michigan Automotive Research
Corporation)
3.20 By Laws for EPMR Corporation (f/k/a Michigan Automotive
Research Corporation)
27.1 Financial Data Schedule (submitted electronically
to the Securities and Exchange Commission for its
information.)
4337