SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
(Mark One) | ||
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 28,August 31, 2003
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto.
Commission file number 333-49957-01
11201 North Tatum Blvd. Suite 110, Phoenix, Arizona 85028
Registrant’s telephone number, including area code:602-923-7200602-652-9600
Former Name
EAGLEPICHER HOLDINGS, INC. IS FILING THIS REPORT VOLUNTARILY IN ORDER TO COMPLY WITH THE REQUIREMENTS OF THE TERMS OF ITS 9 3/8%9-3/4% SENIOR SUBORDINATED NOTES AND 11 3/11-3/4% SERIES B CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND IS NOT REQUIRED TO FILE THIS REPORT PURSUANT TO EITHER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yeso Nox (See explanatory note immediately above.) |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)
Yeso Nox |
930,5001,000,000 shares of common capital stock, $.01$0.01 par value each, were issued and outstanding at April 14,October 9, 2003
1
TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction | IRS Employer | |||||||||||||||||||
Incorporation or | Commission | Identification | ||||||||||||||||||
Names | Organization | File Number | Number | |||||||||||||||||
EaglePicher Incorporated | Ohio | 333-49957 | 31-0268670 | |||||||||||||||||
Daisy Parts, Inc. | Michigan | 333-49957-02 | 38-1406772 | |||||||||||||||||
EaglePicher Development Co., Inc. | Delaware | 333-49957-03 | 31-1215706 | |||||||||||||||||
EaglePicher Far East, Inc. | Delaware | 333-49957-04 | 31-1235685 | |||||||||||||||||
EaglePicher Filtration | Nevada | 333-49957-06 | 31-1188662 | |||||||||||||||||
EaglePicher Technologies, LLC | Delaware | 333-49957-09 | 31-1587660 | |||||||||||||||||
EaglePicher Automotive, Inc. (f/k/a 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 |
TABLE OF CONTENTS
Page | |||||||||||||||
Number | |||||||||||||||
PART I. FINANCIAL INFORMATION | |||||||||||||||
Item 1. | Financial Statements (unaudited) | ||||||||||||||
Condensed Consolidated Balance Sheets | 3 | ||||||||||||||
Condensed Consolidated Statements of Income (Loss) | 4 | ||||||||||||||
Condensed Consolidated Statements of Cash Flows | 5 | ||||||||||||||
Notes to Condensed Consolidated Financial Statements | 6 | ||||||||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||||||||||||
Item 4. | Controls and Procedures | ||||||||||||||
Item 1. | Legal Proceedings | ||||||||||||||
Item 6. | Exhibits and Reports on Form 8-K | ||||||||||||||
Signatures | |||||||||||||||
Exhibit Index |
2
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements.Statements.
EaglePicher Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 2002 and February 28,August 31, 2003
(unaudited) (in thousands of dollars)
November 30, | February 28, | November 30, | August 31, | |||||||||||||||||||
2002 | 2003 | 2002 | 2003 | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Current Assets: | Current Assets: | Current Assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 31,522 | $ | 32,290 | Cash and cash equivalents | $ | 31,522 | $ | 23,981 | |||||||||||||
Receivables, net | 23,704 | 24,373 | Receivables, net | 19,979 | 26,036 | |||||||||||||||||
Retained interest in EaglePicher Funding Corporation, net | 29,400 | 29,409 | Retained interest in EaglePicher Funding Corporation, net | 29,400 | 66,487 | |||||||||||||||||
Costs and estimated earnings in excess of billings | 16,942 | 20,142 | Insurance claim receivable | — | 5,198 | |||||||||||||||||
Inventories | 54,718 | 54,447 | Costs and estimated earnings in excess of billings | 16,942 | 25,986 | |||||||||||||||||
Net assets of operations to be sold | 643 | 494 | Inventories | 49,204 | 54,154 | |||||||||||||||||
Prepaid expenses and other assets | 15,667 | 18,861 | Assets of discontinued operations | 28,899 | 9,177 | |||||||||||||||||
Deferred income taxes | 10,798 | 10,798 | Prepaid expenses and other assets | 15,363 | 9,666 | |||||||||||||||||
Deferred income taxes | 10,798 | 10,798 | ||||||||||||||||||||
183,394 | 190,814 | |||||||||||||||||||||
202,107 | 231,483 | |||||||||||||||||||||
Property, Plant and Equipment, net | Property, Plant and Equipment, net | 183,405 | 176,524 | Property, Plant and Equipment, net | 173,658 | 154,416 | ||||||||||||||||
Goodwill, net | 163,940 | 163,940 | ||||||||||||||||||||
Goodwill | Goodwill | 159,640 | 159,640 | |||||||||||||||||||
Prepaid Pension | Prepaid Pension | 54,796 | 54,613 | Prepaid Pension | 54,796 | 55,609 | ||||||||||||||||
Other Assets, net | Other Assets, net | 27,506 | 25,777 | Other Assets, net | 22,840 | 26,609 | ||||||||||||||||
$ | 613,041 | $ | 611,668 | $ | 613,041 | $ | 627,757 | |||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||
Current Liabilities: | Current Liabilities: | Current Liabilities: | ||||||||||||||||||||
Accounts payable | $ | 83,178 | $ | 60,523 | ||||||||||||||||||
Accounts payable | $ | 85,055 | $ | 74,987 | Current portion of long-term debt | 18,625 | 3,200 | |||||||||||||||
Current portion of long-term debt | 18,625 | 150,393 | Compensation and employee benefits | 19,889 | 16,095 | |||||||||||||||||
Compensation and employee benefits | 21,044 | 18,385 | Billings in excess of costs and estimated earnings | 944 | 1,864 | |||||||||||||||||
Billings in excess of costs and estimated earnings | 944 | 1,048 | Accrued divestiture reserve | 17,662 | 10,535 | |||||||||||||||||
Accrued divestiture reserve | 17,662 | 15,198 | Liabilities of discontinued operations | 4,305 | 1,305 | |||||||||||||||||
Other accrued liabilities | 37,653 | 37,955 | Other accrued liabilities | 36,380 | 23,341 | |||||||||||||||||
180,983 | 297,966 | 180,983 | 116,863 | |||||||||||||||||||
Long-Term Debt, net of current portion | Long-Term Debt, net of current portion | 355,100 | 233,600 | Long-Term Debt, net of current portion | 355,100 | 421,782 | ||||||||||||||||
Postretirement Benefits Other Than Pensions | Postretirement Benefits Other Than Pensions | 17,635 | 17,476 | Postretirement Benefits Other Than Pensions | 17,635 | 17,402 | ||||||||||||||||
Other Long-Term Liabilities | Other Long-Term Liabilities | 8,928 | 9,506 | Other Long-Term Liabilities | 8,928 | 10,652 | ||||||||||||||||
562,646 | 558,548 | 562,646 | 566,699 | |||||||||||||||||||
11.75% Cumulative Redeemable Exchangeable Preferred Stock | 11.75% Cumulative Redeemable Exchangeable Preferred Stock | 137,973 | 141,910 | 11.75% Cumulative Redeemable Exchangeable Preferred Stock | 137,973 | 150,247 | ||||||||||||||||
Commitments and Contingencies Shareholders’ Equity (Deficit): | ||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies | |||||||||||||||||||||
Shareholders’ Equity (Deficit): | Shareholders’ Equity (Deficit): | |||||||||||||||||||||
Common stock | 10 | 10 | Common stock | 10 | 10 | |||||||||||||||||
Additional paid-in capital | 99,991 | 99,991 | Additional paid-in capital | 99,991 | 92,803 | |||||||||||||||||
Accumulated deficit | (175,112 | ) | (177,881 | ) | Accumulated deficit | (175,112 | ) | (182,758 | ) | |||||||||||||
Accumulated other comprehensive loss | (4,376 | ) | (2,819 | ) | Accumulated other comprehensive income (loss) | (4,376 | ) | 756 | ||||||||||||||
Treasury stock | (8,091 | ) | (8,091 | ) | Treasury stock | (8,091 | ) | — | ||||||||||||||
(87,578 | ) | (88,790 | ) | (87,578 | ) | (89,189 | ) | |||||||||||||||
$ | 613,041 | $ | 611,668 | $ | 613,041 | $ | 627,757 | |||||||||||||||
The accompanying notes are an integral part of these consolidated balance sheets.
3
EaglePicher Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Three and Nine Months Ended February 28,August 31, 2002 and 2003
(unaudited) (in thousands of dollars, except share and per share amounts)
Three Months Ended August 31, | Nine Months Ended August 31, | |||||||||||||||||||||||||
2002 | 2003 | 2002 | 2003 | 2002 | 2003 | |||||||||||||||||||||
Net Sales | Net Sales | $ | 163,229 | $ | 170,310 | Net Sales | $ | 167,352 | $ | 165,844 | $ | 499,742 | $ | 504,930 | ||||||||||||
Operating Costs and Expenses: | Operating Costs and Expenses: | Operating Costs and Expenses: | ||||||||||||||||||||||||
Cost of products sold (exclusive of depreciation) | 129,772 | 133,112 | Cost of products sold (exclusive of depreciation) | 130,101 | 127,001 | 390,330 | 387,605 | |||||||||||||||||||
Selling and administrative | 13,482 | 14,551 | Selling and administrative | 14,246 | 15,615 | 50,424 | 45,836 | |||||||||||||||||||
Depreciation and amortization of intangibles | 11,038 | 11,607 | Depreciation and amortization | 11,830 | 12,768 | 34,321 | 34,798 | |||||||||||||||||||
Goodwill amortization | 3,956 | — | Goodwill amortization | 3,846 | — | 11,538 | — | |||||||||||||||||||
Loss from divestitures | 125 | — | Restructuring | — | — | 2,998 | — | |||||||||||||||||||
Insurance related losses (gains) | — | (2,774 | ) | 3,100 | (8,510 | ) | ||||||||||||||||||||
158,373 | 159,270 | Loss from divestitures | 161 | — | 6,131 | — | ||||||||||||||||||||
160,184 | 152,610 | 498,842 | 459,729 | |||||||||||||||||||||||
Operating Income | Operating Income | 4,856 | 11,040 | Operating Income | 7,168 | 13,234 | 900 | 45,201 | ||||||||||||||||||
Interest expense | (11,081 | ) | (9,409 | ) | Interest expense | (8,610 | ) | (9,249 | ) | (28,596 | ) | (25,941 | ) | |||||||||||||
Other income, net | 403 | 433 | Other income (expense), net | 413 | (600 | ) | 1,331 | (527 | ) | |||||||||||||||||
Write-off of deferred financing costs | — | (6,327 | ) | — | (6,327 | ) | ||||||||||||||||||||
Income (Loss) Before Taxes | (5,822 | ) | 2,064 | |||||||||||||||||||||||
Income (Loss) from Continuing Operations Before | Income (Loss) from Continuing Operations Before | |||||||||||||||||||||||||
Taxes | (1,029 | ) | (2,942 | ) | (26,365 | ) | 12,406 | |||||||||||||||||||
Income taxes | (750 | ) | (804 | ) | (1,955 | ) | (2,850 | ) | ||||||||||||||||||
Income (Loss) from Continuing Operations | Income (Loss) from Continuing Operations | (1,779 | ) | (3,746 | ) | (28,320 | ) | 9,556 | ||||||||||||||||||
Discontinued Operations: | Discontinued Operations: | |||||||||||||||||||||||||
Loss from operations of discontinued businesses, net of zero (benefit) provision for income taxes | (1,792 | ) | (213 | ) | (3,426 | ) | (1,683 | ) | ||||||||||||||||||
Income Taxes | 385 | 896 | Loss on disposal of discontinued business, net of $600 benefit and zero benefit for income taxes | — | (267 | ) | — | (3,245 | ) | |||||||||||||||||
Net Income (Loss) | Net Income (Loss) | (6,207 | ) | 1,168 | Net Income (Loss) | (3,571 | ) | (4,226 | ) | (31,746 | ) | 4,628 | ||||||||||||||
Preferred Stock Dividends Accreted | 3,512 | 3,937 | ||||||||||||||||||||||||
Preferred stock dividends accreted or accrued | (3,718 | ) | (4,168 | ) | (10,949 | ) | (12,274 | ) | ||||||||||||||||||
Loss Applicable to Common Shareholders | Loss Applicable to Common Shareholders | $ | (9,719 | ) | $ | (2,769 | ) | Loss Applicable to Common Shareholders | $ | (7,289 | ) | $ | (8,394 | ) | $ | (42,695 | ) | $ | (7,646 | ) | ||||||
Basic and Diluted Net Loss per Share Applicable to Common Shareholders | $ | (10.04 | ) | $ | (2.98 | ) | ||||||||||||||||||||
Basic and Diluted Net Loss per Share Applicable to Common Shareholders: | Basic and Diluted Net Loss per Share Applicable to Common Shareholders: | |||||||||||||||||||||||||
Loss from Continuing Operations | $ | (5.71 | ) | $ | (7.91 | ) | $ | (40.67 | ) | $ | (2.83 | ) | ||||||||||||||
Loss from Discontinued Operations | (1.86 | ) | (0.48 | ) | (3.55 | ) | (5.12 | ) | ||||||||||||||||||
Net Loss | $ | (7.57 | ) | $ | (8.39 | ) | $ | (44.22 | ) | $ | (7.95 | ) | ||||||||||||||
Weighted Average Number of Common Shares | Weighted Average Number of Common Shares | 968,417 | 930,500 | Weighted Average Number of Common Shares | 963,500 | 1,000,000 | 965,472 | 961,389 | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
EaglePicher Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSThree-MonthsNine Months Ended February 28,August 31, 2002 and 2003
(unaudited) (in(In thousands of dollars)
2002 | 2003 | 2002 | 2003 | |||||||||||||||||||||
Cash Flows From Operating Activities: | Cash Flows From Operating Activities: | Cash Flows From Operating Activities: | ||||||||||||||||||||||
Net income (loss) | $ | (31,746 | ) | $ | 4,628 | |||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 47,858 | 37,084 | ||||||||||||||||||||||
Loss from divestitures | 6,131 | — | ||||||||||||||||||||||
Provisions from discontinued operations | — | 3,245 | ||||||||||||||||||||||
Net income (loss) | $ | (6,207 | ) | $ | 1,168 | Deferred income taxes | 811 | — | ||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | Insurance related losses (gains) | 3,100 | (3,312 | ) | ||||||||||||||||||||
Depreciation and amortization | 15,649 | 12,390 | Write-off of deferred financing costs | — | 6,327 | |||||||||||||||||||
Loss from divestitures | 125 | — | Changes in assets and liabilities, net of effect of divestitures: | |||||||||||||||||||||
Changes in assets and liabilities: | Sale of receivables, net (See Note I) | 40,975 | — | |||||||||||||||||||||
Sale of receivables, net (See Note F) | 43,775 | — | Retained interest in EaglePicher Funding Corporation, net (See Note I) | — | (37,087 | ) | ||||||||||||||||||
Receivables and retained interest in EaglePicher Funding Corporation, net | 2,897 | (678 | ) | Receivables, net | (4,233 | ) | (6,057 | ) | ||||||||||||||||
Inventories | 5,507 | 271 | Insurance claim receivable | — | (5,198 | ) | ||||||||||||||||||
Prepaid expenses | 171 | (3,194 | ) | Costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings, net | (5,012 | ) | (8,124 | ) | ||||||||||||||||
Other assets | (1,323 | ) | 126 | Inventories | (3,298 | ) | (4,950 | ) | ||||||||||||||||
Accounts payable | (9,527 | ) | (10,068 | ) | Accounts payable | (10,738 | ) | (22,655 | ) | |||||||||||||||
Accrued liabilities | 6,332 | (4,717 | ) | Accrued liabilities | 553 | (20,648 | ) | |||||||||||||||||
Other, net | (7,118 | ) | (2,883 | ) | Other, net | 1,997 | 941 | |||||||||||||||||
Net cash provided by (used in) operating activities | 50,281 | (7,585 | ) | Net cash provided by (used in) operating activities | 46,398 | (55,806 | ) | |||||||||||||||||
Cash Flows From Investing Activities: | Cash Flows From Investing Activities: | Cash Flows From Investing Activities: | ||||||||||||||||||||||
Proceeds from sales of divisions | 6,300 | — | Proceeds from the sale of property and equipment | 639 | 1,068 | |||||||||||||||||||
Proceeds from the sale of property and equipment, and other, net | — | 329 | Capital expenditures | (11,823 | ) | (10,758 | ) | |||||||||||||||||
Capital expenditures | (5,106 | ) | (3,903 | ) | ||||||||||||||||||||
Other, net | 122 | — | Net cash used in investing activities | (11,184 | ) | (9,690 | ) | |||||||||||||||||
Net cash provided by (used in) investing activities | 1,316 | (3,574 | ) | |||||||||||||||||||||
Cash Flows From Financing Activities: | Cash Flows From Financing Activities: | Cash Flows From Financing Activities: | ||||||||||||||||||||||
Reduction of long-term debt | (12,800 | ) | (4,232 | ) | Redemption of senior subordinated notes | — | (209,500 | ) | ||||||||||||||||
Net borrowings (repayments) under revolving credit agreements | (36,088 | ) | 14,500 | Reduction of long-term debt | (22,782 | ) | (16,925 | ) | ||||||||||||||||
Acquisition of treasury stock | 156 | — | Net repayments under revolving credit agreements | (40,750 | ) | (121,500 | ) | |||||||||||||||||
Proceeds from issuance of treasury stock | — | 903 | ||||||||||||||||||||||
Net cash (used in) provided by financing activities | (48,732 | ) | 10,268 | Payments for acquisition of treasury stock | (159 | ) | — | |||||||||||||||||
Proceeds from the New Credit Agreement and issuance of Senior Unsecured Notes | — | 398,000 | ||||||||||||||||||||||
Payment of deferred financing costs | — | (9,708 | ) | |||||||||||||||||||||
Net cash provided by (used in) financing activities | (63,691 | ) | 41,270 | |||||||||||||||||||||
Net Cash Provided by Discontinued Operations | Net Cash Provided by Discontinued Operations | 14,371 | 13,961 | |||||||||||||||||||||
Effect of Exchange Rates on Cash | Effect of Exchange Rates on Cash | 151 | 1,659 | Effect of Exchange Rates on Cash | 2,061 | 2,724 | ||||||||||||||||||
Net Increase in Cash and Cash Equivalents | 3,016 | 768 | ||||||||||||||||||||||
Net Decrease in Cash and Cash Equivalents | Net Decrease in Cash and Cash Equivalents | (12,045 | ) | (7,541 | ) | |||||||||||||||||||
Cash and Cash Equivalents, beginning of period | Cash and Cash Equivalents, beginning of period | 24,620 | 31,522 | Cash and Cash Equivalents, beginning of period | 24,620 | 31,522 | ||||||||||||||||||
Cash and Cash Equivalents, end of period | Cash and Cash Equivalents, end of period | $ | 27,636 | $ | 32,290 | Cash and Cash Equivalents, end of period | $ | 12,575 | $ | 23,981 | ||||||||||||||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | Supplemental Disclosure of Non-Cash Investing and Financing Activities: | |||||||||||||||||||||||
Equipment acquisitions financed by capital leases | $ | — | $ | 1,169 | ||||||||||||||||||||
Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | Supplemental Cash Flow Information: | ||||||||||||||||||||||
Interest paid | $ | 5,003 | $ | 3,068 | Interest paid | $ | 23,209 | $ | 28,246 | |||||||||||||||
Income taxes paid (refunded), net | $ | 267 | $ | — | Income taxes refunded, net | $ | 4,835 | $ | 3,859 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
EaglePicher Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
OurThe accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with our financial statements and notes thereto for the fiscal year ended November 30, 2002 presented in our Form 10-K, filed with the SEC on March 3, 2003.
The financial statements presented herein reflect all adjustments (consisting of normal and recurring adjustments), which, in our opinion are necessary to fairly state the results of operations for the three and nine month periods ended February 28,August 31, 2002 and 2003. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.
In the fourth quarter of fiscal 2002, we restated our financial statements to reflect the appropriate adoption of EITF 00-10, “Accounting for Shipping and Handling Fees and Costs,” which we should have adopted in 2001. EITF 00-10 states that all amounts billed to a customer in a sale transaction related to shipping and handling represent revenues earned for the goods provided and should be classified as revenue. Prior to the adoption of EITF 00-10, some of the costs billed to our customers for shipping and handling costs (our transportation expenses) were included as an offset to our costs. This restatement had no impact on operating income, net income, or cash flows. The impactsimpact to the financial statements for the three months ended February 28,August 31, 2002 was an increase in Net Sales and Cost of Products Sold by $3.9 million. The impact to the financial statements for the nine months ended August 31, 2002 was an increase in Net Sales and Cost of Products Sold by $11.9 million. In addition, certain amounts in 2002 have been reclassified to conform to the 2003 financial statement presentation.
As discussed in Note H to these financial statements, the accompanying 2002 financial statements have been restated to reflect as discontinued operations our Hillsdale U.K. Automotive operation and certain operations of our Germanium-based business in our Technologies Segment.
InventoriesB.INVENTORIES
Inventories consisted of the following at November 30, 2002 and February 28,August 31, 2003 (in thousands of dollars):
2002 | 2003 | 2002 | 2003 | |||||||||||||
Raw materials and supplies | $ | 25,365 | $ | 28,124 | $ | 24,522 | $ | 26,491 | ||||||||
Work-in-process | 14,058 | 13,331 | 10,680 | 14,613 | ||||||||||||
Finished goods | 15,295 | 12,992 | 14,002 | 13,050 | ||||||||||||
$ | 54,718 | $ | 54,447 | $ | 49,204 | $ | 54,154 | |||||||||
Comprehensive Income (Loss)C.REVENUE RECOGNITION
For certain products sold under fixed-price contracts and subcontracts with various United States Government agencies and aerospace and defense contractors, we utilize the percentage-of-completion method of accounting. When we use the percentage-of-completion method, we measure our percent complete based on total costs incurred to date as compared to our best estimate of total costs to be incurred.
6
The following provides information on contracts in progress at November 30, 2002 and August 31, 2003 (in thousands of dollars):
2002 | 2003 | |||||||
Costs incurred on uncompleted contracts | $ | 115,476 | $ | 159,035 | ||||
Estimated earnings | 21,664 | 38,437 | ||||||
137,140 | 197,472 | |||||||
Less: billings to date | (121,142 | ) | (173,350 | ) | ||||
$ | 15,998 | $ | 24,122 | |||||
Costs and estimated earnings in excess of billings | $ | 16,942 | $ | 25,986 | ||||
Billings in excess of costs and estimated earnings | (944 | ) | (1,864 | ) | ||||
$ | 15,998 | $ | 24,122 | |||||
D.COMPREHENSIVE INCOME (LOSS)
During the three and nine months ended February 28,August 31, 2002 and 2003 our comprehensive lossincome (loss) was as follows (in thousands of dollars):
Three Months Ended August 31, | Nine Months Ended August 31, | |||||||||||||||||||||||
2002 | 2003 | 2002 | 2003 | 2002 | 2003 | |||||||||||||||||||
Net income (loss) | $ | (6,207 | ) | $ | 1,168 | $ | (3,571 | ) | $ | (4,226 | ) | $ | (31,746 | ) | $ | 4,628 | ||||||||
Gain (loss) on interest rate swap agreements | 45 | 545 | (660 | ) | 1,172 | (194 | ) | 2,624 | ||||||||||||||||
Gain (loss) on forward foreign currency contracts | 323 | (647 | ) | |||||||||||||||||||||
Gain (loss) on foreign currency forward contracts | (48 | ) | 2,321 | (421 | ) | (216 | ) | |||||||||||||||||
Change in currency translation adjustment | (217 | ) | 1,659 | 793 | (1,640 | ) | 2,061 | 2,724 | ||||||||||||||||
$ | (6,056 | ) | $ | 2,725 | $ | (3,486 | ) | $ | (2,373 | ) | $ | (30,300 | ) | $ | 9,760 | |||||||||
6
B.E. GOODWILL
On December 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” The ratable amortization of goodwill and other intangible assets with indefinite lives was replaced with an annual test for impairment. Accordingly, we ceased amortization of goodwill on December 1, 2002. We have determined that we have six reporting units, as defined in SFAS No. 142, within our three reportable business segments. The following goodwill amounts by reporting unit were recorded as of November 30, 2002 and February 28,August 31, 2003 (in thousands of dollars):
Reporting Unit | Segment | Amount | Segment | Amount | ||||||||||||
Hillsdale Division | Automotive | $ | 34,816 | Automotive | $ | 34,816 | ||||||||||
Wolverine Division | Automotive | 47,268 | Automotive | 47,268 | ||||||||||||
Power Group | Technologies | 44,486 | Technologies | 44,486 | ||||||||||||
Specialty Materials Group | Technologies | 31,398 | Technologies | 27,098 | ||||||||||||
Pharmaceutical Services (formerly ChemSyn) | Technologies | 2,929 | Technologies | 2,929 | ||||||||||||
Filtration and Minerals | Filtration and Minerals | 3,043 | Filtration and Minerals | 3,043 | ||||||||||||
$ | 163,940 | $ | 159,640 | |||||||||||||
We have completed our initial impairment test as of December 1, 2002, and determined that no impairment charge exists. Our fair values for each reporting unit were determined based on our estimate of future cash flows by reporting unit, which were derived from our annual forecasting process.
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The following pro forma disclosure presents our net income (loss) applicable to common shareholders and our basic and diluted netper share income (loss) per share applicable to common shareholders for the three-monthsthree and nine months ended February 28,August 31, 2002 and 2003 as if SFAS No. 142 had been adopted on December 1, 2001 (in thousands of dollars, except per share amounts):
2002 | 2003 | ||||||||
Reported Net Income (Loss) | $ | (6,207 | ) | $ | 1,168 | ||||
Goodwill amortization | 3,956 | — | |||||||
As Adjusted Net Income (Loss) | $ | (2,251 | ) | $ | 1,168 | ||||
Reported Basic and Diluted Net Income (Loss) per Share Applicable to Common Shareholders | $ | (10.04 | ) | $ | 2.98 | ||||
Goodwill amortization | 4.09 | — | |||||||
As Adjusted Basic and Diluted Net Income (Loss) per Share Applicable to Common Shareholders | $ | (5.95 | ) | $ | 2.98 | ||||
Three Months Ended August 31, | Nine Months Ended August 31, | |||||||||||||||
2002 | 2003 | 2002 | 2003 | |||||||||||||
Reported Loss Applicable to Common Shareholders | $ | (7,289 | ) | $ | (8,394 | ) | $ | (42,695 | ) | $ | (7,646 | ) | ||||
Goodwill amortization | 3,846 | — | 11,538 | — | ||||||||||||
As Adjusted Loss Applicable to Common Shareholders | $ | (3,443 | ) | $ | (8,394 | ) | $ | (31,157 | ) | $ | (7,646 | ) | ||||
Reported Basic and Diluted Loss per share Applicable to Common Shareholders | $ | (7.57 | ) | $ | (8.39 | ) | $ | (44.22 | ) | $ | (7.95 | ) | ||||
Goodwill amortization per share | 4.00 | — | 11.95 | — | ||||||||||||
As Adjusted Basic and Diluted Loss per share Applicable to Common Shareholders | $ | (3.57 | ) | $ | (8.39 | ) | $ | (32.27 | ) | $ | (7.95 | ) | ||||
C.F. RECENTLY RELEASED OR ADOPTED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets and depreciated over their estimated useful life while the liability is accreted to its expected obligation amount upon retirement. We adopted SFAS No. 143 on December 1, 2002. The adoption of this statement did not have a material impact on our financial condition or results of operations.
In September 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which superceded SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” The primary difference is that goodwill and certain intangibles with indefinite lives have been removed from the scope of SFAS No. 144, as they are covered by SFAS No. 142, as described above.142. It also broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. A component of an entity comprises operations and cash flows that can clearly be distinguished operationally and for financial accounting purposes from the rest of the entity. We adopted SFAS No. 144 on December 1, 2002. The adoption did not have a material impact on2002 and accounted for the sale of our financial condition or resultsHillsdale U.K. Automotive operation and the sale of operations.
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certain assets of our Germanium-based business in our Technologies Segment, as discussed in Note H, in accordance with this statement.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or disposalDisposal Activities,” which is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The adoption of this statement did not have a material impact on our financial condition or results of operations.
On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 20, 2003, for hedging relationships designated after June 30, 2003, and to certain preexisting contracts. We adopted SFAS No. 149 on a prospective basis at its effective date on July 1, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.
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In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments. Mandatorily redeemable financial instruments are subject to the provisions of this statement beginning on January 1, 2004. We have not completed our evaluation of the impact, if any, the adoption of this statement will have on our financial condition or results of operations.
In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”) “Guarantor’s Accounting and Disclosure requirementsRequirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. FIN 45 does not affect the accounting for guarantees issued prior to the effective date, unless the guarantee is modified subsequent to December 31, 2002. We adopted the disclosure requirements on December 1, 2002, and the initial recognition and measurement provisions in our February 28, 2003 financial statements. The adoption of FIN 45this interpretation did not have a material impact on our financial condition or results of operations.
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”) “Consolidation of Variable Interest Entities.” Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest in after that date. A public entity with a variable interest in a variable interest entity created before February 1, 2003, shall apply the provisions of this interpretation (other than the transition disclosure provisions in paragraph 26) to that entity no later than the beginning of the first interim or annual reporting period beginning after JuneDecember 15, 2003. The related disclosure requirements arewere effective immediately. The impact of this interpretation is not expected to have a material impact on our financial condition or results of operations.
In November 2002, the EITF issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 prescribes a method to account for contracts that have multiple elements or deliverables. It provides guidance on how to allocate the value of a contract to its different deliverables, as well as guidance on when to recognize revenue allocated to each deliverable over its performance period. We are required to adopt EITF 00-21 on December 1,for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are evaluating the impact EITF 00-21 will have on us, but do not expect it to have a material impact on our financial condition or results of operations.
D.G. RESTRUCTURING
During 2001, we recorded asset write-downs and other charges totaling $14.1 million in connection with a restructuring plan (the “Plan”) announced in November 2001. The Plan primarily relocated our corporate headquarters from Cincinnati, Ohio to Phoenix, Arizona and closed three plants in theour Technologies Segment as a result of the elimination of certain product lineslines. During the second quarter of 2002, we determined that a portion of the assets in our over-funded pension plan could be made available to pay severance costs related to the Plan. We amended the pension plan and provided new or amended severance plans to allow for such payments. Approximately $2.5 million of severance was expected to be paid out of the pension plan. Accordingly, during the second quarter of 2002, we reduced our restructuring provision originally recorded in the Power Group business.fourth quarter of 2001 by $2.5 million.
In Maythe second quarter of 2002, we announced we would exit theour Gallium based business in our Technologies Segment due to the downturn in the fiber-optic, telecommunication and semiconductor markets, the primary markets for
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our Gallium products. This action resulted in a $5.5 million charge to restructuring expense.
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The remaining balance of $2.2$1.0 million as of February 28,August 31, 2003, is included in Other Accrued Liabilities in our balance sheets. An analysis of the facilities, severance and other costs incurred related to restructuring reserves since November 30, 2002 is as follows (in thousands of dollars):
Other | Other | |||||||||||||||||||||||||||||||||
Facilities | Severance | Costs | Total | Facilities | Severance | Costs | Total | |||||||||||||||||||||||||||
Balance at November 30, 2002 | Balance at November 30, 2002 | $ | 1,629 | $ | 314 | $ | 1,340 | $ | 3,283 | Balance at November 30, 2002 | $ | 1,629 | $ | 314 | $ | 1,340 | $ | 3,283 | ||||||||||||||||
Amounts spent | (271 | ) | (55 | ) | (745 | ) | (1,071 | ) | Amounts spent | (786 | ) | (280 | ) | (1,215 | ) | (2,281 | ) | |||||||||||||||||
Balance at February 28, 2003 | $ | 1,358 | $ | 259 | $ | 595 | $ | 2,212 | ||||||||||||||||||||||||||
Balance at August 31, 2003 | Balance at August 31, 2003 | $ | 843 | $ | 34 | $ | 125 | $ | 1,002 | |||||||||||||||||||||||||
E.H. DIVESTITURES AND DISCONTINUED OPERATIONS
Divestitures
We have indemnified buyers of our former divisions and subsidiaries for certain liabilities related to items such as environmental remediation and warranty issues on divisions sold in previous years. We had previously recorded liabilities for these exposures; however, from time to time, as additional information becomes available, additional amounts may need to be recorded.
In the second quarter of 2002, we signed a letter of intent to sell certain assets and liabilities of the Precision Products business in our Technologies Segment to a group of employees and management personnel. We recorded a $2.8 million estimated loss on sale in Loss from Divestitures in the Statements of Income (Loss). In addition, during 2002, we recorded approximately $3.2 million in additional accruals for costs related to certain litigation issues and environmental remediation.
An analysis of the liabilities related to divestitures is as follows (in thousands of dollars):
Balance at November 30, 2002 | Balance at November 30, 2002 | $ | 17,662 | Balance at November 30, 2002 | $ | 17,662 | ||||
Amounts spent | (2,464 | ) | Amounts spent | (7,127 | ) | |||||
Balance at February 28, 2003 | $ | 15,198 | ||||||||
Balance at August 31, 2003 | Balance at August 31, 2003 | $ | 10,535 | |||||||
Discontinued Operations
Effective December 14, 2001, we sold certain of the assets of our former Construction Equipment Division. This division represented our entire former Machinery Segment. The sale price was $6.1 million in cash, plus an estimated working capital adjustment of $1.0 million, and the assumption of approximately $6.7 million of current liabilities. We retained the land and buildings of the Construction Equipment Division’s main facility in Lubbock, Texas and leased the facility to the buyer for a five-year term. The buyer has an option to buy the facility for $2.5 million, increasing $100,000 per year over the term of the lease. We also retained $900,000 of accounts receivable, and approximately $2.3 million of raw materials inventory, which the buyer was required to purchase within one year. TheAt August 31, 2003, the buyer failed to purchase approximately $400,000$182,000 of the inventory.inventory, which is included in Assets of Discontinued Operations in the accompanying balance sheets. We are pursuing collection actions.
During the second quarter of 2003, we reached an agreement in principle for the sale of certain assets at our Hillsdale U.K. Automotive operation (a component of our Automotive Segment) for cash of $1.1 million. The Net Assetssale closed on June 11, 2003. In addition, we will be winding down the remaining operations of our Hillsdale U.K. Automotive operation during 2003. Accordingly, effective in the second quarter of 2003, upon receipt of authority from our Board of Directors, we discontinued the operations of our Hillsdale U.K. Automotive operation and restated all prior period financial statements. We have included in Loss from Operations to be Sold at November 30,of Discontinued Businesses in our Statements of Income (Loss) $902,000 for the three months ended August 31, 2002, $1.4 million for the nine months ended August 31, 2002, and February 28,$431,000 for the nine months ended August 31, 2003. In addition, in the second quarter of 2003, we recognized a Loss on Disposal of Business of $3.0 million, which is net of a $600,000 tax benefit related to this sale, and
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during the third quarter of 2003, we recognized an increase of $751,000 to that Loss on Disposal due to various shutdown costs. We expect to incur an additional $500,000 of shutdown costs, such as one-time termination benefits, contract termination costs and facility closure costs during the fourth quarter of 2003, which have not accrued as of August 31, 2003.
In July 2003, we completed the sale of certain assets of our Germanium-based business in our Technologies Segment for cash of approximately $15.0 million, subject to a working capital adjustment. These assets relate to the production of Germanium-based products primarily used in the infrared optics and fiber optics applications and do not include any of our assets that are primarilyinvolved in the production of Germanium substrates and wafers. We agreed that if the buyer is required to divest the acquired business due to certain regulatory proceedings commenced within one year of the sale, then we would reimburse the buyer for 50% of the amount by which the sale price is less than $15.0 million up to a maximum reimbursement of $4.0 million, and we would receive 50% of any excess of the sale price over the $15.0 million up to a maximum of $4.0 million. We believe that the likelihood of being required to make or receive payments pursuant to these provisions is remote, and therefore, we have not recorded an asset or liability. During the third quarter of 2003, we discontinued the operations of our Germanium-based business and restated all prior period financial statements. We have included in Loss from Operations of Discontinued Businesses in our Statements of Income (Loss) $890,000 for the three months ended August 31, 2002, $213,000 for the three months August 31, 2003, $2.0 million for the nine months ended August 31, 2002, and $1.3 million for the nine months ended August 31, 2003. In addition, during the third quarter of 2003, we recorded in Loss on Disposal of Discontinued Businesses a gain of $484,000, which is net of zero tax provision (benefit).
At August 31, 2003, the remaining balance in Assets of Discontinued Operations was primarily accounts receivable, inventory, and property, plant, and equipment related to our Hillsdale U.K. Automotive operation and an insurance receivable related to an entity that was supposed to provide a source of Germanium for the inventory, as thesale of certain assets within our Germanium-based business. The balance in Liabilities of Discontinued Operations was primarily accounts payable and accrued liabilities associated with this transaction, totaling $2.9 million and representing primarily environmental liabilities, had been transferredrelated to the Accrued Divestitures reserve at November 30, 2002.
ACCOUNTS RECEIVABLE ASSET-BACKED SECURITIZATION (QUALIFYING SPECIAL PURPOSE ENTITY) |
During the first quarter of 2002, we entered into an agreement with a major U.S.United States financial institution to sell an interest in certain receivables through an unconsolidated qualifying special purpose entity, EaglePicher Funding Corporation (“EPFC”). Initially $47.0 million of proceeds from this new facility were used primarily to payoff amounts outstanding under our existing Receivables Loan Agreement with our wholly owned subsidiary, EaglePicher Acceptance Corporation. This agreement provides for the sale of certain receivables to EPFC, which in turn sells an interest in a revolving pool of receivables to the financial institution. EPFC has no recourse against us for failure of the debtors to pay when due. TheIn the third quarter of 2003, we amended this agreement provides forto extend the continuation of thereceivables program on a revolving basis until the earlier of a)(a) 90 days prior to the maturity of our senior credit facility,New Credit Agreement (as defined in Note P) or b) assuming we are able to refinance our senior credit facility, the fourth quarter of 2004.(b) January 2008.
We account for the securitization of these sold receivables in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a Replacement of FASB Statement No. 125.” Under this
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guidance, at the time the receivables are sold, the balances are removed from our financial statements. For purposes of calculating our debt covenant compliance under our New Credit Agreement (as defined in Note P), we include the debt outstanding onobligations of EPFC.
In conjunction with the initial transaction during 2002, we sold $82.5 million of receivables to EPFC, and we incurred charges of $1.5 million, which arewere included in Interest Expense in the accompanying condensed consolidated statements of income (loss) for the three-monthsnine-months ended February 28,August 31, 2002. We continue to service sold receivables and receive a monthly servicing fee from EPFC of approximately 1% per annum of the receivable pool’s average balance. As this servicing fee approximates our cost to service, no servicing asset or liability has been recorded at November 30, 2002 or February 28,August 31, 2003. We retain an interest in a portion of the receivables transferred, representing an over collateralization on the securitization. Our involvement with both this over collateralization interest and the transferred receivables is generally limited to the servicing performed. The carrying value of our interest in the receivables is carriedrecorded at fair value, which is estimated as its net realizable value due to the short duration of the receivables
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transferred. The net realizable value considers the collection period and includes an estimated provision for credit losses and returns and allowances, which is based on our historical results and probable future losses.
At November 30, 2002, our interest in EPFC including a service fee receivable, was $29.4 million and the revolving pool of receivables that we serviced totaled $77.5 million. At November 30, 2002, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was $46.5 million. During the three months ended February 28,August 31, 2002, we sold outside of the initial sale, $109.0$147.5 million of accounts receivable to EPFC. DuringEPFC, and during the same period, EPFC collected $104.5$145.0 million of cash that was reinvested in new securitizations. At February 28,During the nine months ended August 31, 2002, we sold, outside of the initial sale, $422.0 million of accounts receivable to EPFC, and during the same period, EPFC collected $403.0 million of cash that was reinvested in new securitizations.
As of August 31, 2003, we reduced the amount due to the financial institution by EPFC. Accordingly, our interest in EPFC including a service fee receivable, was $29.4$66.5 million and the revolving pool of receivables that we serviced totaled $75.0$67.9 million. At February 28,August 31, 2003, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was $43.8 million.zero. During the three months ended February 28,August 31, 2003, we sold $138.6$132.4 million of accounts receivable to EPFC. DuringEPFC, and during the same period, EPFC collected $130.9$135.0 million of cash that was reinvested in new securitizations. During the nine months ended August 31, 2003, we sold $418.0 million of accounts receivable to EPFC, and during the same period, EPFC collected $405.9 million of cash that was reinvested in new securitizations. The effective interest rate as of February 28,for the nine month period ended August 31, 2003 in the securitization was approximately 2.5%2.58%.
G.J.INSURANCE RELATED LOSSES (GAINS)
In the second quarter of 2002, we recorded a provision of $3.1 million primarily related to a dispute with an insurance carrier over the coverage on a fire during 2001 at our Harrisonville, Missouri bulk pharmaceutical plant. During the third quarter of 2003, we recorded a $2.8 million gain related to the settlement of this claim.
In the second quarter of 2003, we recorded a $5.7 million gain primarily related to the settlement of a claim with our insurance carrier over the coverage on a fire during 2002 at our Seneca, Missouri non-operating facility.
K.SHAREHOLDERS’ EQUITY (DEFICIT)
During the second quarter of 2003, we sold to our controlling common shareholder, Granaria Holdings B.V., Bert Iedema, one of our directors and an executive officer of Granaria Holdings B.V., and two of our executive officers the 69,500 shares of common stock held in our Treasury for $13.00 per share, or $903,000. In connection with this stock issuance, we reclassified the balance in our Treasury, or $7.2 million, to Additional Paid in Capital in our accompanying balance sheets.
L. LEGAL MATTERS
On January 25, 1996, Richard Darrell Peoples, a former employee, filed a lawsuit in the United States District Court for the Western District of Missouri claiming that we violated the federal False Claims Act based on alleged irregularities in testing procedures in connection with certain U.S.United States Government contracts. Mr. Peoples filed this lawsuit under a procedure which gives a private individual the right to file a lawsuit for a violation of a Federal statute and be awarded up to 30% of any recovery. The government has the right to intervene and take control of such a lawsuit. Following an extensive investigation, the U.S.United States Government declined the opportunity to intervene or take control of this suit. The allegations in the lawsuit are similar to allegations made by Mr. Peoples, and investigated by our outside counsel, prior to the filing of the lawsuit. Our outside counsel’s investigation found no evidence to support any of Mr. Peoples’ allegations, except for some inconsequential expense account matters. The case is in a discovery phase. Recently the court disqualified Mr. Peoples’ lawyer from the case after he read some of our attorney-client privileged documents that Mr. Peoples took from our lawyers’ offices without authorization. We intend to contest this suit vigorously and do not believe that the resolution of this lawsuit will have a material adverse effect on our financial condition, results of operations or cash flows.
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On May 8, 1997, Caradon Doors and Windows, Inc. (“Caradon”), filed a suit against us in the United States District Court for the Northern District of Georgia alleging breach of contract, negligent misrepresentation, and contributory infringement and seeking contribution and indemnification in the amount of approximately $20.0 million. This suit arose out of patent infringement litigation between Caradon and Therma-Tru Corporation extending over the 1989-1996 time period, the result of which was for Caradon to be held liable for patent infringement. In June 1997, we filed a motion with the United States Bankruptcy Court for the Southern District of Ohio, Western Division, seeking an order that Caradon’s claims had been discharged by our bankruptcy and enjoining Caradon from pursuing its lawsuit. On December 24, 1997, the Bankruptcy Court held that Caradon’s claims had been discharged and enjoined Caradon from pursuing its lawsuit. Caradon appealed the Bankruptcy Court’s decision to the United States District Court for the Southern District of Ohio, and on February 3, 1999, the District Court reversed on the grounds that the Bankruptcy Court had not done the proper factual analysis and remanded the matter back to the Bankruptcy Court. The Bankruptcy Court held a hearing on this matter on September 24 and 25, 2001, and on May 9, 2002 again held that Caradon’s claims had been discharged and enjoined Caradon from pursuing the Caradon Suit. Caradon has again appealed this decision to the District Court. We intend to contest this suit vigorously and do not believe that the resolution of this suit will have a material adverse effect on our financial condition, results of operations or cash flows.
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In March 2002, a purported class action on behalf of approximately 3,000 homeowners was filed in state court in Colorado against us and a company with a facility adjacent to our facility in Colorado Springs, Colorado seeking property damages, testing and remediation costs and punitive damages arising out of chlorinated solvents and nitrates in the groundwater alleged to arise out of activities at our facility and the adjacent facility. The case has been removed to federal court and there has been no decision whether to certify a class. In September 2002, as amended in May 2003, a trust purportedly the assignee of approximately 200 property owners filed suit against us and the same co-defendant in Colorado state court, which was subsequently removed to Federal District Court in Colorado. This lawsuit seeks unspecified damages to provide for remediation of the groundwater contamination as well as unspecified punitive damages. The owner of the adjacent facility, which is upgradient from our facility, is operating a remediation system aimed at chlorinated solvents in the groundwater originating from its facility under a compliance order on consent with the Colorado Department of Public Health and Environment (“CDPHE”). We are operating a remediation system for nitrates in the groundwater originating from our facility, also under a compliance order on consent with CDPHE. We do not believe that nitrates in groundwater materially affect any of the properties related to the plaintiffs in these lawsuits. Neither the United States Environmental Protection Agency nor the CDPHE has ever required us to undertake a cleanup for chlorinated solvents. We intend to contest these lawsuits vigorously and do not believe that these lawsuits will result in a material adverse effect on our financial position, results of operation or cash flows.
In addition, we are involved in routine litigation, environmental proceedings and claims pending with respect to matters arising out of the normal course of our business. In our opinion, the ultimate liability resulting from all claims, individually or in the aggregate, will not materially affect our financial position, results of operations or cash flows.
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H.M. BUSINESS SEGMENT INFORMATION
Our Automotive Segment provides mechanical and structural parts and raw materials for passenger cars, trucks, vans and sport utility vehicles for original equipment manufacturers and replacement markets. Resources are concentrated in serving the North American, European and Pacific Rim markets. Our Hillsdale operation is a precision-machined components business, and our Wolverine operation is a rubber coated metal products business.
Our Technologies Segment is a diverse group of businesses with a broad spectrum of technologies and capabilities. It is a major supplier of batteries and power systems components for aerospace, defense and telecommunications applications. In addition, it produces high-purity specialty material compounds and rare metals, industrial chemicals, bulk pharmaceuticals and super-clean containers, which meet strict EPA protocols, for environmental sampling. This segment serves the commercial aerospace, nuclear, telecommunication electronics and other industrial markets globally. Some of these products are also used in defense applications.
Our Filtration and Minerals Segment mines and refines diatomaceous earth products, which are used globally in high purity filtration applications, primarily by the food and beverage industry. These products are also used as industrial absorbents.
Sales between segments were not material.
The following data represents financial information about our reportable business segments for the three-monthsthree months and nine months ended February 28,August 31, 2002 and 2003. During 2002, we elected to modify our internal methodology of allocating certain expenses from the corporate segment to the operating segments. In the following tables, the financial information for the three-monthsthree and nine months ended February 28,August 31, 2002 has been restated to conform to the new presentation (in thousands of dollars).
Three Months Ended August 31, | Nine Months Ended August 31, | |||||||||||||||||||||||||
2002 | 2003 | 2002 | 2003 | 2002 | 2003 | |||||||||||||||||||||
Net Sales | Net Sales | Net Sales | ||||||||||||||||||||||||
Hillsdale Division | Hillsdale Division | $ | 85,834 | $ | 83,282 | Hillsdale Division | $ | 82,269 | $ | 74,660 | $ | 257,072 | $ | 239,597 | ||||||||||||
Wolverine Division | Wolverine Division | 17,648 | 20,718 | Wolverine Division | 21,196 | 22,957 | 58,552 | 66,864 | ||||||||||||||||||
Automotive | 103,482 | 104,000 | Automotive | 103,465 | 97,617 | 315,624 | 306,461 | |||||||||||||||||||
Power Group | Power Group | 22,870 | 32,283 | Power Group | 27,768 | 38,047 | 75,568 | 104,187 | ||||||||||||||||||
Precision Products- divested July 17, 2002 | Precision Products- divested July 17, 2002 | 1,215 | — | Precision Products- divested July 17, 2002 | 832 | — | 3,435 | — | ||||||||||||||||||
Specialty Materials Group | Specialty Materials Group | 13,031 | 13,219 | Specialty Materials Group | 10,915 | 9,386 | 33,526 | 29,534 | ||||||||||||||||||
Pharmaceutical Services (formerly ChemSyn) | Pharmaceutical Services (formerly ChemSyn) | 3,405 | 1,902 | Pharmaceutical Services (formerly ChemSyn) | 3,097 | 1,407 | 10,278 | 6,690 | ||||||||||||||||||
Technologies | 40,521 | 47,404 | Technologies | 42,612 | 48,840 | 122,807 | 140,411 | |||||||||||||||||||
Filtration and Minerals | Filtration and Minerals | 19,226 | 18,906 | Filtration and Minerals | 21,275 | 19,387 | 61,311 | 58,058 | ||||||||||||||||||
$ | 163,229 | $ | 170,310 | $ | 167,352 | $ | 165,844 | $ | 499,742 | $ | 504,930 | |||||||||||||||
Operating Income (Loss) | Operating Income (Loss) | Operating Income (Loss) | ||||||||||||||||||||||||
Automotive | Automotive | $ | 3,516 | $ | 5,141 | Automotive | $ | 2,073 | $ | 4,252 | $ | 9,166 | $ | 16,165 | ||||||||||||
Technologies | Technologies | 668 | 8,046 | Technologies | 5,078 | 6,248 | (3,425 | ) | 28,855 | |||||||||||||||||
Filtration and Minerals | Filtration and Minerals | 1,306 | (111 | ) | Filtration and Minerals | 1,811 | 1,929 | 6,706 | 3,439 | |||||||||||||||||
Divested Divisions | Divested Divisions | (125 | ) | — | Divested Divisions | (161 | ) | — | (6,131 | ) | — | |||||||||||||||
Corporate/ Intersegment | (509 | ) | (2,036 | ) | ||||||||||||||||||||||
Corporate/Intersegment | Corporate/Intersegment | (1,633 | ) | 805 | (5,416 | ) | (3,258 | ) | ||||||||||||||||||
$ | 4,856 | $ | 11,040 | $ | 7,168 | $ | 13,234 | $ | 900 | $ | 45,201 | |||||||||||||||
Depreciation and Amortization | Depreciation and Amortization | |||||||||||||||||||||||||
Automotive | Automotive | $ | 10,982 | $ | 8,259 | $ | 31,512 | $ | 25,532 | |||||||||||||||||
Technologies | Technologies | 3,232 | 3,802 | 9,914 | 6,885 | |||||||||||||||||||||
Filtration and Minerals | Filtration and Minerals | 1,327 | 1,276 | 4,075 | 3,802 | |||||||||||||||||||||
Corporate | Corporate | 135 | (569 | ) | 358 | (1,421 | ) | |||||||||||||||||||
$ | 15,676 | $ | 12,768 | $ | 45,859 | $ | 34,798 | |||||||||||||||||||
11N.RELATED PARTY TRANSACTIONS
On February 24, 1998 we entered into an advisory and consulting agreement with Granaria Holdings B.V., our controlling common stockholder, pursuant to which we pay Granaria Holdings B.V. (or such of its affiliates as it may direct) an annual management fee of $1.75 million. The agreement terminates on the earlier of February 24, 2008 or the end of the fiscal year in which Granaria Holdings B.V. and its affiliates, in the aggregate, beneficially owns less than 10% of our outstanding common stock.
During 2002, we paid $800,000, which is included in Other Assets, in our balance sheets to a start-up technology manufacturing company for the exclusive right to manufacture the start-up company’s battery technology. During the third quarter of 2003, we converted this exclusive right to manufacture into a 6.0% interest in such start-up company. In addition, an entity affiliated with Granaria Holdings, B.V., our controlling common shareholder, invested $1,975,000 (including $75,000 from Mr. Bert Iedema, one of our directors) for a 14.8125% interest, and Thomas R. Pilholski, our Senior Vice President and Chief Financial Officer invested $200,000 for a 1.5% interest. In addition, John H. Weber, our President and Chief Executive Officer, invested $20,000 and David G. Krall, our Senior Vice President
14
2002 | 2003 | ||||||||
Depreciation and Amortization of Intangibles | |||||||||
Automotive | $ | 9,801 | $ | 8,946 | |||||
Technologies | 3,659 | 1,616 | |||||||
Filtration and Minerals | 1,420 | 1,258 | |||||||
Corporate/ Intersegment | 114 | (213 | ) | ||||||
$ | 14,994 | $ | 11,607 | ||||||
and General Counsel, invested $5,000. Mr. Weber and Mr. Krall received less than 1% interest for their investments. In September 2003, we paid an additional $426,667 to this start-up technology manufacturing company for an incremental 2.7560% interest (our total interest in this entity is 8.7560%). Granaria Holdings B.V. through an affiliate invested an additional $1,053,333 for an incremental 6.8038% interest (including $36,744 from Mr. Iedema), and Mr. Pilholski invested an additional $106,667 for an incremental 0.6890% interest. Mr. Weber invested an additional $10,667 and Mr. Krall invested an additional $2,667. Mr. Weber and Mr. Krall continue to own less than 1%. We, the affiliates of Granaria Holdings B.V., and Messrs. Weber, Pilholski and Krall will also receive a priority distribution of 60% of the any cash distributed until they have received three times their total investment. In addition, Noel Longuemare, a director of our wholly-owned subsidiary, EaglePicher Technologies, LLC, holds a 4.2687% interest in this start-up company.
Granaria Holdings, B.V., our controlling common shareholder, controls approximately 78% of our outstanding 11-3/4% Cumulative Redeemable Exchangeable Preferred Stock.
On August 31, 2003, Bert Iedema, one of our directors and an executive officer of Granaria Holdings, B.V., our controlling common shareholder, purchased 5,000 shares of our common stock from one of our former officers.
Certain of our directors and current and former officers have entered into a voting trust agreement with Granaria Holdings, B.V., our controlling common shareholder, pursuant to which Granaria Holdings B.V. is the voting trustee and holder of record of the shares of our common stock that are beneficially owned by these directors and officers. These directors and officers also have executed a shareholders agreement, which, among other things, contains transfer restrictions regarding the directors’ and officers’ ability to transfer their beneficial interests in our common stock.
I.O. SUBSEQUENT EVENT11.75% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
In AprilWe have outstanding 14,191 shares of our 11.75% Cumulative Redeemable Exchangeable Preferred Stock. The Preferred Stock had an initial liquidation preference at February 24, 1998 of $5,637.70 per share which accreted during the first five years after issuance at 11.75% per annum, compounded semiannually, ultimately reaching $10,000 per share on March 1, 2003. Commencing March 1, 2003, dividends on our Preferred Stock became cash payable in arrears, semiannually, at 11.75% per annum of the liquidation preference if and when declared by the Board of Directors; the first semiannual dividend payment of $8.3 million was due September 1, 2003. The New Credit Agreement and the Senior Unsecured Notes contain financial covenants that currently prohibit us from paying dividends on the preferred stock. Our Board of Directors did not declare a cash dividend as of September 1, 2003. If we do not pay cash dividends on the preferred stock, then holders of the preferred stock may become entitled to elect a majority of our Board of Directors. Dakruiter S.A. and Harbourgate B.V., both companies controlled by Granaria Holdings B.V., our controlling common shareholder, hold approximately 78% of our preferred stock, and therefore Granaria Holdings B.V. would continue to be able to elect our entire Board of Directors. The election of a majority of the directors is the only remedy of holders of the preferred stock for a failure to pay cash dividends. Unpaid dividends are cumulative but do not bear interest.
15
P. LONG-TERM DEBT
Long-term debt consisted of the following at November 30, 2002 and August 31, 2003 (in thousands of dollars):
2002 | 2003 | ||||||||
New Credit Agreement: | |||||||||
New revolving credit facility | $ | — | $ | — | |||||
New term loan | — | 150,000 | |||||||
Former Credit Agreement: | |||||||||
Former revolving credit facility, paid off in August 2003 | 121,500 | — | |||||||
Former term loan, paid off in August 2003 | 16,925 | — | |||||||
Senior Unsecured Notes, 9.75% interest, due 2013, net of $1.9 million discount | — | 248,013 | |||||||
Senior Subordinated Notes, 9.375% interest, due 2008 | 220,000 | 10,500 | |||||||
Industrial Revenue Bonds, 1.8% to 2.2% interest, due 2005 | 15,300 | 15,300 | |||||||
Other | — | 1,169 | |||||||
373,725 | 424,982 | ||||||||
Less: current portion | (18,625 | ) | (3,200 | ) | |||||
Long-term debt, net of current portion | $ | 355,100 | $ | 421,782 | |||||
Aggregate maturities of long-term debt by each of our fiscal year ends are as follows at August 31, 2003 (in thousands of dollars):
2003 | $ | 2,175 | ||
2004 | 3,650 | |||
2005 | 13,650 | |||
2006 | 1,869 | |||
2007 | 1,500 | |||
Thereafter | 402,138 | |||
$ | 424,982 | |||
New Credit Agreement
We have a syndicated senior secured loan facility (“New Credit Agreement”) providing an original term loan (“New Term Loan”) of $150.0 million and a $125.0 million revolving credit facility (“New Facility”). The New Facility and the New Term Loan bear interest, at our option, at a rate equal to (i) LIBOR plus 350 basis points or (ii) an Alternate Base Rate (which is equal to the highest of (a) the agent’s prime rate, (b) the Federal funds effective rate plus 50 basis points, or (c) the base CD rate plus 100 basis points) plus 250 basis points. Interest is generally payable quarterly on the New Facility and New Term Loan. We have entered into interest rate swap agreements to manage our variable interest rate exposure. The New Credit Agreement also contains certain fees. There are fees for letters of credit equal to 3.5% per annum for all issued letters of credit, and there is a commitment fee on the New Facility equal to 0.5% per annum of the unused portion of the New Facility. If we meet certain financial benchmarks, the interest rate spreads on the borrowing, the commitment fees and the fees for letters of credit may be reduced.
The New Term Loan will mature upon the earlier of (i) August 7, 2009, (ii) 180 days prior to the maturity of our Senior Subordinated Notes if more than $5.0 million of aggregate principal amount of Senior Subordinated Notes are outstanding, or (iii) 180 days prior to the mandatory redemption of our 11.75% Cumulative Redeemable Exchangeable Preferred Stock (“Preferred Stock”) if more than $5.0 million of its aggregate liquidation preference remains outstanding. The New Facility will mature upon the earlier of (i) August 7, 2008, (ii) 180 days prior to the maturity of our Senior Subordinated Notes if more than $5.0 million of aggregate principal amount of Senior Subordinated Notes are outstanding, or (iii) 180 days prior to the mandatory redemption of our Preferred Stock if more than $5.0 million of its aggregate liquidation preference remains outstanding. Our Senior Subordinated Notes mature, and our Preferred Stock is scheduled for mandatory redemption on March 1, 2008.
16
At August 31, 2003, we reachedhad $40.4 million in outstanding letters of credit under the New Facility, which together with borrowings of zero, made our available borrowing capacity of $84.6 million. However, due to various financial covenant limitations under the New Credit Agreement, we could only incur an agreement in principle foradditional $47.3 million of indebtedness at August 31, 2003.
The New Credit Agreement is secured by our capital stock, the salecapital stock of certain assets at our Hillsdale U.K. Automotive operation for cash of $1.1 million. In addition, we will be winding down the remaining operationssubstantially all of our Hillsdale U.K. Automotive operationdomestic United States subsidiaries, a certain portion of the capital stock of our foreign subsidiaries, and expectsubstantially all other assets of our United States subsidiaries. Additionally, the New Credit Agreement is guaranteed by us and certain of our United States subsidiaries.
The New Credit Agreement contains covenants that restrict our ability to declare dividends or redeem capital stock, incur $1.5 millionadditional debt or liens, alter existing debt agreements, make loans or investments, form or invest in joint ventures, undergo a change in control or engage in mergers, acquisitions or asset sales. These covenants also limit the annual amount of capital expenditures and require us to $2.0 millionmeet certain minimum financial ratios. For purposes of shutdown costs duringdetermining outstanding debt under our New Credit Agreement, we include the outstanding obligations of EPFC, our off-balance sheet special purpose entity (see Note I, for a detailed discussion of EPFC). We are in compliance with all covenants at August 31, 2003.
In addition to regularly scheduled payments on the shutdown costs,New Credit Agreement, we believe we will realize a lossare required to make mandatory prepayments equal to 50.0% of approximately $2.0 million to $3.0 million duringannual excess cash flow, as defined in the second quarter of 2003 related to this sale. We also believe we will realizeNew Credit Agreement, beginning with our fiscal year ending November 30, 2004. The net cash proceeds from the sale of this operationassets (subject to certain conditions), the net proceeds of $1.5 million to $2.0 million (including the $1.1 million above related to the salecertain new debt issuance, and 50.0% of the operation) duringnet proceeds of any equity securities issuance are also subject to mandatory prepayments on the New Credit Agreement.
Former Credit Agreement
We had a syndicated senior secured loan facility (“Former Credit Agreement”) which provided for an original term loan (“Former Term Loan”) of $75.0 million, as amended, and a $220.0 million revolving credit facility (“Former Facility”). We paid off the Former Credit Agreement with the proceeds from our New Credit Agreement and Senior Unsecured Notes in August 2003. We will account for this sale as a Discontinued Operation when we fileThe Former Facility and the Former Term Loan bore interest, at our second quarter of 2003 Form 10-Q. Duringoption, at LIBOR plus 275 basis points, or the year ended November 30, 2002, our Hillsdale U.K. Automotive operation had $13.9 million in revenues,bank’s prime rate plus 150 basis points. Interest was generally payable quarterly on the Former Facility and as of November 30, 2002, had $11.5 million in total assets, which were comprised of primarily inventory, accounts receivable, and property, plant and equipment. During the three months ended February 28, 2003, the Hillsdale U.K. Automotive operation had $3.4 million in revenues.Former Term Loan. The Former Credit Agreement also contained certain fees.
J.SUBSIDIARY GUARANTORS AND NON-GUARANTORSSenior Unsecured Notes
In August 2003, we issued $250.0 million 9.75% Senior Unsecured Notes, due 2013, at a price of 99.2% of par to yield 9.875%. Accordingly, the net proceeds before issuance costs were $248.0 million. The discount is being amortized over the life of the Senior Unsecured Notes. The Senior Unsecured Notes require semi-annual interest payments on September 1 and March 1, beginning on March 1, 2004. The Senior Unsecured Notes are redeemable at our option, in whole or in part, any time after September 1, 2008 at set redemption prices. We are required to offer to purchase the Senior Unsecured Notes at a set redemption price should there be a change in control. The Senior Unsecured Notes contain covenants which restrict or limit our ability to declare or pay dividends, incur additional debt or liens, issue stock, engage in affiliate transactions, undergo a change in control or sell assets. We are in compliance with these covenants at August 31, 2003. The Senior Unsecured Notes are guaranteed by us and certain of our subsidiaries (see “Subsidiary Guarantors and Non-Guarantors” below).
Senior Subordinated Notes
Our Credit AgreementSenior Subordinated Notes require semi-annual interest payments on September 1 and March 1. In connection with the issuance of the Senior Unsecured Notes in August 2003, as described above, we repurchased 95% of the outstanding senior subordinated notes at par and executed a supplemental indenture on our Senior Subordinated Notes which eliminated substantially all of the restrictive covenants in the Senior Subordinated Notes which remain outstanding. We continue to be required to make interest payments on the Senior Subordinated Notes and will be required to pay the remaining aggregate principal amount outstanding at maturity in 2008.
17
Industrial Revenue Bonds
Our industrial revenue bonds require monthly interest payments at variable interest rates based on the market for similar issues and are secured by letters of credit issued under the New Facility described above.
Subsidiary Guarantors and Non-Guarantors
Our Senior Unsecured Notes and Senior Subordinated Notes were issued by our wholly owned subsidiary, EaglePicher Incorporated (“EPI”), and are guaranteed on a full, unconditional, and joint and several basis by us and certain of our wholly-owned domesticUnited States subsidiaries (“Subsidiary Guarantors”). We have determined that full financial statements and other disclosures concerning EPI or the Subsidiary Guarantors would not be material to investors, and such financial statements are not presented. EPI and the Subsidiary Guarantors areis subject to restrictions on the payment of dividends under the terms of both the New Credit Agreement and the Senior SubordinatedUnsecured Notes. The following supplemental condensed combining financial statements present information regarding EPI, as the Issuer, the Subsidiary Guarantors and Non-Guarantor Subsidiaries. We only accrue interest income and expense on intercompany loans once a year in our fourth fiscal quarter.
12 As part of executing the supplemental indenture to the Senior Subordinated Notes, as described above, we removed all reporting obligations to those note holders. Accordingly, effective with the issuance of our August 31, 2003 financial statements, we have only included supplemental guarantor and non-guarantor financial statements for Subsidiary Guarantors of the Senior Unsecured Notes. Therefore, the enclosed supplemental condensed combining financial statements may not be comparable from one period to the next. There are only minor differences between the presentation of these two sets of guarantor and non-guarantor financial statements.
18
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF NOVEMBER 30, 2002
(in thousands of dollars)
Guarantors | ||||||||||||||||||||||||
Non-Guarantors | ||||||||||||||||||||||||
EaglePicher | Subsidiary | Foreign | ||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 27,694 | $ | 1 | $ | (4,895 | ) | $ | 7,902 | $ | 820 | $ | 31,522 | |||||||||||
Receivables and retained interest, net | 2,535 | — | 31,472 | 19,097 | — | 53,104 | ||||||||||||||||||
Costs and estimated earnings in excess of billings | — | — | 16,942 | — | — | 16,942 | ||||||||||||||||||
Intercompany accounts receivable | 1,997 | — | 6,228 | 2,037 | (10,262 | ) | — | |||||||||||||||||
Inventories | 3,957 | — | 39,394 | 13,283 | (1,916 | ) | 54,718 | |||||||||||||||||
Net assets of operations to be sold | 643 | — | — | — | — | 643 | ||||||||||||||||||
Prepaid expenses | 7,840 | — | 4,755 | 4,686 | (1,614 | ) | 15,667 | |||||||||||||||||
Deferred income taxes | 10,798 | — | — | — | — | 10,798 | ||||||||||||||||||
55,464 | 1 | 93,896 | 47,005 | (12,972 | ) | 183,394 | ||||||||||||||||||
Property, Plant and Equipment, net | 24,016 | — | 129,052 | 30,337 | — | 183,405 | ||||||||||||||||||
Investment in Subsidiaries | 239,864 | 58,509 | 18,286 | — | (316,659 | ) | — | |||||||||||||||||
Goodwill, net | 37,339 | — | 116,586 | 13,154 | (3,139 | ) | 163,940 | |||||||||||||||||
Prepaid Pension | 54,796 | — | — | — | — | 54,796 | ||||||||||||||||||
Other Assets | 14,296 | (8,091 | ) | 21,744 | 11,070 | (11,513 | ) | 27,506 | ||||||||||||||||
$ | 425,775 | $ | 50,419 | $ | 379,564 | $ | 101,566 | $ | (344,283 | ) | $ | 613,041 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY(DEFICIT) | ||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 15,398 | $ | — | $ | 53,151 | $ | 15,686 | $ | 820 | $ | 85,055 | ||||||||||||
Intercompany accounts payable | 3,171 | — | 5,887 | 1,184 | (10,242 | ) | — | |||||||||||||||||
Long-term debt-current portion | 18,625 | — | — | — | — | 18,625 | ||||||||||||||||||
Other accrued liabilities | 46,313 | �� | 25,128 | 5,862 | — | 77,303 | ||||||||||||||||||
83,507 | — | 84,166 | 22,732 | (9,422 | ) | 180,983 | ||||||||||||||||||
Long-term Debt, less current portion | 355,100 | — | — | 11,491 | (11,491 | ) | 355,100 | |||||||||||||||||
Postretirement Benefits Other Than Pensions | 17,635 | — | — | — | — | 17,635 | ||||||||||||||||||
Deferred Income Taxes | — | — | — | — | — | — | ||||||||||||||||||
Other Long-term Liabilities | 8,687 | — | — | 216 | 25 | 8,928 | ||||||||||||||||||
464,929 | — | 84,166 | 34,439 | (20,888 | ) | 562,646 | ||||||||||||||||||
Intercompany Accounts | (282,707 | ) | 24 | 269,573 | 23,930 | (10,820 | ) | — | ||||||||||||||||
Preferred Stock | — | 137,973 | — | — | — | 137,973 | ||||||||||||||||||
Shareholders’ Equity(Deficit) | 243,553 | (87,578 | ) | 25,825 | 43,197 | (312,575 | ) | (87,578 | ) | |||||||||||||||
$ | 425,775 | $ | 50,419 | $ | 379,564 | $ | 101,566 | $ | (344,283 | ) | $ | 613,041 | ||||||||||||
Guarantors | |||||||||||||||||||||||||
EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | ||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||
Current Assets: | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 27,694 | $ | 1 | $ | (4,895 | ) | $ | 7,902 | $ | 820 | $ | 31,522 | ||||||||||||
Receivables and retained interest, net | 2,535 | — | 29,978 | 16,866 | — | 49,379 | |||||||||||||||||||
Costs and estimated earnings in excess of billings | — | — | 16,942 | — | — | 16,942 | |||||||||||||||||||
Intercompany accounts receivable | 1,997 | — | 6,228 | 2,037 | (10,262 | ) | — | ||||||||||||||||||
Inventories | 3,957 | — | 34,480 | 12,683 | (1,916 | ) | 49,204 | ||||||||||||||||||
Assets of discontinued operations | 643 | — | 18,925 | 9,331 | — | 28,899 | |||||||||||||||||||
Prepaid expenses and other assets | 7,840 | — | 4,681 | 4,456 | (1,614 | ) | 15,363 | ||||||||||||||||||
Deferred income taxes | 10,798 | — | — | — | — | 10,798 | |||||||||||||||||||
55,464 | 1 | 106,339 | 53,275 | (12,972 | ) | 202,107 | |||||||||||||||||||
Property, Plant and Equipment, net | 24,016 | — | 125,575 | 24,067 | — | 173,658 | |||||||||||||||||||
Investment in Subsidiaries | 239,864 | 58,509 | 18,286 | — | (316,659 | ) | — | ||||||||||||||||||
Goodwill | 37,339 | — | 112,286 | 13,154 | (3,139 | ) | 159,640 | ||||||||||||||||||
Prepaid Pension | 54,796 | — | — | — | — | 54,796 | |||||||||||||||||||
Other Assets, net | 14,296 | (8,091 | ) | 17,078 | 11,070 | (11,513 | ) | 22,840 | |||||||||||||||||
$ | 425,775 | $ | 50,419 | $ | 379,564 | $ | 101,566 | $ | (344,283 | ) | $ | 613,041 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | |||||||||||||||||||||||||
Current Liabilities: | |||||||||||||||||||||||||
Accounts payable | $ | 15,398 | $ | — | $ | 52,708 | $ | 14,252 | $ | 820 | $ | 83,178 | |||||||||||||
Intercompany accounts payable | 3,171 | — | 5,887 | 1,184 | (10,242 | ) | — | ||||||||||||||||||
Current portion of long-term debt | 18,625 | — | — | — | — | 18,625 | |||||||||||||||||||
Liabilities of discontinued operations | — | — | 888 | 3,417 | — | 4,305 | |||||||||||||||||||
Other accrued liabilities | 46,313 | — | 24,683 | 3,879 | — | 74,875 | |||||||||||||||||||
83,507 | — | 84,166 | 22,732 | (9,422 | ) | 180,983 | |||||||||||||||||||
Long-term Debt, net of current portion | 355,100 | — | — | 11,491 | (11,491 | ) | 355,100 | ||||||||||||||||||
Postretirement Benefits Other Than Pensions | 17,635 | — | — | — | — | 17,635 | |||||||||||||||||||
Other Long-term Liabilities | 8,687 | — | — | 216 | 25 | 8,928 | |||||||||||||||||||
464,929 | — | 84,166 | 34,439 | (20,888 | ) | 562,646 | |||||||||||||||||||
Intercompany Accounts | (282,707 | ) | 24 | 267,578 | 25,925 | (10,820 | ) | — | |||||||||||||||||
Preferred Stock | — | 137,973 | — | — | — | 137,973 | |||||||||||||||||||
Shareholders’ Equity (Deficit) | 243,553 | (87,578 | ) | 27,820 | 41,202 | (312,575 | ) | (87,578 | ) | ||||||||||||||||
$ | 425,775 | $ | 50,419 | $ | 379,564 | $ | 101,566 | $ | (344,283 | ) | $ | 613,041 | |||||||||||||
1319
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING BALANCE SHEETS
AS OF FEBRUARY 28,AUGUST 31, 2003
(in thousands of dollars)
Guarantors | ||||||||||||||||||||||||
Non-Guarantors | ||||||||||||||||||||||||
EaglePicher | Subsidiary | Foreign | ||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | |||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 19,714 | $ | 1 | $ | 2,178 | $ | 10,397 | $ | — | $ | 32,290 | ||||||||||||
Receivables and retained interest, net | 2,427 | — | 30,187 | 21,168 | — | 53,782 | ||||||||||||||||||
Costs and estimated earnings in excess of billings | — | — | 17,485 | 2,657 | — | 20,142 | ||||||||||||||||||
Intercompany accounts receivable | 2,783 | — | 5,863 | 132 | (8,778 | ) | — | |||||||||||||||||
Inventories | 4,353 | — | 39,219 | 12,917 | (2,042 | ) | 54,447 | |||||||||||||||||
Net assets of operations to be sold | 494 | — | — | — | — | 494 | ||||||||||||||||||
Prepaid expenses | 9,163 | — | 5,813 | 3,885 | — | 18,861 | ||||||||||||||||||
Deferred income taxes | 10,798 | — | — | — | — | 10,798 | ||||||||||||||||||
49,732 | 1 | 100,745 | 51,156 | (10,820 | ) | 190,814 | ||||||||||||||||||
Property, Plant and Equipment, net | 23,761 | — | 121,671 | 31,092 | — | 176,524 | ||||||||||||||||||
Investment in Subsidiaries | 237,685 | 61,229 | 17,467 | 1 | (316,382 | ) | — | |||||||||||||||||
Goodwill, net | 37,339 | — | 116,586 | 13,154 | (3,139 | ) | 163,940 | |||||||||||||||||
Prepaid Pension | 54,613 | — | — | — | — | 54,613 | ||||||||||||||||||
Other Assets | 22,517 | (8,091 | ) | 22,868 | 13,082 | (24,599 | ) | 25,777 | ||||||||||||||||
$ | 425,647 | $ | 53,139 | $ | 379,337 | $ | 108,485 | $ | (354,940 | ) | $ | 611,668 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Accounts payable | $ | 13,310 | $ | — | $ | 52,473 | $ | 9,204 | $ | — | $ | 74,987 | ||||||||||||
Intercompany accounts payable | — | — | 124 | 8,453 | (8,577 | ) | — | |||||||||||||||||
Long-term debt - current portion | 150,393 | — | — | — | — | 150,393 | ||||||||||||||||||
Other accrued liabilities | 44,136 | — | 21,920 | 6,530 | — | 72,586 | ||||||||||||||||||
207,839 | — | 74,517 | 24,187 | (8,577 | ) | 297,966 | ||||||||||||||||||
Long-term Debt, less current portion | 233,600 | — | — | 12,941 | (12,941 | ) | 233,600 | |||||||||||||||||
Postretirement Benefits Other Than Pensions | 17,476 | — | — | — | — | 17,476 | ||||||||||||||||||
Other Long-term Liabilities | 7,861 | — | 131 | 1,514 | — | 9,506 | ||||||||||||||||||
466,776 | — | 74,648 | 38,642 | (21,518 | ) | 558,548 | ||||||||||||||||||
Intercompany Accounts | (286,286 | ) | 19 | 281,711 | 25,902 | (21,346 | ) | — | ||||||||||||||||
Preferred Stock | — | 141,910 | — | — | — | 141,910 | ||||||||||||||||||
Shareholders’ Equity (Deficit) | 245,157 | (88,790 | ) | 22,978 | 43,941 | (312,076 | ) | (88,790 | ) | |||||||||||||||
$ | 425,647 | $ | 53,139 | $ | 379,337 | $ | 108,485 | $ | (354,940 | ) | $ | 611,668 | ||||||||||||
Guarantors | |||||||||||||||||||||||||
EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | ||||||||||||||||||||
ASSETS | |||||||||||||||||||||||||
Current Assets: | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 10,836 | $ | 1 | $ | 487 | $ | 12,657 | $ | — | $ | 23,981 | |||||||||||||
Receivables and retained interest, net | 5,421 | — | 64,987 | 22,115 | — | 92,523 | |||||||||||||||||||
Insurance claim receivable | — | — | 5,198 | — | — | 5,198 | |||||||||||||||||||
Costs and estimated earnings in excess of billings | — | — | 20,206 | 5,780 | — | 25,986 | |||||||||||||||||||
Intercompany accounts receivable | 1,859 | — | 7,141 | 634 | (9,634 | ) | — | ||||||||||||||||||
Inventories | 5,298 | — | 39,095 | 11,949 | (2,188 | ) | 54,154 | ||||||||||||||||||
Assets of discontinued operations | 182 | — | 4,080 | 4,915 | — | 9,177 | |||||||||||||||||||
Prepaid expenses and other assets | 1,169 | — | 4,891 | 3,606 | — | 9,666 | |||||||||||||||||||
Deferred income taxes | 10,798 | — | — | — | — | 10,798 | |||||||||||||||||||
35,563 | 1 | 146,085 | 61,656 | (11,822 | ) | 231,483 | |||||||||||||||||||
Property, Plant and Equipment, net | 22,288 | — | 107,033 | 25,095 | — | 154,416 | |||||||||||||||||||
Investment in Subsidiaries | 273,910 | 63,191 | 23,246 | (134 | ) | (360,213 | ) | — | |||||||||||||||||
Goodwill | 37,339 | — | 112,286 | 13,154 | (3,139 | ) | 159,640 | ||||||||||||||||||
Prepaid Pension | 55,609 | — | — | — | — | 55,609 | |||||||||||||||||||
Other Assets, net | 11,219 | 2,620 | 22,097 | 34,376 | (43,703 | ) | 26,609 | ||||||||||||||||||
$ | 435,928 | $ | 65,812 | $ | 410,747 | $ | 134,147 | $ | (418,877 | ) | $ | 627,757 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | |||||||||||||||||||||||||
Current Liabilities: | |||||||||||||||||||||||||
Accounts payable | $ | 11,967 | $ | — | $ | 39,550 | $ | 9,006 | $ | — | $ | 60,523 | |||||||||||||
Intercompany accounts payable | — | — | 626 | 9,011 | (9,637 | ) | — | ||||||||||||||||||
Current portion of long-term debt | 3,200 | — | — | — | — | 3,200 | |||||||||||||||||||
Liabilities of discontinued operations | — | — | — | — | — | ||||||||||||||||||||
Other accrued liabilities | 26,265 | — | 18,062 | 8,813 | — | 53,140 | |||||||||||||||||||
41,432 | — | 58,238 | 26,830 | (9,637 | ) | 116,863 | |||||||||||||||||||
Long-term Debt, net of current portion | 434,522 | — | 785 | 12,938 | (26,463 | ) | 421,782 | ||||||||||||||||||
Postretirement Benefits Other Than Pensions | 17,402 | — | — | — | 17,402 | ||||||||||||||||||||
Other Long-term Liabilities | 9,220 | — | — | 1,432 | — | 10,652 | |||||||||||||||||||
502,576 | — | 59,023 | 41,200 | (36,100 | ) | 566,699 | |||||||||||||||||||
Intercompany Accounts | (318,653 | ) | 10,789 | 287,913 | 46,599 | (26,648 | ) | — | |||||||||||||||||
Preferred Stock | — | 150,247 | — | — | — | 150,247 | |||||||||||||||||||
Shareholders’ Equity (Deficit) | 252,005 | (95,224 | ) | 63,811 | 46,348 | (356,129 | ) | (89,189 | ) | ||||||||||||||||
$ | 435,928 | $ | 65,812 | $ | 410,747 | $ | 134,147 | $ | (418,877 | ) | $ | 627,757 | |||||||||||||
1420
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED FEBRUARY 28,AUGUST 31, 2002
(in thousands of dollars)
Guarantors | Guarantors | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-Guarantors | ||||||||||||||||||||||||||||||||||||||||||||||||||
EaglePicher | Subsidiary | Foreign | EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||
Net Sales: | Net Sales: | Net Sales: | ||||||||||||||||||||||||||||||||||||||||||||||||
Customers | $ | 11,635 | $ | — | $ | 130,645 | $ | 20,949 | $ | — | $ | 163,229 | Customers | $ | 13,492 | $ | — | $ | 133,079 | $ | 20,781 | $ | — | $ | 167,352 | |||||||||||||||||||||||||
Intercompany | 3,623 | — | 2,826 | 2 | (6,451 | ) | — | Intercompany | 4,914 | — | 4,108 | — | (9,022 | ) | — | |||||||||||||||||||||||||||||||||||
15,258 | — | 133,471 | 20,951 | (6,451 | ) | 163,229 | 18,406 | — | 137,187 | 20,781 | (9,022 | ) | 167,352 | |||||||||||||||||||||||||||||||||||||
Operating Costs and Expenses: | Operating Costs and Expenses: | Operating Costs and Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Cost of products sold (exclusive of depreciation) | 8,512 | — | 110,775 | 16,936 | (6,451 | ) | 129,772 | Cost of products sold (exclusive of depreciation) | 10,907 | — | 111,535 | 16,681 | (9,022 | ) | 130,101 | |||||||||||||||||||||||||||||||||||
Selling and administrative | 6,295 | — | 5,317 | 1,917 | (47 | ) | 13,482 | Selling and administrative | 5,976 | — | 6,595 | 1,575 | 100 | 14,246 | ||||||||||||||||||||||||||||||||||||
Intercompany charges | (2,650 | ) | — | 2,466 | 137 | 47 | — | Intercompany charges | (3,064 | ) | — | 2,660 | 504 | (100 | ) | — | ||||||||||||||||||||||||||||||||||
Depreciation and amortization | 1,147 | — | 9,125 | 766 | — | 11,038 | Depreciation and amortization | 1,593 | — | 9,195 | 1,042 | — | 11,830 | |||||||||||||||||||||||||||||||||||||
Goodwill amortization | 934 | — | 2,775 | 247 | — | 3,956 | Goodwill amortization | 934 | — | 2,665 | 247 | — | 3,846 | |||||||||||||||||||||||||||||||||||||
Divestitures | 125 | — | — | — | — | 125 | Other | 161 | — | — | — | — | 161 | |||||||||||||||||||||||||||||||||||||
14,363 | — | 130,458 | 20,003 | (6,451 | ) | 158,373 | 16,507 | — | 132,650 | 20,049 | (9,022 | ) | 160,184 | |||||||||||||||||||||||||||||||||||||
Operating Income (Loss) | Operating Income (Loss) | 895 | — | 3,013 | 948 | — | 4,856 | Operating Income (Loss) | 1,899 | — | 4,537 | 732 | — | 7,168 | ||||||||||||||||||||||||||||||||||||
Other Income (Expense): | Other Income (Expense): | Other Income (Expense): | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest (expense) income | (2,931 | ) | — | (7,522 | ) | (1,273 | ) | 645 | (11,081 | ) | Interest (expense) income | (8,610 | ) | — | — | — | — | (8,610 | ) | |||||||||||||||||||||||||||||||
Other income (expense), net | 478 | — | 404 | 166 | (645 | ) | 403 | Other income (expense), net | 701 | — | (176 | ) | 307 | (419 | ) | 413 | ||||||||||||||||||||||||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | (4,070 | ) | (6,207 | ) | 579 | — | 9,698 | — | Equity in earnings (losses) of consolidated subsidiaries | 701 | (3,571 | ) | 436 | — | 2,434 | — | ||||||||||||||||||||||||||||||||||
Income (Loss) Before Taxes | (5,628 | ) | (6,207 | ) | (3,526 | ) | (159 | ) | 9,698 | (5,822 | ) | |||||||||||||||||||||||||||||||||||||||
Income (Loss) from Continuing Operations Before Taxes | Income (Loss) from Continuing Operations Before Taxes | (5,309 | ) | (3,571 | ) | 4,797 | 1,039 | 2,015 | (1,029 | ) | ||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes | — | — | 12 | 373 | — | 385 | Income Taxes | — | — | — | 750 | — | 750 | ||||||||||||||||||||||||||||||||||||
Income (Loss) from Continuing Operations | Income (Loss) from Continuing Operations | (5,309 | ) | (3,571 | ) | 4,797 | 289 | 2,015 | (1,779 | ) | ||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | Discontinued Operations | — | — | (890 | ) | (902 | ) | — | (1,792 | ) | ||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) | Net Income (Loss) | $ | (5,628 | ) | $ | (6,207 | ) | $ | (3,538 | ) | $ | (532 | ) | $ | 9,698 | $ | (6,207 | ) | Net Income (Loss) | $ | (5,309 | ) | $ | (3,571 | ) | $ | 3,907 | $ | (613 | ) | $ | 2,015 | $ | (3,571 | ) | |||||||||||||||
1521
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED FEBRUARY 28,AUGUST 31, 2003
(in thousands of dollars)
Guarantors | Guarantors | ||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Guarantors | |||||||||||||||||||||||||||||||||||||||||||||||||||
EaglePicher | Subsidiary | Foreign | EaglePicher | Subsidiary | Non-Guarantors | ||||||||||||||||||||||||||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | ||||||||||||||||||||||||||||||||||||||||
Net Sales: | Net Sales: | Net Sales: | |||||||||||||||||||||||||||||||||||||||||||||||||
Customers | $ | 12,714 | $ | — | $ | 128,647 | $ | 28,949 | $ | — | $ | 170,310 | Customers | $ | 13,680 | $ | — | $ | 120,681 | $ | 31,483 | $ | — | $ | 165,844 | ||||||||||||||||||||||||||
Intercompany | 4,516 | — | 4,450 | 314 | (9,280 | ) | — | Intercompany | 4,495 | — | 4,242 | 754 | (9,491 | ) | — | ||||||||||||||||||||||||||||||||||||
17,230 | — | 133,097 | 29,263 | (9,280 | ) | 170,310 | 18,175 | — | 124,923 | 32,237 | (9,491 | ) | 165,844 | ||||||||||||||||||||||||||||||||||||||
Operating Costs and Expenses: | Operating Costs and Expenses: | Operating Costs and Expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||
Cost of products sold (exclusive of depreciation) | 11,085 | — | 107,192 | 24,114 | (9,279 | ) | 133,112 | Cost of products sold (exclusive of depreciation) | 11,139 | — | 99,968 | 25,867 | (9,973 | ) | 127,001 | ||||||||||||||||||||||||||||||||||||
Selling and administrative | 6,399 | 1 | 6,144 | 2,007 | — | 14,551 | Selling and administrative | 4,829 | 1 | 9,141 | 1,644 | — | 15,615 | ||||||||||||||||||||||||||||||||||||||
Intercompany charges | (1,656 | ) | — | 1,615 | 41 | — | — | Intercompany charges | (1,516 | ) | — | 1,463 | 53 | — | — | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 947 | — | 9,260 | 1,400 | — | 11,607 | Insurance related losses (gains) | — | — | (2,774 | ) | — | — | (2,774 | ) | ||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 617 | — | 10,730 | 1,421 | — | 12,768 | |||||||||||||||||||||||||||||||||||||||||||||
16,775 | 1 | 124,211 | 27,562 | (9,279 | ) | 159,270 | |||||||||||||||||||||||||||||||||||||||||||||
15,069 | 1 | 118,528 | 28,985 | (9,973 | ) | 152,610 | |||||||||||||||||||||||||||||||||||||||||||||
Operating Income (Loss) | Operating Income (Loss) | 455 | (1 | ) | 8,886 | 1,701 | (1 | ) | 11,040 | Operating Income (Loss) | 3,106 | (1 | ) | 6,395 | 3,252 | 482 | 13,234 | ||||||||||||||||||||||||||||||||||
Other Income (Expense): | Other Income (Expense): | Other Income (Expense): | |||||||||||||||||||||||||||||||||||||||||||||||||
Interest (expense) income | 3,273 | — | (12,653 | ) | (29 | ) | — | (9,409 | ) | Interest (expense) income | (9,199 | ) | (50 | ) | — | — | — | (9,249 | ) | ||||||||||||||||||||||||||||||||
Other income (expense), net | 55 | — | 420 | (42 | ) | — | 433 | Other income (expense), net | (881 | ) | — | 116 | 165 | — | (600 | ) | |||||||||||||||||||||||||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | (2,179 | ) | 1,169 | 510 | — | 500 | — | Write-off of deferred financing fees | (6,327 | ) | — | — | — | — | (6,327 | ) | |||||||||||||||||||||||||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | 32,575 | (4,175 | ) | 3,787 | (134 | ) | (32,053 | ) | — | ||||||||||||||||||||||||||||||||||||||||||
Income (Loss) Before Taxes | 1,604 | 1,168 | (2,837 | ) | 1,630 | 499 | 2,064 | ||||||||||||||||||||||||||||||||||||||||||||
Income (Loss) from Continuing Operations Before Taxes | Income (Loss) from Continuing Operations Before Taxes | 19,274 | (4,226 | ) | 10,298 | 3,283 | (31,571 | ) | (2,942 | ) | |||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes | — | — | 10 | 886 | — | 896 | Income Taxes | (191 | ) | — | — | (613 | ) | — | (804 | ) | ||||||||||||||||||||||||||||||||||
Income (Loss) From Continuing Operations | Income (Loss) From Continuing Operations | 19,083 | (4,226 | ) | 10,298 | 2,670 | (31,571 | ) | (3,746 | ) | |||||||||||||||||||||||||||||||||||||||||
Discontinued Operations | Discontinued Operations | — | — | 271 | (751 | ) | — | (480 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) | Net Income (Loss) | $ | 1,604 | $ | 1,168 | $ | (2,847 | ) | $ | 744 | $ | 499 | $ | 1,168 | Net Income (Loss) | $ | 19,083 | $ | (4,226 | ) | $ | 10,569 | $ | 1,919 | $ | (31,571 | ) | $ | (4,226 | ) | |||||||||||||||||||||
1622
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED AUGUST 31, 2002
(in thousands of dollars)
Guarantors | |||||||||||||||||||||||||
EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | ||||||||||||||||||||
Net Sales: | |||||||||||||||||||||||||
Customers | $ | 38,192 | $ | — | $ | 405,115 | $ | 56,435 | $ | — | $ | 499,742 | |||||||||||||
Intercompany | 12,524 | — | 10,465 | 4 | (22,993 | ) | — | ||||||||||||||||||
50,716 | — | 415,580 | 56,439 | (22,993 | ) | 499,742 | |||||||||||||||||||
Operating Costs and Expenses: | |||||||||||||||||||||||||
Cost of products sold (exclusive of depreciation) | 29,559 | — | 338,697 | 45,067 | (22,993 | ) | 390,330 | ||||||||||||||||||
Selling and administrative | 20,609 | 2 | 25,053 | 4,760 | — | 50,424 | |||||||||||||||||||
Intercompany charges | (8,924 | ) | — | 7,642 | 1,282 | — | — | ||||||||||||||||||
Depreciation and amortization | 3,505 | — | 28,518 | 2,298 | — | 34,321 | |||||||||||||||||||
Goodwill amortization | 2,802 | — | 7,995 | 741 | — | 11,538 | |||||||||||||||||||
Other | 4,807 | — | 7,422 | — | — | 12,229 | |||||||||||||||||||
52,358 | 2 | 415,327 | 54,148 | (22,993 | ) | 498,842 | |||||||||||||||||||
Operating Income (Loss) | (1,642 | ) | (2 | ) | 253 | 2,291 | — | 900 | |||||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest (expense) income | (28,596 | ) | — | — | — | — | (28,596 | ) | |||||||||||||||||
Other income (expense), net | 1,462 | — | 628 | 618 | (1,377 | ) | 1,331 | ||||||||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | (28,553 | ) | (31,744 | ) | 1,604 | — | 58,693 | — | |||||||||||||||||
Income (Loss) from Continuing Operations Before Taxes | (57,329 | ) | (31,746 | ) | 2,485 | 2,909 | 57,316 | (26,365 | ) | ||||||||||||||||
Income Taxes | — | — | (12 | ) | (1,943 | ) | — | (1,955 | ) | ||||||||||||||||
Income (Loss) from Continuing Operations | (57,329 | ) | (31,746 | ) | 2,473 | 966 | 57,316 | (28,320 | ) | ||||||||||||||||
Discontinued Operations | — | — | (2,052 | ) | (1,374 | ) | — | (3,426 | ) | ||||||||||||||||
Net Income (Loss) | $ | (57,329 | ) | $ | (31,746 | ) | $ | 421 | $ | (408 | ) | $ | 57,316 | $ | (31,746 | ) | |||||||||
23
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED AUGUST 31, 2003
(in thousands of dollars)
Guarantors | |||||||||||||||||||||||||
EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | ||||||||||||||||||||
Net Sales: | |||||||||||||||||||||||||
Customers | $ | 40,606 | $ | — | $ | 379,494 | $ | 84,830 | $ | — | $ | 504,930 | |||||||||||||
Intercompany | 15,351 | — | 12,656 | 2,095 | (30,102 | ) | — | ||||||||||||||||||
55,957 | — | 392,150 | 86,925 | (30,102 | ) | 504,930 | |||||||||||||||||||
Operating Costs and Expenses: | |||||||||||||||||||||||||
Cost of products sold (exclusive of depreciation) | 34,788 | — | 312,236 | 70,683 | (30,102 | ) | 387,605 | ||||||||||||||||||
Selling and administrative | 17,989 | 4 | 22,828 | 5,015 | — | 45,836 | |||||||||||||||||||
Intercompany charges | (4,969 | ) | — | 4,796 | 173 | — | — | ||||||||||||||||||
Insurance related gains | 724 | — | (9,234 | ) | — | — | (8,510 | ) | |||||||||||||||||
Depreciation and amortization | 2,094 | 28,748 | 3,956 | — | 34,798 | ||||||||||||||||||||
50,626 | 4 | 359,374 | 79,827 | (30,102 | ) | 459,729 | |||||||||||||||||||
Operating Income (Loss) | 5,331 | (4 | ) | 32,776 | 7,098 | — | 45,201 | ||||||||||||||||||
Other Income (Expense): | |||||||||||||||||||||||||
Interest (expense) income | (25,891 | ) | (50 | ) | — | — | — | (25,941 | ) | ||||||||||||||||
Other income (expense), net | (1,619 | ) | — | 1,064 | 28 | — | (527 | ) | |||||||||||||||||
Write-off of Deferred Financing Fees | (6,327 | ) | — | — | — | — | (6,327 | ) | |||||||||||||||||
Equity in earnings (losses) of consolidated subsidiaries | 34,046 | 4,682 | 4,960 | (134 | ) | (43,554 | ) | — | |||||||||||||||||
Income (Loss) from Continuing Operations Before Taxes | 5,540 | 4,628 | 38,800 | 6,992 | (43,554 | ) | 12,406 | ||||||||||||||||||
Income Taxes | (399 | ) | — | (46 | ) | (2,405 | ) | — | (2,850 | ) | |||||||||||||||
Income (Loss) From Continuing Operations | 5,141 | 4,628 | 38,754 | 4,587 | (43,554 | ) | 9,556 | ||||||||||||||||||
Discontinued Operations | — | — | (768 | ) | (4,160 | ) | — | (4,928 | ) | ||||||||||||||||
Net Income (Loss) | $ | 5,141 | $ | 4,628 | $ | 37,986 | $ | 427 | $ | (43,554 | ) | $ | 4,628 | ||||||||||||
24
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWSTHREENINE MONTHS ENDED FEBRUARY 28,AUGUST 31, 2002
(in thousands of dollars)
Guarantors | Guarantors | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-Guarantors | ||||||||||||||||||||||||||||||||||||||||||||||||||
EaglePicher | Subsidiary | Foreign | EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | (5,628 | ) | $ | (6,207 | ) | $ | (3,538 | ) | $ | (532 | ) | $ | 9,698 | $ | (6,207 | ) | Net income (loss) | $ | (57,329 | ) | $ | (31,746 | ) | $ | 421 | $ | (408 | ) | $ | 57,316 | $ | (31,746 | ) | |||||||||||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity in (earnings) loss of consolidated subsidiaries | 4,070 | 6,207 | (579 | ) | — | (9,698 | ) | — | Equity in (earnings) loss of consolidated subsidiaries | 28,553 | 31,744 | (1,604 | ) | — | (58,693 | ) | — | |||||||||||||||||||||||||||||||||
Depreciation and amortization | 2,891 | — | 11,745 | 1,013 | — | 15,649 | Depreciation and amortization | 8,660 | — | 36,075 | 3,123 | — | 47,858 | |||||||||||||||||||||||||||||||||||||
Loss from Divestitures | 125 | — | — | — | — | 125 | Loss from divestitures | 3,325 | — | 2,806 | — | — | 6,131 | |||||||||||||||||||||||||||||||||||||
Changes in assets and liabilities, net of effect of non-cash items | 36,959 | 312 | 59,229 | (2,990 | ) | (52,796 | ) | 40,714 | Deferred income taxes | 811 | — | — | — | — | 811 | |||||||||||||||||||||||||||||||||||
Insurance related loss | — | — | 3,100 | — | — | 3,100 | ||||||||||||||||||||||||||||||||||||||||||||
38,417 | 312 | 66,857 | (2,509 | ) | (52,796 | ) | 50,281 | Changes in assets and liabilities, net of effect of non-cash items | 23,119 | 161 | 53,261 | (8,463 | ) | (47,834 | ) | 20,244 | ||||||||||||||||||||||||||||||||||
7,139 | 159 | 94,059 | (5,748 | ) | (49,211 | ) | 46,398 | |||||||||||||||||||||||||||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from sales of divisions | 6,300 | — | — | — | — | 6,300 | ||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | Capital expenditures | (232 | ) | — | (4,608 | ) | (266 | ) | — | (5,106 | ) | Capital expenditures | (894 | ) | — | (9,988 | ) | (941 | ) | — | (11,823 | ) | ||||||||||||||||||||||||||||
Other | Other | 5 | — | 1,401 | (1,284 | ) | — | 122 | Other | 639 | — | — | — | — | 639 | |||||||||||||||||||||||||||||||||||
6,073 | — | (3,207 | ) | (1,550 | ) | — | 1,316 | (255 | ) | — | (9,988 | ) | (941 | ) | — | (11,184 | ) | |||||||||||||||||||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Reduction of long-term debt | Reduction of long-term debt | (12,800 | ) | — | (42,452 | ) | — | 42,452 | (12,800 | ) | Reduction of long-term debt | (22,770 | ) | — | — | (12 | ) | — | (22,782 | ) | ||||||||||||||||||||||||||||||
Net borrowings (repayments) under revolving credit agreements | Net borrowings (repayments) under revolving credit agreements | (22,000 | ) | — | (14,246 | ) | 158 | — | (36,088 | ) | Net borrowings (repayments) under revolving credit agreements | (40,750 | ) | — | — | — | — | (40,750 | ) | |||||||||||||||||||||||||||||||
Other | — | (312 | ) | 483 | (15 | ) | — | 156 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | Acquisition of treasury stock | — | (159 | ) | — | — | — | (159 | ) | |||||||||||||||||||||||||||||||||||||||||
(34,800 | ) | (312 | ) | (56,215 | ) | 143 | 42,452 | (48,732 | ) | (63,520 | ) | (159 | ) | — | (12 | ) | — | (63,691 | ) | |||||||||||||||||||||||||||||||
Net Cash (Used In) Provided by Discontinued Operations | Net Cash (Used In) Provided by Discontinued Operations | 6,100 | — | 8,188 | 83 | — | 14,371 | |||||||||||||||||||||||||||||||||||||||||||
Effect of exchange rates on cash | Effect of exchange rates on cash | — | — | — | 151 | — | 151 | Effect of exchange rates on cash | — | — | — | 2,061 | — | 2,061 | ||||||||||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | 9,690 | — | 7,435 | (3,765 | ) | (10,344 | ) | 3,016 | Net increase (decrease) in cash and cash equivalents | (50,536 | ) | — | 92,259 | (4,557 | ) | (49,211 | ) | (12,045 | ) | ||||||||||||||||||||||||||||||
Intercompany accounts | Intercompany accounts | (6,113 | ) | — | (6,452 | ) | 2,288 | 10,277 | — | Intercompany accounts | 41,289 | — | (92,124 | ) | 1,691 | 49,144 | — | |||||||||||||||||||||||||||||||||
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 17,145 | 1 | 471 | 6,936 | 67 | 24,620 | Cash and cash equivalents, beginning of period | 17,145 | 1 | 471 | 6,936 | 67 | 24,620 | ||||||||||||||||||||||||||||||||||||
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 20,722 | $ | 1 | $ | 1,454 | $ | 5,459 | $ | — | $ | 27,636 | Cash and cash equivalents, end of period | $ | 7,898 | $ | 1 | $ | 606 | $ | 4,070 | $ | — | $ | 12,575 | ||||||||||||||||||||||||
1725
EAGLEPICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWSTHREENINE MONTHS ENDED FEBRUARY 28,AUGUST 31, 2003
(in thousands of dollars)
Guarantors | Guarantors | |||||||||||||||||||||||||||||||||||||||||||||||||
Non-Guarantors | ||||||||||||||||||||||||||||||||||||||||||||||||||
EaglePicher | Subsidiary | Foreign | EaglePicher | Subsidiary | Non-Guarantors | |||||||||||||||||||||||||||||||||||||||||||||
Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | Issuer | Holdings, Inc. | Guarantors | Subsidiaries | Eliminations | Total | |||||||||||||||||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | 1,604 | $ | 1,168 | $ | (2,847 | ) | $ | 744 | $ | 499 | $ | 1,168 | Net income (loss) | $ | 5,141 | $ | 4,628 | $ | 37,986 | $ | 427 | $ | (43,554 | ) | $ | 4,628 | ||||||||||||||||||||||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity in (earnings) loss of consolidated subsidiaries | 2,179 | (1,169 | ) | (510 | ) | — | (500 | ) | — | Equity in (earnings) loss of consolidated subsidiaries | (34,046 | ) | (4,682 | ) | (4,960 | ) | 134 | 43,554 | — | |||||||||||||||||||||||||||||||
Depreciation and amortization | 1,730 | — | 9,260 | 1,400 | 12,390 | Depreciation and amortization | 4,380 | — | 28,748 | 3,956 | — | 37,084 | ||||||||||||||||||||||||||||||||||||||
Changes in assets and liabilities, net of effect of non-cash items | (30,577 | ) | 24 | (393 | ) | (1,133 | ) | 10,936 | (21,143 | ) | Provision for discontinued operations | — | — | (484 | ) | 3,729 | — | 3,245 | ||||||||||||||||||||||||||||||||
Insurance related gain | — | — | (3,312 | ) | — | — | (3,312 | ) | ||||||||||||||||||||||||||||||||||||||||||
(25,064 | ) | 23 | 5,510 | 1,011 | 10,935 | (7,585 | ) | Write-off of Deferred Financing Costs | 6,327 | — | — | — | — | 6,327 | ||||||||||||||||||||||||||||||||||||
Changes in assets and liabilities, net of effect of non-cash items | (21,504 | ) | (10,711 | ) | (75,956 | ) | (22,617 | ) | 27,010 | (103,778 | ) | |||||||||||||||||||||||||||||||||||||||
(39,702 | ) | (10,765 | ) | (17,978 | ) | (14,371 | ) | 27,010 | (55,806 | ) | ||||||||||||||||||||||||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | Capital expenditures | (422 | ) | — | (2,437 | ) | (1,044 | ) | — | (3,903 | ) | Capital expenditures | (1,815 | ) | — | (5,638 | ) | (3,305 | ) | — | (10,758 | ) | ||||||||||||||||||||||||||||
Proceeds from sale of property and equipment, and other, net | — | — | 329 | — | — | 329 | ||||||||||||||||||||||||||||||||||||||||||||
Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | — | — | 1,068 | — | — | 1,068 | |||||||||||||||||||||||||||||||||||||||||||
(422 | ) | — | (2,108 | ) | (1,044 | ) | — | (3,574 | ) | (1,815 | ) | — | (4,570 | ) | (3,305 | ) | — | (9,690 | ) | |||||||||||||||||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||||||||||||||||||||||||||||||||||
Reduction of long-term debt | Reduction of long-term debt | (4,232 | ) | — | — | — | — | (4,232 | ) | Reduction of long-term debt | (226,425 | ) | — | — | — | — | (226,425 | ) | ||||||||||||||||||||||||||||||||
Net borrowings (repayments) under revolving credit agreements | Net borrowings (repayments) under revolving credit agreements | 14,500 | — | — | — | — | 14,500 | Net borrowings (repayments) under revolving credit agreements | (121,500 | ) | — | — | — | — | (121,500 | ) | ||||||||||||||||||||||||||||||||||
Proceeds from the New Credit Agreement and issuance of Senior Unsecured Notes | Proceeds from the New Credit Agreement and issuance of Senior Unsecured Notes | 398,000 | — | — | — | — | 398,000 | |||||||||||||||||||||||||||||||||||||||||||
Payment of deferred financing costs | Payment of deferred financing costs | (9,708 | ) | — | — | — | — | (9,708 | ) | |||||||||||||||||||||||||||||||||||||||||
Proceeds from issuance of treasury stock | Proceeds from issuance of treasury stock | — | 903 | — | — | — | 903 | |||||||||||||||||||||||||||||||||||||||||||
10,268 | — | — | — | — | 10,268 | 40,367 | 903 | — | — | — | 41,270 | |||||||||||||||||||||||||||||||||||||||
Net cash used in discontinued operations | Net cash used in discontinued operations | — | — | 14,835 | (874 | ) | — | 13,961 | ||||||||||||||||||||||||||||||||||||||||||
Effect of exchange rates on cash | Effect of exchange rates on cash | — | — | — | 1,659 | — | 1,659 | Effect of exchange rates on cash | — | — | — | 2,724 | — | 2,724 | ||||||||||||||||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | (15,218 | ) | 23 | 3,402 | 1,626 | 10,935 | 768 | Net increase (decrease) in cash and cash equivalents | (1,150 | ) | (9,862 | ) | (7,713 | ) | (15,826 | ) | 27,010 | (7,541 | ) | ||||||||||||||||||||||||||||||
Intercompany accounts | Intercompany accounts | 7,238 | (23 | ) | 3,671 | 869 | (11,755 | ) | — | Intercompany accounts | (15,708 | ) | 9,862 | 13,095 | 20,581 | (27,830 | ) | — | ||||||||||||||||||||||||||||||||
Cash and cash equivalents, beginning of period | Cash and cash equivalents, beginning of period | 27,694 | 1 | (4,895 | ) | 7,902 | 820 | 31,522 | Cash and cash equivalents, beginning of period | 27,694 | 1 | (4,895 | ) | 7,902 | 820 | 31,522 | ||||||||||||||||||||||||||||||||||
Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | $ | 19,714 | $ | 1 | $ | 2,178 | $ | 10,397 | $ | — | $ | 32,290 | Cash and cash equivalents, end of period | $ | 10,836 | $ | 1 | $ | 487 | $ | 12,657 | $ | — | $ | 23,981 | ||||||||||||||||||||||||
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Critical Accounting Policies
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We believe that our critical accounting policies, which involve a higher degree of judgments, estimates and complexity, are as follows:
Environmental Reserves
We are subject to extensive and evolving Federal, state and local environmental laws and regulations. Compliance with such laws and regulations can be costly. Governmental authorities may enforce these laws and regulations with a variety of enforcement measures, including monetary penalties and remediation requirements. We have policies and procedures in place to ensure that our operations are conducted in compliance with such laws and regulations and with a commitment to the protection of the environment.
We are involved in various stages of investigation and remediation related to environmental remediation projects at a number of sites as a result of past and present operations, including currently-owned and formerly-owned plants. Also, we have received notice that we may have liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, as a potentially responsible party at a number of sites (“Superfund Sites”).
The ultimate cost of site remediation is difficult to predict given the uncertainties regarding the extent of the required remediation, the interpretation of applicable laws and regulations and alternative remediation methods. Based on our experience with environmental remediation matters, we have accrued reserves for our best estimate of remediation costs, and we do not believe that remediation activities will have a material adverse impact on our financial condition, results of operations or cash flows. In addition, in the course of our bankruptcy described in Item 3 of our Form 10-K for the year ended November 30, 2002, filed on March 3, 2003, we obtained an agreement with the U.S. Environmental Protection Agency and the states of Arizona, Michigan and Oklahoma whereby we are limited in our responsibility for environmental sites not owned by us that allegedly arise from pre-bankruptcy activities. We retain all of our defenses, legal or factual, at such sites. However, if we are found liable at any of these sites, we would only be required to pay as if such claims had been resolved in our bankruptcy and therefore our liability is paid at approximately 37%.
As of November 30, 2002, we had $17.7 million accrued primarily for sold divisions or businesses related to legal and environmental remediation matters, and $2.4 million recorded in other accrued liabilities related to environmental liabilitiesremediation matters for our on-going businesses. As of February 28,August 31, 2003, we had $15.2$10.5 million accrued primarily for sold divisions or businesses related to legal and environmental remediation matters, and $2.2$1.7 million recorded in other accrued liabilities related to environmental liabilitiesremediation matters for our on-going businesses. We believe such reserves to be adequate under the current circumstances.
Impairment of Long-Lived Assets, including Goodwill
We review for impairment the carrying value of our long-lived assets held for use and assets to be disposed of. For all assets excluding goodwill, the carrying value of a long-lived asset is considered impaired if the sum of the undiscounted cash flows is greaterless than the carrying value of the asset. If this occurs, an impairment charge is recorded for the amount by which the carrying value of the long-lived assets exceeds its fair value. Effective December 1, 2002, we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under this new accounting standard, we no longer amortize our goodwill and will bewe are required to complete an annual impairment test. We have determined that we have six reporting units, as defined in SFAS No. 142, within our three reportable business segments. We have completed our initial impairment test required by this accounting standard and have determined there was no impairment charge related to the adoption of this accounting standard on December 1, 2002. These impairment tests require us to forecast our future cash flows, which requiresrequire significant judgment. As of November 30, 2002 and February 28,August 31, 2003, we had recorded $163.9 $159.6
27
million of goodwill. In addition as of November 30, 2002, we had recorded $183.4$173.7 million of property, plant, and equipment, net (our primary long-lived asset), and as of February 28,August 31, 2003 we had recorded $176.5$154.4 million of property, plant, and equipment, net.
19
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and determinable, and collectibility is reasonably assured. Generally, all of theseThese conditions are met at the time we ship our products to our customers. Net Sales and Cost of Products Sold include transportation costs. For certain products sold under fixed-price contracts and subcontracts with various United States Government agencies and aerospace and defense contractors, we utilize the percentage-of-completion method of accounting. When we use the percentage-of-completion method, we measure our percent complete based on total costs incurred to date as compared to our best estimate of total costs to be incurred.
Under the percentage-of-completion method, contract costs include direct material, labor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools and repairs. Selling and administrative expenses are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes to job performance, job conditions, and estimated profitability may result in revisions to contract revenue and costs and are recognized in the period in which the revisions are made. We provided for estimated losses on uncompleted contracts of $0.5 million at November 30, 2002 and February 28,$0.4 million at August 31, 2003. The percentage of completion method requires a higher degree of judgment and use of estimates than other revenue recognition methods. The primary judgments and estimates involved include our ability to accurately estimate the contracts’ percent complete and the reasonableness of the estimated costs to complete as of each financial reporting period.
Pension and Postretirement Benefit Plan Assumptions
We sponsor pension plans covering substantially all employees who meet certain eligibility requirements. We also sponsor postretirement benefit plans that make health care and life insurance benefits available for certain employees. Several statistical and other factors that attempt to anticipate future events are used in calculating the expense and liability related to these plans. These factors include key assumptions, such as discount rate, expected return on plan assets, rate of increase of health care costs and rate of future compensation increases. In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate these factors. The actuarial assumptions we use may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in a significant impact to the amount of pension or postretirement benefits expenses we have recorded or may record in the future. Assuming a constant employee base, the most important estimate associated with our post retirement plan is the assumed health care cost trend rate. As of November 30, 2002, a 100 basis point increase in this estimate would increase the annual expense by approximately $0.2 million. A similar analysis for the expense associated with our pension plans is more difficult due to the variety of assumptions;assumptions, plan types and regulatory requirements for these plans around the world. However, for example, our U.S.United States plans, which represent approximately 90% of the consolidated projected benefit obligation at November 30, 2002, a 25 basis point change in the discount rate, would change the annual pension expense by approximately $0.8 million, and the annual post-retirement expense by approximately $0.1 million. Additionally, a 25 basis point change in the expected return on plan assets would change the annual pension expense by approximately $0.6 million.
We are currently evaluating our assumptions regarding discount rates and rates of investment return to be used to determine the funded status of our pension plans as of November 30, 2003 and the related pension expense for 2004. Based on the significant decline in interest rates since November 2002, our discount rate, used to calculate the present value of pension liabilities, will decrease from 6.95% at November 30, 2002 to a currently estimated range of 6.00% to 6.25% as of November 30, 2003. This decrease in discount rates will increase our pension benefit obligation amounts as of November 30, 2003 and may result in the plan being underfunded, as opposed to our overfunded position as of November 30, 2002.
If the plan is determined to be underfunded by any amount, we will be required to write-off approximately 95%
28
of our intangible prepaid pension asset of $55.6 million as of August 31, 2003 by a non-cash charge to other comprehensive income (“OCI”), resulting in an increased deficit in our stockholders’ equity. There is also a potential that we may need to record a non-cash charge to OCI to establish a pension liability for the underfunded amount. In addition, at the recommendation of our actuary, we are considering whether to adopt a more recently issued actuarial mortality table, which would also have the impact of increasing our unfunded liability by approximately $13.0 million.
The write-off to OCI of the prepaid pension asset, the accrual for the unfunded liability, and the accrual for the potential additional liability relating to the new mortality table are all non-cash items that are required under United States generally accepted accounting principles (“GAAP”). The accounting treatment under GAAP is different from the funding requirements mandated by the Employee Retirement Income Security Act of 1974 (“ERISA”). Accordingly, we do not expect these non-cash charges to OCI to impact the need for potential cash contributions to our pension plans for the next several years. Under the pension funding assumptions currently being evaluated, we do not anticipate a requirement for any cash contributions during the next several years. However, at our discretion, we may make voluntary contributions from time to time, based on our cash position and overall financial status, and the potential to further strengthen the funded status of the plans over the long term.
Deferred Stripping Costs
In our Filtration and Minerals Segment, we generally charge our mining costs to Cost of Products Sold as sales occur. However, we defer and amortize certain mining costs on a units-of-production basis over the estimated life of the particular section of a mine, based on estimated recoverable cubic yards of ore in that section. These mining costs, which are commonly referred to as “deferred stripping” costs, are incurred in mining activities that are normally associated with the removal of waste rock. The deferred stripping accounting method is generally accepted in the mining industry where mining operations have diverse grades and waste-to-ore ratios; however industry practice does vary. By deferring stripping costs, we match the costs of production when the sale of diatomaceous earth occurs with an appropriate amount of waste removal cost. If we were to expense deferred stripping costs as incurred, there could be greater volatility in our period-to-period operating results. Deferred stripping costs are included in Other Assets, net in our accompanying balance sheets and totaled $3.7 million at November 30, 2002 and $5.8 million at August 31, 2003.
Legal Contingencies
We are a defendant in numerousvarious litigation and regulatory matters, including those involving environmental law, employment law and patent law, ascertain of which are discussed in Note GNotes H and L to the condensed consolidated financial statements.statements in Item 1 of this report. As required by SFAS No. 5, we determine whether an estimated loss from a loss contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess potential liability. We develop our views on estimated losses in consultation with outside counsel and environmental experts handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should these matters result in an adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations, cash flows and financial position in the period or periods in which such judgment or settlement occurs.
Estimates Used Relating to Restructuring, Divestitures and Asset Impairments
Over the last several years we have engaged in significant restructuring actions and divestitures, which have required us to develop formalized plans as they relate to exit activities. These plans have required us to utilize significant estimates related to
20
salvage values of assets that were made redundant or obsolete. In addition, we have had to record estimated expenses for severance and other employee separation costs, lease cancellation and other exit costs. Given the significance of, and the timing of the execution of such actions, this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made. Our policies, as supported by current authoritative guidance, require us to continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. As we continue to evaluate the business, there may be supplemental charges for new plan initiatives as well as changes in estimates to amounts previously recorded as payments are made or actions are completed.
Income Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in our balance sheets, as well as operating loss and tax credit carryforwards. We follow very
29
specific and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance sheet and provide necessary valuation allowances as required. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. If we continue to operate at a loss in certain jurisdictions, as we have in the United States, or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.
Risk Management Activities
We are exposed to market risk including changes in interest rates, currency exchange rates and commodity prices. We use derivative instruments to manage our interest rate and foreign currency exposures. We do not use derivative instruments for speculative or trading purposes. Generally, we enter into hedging relationships such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values of the derivatives. Accounting for derivative instruments is complex, as evidenced by the significant interpretations of the primary accounting standard, and continues to evolve. As of November 30, 2002 we had a notional amount of $13.5 million and at February 28,August 31, 2003 we had $12.9a notional amount of $15.6 million of foreign forward exchange contracts. In addition, at November 30, 2002 and February 28,August 31, 2003, we had notional amounts of $90.0 million of interest rate swap contracts to hedge our interest rate risks. The impact of a 1.0% increase in interest rates would result in additional interest expense of approximately $0.7 million on an annual basis.
Other Significant Accounting Policies
Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless important to an understanding of our financial statements. See Note B to the consolidated financial statements, Summary of Significant Accounting Policies, included in our Form 10-K for the year ended November 30, 2002, filed on March 3, 2003, which discusses accounting policies that must be selected by us when there are acceptable alternatives.
Results of Operations
The following summary financial information about our industry segment data is presented to gain a better understanding of the narrative discussion below about our business segments. See Note O in our Form 10-K for the year ended November 30, 2002, filed on March 3, 2003, for additional financial information by segment. All references herein to years are to the three-months ended February 28 unless otherwise indicated (in thousands of dollars).
As discussed in Note Q to our financial statements for the year ended November 30, 2002, the accompanying 2002 financial statements haveinformation has been restated to reflect the appropriate adoption of EITF 00-10 which resulted in an increase to Net Sales and Cost of Products Sold for transportation costs billed to our customers. This restatement had no impact on operating income, net income or cash flows. The following discussion and analysis gives effect to the restatement.
21 As discussed in Note H to the condensed consolidated financial statements in Item 1 of this report, the accompanying 2002 financial statements have been restated to reflect our Hillsdale U.K. Automotive operation and certain operations of our Germanium-based business in our Technologies Segment as discontinued businesses. The following discussion and analysis gives effect to the restatement (in thousands of dollars).
30
Three Months Ended August 31, | ||||||||||||||||||||||||||||||||||
2002 | 2003 | Variance | % | 2002 | 2003 | Variance | % | |||||||||||||||||||||||||||
Net Sales | Net Sales | Net Sales | ||||||||||||||||||||||||||||||||
Hillsdale Division | Hillsdale Division | $ | 85,834 | $ | 83,282 | $ | (2,552 | ) | (3.0 | ) | Hillsdale Division | $ | 82,269 | $ | 74,660 | $ | (7,609 | ) | (9.3 | ) | ||||||||||||||
Wolverine Division | Wolverine Division | 17,648 | 20,718 | 3,070 | 17.4 | Wolverine Division | 21,196 | 22,957 | 1,761 | 8.3 | ||||||||||||||||||||||||
Automotive | 103,482 | 104,000 | 518 | 0.5 | Automotive | 103,465 | 97,617 | (5,848 | ) | (5.7 | ) | |||||||||||||||||||||||
Power Group | Power Group | 22,870 | 32,283 | 9,413 | 41.2 | Power Group | 27,768 | 38,047 | 10,279 | 37.0 | ||||||||||||||||||||||||
Precision Products- divested July 17, 2002 | Precision Products- divested July 17, 2002 | 1,215 | — | (1,215 | ) | (100.0 | ) | Precision Products- divested July 17, 2002 | 832 | — | (832 | ) | (100.0 | ) | ||||||||||||||||||||
Specialty Materials Group | Specialty Materials Group | 13,031 | 13,219 | 188 | 1.4 | Specialty Materials Group | 10,915 | 9,386 | (1,529 | ) | (14.0 | ) | ||||||||||||||||||||||
Pharmaceutical Services (formerly ChemSyn) | Pharmaceutical Services (formerly ChemSyn) | 3,405 | 1,902 | (1,503 | ) | (44.1 | ) | Pharmaceutical Services (formerly ChemSyn) | 3,097 | 1,407 | (1,690 | ) | (54.6 | ) | ||||||||||||||||||||
Technologies | 40,521 | 47,404 | 6,883 | 17.0 | Technologies | 42,612 | 48,840 | 6,228 | 14.6 | |||||||||||||||||||||||||
Filtration and Minerals | Filtration and Minerals | 19,226 | 18,906 | (320 | ) | (1.7 | ) | Filtration and Minerals | 21,275 | 19,387 | (1,888 | ) | (8.9 | ) | ||||||||||||||||||||
$ | 163,229 | $ | 170,310 | $ | 7,081 | 4.3 | $ | 167,352 | $ | 165,844 | $ | (1,508 | ) | (0.9 | ) | |||||||||||||||||||
Operating Income (Loss) | Operating Income (Loss) | Operating Income (Loss) | ||||||||||||||||||||||||||||||||
Automotive | Automotive | $ | 3,516 | $ | 5,141 | $ | 1,625 | 46.2 | Automotive | $ | 2,073 | $ | 4,252 | $ | 2,179 | 105.1 | ||||||||||||||||||
Technologies | Technologies | 668 | 8,046 | 7,378 | 1,104.5 | Technologies | 5,078 | 6,248 | 1,170 | 23.0 | ||||||||||||||||||||||||
Filtration and Minerals | Filtration and Minerals | 1,306 | (111 | ) | (1,417 | ) | (108.5 | ) | Filtration and Minerals | 1,811 | 1,929 | 118 | 6.5 | |||||||||||||||||||||
Divested Divisions | Divested Divisions | (125 | ) | — | 125 | 100.0 | Divested Divisions | (161 | ) | — | 161 | N/A | ||||||||||||||||||||||
Corporate/ Intersegment | (509 | ) | (2,036 | ) | (1,527 | ) | (300.0 | ) | ||||||||||||||||||||||||||
Corporate/Intersegment | Corporate/Intersegment | (1,633 | ) | 805 | 2,438 | N/A | ||||||||||||||||||||||||||||
$ | 4,856 | $ | 11,040 | $ | 6,184 | 127.3 | $ | 7,168 | $ | 13,234 | $ | 6,066 | 84.6 | |||||||||||||||||||||
Nine Months Ended August 31, | |||||||||||||||||
2002 | 2003 | Variance | % | ||||||||||||||
Net Sales | |||||||||||||||||
Hillsdale Division | $ | 257,072 | $ | 239,597 | $ | (17,475 | ) | (6.8 | ) | ||||||||
Wolverine Division | 58,552 | 66,864 | 8,312 | 14.2 | |||||||||||||
Automotive | 315,624 | 306,461 | (9,163 | ) | (2.9 | ) | |||||||||||
Power Group | 75,568 | 104,187 | 28,619 | 37.9 | |||||||||||||
Precision Products- divested July 17, 2002 | 3,435 | — | (3,435 | ) | (100.0 | ) | |||||||||||
Specialty Materials Group | 33,526 | 29,534 | (3,992 | ) | (11.9 | ) | |||||||||||
Pharmaceutical Services (formerly ChemSyn) | 10,278 | 6,690 | (3,588 | ) | (34.9 | ) | |||||||||||
Technologies | 122,807 | 140,411 | 17,604 | 14.3 | |||||||||||||
Filtration and Minerals | 61,311 | 58,058 | (3,253 | ) | (5.3 | ) | |||||||||||
$ | 499,742 | $ | 504,930 | $ | 5,188 | 1.0 | |||||||||||
Operating Income (Loss) | |||||||||||||||||
Automotive | $ | 9,166 | $ | 16,165 | $ | 6,999 | 76.4 | ||||||||||
Technologies | (3,425 | ) | 28,855 | 32,280 | N/A | ||||||||||||
Filtration and Minerals | 6,706 | 3,439 | (3,267 | ) | (48.7 | ) | |||||||||||
Divested Divisions | (6,131 | ) | — | 6,131 | N/A | ||||||||||||
Corporate/Intersegment | (5,416 | ) | (3,258 | ) | 2,158 | 39.8 | |||||||||||
$ | 900 | $ | 45,201 | $ | 44,301 | 4,922.3 | |||||||||||
Automotive Segment
Sales in our Automotive Segment increased $0.5decreased $5.8 million, or 0.5%5.7%, to $104.0 million in 2003 from $103.5 million in 2002. Thethe third quarter of 2002 to $97.6 million in the third quarter of 2003, and decreased $9.1 million, or 2.9%, from $315.6 million in the first nine months of 2002 to $306.5 million in the first nine months of 2003.
In the third quarter of 2003, our Wolverine divisiondivision’s sales increased $3.1$1.8 million, or 17.4%8.3%, and in the first nine months of 2003, they increased $8.3 million, or 14.2%. These increases are due primarily to an 11%year over year volume increase as a resultincreases (1.4% in the third quarter of increased penetration2003 and 7.0% in the first nine months of the aftermarket and small engine markets,2003) despite lower overall North American
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automotive production levels and favorable foreign currency as a result of the strengthening of the Euro. Approximately 38.8%38% of theour Wolverine division’s sales are from Europe. Partially offsettingEuropean.These volume increases in the third quarter were driven by increased gasket material sales and new programs with original equipment manufacturers. The volume increases in the nine-month period were driven by increased gasket material sales, the penetration of the aftermarket and small engine markets, and new programs with original equipment manufacturers.
Offsetting our Wolverine division’s sales increase was a $2.6 million, or 3.0%, declinedecrease in our Hillsdale division’s sales dueduring the third quarter of 2003 of $7.6 million, or 9.3%, and a decrease in the first nine months of 2003 of $17.5 million, or 6.8%. The lower Hillsdale sales are attributed to (a)the decrease in overall North American light vehicle production levels in 2003 and the phase-out of three programs. The decision to not select Hillsdale on the successor platforms for these three programs was made well before the current management team joined in 2002.
The overall North American light vehicle production levels are estimated to have decreased approximately 4% in both the third quarter and first nine months of 2003. The sales decreases for the three program phase-outs were $2.6 million during the third quarter of 2003 and $9.6 million in the first nine months of 2003 for a Ford Motor Company transmission pump, $2.3 million during the third quarter of 2003 and $8.6 million in the first nine months of 2003 for a General Motors connecting rod program, and $2.8 million declineduring the third quarter of 2003 and $9.0 million in transmission pumpthe first nine months of 2003 for an Acura knuckle program. In total, these three programs resulted in decreased sales of $7.7 million during the third quarter of 2003 (9.4% of net sales) and $27.2 million in the first nine months of 2003 (10.6% of net sales). Partially offsetting the above program losses were $3.3 million of new program sales in the third quarter of 2003 and $10.1 million in the first nine months of 2003, primarily related to a new technology transmission filter program phase-out, and (b) a $1.3($1.5 million decline in sales of our Hillsdale U.K. Automotive operation, which is in the processthird quarter of being sold. These decreases are2003 and $4.4 million in the first nine months of 2003) and a Mitsubishi knuckle program ($0.8 million in the third quarter of 2003 and $3.2 million in the first nine months of 2003).
Hillsdale’s favorable customer/platform mix compared to the industry composite sales performance also contributed to partially offset by a modest increase inoffsetting the approximate 4% overall North American light vehicle production decreases. Approximately 35% of Hillsdale sales dueare to the increase in automotive builds in 2003 compared to 2002. The pending saleU.S. operations of the Hillsdale U.K. Automotive operation is discussed in Note I of Item 1 of this report. We anticipate that the net charge to our earningsJapanese automakers and 18% are related to this divestiture will be approximately $3.5 millionGeneral Motors light trucks and SUVs, which continue to $5.0 million in 2003, with net cash proceeds of approximately $1.5 million to $2.0 million.outperform the overall industry growth rate.
Operating income increased $1.6$2.2 million, or 46.2%105.1%, to $5.1from $2.1 million in 2003 from $3.5the third quarter of 2002 to $4.3 million in 2002. Thisthe third quarter of 2003, and increased $7.0 million, or 76.4%, from $9.2 million in the first nine months of 2002 to $16.2 million in the first nine months of 2003. In the third quarter of 2003, this improved performance was primarily due to a $0.9the following favorable/(unfavorable) items:
a. | $2.5 million reduction in costs due to productivity improvements; | ||
b. | ($0.5) million in price decreases; | ||
c. | ($0.5) million decrease in margin related to reduced volumes discussed above, partially offset by favorable sales mix and favorable foreign currency as a result of the strengthening of the Euro; | ||
d. | ($1.1) million of increased costs related to the power outage affecting the Midwest and East Coast of the United States in August 2003, a supplier related quality issue, and start-up costs on a new Visteon program; | ||
e. | $2.0 million reduction in goodwill amortization expense in 2003 compared to 2002 (due to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, which no longer requires the amortization of goodwill); | ||
f. | ($0.2) million of higher operating costs, primarily higher energy and wage and benefits expenses at our unionized facilities, partially offset by lower depreciation. |
In the first nine months of 2003, the $7.0 million reductionimprovement in depreciation and amortization expense due to the elimination of $2.0 million of goodwill amortization expense in 2003 compared to 2002 (due to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, which no longer requires the amortization of goodwill), which was partially offset by a $1.1 million increase in tooling amortization expenses. The remaining $0.7 million of operating income improvement was primarily due to favorable foreign currency exchange rates. Productivity improvements and improved sales mix were largely offset by price decreases ($0.9 million) and higher wage and benefit costs in unionized facilities ($0.8 million).the following favorable/(unfavorable) items:
a. | $6.9 million reduction in costs due to productivity and cost improvements; | ||
b. | ($2.2) million in price decreases; | ||
c. | ($0.4) decrease in margin associated with the volume changes discussed above, partially offset by favorable sales mix and favorable foreign currency as a result of the strengthening of the Euro; | ||
d. | ($1.6) million of increased costs related to the power outage affecting the Midwest and East Coast of the United States in August 2003, a supplier related quality issue, and start-up costs on a new Visteon program; |
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e. | $6.0 million reduction in goodwill amortization expense in 2003 compared to 2002 (due to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, which no longer requires the amortization of goodwill); | ||
f. | ($1.7) million in higher operating costs, primarily related to higher energy, and wage and benefits expenses at our unionized facilities. |
Technologies Segment
Sales in our Technologies Segment increased $6.9$6.2 million, or 17.0%14.6%, to $47.4from $42.6 million in 2003 from $40.5the third quarter of 2002 to $48.8 million in 2002.the third quarter of 2003, and increased $17.6 million, or 14.3%, from $122.8 million in the first nine months of 2003 to $140.4 million in the first nine months of 2003. Excluding sales from our Precision Products business, which we divested in July 2002, this segment’s sales increased $8.1$7.1 million, or 20.6%.16.9%, in the third quarter of 2003, and increased $21.0 million, or 17.6%, in the first nine months of 2003.
Sales in the Power Group increased $9.4$10.3 million, or 41.2%37.0%, duringin the third quarter of 2003, compared to 2002, which was partially offset by a decreaseand $28.6 million, or 37.9%, in the first nine months of $1.5 million in our Pharmaceutical Services businesses.2003. The increase in our Power Group sales is primarily related to new programs,contracts, improved pricing, and increased spendingdefense spending. Particularly strong growth in our defense power business, as well as a $1.0 million, or 43%,both the third quarter of 2003 and the first nine months of 2003 were in batteries sales to Boeing Corporation, the CECOM (Communications Electronic Command) mobile communications program, and customer funded product development contracts.
Partially offsetting the strong increase in our commercial powerPower Group sales as a result of new initiatives in the commercial market. Decreased sales in our Pharmaceutical Services business is the result of lower sales to our larger customers and short-term operational issues. Sales increased $0.2 millionwere declines in our Specialty Materials Group and our Pharmaceutical Services businesses. In our Specialty Materials Group, sales decreased $1.5 million, or 14.0%, in the third quarter of 2003 and $4.0 million, or 11.9%, in the first nine months of 2003 due primarily to continued strong demanddecreases in boron sales, which are generally larger value orders that are not consistent in timing. In our Pharmaceutical Services business, sales decreased $1.7 million, or 54.6%, in the third quarter of 2003, and $3.6 million, or 34.9%, in the first nine months of 2003. A fire in third quarter of 2001 disrupted operations at our primary pharmaceutical facility and resulted in customer concerns as to the potential impact on quality and sourcing capability. This led to the non-renewal of some contracts and general softening in orders due to customer concerns. Recently, a Federal Drug Administration (“FDA”) quality audit was successfully completed with very favorable results, which have been communicated to our customers. We have recently seen new orders being placed by customers that were lost after the disruptive impact of the fire.
Operating income increased $1.2 million, or 23.0%, from $5.1 million in the third quarter of 2002 to $6.2 million in the third quarter of 2003. In addition, operating income improved $32.3 million to income of $28.9 million in the first nine months of 2003 from a loss of $3.4 million in the first nine months of 2002.
Included in the 2002 amounts were the following unusual items, which impact the comparability of the 2002 and 2003 operating income by ($1.1) million for enriched Boron relatedthe third quarter of 2003 and $12.0 million for the first nine months of 2003.
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a. | $5.7 million of legal expenses and legal settlement charges recorded in the first six months of 2002 in Selling and Administrative expenses as described in Item 3 of our Form 10-K for the year ended November 30, 2002; | ||
b. | $3.1 million loss for an insurance receivable recorded in the second quarter of 2002 primarily related to inventories damaged in a fire during the third quarter of 2001 at our Missouri bulk pharmaceutical manufacturing plant; | ||
c. | $5.5 million charge in restructuring expense recorded in the second quarter of 2002 associated with our decision to exit our Gallium-based specialty material business due to continued soft demand from customers in the telecommunications and semi-conductor markets. The $5.5 million restructuring charge included an inventory write-down of $2.9 million, representing the estimated loss incurred from the liquidation of current inventory. An additional $2.4 million was recorded in other accrued liabilities primarily related to the estimated loss of inventory to be purchased under a firm purchase commitment. Finally, a $0.2 million asset impairment charge was recorded against property, plant and equipment; | ||
d. | $0.4 million of officer severance compensation during the third quarter of 2002 included in Selling and Administrative expense; | ||
e. | $1.2 million of income recorded in the second quarter of 2002 related to the reversal of a portion of our fourth quarter 2001 Restructuring expense for severance payments made by our pension plan; and |
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products
f. | $1.5 million of income from an inventory adjustment during the third quarter of 2002 to adjust inventory values to equal actual physical counts. |
Included in the 2003 amounts were the following unusual items, which increased $2.2impact the comparability of the 2002 and 2003 operating income by $0.4 million or 50.7%, partially offset byfor the continued declinethird quarter of Germanium2003 and $10.6 million for the exitingfirst nine months of our Gallium-based products sold to the telecommunications, fiber optics, and semiconductor markets.2003.
Operating income increased $7.4 million to $8.0 million in 2003 from $0.6 million in 2002. This improved performance resulted primarily from operational improvements of $5.5 million related to higher sales volumes, productivity initiatives, improved sales mix and pricing, as well as $1.2 million of lower legal expenses and settlement charges in 2003 compared to 2002.
a. | $1.8 million of expense for environmental and legal issues, primarily related to our Colorado Springs facility; | ||
b. | $2.1 million of depreciation expense as we accelerated our depreciation schedule for businesses that we are exiting or restructuring; | ||
c. | $0.4 million related to a reserve on receivables from Loral Corporation, a customer who has filed for bankruptcy; | ||
d. | $2.8 million of insurance gains in the third quarter of 2003 and $9.2 million in the first nine months of 2003 related to the settlement of fire insurance claims; and | ||
e. | $1.9 million in the third quarter of 2003 and $5.7 million in the first nine months of 2003 of less goodwill amortization expense due to our adoption of SFAS No. 142, Goodwill and Other Intangible Assets, on December 1, 2002 |
In addition, the eliminationfollowing favorable/ (unfavorable) items with a net favorable total of $1.9 million in the third quarter of goodwill amortization expense during 2003 compared to 2002 due to our adoptionand $9.7 million in the first nine months of SFAS No. 142, Goodwill and Other Intangible Assets,2003 contributed to the improved performance.improvement in operating income:
a. | $2.4 million in the third quarter of 2003 ($6.0 million in the first nine months of 2003) related to productivity initiatives; | ||
b. | $1.8 million in the third quarter of 2003 ($5.8 million in the first nine months of 2003) related to increased volumes and improved pricing; | ||
c. | ($1.6) million in the third quarter of 2003 and the first nine months of 2003 for increased selling costs primarily related to infrastructure investments made to launch our commercial power products growth initiatives; and | ||
d. | ($0.7) million in the third quarter of 2003 and ($0.5) in the first nine months of 2003 for other general net cost increases. |
Filtration and Minerals Segment
Sales in our Filtration and Minerals Segment decreased $0.3$1.9 million, or 1.7%8.9%, to $18.9from $21.3 million in 2003 from $19.2the third quarter of 2002 to $19.4 million in 2002.the third quarter of 2003, and decreased $3.3 million, or 5.3%, from $61.3 million in the first nine months of 2002 to $58.1 million in the first nine months of 2003. These decreases were due primarily to lower volumes, a change from acting as a principal to an agent for the sale of product to a large distributor, and a reduction in average selling prices. During the fourth quarter of 2002, we were, but are no longer exploring the possible sale of our Filtration and Minerals business. This potential sale diverted a significant amount of divisional management attention from operational focus, which has had a negative impact on 2003 performance. During 2003, a new divisional leadership team has been put in place, including a divisional president.
Operating results decreased $1.4 million to a loss ofincome increased $0.1 million, in 2003or 6.5%, from income of $1.3$1.8 million in 2002. Thethe third quarter of 2002 to $1.9 million in the third quarter of 2003, and decreased $3.3 million, or 48.7%, from $6.7 million in the first nine months of 2002 to $3.4 million in the first nine months of 2003. During the third quarter of 2003, lower volumes, lower average selling prices and higher energy costs were offset by favorable foreign currency as a result of the strengthening of the Euro and productivity savings. During the first nine months of 2003, decreased earnings were due to lower volumes and average selling prices, higher severance and recruiting costs of $0.5 million related to restructuring the segment’s management team, and additional freight costs of $0.8 million largely related to the resolution of disputed freight claims with a former carrier. These negative factors were partially offset by favorable foreign currency as a result of the strengthening of the Euro.
Company Discussion
Net Sales.Net sales increased $7.1Sales decreased $1.5 million, or 4.3%0.9%, to $170.3from $167.4 million in 2003 from $163.2the third quarter of 2002 to $165.8 million in 2002.the third quarter of 2003, and increased $5.2 million, or 1.0%, from $499.7 million in the first nine months of
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2002 to $504.9 million in the first nine months of 2003. Excluding the sale in July 2002 ofsales from our Precision Products business included inwithin our Technologies Segment, ourwhich we divested in July 2002, net sales increased $8.3decreased $0.7 million, or 5.1%0.4%, in the third quarter of 2003, comparedand increased $8.6 million, or 1.7%, in the first nine months of 2003.
In the third quarter of 2003, the decrease was due to 2002. This increase was primarily drivensales decreases of 9.3% in our Automotive Segment’s Hillsdale business and 8.9% in our Filtration and Minerals Segment, partially offset by a $9.4 million increasestrong increases of 37.0% in our Technologies Segment’s Power Group due primarily to new programs, improved pricing, and increased spending in our defense power business, as well as a $1.0 million, or 43%, increase in our commercial power sales, as a result of new initiatives in the commercial market, and a $3.1 million increase8.3% in our Automotive Segment’s Wolverine division due primarily to the penetrationbusiness. See above for a discussion of the aftermarketindividual segments’ results. In the first nine months of 2003, the increase was due to strong increases of 37.9% in our Technologies Segment’s Power Group and small engine markets. These increases were14.2% in our Automotive Segment’s Wolverine business, partially offset by reduced salesdecreases of $2.6 million6.8% in our Automotive Segment’s Hillsdale division due tobusiness and 5.3% in our Filtration and Minerals Segment. See above for a discussion of the continued phase out of an automotive transmission pump program and lower sales at our Hillsdale U.K. Automotive operation, which is in the process of being sold.individual segments’ results.
Cost of Products Sold (exclusive of depreciation). Costs of products sold decreased $3.1 million, or 2.4%, from $130.1 million in the third quarter of 2002 to $127.0 in the third quarter of 2003, and decreased $2.7 million, or 0.7%, from $390.3 million in the first nine months of 2002 to $387.6 million in the first nine months of 2003. Our gross margins increased by $3.7$1.6 million from $33.5$37.3 million in the third quarter of 2002 to $37.2$38.8 million in the third quarter of 2003, as a result of higher volumes, improved sales mix, and productivity improvements.the gross margin percentage increased 1.1 points from 22.3% to 23.4%, despite an increase in energy costs. Our gross margins increased $7.9 million from $109.4 million in the first nine months of 2002 to $117.3 million in the first nine months of 2003, and the gross margin percentage increased 1.3 points from 21.9% to 21.8%23.2%, despite an increase in 2003 from 20.5% in 2002, despite a negative impact of $0.5 million (0.3 points) in pensionenergy costs. TheThese margin rate improvement wasimprovements are primarily athe result of productivity improvements in our Automotive and Technologies Segments, price increases in our Technologies Segment, improved sales mix in our Automotive Segment, and favorable foreign currency as a result of the strengthening of the Euro in the Automotive and Filtration and Minerals Segments.
Selling and Administrative.Selling and administrative expenses of $14.2 million in the third quarter of 2002 increased $1.1$1.4 million or 7.9%9.6% to $15.6 million in the third quarter of 2003. Selling and administrative expenses of $50.4 million in the first nine months of 2002 decreased $4.6 million, or 9.1%, to $14.6$45.8 million in the first nine months of 2003. The increased expenses during the third quarter of 2003 from $13.5are primarily related to the following favorable/(unfavorable) items:
a. | $1.6 million in reduced officer severance and Supplemental Executive Retirement Plan expense in 2003 compared to 2002; | ||
b. | ($0.3) million in | ||
c. | ($2.1) million of increased expenses related to environmental and legal matters; | ||
d. | ($1.6) million of increased investment in the development of our commercial power products growth initiatives within our Technologies Segment; | ||
e. | $0.7 million in lower consulting costs; and | ||
f. | $0.3 million in other lower selling and administrative costs. |
The decreased expenses during the first nine months of 2003 are primarily related to the following favorable/(unfavorable) items:
a. | $4.2 million of deceased expenses related to environmental and legal matters; | ||
b. | $3.6 million in reduced officer severance and Supplemental Executive Retirement Plan expense in 2003 compared to 2002; | ||
c. | ($1.5) million in increased compensation costs related to our long-term bonus plan; | ||
d. | ($1.6) million of increased investment in the development of our commercial power products growth initiatives within our Technologies Segment; and | ||
e. | ($0.1) million in higher other selling and administrative costs. |
Depreciation and Amortization.Depreciation and amortization expense of $11.8 million in the third quarter of 2002 increased $0.9 million, or 7.7%, to $12.8 million in the third quarter of 2003. Depreciation and amortization expense of $34.3 in the first nine months of 2002 increased $0.5 million, or 1.4%, to $34.8 million in the first nine months of 2003. During the third quarter of 2003, the increased depreciation expense was primarily related to our long-term and annual management bonus plans, higher insurance costs, wage increases, andAutomotive Segment recognizing $1.5 million of less depreciation expense which was more than offset by an increase of $2.1 million of depreciation expense in our Technologies Segment to accelerate depreciation charges for equipment to bring it in line with active production lives. During the first nine months of 2003, the increased selling costs duedepreciation expense was
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not significant compared to higher sales volumes.2002.
Goodwill Amortization.Due to the adoption of SFAS No. 142, Goodwill and Other Intangible Assets, no goodwill amortization expense was recorded in 2003 while 2002 included $3.9$3.8 million of goodwill amortization expense.expense in the third quarter of 2002 and $11.5 million in the first nine months of 2002. This new accounting standard required that we cease the amortization of goodwill, effective December 1, 2002, and complete an annual impairment test to determine if an impairment charge has occurred. We have completed our initial impairment test as required by this accounting standard and have determined that our goodwill was not impaired at the time of we adopted this accounting standard.
Restructuring.On May 31, 2002 we announced we would exit our Gallium business in our Technologies Segment due to the downturn in the fiber-optic, telecommunication and semiconductor markets. This resulted in a $5.5 million charge recorded in Restructuring expense during the second quarter of 2002. We also reduced the amounts previously expensed and accrued as Restructuring expense in 2001 by $2.5 million primarily to reflect severance payments made from our over-funded pension plan at November 30, 2001 to eligible employees.
Insurance Related Losses/ (Gains). During the second quarter of 2002, we recorded a $3.1 million loss for an insurance receivable primarily related to inventories damaged in a fire during the third quarter of 2001 at our Missouri bulk pharmaceutical manufacturing plant. We recorded this charge to fully reserve the receivable because the insurance underwriter was contesting the coverage on these assets. We were disputing the insurance carrier’s position and were vigorously pursuing efforts to collect on our claims. In the third quarter of 2003, we recorded a $2.8 million gain related to our final settlement with this insurance carrier. In addition, in the second quarter of 2003, we recorded a $5.7 million gain primarily related to the settlement of a claim with our insurance carrier over the coverage on a fire during 2002 at our Seneca, Missouri non-operating facility.
Loss from Divestitures.During 2002, we recorded approximately $3.2 million in additional accruals for costs related to certain litigation issues and environmental remediation related to operations divested prior to November 30, 2001. In addition, during 2002 we signed a letter of intent to sell certain assets and liabilities of our Precision Products business in our Technologies segment to a group of employees and management personnel. We recorded a $2.8 million loss on sale, which was completed in July 2002.
Interest Expense.Interest expense was $11.1$8.6 million in the third quarter of 2002 and $9.4$9.2 million in 2003. Includedthe third quarter of 2003 (not including $1.0 million in interestthe third quarter of 2002 and $0.2 million in the third quarter of 2003 which was allocated to discontinued operations). Interest expense was $28.6 million in the first nine months of 2002 areand $25.9 million in the first nine months of 2003 (not including $3.3 million in first nine months of 2002 and $2.3 million in first nine months of 2003 which was allocated to discontinued operations). Also included in the first six months of 2002 was $1.5 million in fees and other costs, primarily related to establishing our accounts receivable asset-backed securitization (see Accounts Receivable Asset-Backed Securitization under Liquidity and Capital Resources). Excluding these $1.5 million in fees and other costs in 2002, our 2002 interest expense was $9.6 million. This represents a decrease of 2.1%, or $0.2 million, in 2003 compared to 2002. The decrease inOur year over year reduced interest expense is due to lower interest rates and lower average debt levels.
23Other Income (Expense), Net.Other income (expense), net decreased $1.0 million from income of $0.4 million in the third quarter of 2002 to expense of $0.6 million in the third quarter of 2003, and decreased $1.9 million from income of $1.3 million in the first nine months of 2002 to expense of $0.5 million in the first nine months of 2003. These decreases are primarily related to losses on foreign currency forward contract hedges in the Corporate Segment which are entered into to offset foreign currency exposures in the operating segments.
Write-off of Deferred Financing Costs.During the third quarter of 2003, we wrote off $6.3 million of deferred financing costs in connection with the retirement of our former senior secured credit facility and the redemption of 95% of our senior subordinated notes. See the Capitalization section below for details on the refinancing of our capital structure.
Income (Loss) from Continuing Operations Before Taxes. Loss from Continuing Operations Before Taxes increased $1.9 million from $1.0 million in the third quarter of 2002 to $2.9 million in the third quarter of 2003. In the first nine months of 2003, the Income (Loss) from Continuing Operations Before Taxes improved $38.8 million from a loss of $26.4 million in 2002 to income of $12.4 million in 2003. These changes were primarily the result of the
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Income (Loss) Before Taxes. Income (Loss) Before Taxes improved $7.9 million in 2003 to incomefollowing favorable/ (unfavorable) unusual items (in thousands of $2.1 million in 2003 compared to a loss of $5.8 million in 2002. This improvement is primarily related to:dollars):
Third | First Nine | |||||||
Quarter of | Months of | |||||||
2003 | 2003 | |||||||
a. Lower officer severance and Supplemental Executive Retirement Plan expense in 2003 | $ | 1,624 | $ | 3,579 | ||||
b. Loss from divestitures | 161 | 6,131 | ||||||
c. Restructuring | — | 2,998 | ||||||
d. Legal and environmental matters | (2,100 | ) | 4,150 | |||||
e. Insurance related gains in 2003 and losses in 2002 | 2,774 | 11,610 | ||||||
f. Write-off of deferred financing costs in 2003 | (6,327 | ) | (6,327 | ) | ||||
g. Goodwill amortization expense (no longer amortized in 2003) | 3,846 | 11,538 |
Income Taxes.Income tax provision was $0.9$0.8 million in 2003the third quarters of 2002 and 2003. Income tax provision was $2.0 million in the first nine months of 2002 compared to $0.4$2.9 million in 2002.the first nine months of 2003 (not including a $0.6 million tax benefit in the second quarter of 2003 which was allocated to discontinued operations). The provision in 20032002 and 20022003 relates to the allocation of income and loss between the United States and foreign jurisdictions and primarily represents the estimated tax that will be due in certain jurisdictions where no tax benefit can be assured from utilizing previous losses. There is no U.S. Federal or state net tax benefit or provision recorded during 2002 and 2003.
Discontinued Operations.During the second quarter of 2003, we accounted for our Hillsdale U.K. Automotive operation as a discontinued operation. During the third quarter of 2003, we accounted for the sale of certain assets of our Germanium-based business in our Technologies Segment as a discontinued operation. Accordingly, we have restated our prior period financial statements to conform to the discontinued operations presentation. See Note H in our financial statements in Item 1 of this report.
Net Income (Loss).The net income (loss) improved $7.4Net Loss increased $0.7 million to net income of $1.2from $3.6 million in the third quarter of 2002 to $4.2 million in the third quarter of 2003, and improved $36.3 million from a net lossNet Loss of $6.2$31.7 in the first nine months of 2002 to Net Income of $4.6 million in 2002. The improved net income (loss) is the first nine months of 2003 as a result of the items discussed above.
Preferred stock dividend accretion of $3.9 million in 2003 decreased our net income of $1.2 million to a net loss applicable to common shareholders of $2.8 million. In 2002, preferred stock dividend accretion of $3.5 million increased the net loss of $6.2 million to a net loss applicable to common shareholders of $9.7 million.
Company Outlook.Projected sales for 2003 are estimated to be in the range of $670.0$665.0 million to $700.0$675.0 million compared to $696.8$668.1 million in 2002.2002, which is restated to exclude our Hillsdale U.K. Automotive operation and certain operations of our Germanium-based business in our Technologies Segment, which have been divested and accounted for as discontinued operations during 2003. The 2003 sales range is primarily attributed to the current uncertainty regarding industry forecasted automotive builds for 2003. Also, the sales estimate for 2003 reflects the anticipatedcurrent and continued decrease in sales of approximately $15.0 millionHillsdale revenues primarily related to the phase-out of anprogram phase-outs, and reduced automotive transmission pump program in our Hillsdale Division, as well as our decision to sell our Hillsdale U.K. Automotive operation, which will have approximately $10.0 million less salesbuilds in 2003 compared to 2002.2002, partially offset by growth in our Power Group, primarily related to new contracts, improved pricing, and increased defense spending.
We are projecting 2003 Operating Income to be in the range of $53.5$59.0 million to $57.5 million.$61.0 million, which includes insurance gains of $8.5 million and expenses for environmental and legal matters of $2.1 million in the first nine months of 2003. This amount also includes $45.0 million of depreciation and amortizationamortization.
The decreases in sales and operating income from our second quarter of intangibles,2003 outlook (excluding the income from insurance gains and excludes $0.5 millionincremental expenses associated with environmental and legal matters provided for in the third quarter of non-operating income. These Operating Income estimates also include $3.0 million2003) was primarily due to the sale of expense relatedcertain assets in our Germanium-based business in July 2003. The outlook has been restated to non-cash provisions forexclude the results of this divested business. Excluding this divestiture, the insurance gains, and the environmental and legal matter costs, our long-term bonus program, which are added back to Operating Income for purposes of determiningearnings outlook is consistent with our debt covenant calculations. In 2002, our Operating Income was $5.3 million, which included $64.0 million in depreciation and amortization of intangibles expense, and excluded $1.6 million of non-operating income. This projected improved Operating Income, despite lower sales, primarily reflects:
On the basis of these projections, we believe we will be in compliance with all covenants under our various credit facilities during 2003.
We are currently evaluating our assumptions regarding discount rates and rates of investment return to be used to determine the funded status of our pension plans as of November 30, 2003 and the related pension expense for 2004. Based on the significant decline in interest rates since November 2002, our discount rate, used to calculate the present
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value of pension liabilities, will decrease from 6.95% at November 30, 2002 to a currently estimated range of 6.00% to 6.25% as of November 30, 2003. This decrease in discount rates will increase our pension benefit obligation amounts as of November 30, 2003 and may result in the plan being underfunded, as opposed to our overfunded position as of November 30, 2002.
If the plan is determined to be underfunded by any amount, we will be required to write-off approximately 95% of our intangible prepaid pension asset of $55.6 million as of August 31, 2003 by a non-cash charge to other comprehensive income (“OCI”), resulting in an increased deficit in our stockholders’ equity. There is also a potential that we may need to record a non-cash charge to OCI to establish a pension liability for the underfunded amount. In addition, at the recommendation of our actuary, we are considering whether to adopt a more recently issued actuarial mortality table, which would also have the impact of increasing our unfunded liability by approximately $13.0 million.
The write-off to OCI of the prepaid pension asset, the accrual for the unfunded liability, and the accrual for the potential additional liability relating to the new mortality table are all non-cash items that are required under United States generally accepted accounting principles (“GAAP”). The accounting treatment under GAAP is different from the funding requirements mandated by the Employee Retirement Income Security Act of 1974 (“ERISA”). Accordingly, we do not expect these non-cash charges to OCI to impact the need for potential cash contributions to our pension plans for the next several years. Under the pension funding assumptions currently being evaluated, we do not anticipate a requirement for any cash contributions during the next several years. However, at our discretion, we may make voluntary contributions from time to time, based on our cash position and overall financial status, and the potential to further strengthen the funded status of the plans over the long term.
Liquidity and Capital Resources
Our cash flows from operations and availability under our various credit facilities are considered adequate to fund our short-term
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and long-term capital needs. As of February 28,August 31, 2003, we had $43.8$123.9 million unused under our seniorvarious credit agreement.facilities. However, due to various financial covenant limitations under our senior credit agreementNew Credit Agreement (as defined below under Capitalization) measured at the end of each quarter, on February 28,August 31, 2003, we could only incur an additional $39.9$47.3 million of indebtedness.
In August 2003, we entered into the New Credit Agreement which provides for an original term loan of $150.0 million and a revolving credit facility of $125.0 million. The proceeds of the New Term Loan were used to repay our prior credit agreement. In addition, we issued $250.0 million of Senior Unsecured Notes due 2013 and completed a tender offer for 95% of our existing Senior Subordinated Notes due 2008. These refinancings are expected to provide us sufficient liquidity and capital resources to operate our business into the future. See the Capitalization Section below for additional details on the New Credit Agreement and the Senior Unsecured Notes.
At February 28,August 31, 2003, we were in compliance with all of our debt covenants. Also, based on our projections for 2003, weWe expect to remain in compliance with all covenants. Our senior secured credit agreement expires in February 2004. We will need to replace or extend this facility before that date. Although there are no guarantees this can be accomplished, based onour debt covenants for the projections described in the Company Outlook section under the Resultsremainder of Operations above and discussion with potential lenders, we believe we can obtain a new credit facility sufficient to meet our long-term capital requirements. As described below under Accounts Receivable Asset-Backed Securitization, our qualifying special purpose entity, which is an important element of our liquidity and capital resources will terminate upon the expiration of our senior credit agreement unless the senior credit agreement is refinanced.fiscal year 2003.
Cash Flows
All references herein to years are to the three-monthsnine-months ended February 28August 31 unless otherwise indicated.
Cash Flows
Operating Activities.Net cash used in operating activities during 2003 was $7.6 million compared to net cash provided by operating activities of $50.3 million in 2002, which includes $43.8 million as a result of selling certain of our receivables to an unconsolidated qualifying special purpose entity, as discussed below in Accounts Receivable Asset-Backed Securitization. The remaining difference between 2003 and 2002 operating activities is primarily the use of cash for our accrued liabilities of $4.7 million in 2003, compared to a source of cash of $6.3 million in accrued liabilities in 2002. This change is primarily related to 2003 spending on restructuring and legal settlement matters which were expensed during 2002. Approximately $8.0 million of 2002 litigation settlements were paid in the first quarter of 2003.
Investing Activities.InvestingOperating activities used $3.6$55.8 million in cash during 2003 compared to providing $1.3$46.4 million in 2002. DuringIn 2002, cash flows from operating activities were impacted by our net loss of $31.7 million, which was offset by non-cash charges of $47.9 million from depreciation and amortization, $6.1 million from losses from divestitures, $0.8 million from deferred income tax adjustments, and $3.1 million from insurance related losses, which results in cash sources of $26.2 million compared to a similarly calculated amount in 2003 of $47.9 million. The 2003 amount of $47.9 million, an improvement of $21.7 million over 2002, is comprised of our net income of $4.6 million, and non-cash charges of $37.1 million from depreciation and amortization, $3.2 million from provisions from discontinued operations, and $6.3 million from the write-off of deferred financing costs, partially offset by non-cash insurance gains of $3.3 million.
The cash flow for 2002 was also increased by $20.2 million due to changes in certain assets and liabilities,
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resulting in net cash provided by operating activities of $46.4 million, primarily due to $41.0 million of proceeds from the sale of receivables to our Construction Equipment Division, which represented our former Machinery Segment,accounts receivable asset-backed securitization (see Accounts Receivable Asset-Backed Securitization below), which was partially offset primarily by decreases in accounts payable and uses of cash for other working capital expenditures of $5.1needs.
The cash flow for 2003 was reduced by $103.7 million due to changes in 2002. During 2003, ourcertain assets and liabilities, resulting in net cash used in investingoperating activities of $55.8 million. This was primarily due to:
a. | $37.1 million of payments to reduce the amounts outstanding under our accounts receivable asset-backed securitization (see Accounts Receivable Asset-Backed Securitization below); | ||
b. | approximately $14.0 million for payments on restructuring and legal matters which were expensed in 2002; | ||
c. | $22.7 million reduction in accounts payable, primarily to obtain discounts from vendors on early payment options and to shorten payment terms for two major suppliers, as a result of our increased liquidity from our August 2003 capital structure refinancing; | ||
d. | $5.2 million increase in an insurance receivable for an insurance claim that we expect to collect in the fourth quarter of 2003; | ||
e. | $8.1 million increase in production on long-term defense contracts where costs are incurred before shipments or milestone billings are made and collected; and | ||
f. | $4.5 million reduction in accrued interest expense due to the timing of the interest payments as a result of our August 2003 capital structure refinancing. |
Investing Activities.Investing activities used $9.7 million in cash during 2003 compared to using $11.2 million in 2002. These amounts primarily relate to capital expenditures. We expect our capital expenditures during 2003 will be approximately $22.0$15.0 million to $25.0 million, with the largest increase in our Technologies Segment.$20.0 million.
Financing Activities.Financing activities provided $10.3$41.3 million of cash during 2003 compared to using $48.7$63.7 million during 2002. During 2002, we used $36.1$40.8 million to reduce our revolving credit facility, primarily from proceeds associated with the sale of our receivables to an unconsolidated qualifying special purpose entity,our accounts receivable asset-backed securitization, as discussed below under Accounts Receivable Asset-Backed Securitization. BothAlso during 2002, regularly scheduled debt payments and divestitures resulted in a $22.8 million decline in our long-term debt. During 2003, we completed a tender offer on our senior subordinated notes and issued new senior unsecured notes. In addition, we paid off our former credit agreement and issued a new credit agreement. For a detailed discussion of these transactions and the conditions of the new instruments, see the Capitalization section below. Accordingly, during 2003, we used $347.9 million of cash to redeem our senior subordinated notes and pay-off our former credit agreement, and we received $388.3 million, net of financing costs, of cash for the issuance of the new senior unsecured notes and the new credit agreement. In addition, during 2003, we sold to our controlling common shareholder, Granaria Holdings B.V., Bert Iedema, one of our directors and an executive officer of Granaria Holdings B.V., and two of our executive officers the 69,500 shares of common stock held in our Treasury for $13.00 per share, or $0.9 million.
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Capitalization
Our capitalization, which excludes the obligations of $46.5 million at November 30, 2002 and zero at August 31, 2003 of our accounts receivable asset-backed securitization, consisted of the following at November 30, 2002 and August 31, 2003 (in thousands of dollars):
2002 | 2003 | ||||||||
New Credit Agreement: | |||||||||
New revolving credit facility | $ | — | $ | — | |||||
New term loan | — | 150,000 | |||||||
Former Credit Agreement: | |||||||||
Former revolving credit facility, paid off in August 2003 | 121,500 | — | |||||||
Former term loan, paid off in August 2003 | 16,925 | — | |||||||
Senior Unsecured Notes, 9.75% interest, due 2013, net of $1.9 million discount | — | 248,013 | |||||||
Senior Subordinated Notes, 9.375% interest, due 2008 | 220,000 | 10,500 | |||||||
Industrial Revenue Bonds, 1.8% to 2.2% interest, due 2005 | 15,300 | 15,300 | |||||||
Other | — | 1,169 | |||||||
373,725 | 424,982 | ||||||||
Preferred Stock | 137,973 | 150,247 | |||||||
Shareholders’ Deficit | (87,578 | ) | (89,189 | ) | |||||
$ | 424,120 | $ | 486,040 | ||||||
New Credit Agreement.We have a syndicated senior secured loan facility (“New Credit Agreement”) providing an original term loan (“New Term Loan”) of $150.0 million and a $125.0 million revolving credit facility (“New Facility”). The New Facility and the New Term Loan bear interest, at our option, at a rate equal to (i) LIBOR plus 350 basis points or (ii) an Alternate Base Rate (which is equal to the highest of (a) the agent’s prime rate, (b) the Federal funds effective rate plus 50 basis points, or (c) the base CD rate plus 100 basis points) plus 250 basis points. Interest is generally payable quarterly on the New Facility and New Term Loan. We have entered into interest rate swap agreements to manage our variable interest rate exposure. The New Credit Agreement also contains certain fees. There are fees for letters of credit equal to 3.5% per annum for all issued letters of credit, and there is a commitment fee on the New Facility equal to 0.5% per annum of the unused portion of the New Facility. If we meet certain financial benchmarks, the interest rate spreads on the borrowing, the commitment fees and the fees for letters of credit may be reduced.
The New Term Loan will mature upon the earlier of (i) August 7, 2009, (ii) 180 days prior to the maturity of our Senior Subordinated Notes if more than $5.0 million of aggregate principal amount of Senior Subordinated Notes are outstanding, or (iii) 180 days prior to the mandatory redemption of our 11.75% Cumulative Redeemable Exchangeable Preferred Stock (“Preferred Stock”) if more than $5.0 million of its aggregate liquidation preference remains outstanding. The New Facility will mature upon the earlier of (i) August 7, 2008, (ii) 180 days prior to the maturity of our Senior Subordinated Notes if more than $5.0 million of aggregate principal amount of Senior Subordinated Notes are outstanding, or (iii) 180 days prior to the mandatory redemption of our Preferred Stock if more than $5.0 million of its aggregate liquidation preference remains outstanding. Our Senior Subordinated Notes mature, and our Preferred Stock is scheduled for mandatory redemption on March 1, 2008.
At August 31, 2003, we had $40.4 million in outstanding letters of credit under the New Facility, which together with borrowings of zero, made our available borrowing capacity of $84.6 million. However, due to various financial covenant limitations under the New Credit Agreement, we could only incur an additional $47.3 million of indebtedness at August 31, 2003.
The New Credit Agreement is secured by our capital stock, the capital stock of substantially all of our domestic United States subsidiaries, a certain portion of the capital stock of our foreign subsidiaries, and substantially all other assets of our United States subsidiaries. Additionally, the New Credit Agreement is guaranteed by us and certain of our United States subsidiaries.
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The New Credit Agreement contains covenants that restrict our ability to declare dividends or redeem capital stock, incur additional debt or liens, alter existing debt agreements, make loans or investments, form or invest in joint ventures, undergo a change in control or engage in mergers, acquisitions or asset sales. These covenants also limit the annual amount of capital expenditures and require us to meet certain minimum financial ratios. For purposes of determining outstanding debt under our New Credit Agreement, we include the outstanding obligations of EPFC, our off-balance sheet special purpose entity (see Note I, for a detailed discussion of EPFC). We are in compliance with all covenants at August 31, 2003.
In addition to regularly scheduled payments on the New Credit Agreement, we are required to make mandatory prepayments equal to 50.0% of annual excess cash flow, as defined in the New Credit Agreement, beginning with our fiscal year ending November 30, 2004. The net proceeds from the sale of CED resulted inassets (subject to certain conditions), the net proceeds of certain new debt issuance, and 50.0% of the net proceeds of any equity securities issuance are also subject to mandatory prepayments on the New Credit Agreement.
Former Credit Agreement.We had a $12.8syndicated senior secured loan facility (“Former Credit Agreement”) which provided for an original term loan (“Former Term Loan”) of $75.0 million, decline in our long-term debt during 2002. During 2003, we used $14.5as amended, and a $220.0 million under our revolving credit facility (“Former Facility”). We paid off the Former Credit Agreement with the proceeds from our New Credit Agreement and Senior Unsecured Notes in August 2003. The Former Facility and the Former Term Loan bore interest, at our option, at LIBOR plus 275 basis points, or the bank’s prime rate plus 150 basis points. Interest was generally payable quarterly on the Former Facility and Former Term Loan. The Former Credit Agreement also contained certain fees.
Senior Unsecured Notes.In August 2003, we issued $250.0 million 9.75% Senior Unsecured Notes, due 2013, at a price of 99.2% of par to yield 9.875%. Accordingly, the net proceeds before issuance costs were $248.0 million. The discount is being amortized over the life of the Senior Unsecured Notes. The Senior Unsecured Notes require semi-annual interest payments on September 1 and March 1, beginning on March 1, 2004. The Senior Unsecured Notes are redeemable at our option, in whole or in part, any time after September 1, 2008 at set redemption prices. We are required to offer to purchase the Senior Unsecured Notes at a set redemption price should there be a change in control. The Senior Unsecured Notes contain covenants which restrict or limit our ability to declare or pay dividends, incur additional debt or liens, issue stock, engage in affiliate transactions, undergo a change in control or sell assets. We are in compliance with these covenants at August 31, 2003. The Senior Unsecured Notes are guaranteed by us and certain of our subsidiaries.
Senior Subordinated Notes. Our Senior Subordinated Notes require semi-annual interest payments on September 1 and March 1. In connection with the issuance of the Senior Unsecured Notes in August 2003, as described above, we repurchased 95% of the outstanding senior subordinated notes at par and executed a supplemental indenture on our Senior Subordinated Notes which eliminated substantially all of the restrictive covenants in the Senior Subordinated Notes which remain outstanding. We continue to be required to make interest payments on the Senior Subordinated Notes and will be required to pay off $4.2the remaining aggregate principal amount outstanding at maturity in 2008.
Industrial Revenue Bonds.Our industrial revenue bonds require monthly interest payments at variable interest rates based on the market for similar issues and are secured by letters of credit issued under the New Facility described above.
Preferred Stock.Our preferred stock increased $12.3 million during 2003 as a result of long-term debt,accretion of the liquidation preference and the accrual for preferred dividends. The liquidation preference of the Preferred Stock was fully accreted to fund$141.9 million in the aggregate at March 1, 2003. Commencing March 1, 2003, dividends on our capital expendituresPreferred Stock became cash payable at 11.75% per annum of the liquidation preference if and reductionswhen declared by the Board of Directors; the first semiannual dividend payment of $8.3 million was due September 1, 2003. The New Credit Agreement and the Senior Unsecured Notes contain financial covenants that currently prohibit us from paying dividends on the preferred stock. Our Board of Directors did not declare a cash dividend as of September 1, 2003. If we do not pay cash dividends on the preferred stock, then holders of the preferred stock may become entitled to elect a majority of our Board of Directors. Dakruiter S.A. and Harbourgate B.V., both companies controlled by Granaria Holdings B.V., our controlling common shareholder, hold approximately 78% of our preferred stock, and therefore Granaria Holdings B.V. would continue to be able to elect our entire Board of Directors. The election of a majority of the directors is the only remedy of holders of the preferred stock for a failure to pay cash dividends. Unpaid dividends are cumulative but do not bear interest.
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Shareholders’ Deficit.Our shareholders’ deficit increased $1.6 million during 2003 primarily due to our comprehensive income of $9.8 million and the issuance of common shares from our Treasury of $0.9 million, which was more than offset by the accretion and accrual of preferred stock dividends of $12.3 million.
We are currently evaluating our assumptions regarding discount rates and rates of investment return to be used to determine the funded status of our pension plans as of November 30, 2003 and the related pension expense for 2004. Based on the significant decline in accounts payableinterest rates since November 2002, our discount rate, used to calculate the present value of pension liabilities, will decrease from 6.95% at November 30, 2002 to a currently estimated range of 6.00% to 6.25% as of November 30, 2003. This decrease in discount rates will increase our pension benefit obligation amounts as of November 30, 2003 and accrued liabilities.may result in the plan being underfunded, as opposed to our overfunded position as of November 30, 2002.
If the plan is determined to be underfunded by any amount, we will be required to write-off approximately 95% of our intangible prepaid pension asset of $55.6 million as of August 31, 2003 by a non-cash charge to other comprehensive income (“OCI”), resulting in an increased deficit in our stockholders’ equity. There is also a potential that we may need to record a non-cash charge to OCI to establish a pension liability for the underfunded amount. In addition, at the recommendation of our actuary, we are considering whether to adopt a more recently issued actuarial mortality table, which would also have the impact of increasing our unfunded liability by approximately $13.0 million.
The write-off to OCI of the prepaid pension asset, the accrual for the unfunded liability, and the accrual for the potential additional liability relating to the new mortality table are all non-cash items that are required under United States generally accepted accounting principles (“GAAP”). The accounting treatment under GAAP is different from the funding requirements mandated by the Employee Retirement Income Security Act of 1974 (“ERISA”). Accordingly, we do not expect these non-cash charges to OCI to impact the need for potential cash contributions to our pension plans for the next several years. Under the pension funding assumptions currently being evaluated, we do not anticipate a requirement for any cash contributions during the next several years. However, at our discretion, we may make voluntary contributions from time to time, based on our cash position and overall financial status, and the potential to further strengthen the funded status of the plans over the long term.
Accounts Receivable Asset-Backed Securitization (Qualifying Special Purpose Entity)
During the first quarter of 2002, we entered into an agreement with a major U.S.United States financial institution to sell an interest in certain receivables through an unconsolidated qualifying special purpose entity, EaglePicher Funding Corporation (“EPFC”). Initially $47.0 million of proceeds from this new facility were used primarily to payoff amounts outstanding under our existingprior Receivables Loan Agreement with our wholly owned subsidiary, EaglePicher Acceptance Corporation. This agreement provides for the sale of certain receivables to EPFC, which in turn sells an interest in a revolving pool of receivables to the financial institution. EPFC has no recourse against us for failure of the debtors to pay when due. TheIn the third quarter of 2003, we amended this agreement provides forto extend the continuation of thereceivables program on a revolving basis until the earlier of a)(a) 90 days prior to the maturity of our senior credit facility,New Credit Agreement or b) assuming we are able to refinance our senior credit facility, the fourth quarter of 2004.(b) January 2008.
We account for the securitization of these sold receivables in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—Liabilities–a Replacement of FASB Statement No. 125.” Under this guidance, at the time the receivables are sold, the balances are removed from our financial statements. For purposes of calculating our debt covenant compliance under our New Credit Agreement, we include the debt outstanding onobligations of EPFC.
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In conjunction with the initial transaction during 2002, we sold $82.5 million of receivables to EPFC, and we incurred charges of $1.5 million, which arewere included in Interest Expense in the accompanying condensed consolidated statements of income (loss) for the three-monthsnine-months ended February 28,August 31, 2002. We continue to service sold receivables and receive a monthly servicing fee from EPFC of approximately 1% per annum of the receivable pool’s average balance. As this servicing fee approximates our cost to service, no servicing asset or liability has been recorded at November 30, 2002 or February 28,August 31, 2003. We retain an interest in a portion of the receivables transferred, representing an over collateralization on the securitization. Our involvement with both this over collateralization interest and the transferred
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receivables is generally limited to the servicing performed. The carrying value of our interest in the receivables is carriedrecorded at fair value, which is estimated as its net realizable value due to the short duration of the receivables transferred. The net realizable value considers the collection period and includes an estimated provision for credit losses and returns and allowances, which is based on our historical results and probable future losses.
At November 30, 2002, our interest in EPFC including a service fee receivable, was $29.4 million and the revolving pool of receivables that we serviced totaled $77.5 million. At November 30, 2002, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was $46.5 million. At February 28,
As of August 31, 2003, we reduced the amount due to the financial institution by EPFC. Accordingly, our interest in EPFC including a service fee receivable, was $29.4$66.5 million and the revolving pool of receivables that we serviced totaled $75.0$67.9 million. At February 28,August 31, 2003, the outstanding balance of the interest sold to the financial institution recorded on EPFC’s financial statements was $43.8 million.zero. The effective interest rate as of February 28, 203for the nine month period ended August 31, 2003 in the securitization was approximately 2.5%2.58%.
We believe that EPFC is an important element of our ability to manage our liquidity, capital resources and credit risk with certain major customers.
Credit Agreement EBITDA
In our New Credit Agreement, we have certain financial covenants, as discussed below in Credit Agreement and Accounts Receivable Asset-Backed Securitization (Qualifying Special Purpose Entity) Financial Covenants,
EPFC has two financial covenants contained which we believe are significant and material in its asset-backed securitization agreement. They are a minimum fixed charge coverage ratio (the ratiothe context of totalour capital structure. Credit Agreement EBITDA (earningsis defined as earnings before interest, income taxes, depreciation, amortization, and amortization) minus capital expenditures to the sum of interest expense, scheduled payments of principal on debt, cash income taxes, and cash dividends, allcertain non-cash items, as defined in the agreement), and a minimum EBITDA (as defined in the agreement) amount. These ratios and amounts are calculated based on the financial statement amounts of EaglePicher Holdings, Inc. and EPFC, which is not consolidated in our financial statements as EPFC is an off balance sheet qualifying special purpose entity.
As of February 28, 2003, we were in compliance with the covenant calculations described above. Additionally, based on the required calculations, we could have had $30.6 million less in EBITDA (as calculated above) minus actual capital expenditures, or $22.5 million more of interest expense, scheduled payments of principal on debt, cash income taxes, and cash dividends, and continued to remain in compliance with EPFC’s financial covenants.
In the event that EPFC failed to meet one of theNew Credit Agreement. We believe these financial covenants listed above, we would not be required to buy back any receivables from EPFC that had not been collected; however, we would no longer be able to sell any future receivables to EPFC. In addition, if EPFC fails to meet oneare a material piece of information for the readers of our reports. To support our readers’ understanding of these financial covenants and our compliance with them, we would be in default underhave provided below a reconciliation from Generally Accepted Accounting Principles (GAAP) Net Income (Loss) to Credit Agreement EBITDA. For purposes of calculating our senior credit facility. This could have a significant impact on our liquidity and capital resources. We believe thatagreement financial covenants, Credit Agreement EBITDA is based on the last twelve months of operating results, which is summarized below.
Credit Agreement EBITDA is also presented herein because we believe it is a useful supplement to net income. We use this measurement as part of our projected 2003evaluation of core operating results EPFCand underlying trends and therefore believe it is a key measure of our performance. However, Credit Agreement EBITDA, which does not represent operating income or net cash provided by operating activities, as those items are defined by GAAP, should not be considered by readers as an alternative to operating income or cash flow from operations or indicative of whether cash flows will remain in compliance with its financialbe sufficient to fund our future cash requirements. Funds depicted by Credit Agreement EBITDA are not available for our discretionary use to the extent they are required for debt covenants; however, there is no assurance this will occur.service and other commitments. In addition, Credit Agreement EBITDA may differ from and may not be comparable to similarly titled measures used by other companies.
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Capitalization
Our capitalization, which excludes the debt ofThe following is a reconciliation from Net Income (Loss) to our off-balance sheet qualifying special purpose entity, consisted of the following atCredit Agreement EBITDA (in thousands of dollars):
November 30, | February 28, | ||||||||
2002 | 2003 | ||||||||
Credit Agreement: | |||||||||
Revolving credit facility, due February 27, 2004 | $ | 121,500 | $ | 136,000 | |||||
Term loan, due 2003 | 16,925 | 12,693 | |||||||
Senior Subordinated Notes, 9.375% interest, due 2008 | 220,000 | 220,000 | |||||||
Industrial Revenue Bonds, 1.8% to 2.2% interest, due 2005 | 15,300 | 15,300 | |||||||
373,725 | 383,993 | ||||||||
Preferred Stock | 137,973 | 141,910 | |||||||
Shareholders’ Deficit | (87,578 | ) | (88,790 | ) | |||||
$ | 424,120 | $ | 437,113 | ||||||
Quarter Ended | |||||||||||||||||
November 30, 2002 | February 28, 2003 | May 31, 2003 | August 31, 2003 | ||||||||||||||
Net Income (Loss) | $ | (5,086 | ) | $ | 1,168 | $ | 7,686 | $ | (4,226 | ) | |||||||
Loss from discontinued business, net | 1,366 | 928 | 542 | 213 | |||||||||||||
Loss on disposal of discontinued business, net | — | — | 2,978 | 267 | |||||||||||||
Income taxes | (17 | ) | 896 | 1,150 | 804 | ||||||||||||
Interest expense | 8,216 | 8,373 | 8,319 | 9,249 | |||||||||||||
Depreciation and amortization | 16,043 | 11,114 | 10,916 | 12,768 | |||||||||||||
Restructuring expense | 2,900 | — | — | — | |||||||||||||
Loss from divestitures | 366 | — | — | — | |||||||||||||
Long-term bonus and share appreciation plans expense | 420 | 600 | 700 | 700 | |||||||||||||
Pension plan expense (income), net | (1,795 | ) | 177 | 505 | (1,500 | ) | |||||||||||
Write-off of deferred financing costs | — | — | — | 6,327 | |||||||||||||
Other, net | (200 | ) | — | — | (415 | ) | |||||||||||
EBITDA impact from discontinued operations | 860 | 601 | 939 | 100 | |||||||||||||
Quarterly Credit Agreement EBITDA | $ | 23,073 | $ | 23,857 | $ | 33,735 | $ | 24,287 | |||||||||
Last Twelve Months Credit Agreement EBITDA | $ | 104,952 | |||||||||||||||
Credit Agreement.We have a syndicated senior secured loan facility (“Credit Agreement”) providing an original term loan (“Term Loan”) of $75.0 million, as amended, and a $220.0 million revolving credit facility (“Facility”). The Facility and the Term Loan bear interest, at our option, at LIBOR rate plus 2.75%, or the bank’s prime rate plus 1.5%. Interest is generally payable quarterly on the Facility and Term Loan. We have entered into interest rate swap agreements to manage our variable interest rate exposure.
At February 28, 2003, we had $40.2 million in outstanding letters of credit under the Facility, which together with borrowings of $136.0 million, made our available borrowing capacity $43.8 million. However, due to various financial covenant limitations under the Credit Agreement we could only incur an additional $39.9 million of indebtedness at February 28, 2003. The Credit Agreement also contains certain fees. There are fees for letters of credit equal to 2.75% per annum for all issued letters of credit, and there is a commitment fee on the Facility equal to 0.5% per annum of the unused portion of the Facility. If we meet or fail to meet certain financial benchmarks, the interest rate spreads on the borrowing, the commitment fees and the fees for letters of credit may be reduced or increased.
The Credit Agreement is secured by our capital stock, the capital stock of our domestic United States subsidiaries, a certain portion of the capital stock of our foreign subsidiaries, and substantially all other property of our United States subsidiaries. Additionally, the Credit Agreement is guaranteed by us and certain of our subsidiaries.
The Credit Agreement contains covenants that restrict our ability to declare dividends or redeem capital stock, incur additional debt or liens, alter existing debt agreements, make loans or investments, form joint ventures, undergo a change in control or engage in mergers, acquisitions or asset sales. These covenants also limit the annual amount of capital expenditures and require us to meet certain minimum financial ratios. For purposes of calculating our debt compliance under our Credit Agreement, we include the debt outstanding on EPFC, our off-balance sheet qualifying special purpose entity. See Accounts Receivable Asset-Backed Securitization above for a detailed discussion of EPFC. Also, see Credit Agreement Financial Covenants below for a summary of the debt covenant requirements. We were in compliance with all covenants at February 28, 2003.
Senior Subordinated Notes.Our Senior Subordinated Notes, due in 2008, require semi-annual interest payments on September 1 and March 1. The Senior Subordinated Notes, which are unsecured, are redeemable at our option, in whole or in part, any time after February 28, 2003 at set redemption prices. We are required to offer to purchase the Senior Subordinated Notes at a set redemption price should there be a change in control. The Senior Subordinated Notes contain covenants which restrict or limit our ability to declare or pay dividends, incur additional debt or liens, issue stock, engage in affiliate transactions, undergo a change in control or sell assets. We are in compliance with these covenants at February 28, 2003. The Senior Subordinated Notes are guaranteed by us and certain of our subsidiaries.
Industrial Revenue Bonds.Our industrial revenue bonds require monthly interest payments at variable interest rates based on the market for similar issues and are secured by letters of credit issued under the Facility described above.
27
Preferred Stock.Our preferred stock increased $3.9 million during 2003 as a result of mandatory dividend accretion. Commencing March 1, 2003, dividends on our Cumulative Redeemable Exchangeable Preferred Stock became cash payable at 11.75% per annum; the first semiannual dividend payment of $8.3 million is due September 1, 2003. If we do not pay cash dividends on the preferred stock, then holders of the preferred stock become entitled to elect a majority of our Board of Directors. Dakruiter S.A., a company controlled by Granaria Holdings B.V., our controlling common shareholder, holds a majority of our preferred stock, and therefore Granaria Holdings B.V. would continue to be able to elect our entire Board of Directors.
Granaria Holdings B.V. and certain executive officers have agreed to buy the 69,500 shares of our Common Stock held in our Treasury for $13.00 per share, or a total price of $0.9 million. This transaction is expected to be completed in the second quarter of 2003. In addition, Granaria Holdings B.V. and certain executive officers have agreed to purchase for $13.00 per share any future common stock re-purchases by us.
Shareholders’ Deficit.Our shareholders’ deficit increased in 2003 primarily due to the required accretion of our preferred stock discussed above, which was partially offset by our comprehensive income of $2.7 million.
Credit Agreement Financial Covenants
There are three financial covenants contained in our senior secured credit agreement.New Credit Agreement and the Accounts Receivable Asset-Backed Securitization, as amended. They are a leverage ratio (the ratio of total debt, less cash onincluding the balance sheetobligations of our accounts receivable asset-backed securitization, to EBITDA, as defined in the agreement)Credit Agreement EBITDA), an interest coverage ratio (the ratio of Credit Agreement EBITDA as defined in the agreement, to interest expense) and a fixed charge coverage ratio (the ratio of Credit Agreement EBITDA as defined in the agreement,minus capital expenditures to the sum of interest expense plus requiredscheduled principal payments plus cash dividends paid plus income taxes paid). For purposes of determining outstanding debt under our, all as defined in the New Credit Agreement we includeand the debt outstanding on EPFC, our off-balance sheet qualifying special purpose entity. See Accounts Receivable Asset-Backed Securitization, above for a detailed discussion of EPFC.
as amended. As of February 28,August 31, 2003, we were in compliance with the covenant calculations described above. Additionally, for purposes of the leverage ratio defined above, we could have had $15.2 million less in EBITDA, or $72.2 million more in total debt less cash on the balance sheet and continued to remain in compliance with the Credit Agreement’s financial covenants.
As discussed above under Accounts Receivable Asset-Backed Securitization (Qualifying Special Purpose Entity) Financial Covenants, as of February 28, 2003, we were in compliance with the covenants in our securitization Additionally, based on the required calculations of the securitization, we could have had $30.6 million less in EBITDA (as calculated above in accordance with the securitization) minus actual capital expenditures, or $22.5 million more of interest expense, scheduled payments of principal on debt, cash income taxes, and cash dividends, and continued to remain in compliance with the securitization’s financial covenants.44
The following table presents the required ratios under our New Credit Agreement and the actual ratios.ratios at August 31, 2003.
Minimum | |||||||||||||
Minimum | Fixed Charge | ||||||||||||
Maximum | Interest | Coverage | |||||||||||
Leverage Ratio | Coverage Ratio | Ratio | |||||||||||
(not more than) | (not less than) | (not less than) | |||||||||||
November 30, 2002 | |||||||||||||
Required | 4.75 | 2.00 | 1.25 | ||||||||||
Actual | 4.02 | 2.63 | 1.65 | ||||||||||
February 28, 2003 | |||||||||||||
Required | 4.75 | 2.25 | 1.35 | ||||||||||
Actual | 4.02 | 2.75 | 1.74 | ||||||||||
May 31, 2003 | |||||||||||||
Required | 4.50 | 2.25 | 1.35 | ||||||||||
August 31, 2003 | |||||||||||||
Required | 4.25 | 2.25 | 1.40 | ||||||||||
November 30, 2003 | |||||||||||||
Required | 4.25 | 2.50 | 1.40 |
Minimum | |||||||||||||
Minimum | Fixed | ||||||||||||
Maximum | Interest | Charge Coverage | |||||||||||
Leverage Ratio | Coverage Ratio | Ratio | |||||||||||
(not more than) | (not less than) | (not less than) | |||||||||||
August 31, 2003 | |||||||||||||
Required | 4.50 | 2.25 | 1.25 | ||||||||||
Actual | 4.05 | 3.07 | 1.69 | ||||||||||
November 30, 2003 | |||||||||||||
Required | 4.50 | 2.25 | 1.25 | ||||||||||
February 28, 2004 | |||||||||||||
Required | 4.50 | 2.25 | 1.25 | ||||||||||
May 31, 2004, | |||||||||||||
Required | 4.50 | 2.25 | 1.25 | ||||||||||
August 31, 2004 | |||||||||||||
Required | 4.50 | 2.25 | 1.25 | ||||||||||
November 30, 2004 | |||||||||||||
Required | 4.25 | 2.35 | 1.25 |
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Based on our projections for 2003, which are described under the Company Outlook section under the Results of Operations above, we expect to remain in compliance with all covenants. However, any adverse changes in actual results from projections, along with the contractual tightening of the covenants under the New Credit Agreement, wouldmay place us at risk of not being able to comply with all of the covenants of the New Credit Agreement. In the event we cannot comply with the terms of the New Credit Agreement as currently written, it would be necessary for us to obtain a waiver or renegotiate our loan covenants, and there can be no assurance that such negotiations will be successful. In addition, EPFC would be in default under our accounts receivable asset-backed securitization, described above, and we wouldmay need to obtain a waiver. Any agreements to amend the covenants and/or obtain waivers wouldmay likely require us to pay a fee and increase the interest rate payable under the New Credit Agreement. The amount of such fee and increase in interest rate would be determined in the negotiations of the amendment.
Contractual Obligations and Other Commercial Commitments
We have includedupdated our long-term debt commitments as a summaryresult of the refinancing discussed above. Accordingly, we are updating our Contractual Obligations and Other Commercial Commitments intable since the filing of our annual report on Form 10-K for the year ended November 30, 2002, filed on March 3, 2003. There have been no material changes to our Other Commercial Commitments table as disclosed in our Form 10-K for the summary providedyear ended November 30, 2002, filed on March 3, 2003.
Payments by Fiscal Period End | |||||||||||||||||||||||||||||
Beyond | |||||||||||||||||||||||||||||
Total | 2003 | 2004 | 2005 | 2006 | 2007 | 2007 | |||||||||||||||||||||||
Contractual Cash Obligations: | |||||||||||||||||||||||||||||
Long-term Debt | $ | 425.0 | $ | 2.2 | $ | 3.6 | $ | 13.7 | $ | 1.9 | $ | 1.5 | $ | 402.1 | |||||||||||||||
Operating Lease Commitments | 21.6 | 5.5 | 5.0 | 3.3 | 2.6 | 2.4 | 2.8 | ||||||||||||||||||||||
Preferred Stock | 150.2 | — | — | — | — | — | 150.2 | ||||||||||||||||||||||
Advisory Agreement | 9.4 | 1.8 | 1.8 | 1.8 | 1.8 | 1.8 | 0.4 | ||||||||||||||||||||||
GMAC Legal Settlement | 5.4 | 3.6 | 0.9 | 0.9 | — | — | — | ||||||||||||||||||||||
Environmental Liability | 5.6 | 2.7 | 1.7 | 0.4 | 0.4 | 0.4 | — | ||||||||||||||||||||||
$ | 617.2 | $ | 15.8 | $ | 13.0 | $ | 20.1 | $ | 6.7 | $ | 6.1 | $ | 555.5 | ||||||||||||||||
45
Our 11.75% Cumulative Redeemable Exchangeable Preferred Stock is scheduled for redemption on March 1, 2008. However, if we do not redeem the Preferred Stock, the only remedy of holders is to elect a majority of our board of directors. Holders of the Preferred Stock do not have a right to obtain a judgment against us for the redemption amount or to obtain equitable relief requiring us to redeem the Preferred Stock. We have included in that report.the above table the current Preferred Stock balance on our balance sheet but have excluded any future dividend accruals or payments.
Earnings to Fixed Charges and Preferred Stock Dividends
During the third quarter of 2003, our earnings were insufficient to cover fixed charges and preferred stock dividends by $1.9$7.1 million, and induring the third quarter of 2002, our earnings were insufficient to cover fixed charges and preferred stock dividends by $9.3$4.7 million. This improvement isThe deterioration of our fixed charge ratio was primarily relateddue to ourthe write-off of deferred financings costs in the third quarter of 2003, partially offset by improved operating performance and our adoption of SFAS No. 142 on December 1, 2002, which no longer requires us to recognize goodwill amortization expense. During the first nine months of 2003, our ratio of earnings to fixed charges and preferred stock dividends was 1.00x, and during the first nine months of 2002, our earnings were insufficient to cover fixed charges and preferred stock dividends by $37.3 million. These improvements are primarily related to our improved operating performance, and our adoption of SFAS No. 142 on December 1, 2002.
Recently Released or Adopted Accounting Standards
In June 2001, the FASB issued SFAS No. 142, “Goodwill and Intangible Assets” and effective December 1, 2002, we adopted this standard. This standard addresses goodwill and other intangible assets that have indefinite useful lives and, as such, prescribes that these assets will not be amortized, but rather tested, at least annually, for impairment. This standard also provides specific guidance on performing the annual impairment test for goodwill and intangibles with indefinite lives. Under this new accounting standard, we no longer amortize our goodwill and are required to complete an annual impairment test. We have had approximately $16.0 million of goodwill amortization per year that is no longer recognized as expense. We have determined that we have six reporting units, as defined in SFAS No. 142, within our three reportable business segments. We have completed our initial impairment test as of December 1, 2002 and determined that no impairment charge exists.
In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived assets and depreciated over their estimated useful life while the liability is accreted to its expected obligation amount upon retirement. We adopted SFAS No. 143 on December 1, 2002. The adoption of this statement did not have a material impact on our financial condition or results of operations.
In September 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which superceded SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” The primary difference is that goodwill and certain intangibles with indefinite lives have been removed from the scope of SFAS No. 144, as they are covered by SFAS No. 142, as described above.142. It also broadens the presentation of discontinued operations to include a component of an entity rather than a segment of a business. A component of an entity comprises operations and cash flows that can clearly be distinguished operationally and for financial accounting purposes from the rest of the entity. We adopted SFAS No. 144 on December 1, 2002. The adoption did not have a material impact on2002 and accounted for the sale of our financial condition or resultsHillsdale U.K. Automotive operation and the sale of operations.certain assets of our Germanium-based business in our Technologies Segment in accordance with this statement.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or disposalDisposal Activities,” which is effective for exit or disposal activities initiated after December 31, 2002. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The adoption of this statement did not have a material impact on our financial condition or results of operations.
29 On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 20, 2003, for hedging relationships designated after June 30, 2003, and to certain preexisting contracts. We adopted SFAS No. 149 on a prospective basis at its effective date on July 1, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.
In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and
46
measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments. Mandatorily redeemable financial instruments are subject to the provisions of this statement beginning on January 1, 2004. We have not completed our evaluation of the impact, if any, the adoption of this statement will have on our financial condition or results of operations.
In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”) “Guarantor’s Accounting and Disclosure requirementsRequirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantor’s obligations does not apply to product warranties or to guarantees accounted for as derivatives. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. FIN 45 does not affect the accounting for guarantees issued prior to the effective date, unless the guarantee is modified subsequent to December 31, 2002. We adopted the disclosure requirements on December 1, 2002, and the initial recognition and measurement provisions in our February 28, 2003 financial statements. The adoption of FIN 45this interpretation did not have a material impact on our financial condition or results of operations.
In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”) “Consolidation of Variable Interest Entities.” Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns. FIN 46 applies to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest in after that date. A public entity with a variable interest in a variable interest entity created before February 1, 2003, shall apply the provisions of this interpretation (other than the transition disclosure provisions in paragraph 26) to that entity no later than the beginning of the first interim or annual reporting period beginning after JuneDecember 15, 2003. The related disclosure requirements arewere effective immediately. The impact of this interpretation is not expected to have a material impact on our financial condition or results of operations.
In November 2002, the EITF issued EITF 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF 00-21 prescribes a method to account for contracts that have multiple elements or deliverables. It provides guidance on how to allocate the value of a contract to its different deliverables, as well as guidance on when to recognize revenue allocated to each deliverable over its performance period. We are required to adopt EITF 00-21 on December 1,for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We are evaluating the impact EITF 00-21 will have on us, but do not expect it to have a material impact on our financial condition or results of operations.
Forward Looking Statements
This report contains statements which, to the extent that they are not statements of historical fact, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934. The words “estimate,” “anticipate,” “project,” “intend,” “believe,” “expect,” and similar expressions are intended to identify forward-looking statements. Forward looking statements in this report include, but are not limited to, any statements under the “Company Outlook” heading. Such forward-looking information involves risks and uncertainties that could cause actual results to differ materially from those expressed in any such forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to maintain existing relationships with customers, demand for our products, our ability to successfully implement productivity improvements and/or cost reduction initiatives, our ability to develop, market and sell new products, our ability to obtain raw materials, increased government regulation or changing regulatory policies resulting in conditions, acquisitions and divestitures, technological developments and changes in the competitive environment in which we operate. Persons reading this report are cautioned that such forward-looking statements are only predictions and that actual events or results may differ materially.
47
Item 3.Quantitative and Qualitative Disclosures About Market RiskRisk.
We have included a summary of our Quantitative and Qualitative Disclosure About Market Risk in our annual report on Form 10-K for the year ended November 30, 2002, filed on March 3, 2003. There have been no material changes to the summary provided in that report.
30
Item 4.Controls and ProceduresProcedures.
Our management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures within 90 daysas of the filingend of the period covered by this report as required by the rules of the Securities and Exchange Commission. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be filed in this report has been made known to them in a timely manner. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date our Chief Executive Officer and our Chief Financial Officer completed their evaluation.
PART II. OTHER INFORMATION
Item 1.Legal ProceedingsProceedings.
Please refer to Note GL regarding Legal Matters contained in Part I, Item 1 of this report, which is incorporated by reference in this Part II, as its Item 1.
Item 6.Exhibits and Reports on Form 8-K8-K.
(a) Exhibits:
Purchase Agreement dated as of July 31, 2003 between EaglePicher Incorporated | ||||
10.69 - | Registration Rights Agreement dated as of August 7, 2003 between EaglePicher Incorporated, certain of its subsidiaries and UBS Securities LLC, ABN AMRO Incorporated, Banc One Capital Markets, Inc., Harris Nesbitt Corp. and PNC Capital Markets, Inc. | |||
10.70 - | ||||
10.71 - | Credit Agreement dated as of August 7, 2003 among EaglePicher Holdings, Inc., EaglePicher Incorporated, certain of its subsidiaries, Harris Trust and Savings Bank, as administrative agent, ABN AMRO Incorporated and UBS Securities LLC, as co-syndication agents, Bank One, NA and PNC Bank, National Association, as co-documentation agents, GE Capital Corporation, as collateral agent, and various lenders party thereto. | |||
10.72 - | Guarantee and Collateral Agreement dated as of August 7, 2003 among EaglePicher Holdings, Inc., EaglePicher Incorporated, certain of its subsidiaries and Harris Trust and Savings Bank, as administrative agent. | |||
10.73 - | Amendment No. 3 to Receivables Purchase and Servicing Agreement dated a of August 7, 2003 among EaglePicher Incorporated, certain of its subsidiaries, EaglePicher Funding Corporation and General Electric Capital Corporation. | |||
10.74 - | Amended and Restated Executive Employment Agreement dated | |||
12.1 | Ratios of Earnings to Fixed Charges and Preferred Stock Dividends | |||
31.1 - | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended | |||
31.2 - | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended |
48
32.1 - | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 - | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(b) Reports on Form 8-K8-K:
• | Form 8-K, filed | ||
• | Form 8-K, filed | ||
• | Form 8-K, filed July 24, 2003 concerning our press releases dated July 23, 2003 | ||
• | Form 8-K, filed | ||
• | Form 8-K, filed August 8, 2003 concerning our press release dated August 7, 2003 |
3149
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.
EAGLEPICHER HOLDINGS, INC. | ||
/s/ Thomas R. Pilholski | ||
Thomas R. Pilholski | ||
Senior Vice President and Chief Financial Officer | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3250
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.
EAGLEPICHER INCORPORATED | ||
/s/ Thomas R. Pilholski | ||
Thomas R. Pilholski | ||
Senior Vice President and Chief Financial Officer | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3351
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/ Thomas R. Pilholski | ||
Thomas R. Pilholski | ||
Vice President | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3452
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.
EAGLEPICHER DEVELOPMENT CO., INC. | ||
/s/ Thomas R. Pilholski Thomas R. Pilholski | ||
Vice President | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3553
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.
EAGLEPICHER FAR EAST, INC. | ||
/s/ Thomas R. Pilholski Thomas R. Pilholski | ||
Vice President | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3654
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.
EAGLEPICHER FILTRATION | ||
/s/ Thomas R. Pilholski Thomas R. Pilholski | ||
Vice President | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3755
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.
EAGLEPICHER TECHNOLOGIES, LLC | ||
/s/ Bradley J. Waters Bradley J. Waters | ||
Vice President and Chief Financial Officer | ||
(Principal Financial Officer) |
DATE April 14,October 9, 2003
3856
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.
EAGLEPICHER AUTOMOTIVE INC. (F/K/A HILLSDALE TOOL & MANUFACTURING CO.) | ||
/s/ Thomas R. Pilholski Thomas R. Pilholski | ||
Vice President | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
3957
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 CORP.) | ||
/s/ Thomas R. Pilholski Thomas R. Pilholski | ||
Vice President | ||
(Principal Financial Officer) |
DATE: April 14,October 9, 2003
40
CERTIFICATIONS
I, John H. Weber, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EaglePicher Holdings, Inc. , EaglePicher Incorporated, Daisy Parts, Inc., EaglePicher Development Co., Inc., EaglePicher Far East, Inc., EaglePicher Filtration and Minerals, Inc., EaglePicher Technologies, LLC, Hillsdale Tool & Manufacturing Co. and EPMR Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
I, Thomas R. Pilholski, Senior Vice President and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EaglePicher Holdings, Inc. , EaglePicher Incorporated, Daisy Parts, Inc., EaglePicher Development Co., Inc., EaglePicher Far East, Inc., EaglePicher Filtration and Minerals, Inc., EaglePicher Technologies, LLC, Hillsdale Tool & Manufacturing Co. and EPMR Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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EXHIBIT INDEX
Exhibit | ||||
Number | ||||
10.68 - | Purchase Agreement dated as of July 31, 2003 between EaglePicher Incorporated and UBS Securities LLC, ABN AMRO Incorporated, Banc One Capital Markets, Inc., Harris Nesbitt Corp. and PNC Capital Markets, Inc. | |||
Registration Rights Agreement dated as of August 7, 2003 between EaglePicher Incorporated, | ||||
10.70 - | Indenture dated as of August 7, 2003 between EaglePicher Incorporated, certain of its subsidiaries and Wells Fargo Bank, National Association, as trustee. | |||
10.72 - | Guarantee and Collateral Agreement dated as of August 7, 2003 among EaglePicher Holdings, Inc., EaglePicher Incorporated, certain of its subsidiaries and Harris Trust and Savings Bank, as administrative agent. | |||
10.73 - | Amendment No. 3 to Receivables Purchase and Servicing Agreement dated a of August 7, 2003 among EaglePicher Incorporated, certain of its subsidiaries, EaglePicher Funding Corporation and General Electric Capital Corporation. | |||
10.74 - | Amended and Restated Executive Employment Agreement dated | |||
12.1 | Ratios of Earnings to Fixed Charges and Preferred Stock Dividends | |||
31.1 - | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended | |||
31.2 - | Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as Amended | |||
32.1 - | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
32.2 - | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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