1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 29,May 31, 2000 Commission file number 333-49957-01
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EAGLE-PICHER HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
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(Not Applicable)
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -------- ---
Indicate by check mark whether the additional registrant, Eagle-Picher
Industries, Inc., has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes X No
----- -------- ---
625,001 shares of Class A common capital stock, $.01 par value each, were
outstanding at April 11,July 13, 2000.
374,999 shares of Class B common capital stock, $.01 par value each, were
outstanding at April 11,July 13, 2000.
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TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------ ------
Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
EPMR Corporation (f/k/a Michigan
Automotive Research Corp.) Michigan 333-49957-08 38-2185909
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................Statements.............................................. 4
Condensed Consolidated Statements of Income (Loss)(Unaudited)................ 4
Condensed Consolidated Balance Sheets (Unaudited)........................................ 5
Condensed Consolidated Statements of Cash Flows (Unaudited).................... 7
Notes to Condensed Consolidated Financial Statements (Unaudited).......... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 18Operations............................... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 26Risk........ 28
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 27
Signatures............................................................... 288-K.................................. 29
Signatures................................................................. 30
Exhibit Index............................................................ 37Index.............................................................. 39
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended February 29(28)Six Months Ended
May 31 May 31
---------------------- ----------------------
2000 1999 ---- ----2000 1999
-------- -------- -------- --------
Net Sales $221,843 $194,443
-------$221,480 $249,818 $443,323 $444,261
-------- -------- -------- --------
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 177,568 151,746175,829 197,757 353,397 349,503
Selling and administrative 19,214 18,26419,189 19,721 38,403 37,985
Depreciation 12,312 10,11212,073 11,953 24,385 22,065
Amortization of intangibles 4,137 4,0204,124 4,395 8,261 8,415
Management compensation - special 1,560 -- 1,560 --
Proceeds from insurance settlement -- -- (16,000) --
Gain on sales of divisions (9,976)(4,333) -- (14,309) --
Gain on sales of assets (162) (34)
-------(226) 23 (388) (11)
-------- 187,093 184,108
--------------- -------- --------
208,216 233,849 395,309 417,957
-------- -------- -------- --------
Operating Income 34,750 10,33513,264 15,969 48,014 26,304
Interest expense (13,022) (11,342)(11,697) (12,107) (24,719) (23,449)
Other income(expense) (131) 169
-------(246) 157 (377) 326
-------- -------- -------- --------
Income (Loss) Before Taxes 21,597 (838)1,321 4,019 22,918 3,181
Income Taxes 11,000 300
-------2,750 1,650 13,750 1,950
-------- -------- -------- --------
Net Income (Loss) $10,597 $ (1,138)
=======(1,429) $ 2,369 $ 9,168 $ 1,231
======== ======== ======== ========
Income (Loss) Applicable to
Common Shareholders $ 7,637(4,224) $ (3,632)
=======(263) $ 3,413 $ (3,903)
======== ======== ======== ========
Income (Loss) per Common Share $ 7.64(4.22) $ (3.63)
=======(.26) $ 3.41 $ (3.90)
======== ======== ======== ========
Comprehensive Income Loss(Loss) $ 9,579(1,847) $ (2,109)
=======617 $ 7,732 $ (1,492)
======== ======== ======== ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
February 29May 31 November 30
ASSETS 2000 1999
---- ------------ --------
CURRENT ASSETS
Cash and cash equivalents $ 11,52811,282 $ 10,071
Receivables, less allowances 120,920122,575 122,499
Inventories:
Raw materials and supplies 48,35547,142 46,448
Work in process 29,12231,914 27,669
Finished goods 17,34115,785 16,382
-------- --------
94,81894,841 90,499
Net assets of operations to be sold 28,2062,697 64,201
Prepaid expenses 9,79510,804 7,063
Deferred income taxes 14,565 16,665
-------- --------
Total current assets 279,832256,764 310,998
-------- --------
PROPERTY, PLANT AND EQUIPMENT 323,021331,496 319,778
Less accumulated depreciation 76,51386,701 67,318
-------- --------
Net property, plant and equipment 246,508244,795 252,460
-------- --------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $30,153$34,130 and
$26,212, respectively 207,961204,163 205,565
-------- --------
OTHER ASSETS 70,93570,297 72,977
-------- --------
Total Assets $805,236$776,019 $842,000
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 50,91157,902 $ 50,588
Long-term debt - current portion 74,00982,277 86,318
Income taxes 10,81710,728 2,291
Other current liabilities 71,07364,410 63,869
-------- --------
Total current liabilities 206,810215,317 203,066
LONG-TERM DEBT - less current portion 408,683371,316 457,761
DEFERRED INCOME TAXES 10,086 10,086
OTHER LONG-TERM LIABILITIES 22,81124,301 23,820
-------- --------
Total Liabilities 648,390621,020 694,733
-------- --------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;
issued and outstanding 14,191 shares 100,916103,711 97,956
-------- --------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
February 29May 31 November 30
2000 1999
---- ------------ --------
SHAREHOLDERS' EQUITY
Class A Common stock, authorized 625,001 shares,
$.01 par value each; issued and outstanding
625,001 shares 6 6
Class B Common stock, authorized 374,999 shares,
$.01 par value each; issued and outstanding
374,999 shares 4 4
Additional paid-in capital 99,991 99,991
Deficit (42,265)(46,489) (49,902)
Other comprehensive income (1,806)(2,224) (788)
-------- --------
Total Shareholders' Equity 55,93051,288 49,311
-------- --------
Total Liabilities and Shareholders' Equity $805,236$776,019 $842,000
======== ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
ThreeSix Months Ended
February 29(28)May 31
-------------------------
2000 1999
---- ------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $10,597 $(1,138)$ 9,168 $ 1,231
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Depreciation and amortization 17,257 14,82634,262 31,876
Gain on sales of divisions (9,976)(14,309) --
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures:
Receivables 4,634 2,6912,728 9,010
Inventories (3,100) (5,494)(3,074) (6,883)
Accounts payable 10 (2,442)6,315 (7,755)
Accrued liabilities (3,696) (1,547)(11,593) (2,352)
Other 6,694 (6,377)
------- -------7,487 (3,645)
-------- --------
Net cash provided by
operating activities 22,420 519
------- -------30,984 21,482
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions 52,54383,880 12,400
Acquisition (6,758) --(6,839) (60,168)
Capital expenditures (6,443) (8,753)(17,767) (24,400)
Other 1,088 (220)
------- -------1,445 (592)
-------- --------
Net cash provided by (used in)
investing activities 40,430 3,427
------- -------60,719 (72,760)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (3,657) (10,977)(7,315) (13,469)
Net borrowings (repayments) under revolving
credit agreements (57,224) 3,886(82,398) 63,054
Other (512) (211)
------- -------(779) (675)
-------- --------
Net cash used inprovided by (used in)
financing activities (61,393) (7,302)
------- -------(90,492) 48,910
-------- --------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
ThreeSix Months Ended
February 29(28)May 31
------------------------
2000 1999
---- ------------ --------
Net increase (decrease) in cash and
cash equivalents 1,457 (3,356)1,211 (2,368)
Cash and cash equivalents, beginning of period 10,071 13,681
--------------- --------
Cash and cash equivalents, end of period $11,528 $ 10,325
=======11,282 $ 11,313
======== ========
Supplemental cash flow information: 2000 1999
---- ----
Cash paid during the three months ended February 29(28):May 31:
Interest paid $ 7,385 $ 6,201$15,976 $16,047
Income taxes paid, net $ 2712,984 $ 4,7783,220
Cash paid during the six months ended May 31:
Interest paid $23,361 $21,559
Income taxes paid, net $ 3,255 $ 7,998
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements of
Eagle-Picher Holdings, Inc. (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto included
for the fiscal year ended November 30, 1999 presented in the Company's Form 10-K
filed with the SEC on February 28, 2000.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the
three months and six months ended February 29,May 31, 2000 and February 28, 1999. Results of operations
for interim periods are not necessarily indicative of results to be expected for
an entire year. Certain prior year amounts have been reclassified to conform
with current year financial statement presentation.
B. BASIC EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding, which was 1,000,000 in the three months and
six months ended February 29,2000May 31, 2000 and February 28, 1999. The net loss applicable to common
shareholders represents the net income reduced by, or the net loss increased by,
accreted dividends on preferred stock of $3.0$2.8 million and $2.5$2.6 million for the
three months ended February 29(28),May 31, 2000 and 1999, respectively, and $5.8 and $5.1 for
the six months ended May 31, 2000 and 1999, respectively. No potential common
stock was outstanding during the three months ended February 29(28),May 31, 2000 or 1999.
C. ACQUISITIONS AND DIVESTITURES
On December 1, 1999, the Company acquired the assets of the depleted zinc
business of Isonics Corporation ("Isonics") for $8.2 million; $6.7 million of
which was paid upon closing and $1.5 million of which consists of contingent
cash payments over three years. In addition, the Company negotiated a warrant to
acquire four million shares of common stock of Isonics in exchange for materials
to be delivered in 2000. This acquisition, which was financed from the revolving
credit facility under the Company's credit agreement, was accounted for as a
purchase.
Effective March 15, 2000, the Company elected to exercise its warrant
using a "cashless exercise" feature where the Company will acquire fewer than
four million shares of stock and pay for such shares by surrendering a portion
of the warrant. The number of shares the Company will receive is currently being
negotiated; however, it is expected to be in excess of 3.1 million shares. This
investment was accounted for using the equity method.
On June 30, 2000, the Company acquired the stock of BlueStar Battery
Systems Corporation, a Canadian corporation, for $4.9 million which was financed
from the Company's revolving credit facility. This acquisition will be accounted
for as a purchase.
The proforma effects of these acquisitions will not be material to the
Company's operations for 2000 and 1999.
On September 1, 1999, the Board of Directors approved a plan to explore
the sale of several smaller divisions in order to focus on core businesses. On
May 31, 2000, the
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Company sold the assets of the Rubber Molding Division, including the stock of
its Spanish subsidiary, Eagle-Picher Rubber Molding S.A. In the first quarter of
2000, the Company sold the assets of the Ross Aluminum Foundries Division ("Ross
Aluminum") and the Michigan Automotive Research Corporation ("MARCO") and its
interest in the common stock of both units of the Fluid Systems Division in
three separate transactions. The aggregate net proceeds of all of the
transactions, which were approximately $52.5$83.9 million, were used to reduce
outstanding debt. The aggregate net gain of these transactions was approximately
$10.0$14.3 million. Subsequent to the sale of the assets of MARCO, the corporate name
of Michigan Automotive Research Corporation was changed 9
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to EPMR Corporation. The Company continues to explore the sale of other smaller
divisions, which are expected to take place in 2000.
D. INSURANCE PROCEEDS
On February 24, 2000, the Company settled claims against a former insurer
regarding environmental remediation costs for $16.0 million. The Company
received payment of this amount on February 28, 2000.
E. LEGAL MATTERS
For other information on legal proceedings, see Item 3 of the Company's
Annual Report on Form 10-K for the fiscal year ended November 30, 1999.
In addition, the Company is involved in routine litigation, environmental
proceedings and claims pending with respect to matters arising out of the normal
course of business. In management's opinion, the ultimate liability resulting
from all claims, individually or in the aggregate, will not materially affect
the Company's consolidated financial position, results of operations or cash
flows.
F. SEGMENT REPORTING
The Company has two reportable segments: automotive and industrial
products. The method for determining what information to report is based on the
way management organizes the operating segments within the company for making
operational decisions and assessing performance. The operations in the
Automotive Segment provide mechanical and structural parts for passenger cars,
vans, trucks and sport utility vehicles for original equipment manufacturers and
replacement markets. The operations in the Industrial Products Segment produce a
variety of products for the aerospace, nuclear, telecommunications electronics,
food and beverage and construction industries.
The accounting policies used to develop segment information correspond to
those disclosed in the Company's consolidated financial statements for the year
ended November 30, 1999 included in Form 10-K. Sales between segments are not
material. The Company does not allocate certain corporate expenses to its
segments.
Information about reported segment income or loss is as follows for the
three months ended February 29(28), 2000 and 1999:follows:
Three Months Ended February 29 (28)
----------------Six Months Ended
May 31 May 31
------------------- -------------------
2000 1999 ---- ----2000 1999
------ ------ ------ ------
(In thousandsmillions of dollars)
Net Sales
Automotive $142,793 $108,757$131.1 $156.1 $273.9 $264.9
Industrial 79,050 85,686
------- -------90.4 93.7 169.4 179.4
------ ------ ------ ------
Total $221,843 $194,443
======= =======$221.5 $249.8 $443.3 $444.3
====== ====== ====== ======
Income (Loss) Before Taxes:
Automotive $10,308 $2,507$ 6.7 $ 5.4 $ 17.0 $ 7.9
Industrial (2,156) (946).5 .6 (.3) (1.6)
Corporate 13,445 (2,399)(5.9) (2.0) 7.5 (4.4)
------ ------ ------ ------
Total $21,597 $ (838)1.3 $ 4.0 $ 22.9 $ 3.2
====== =========== ====== ======
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As previously mentioned, the Company sold its Ross Aluminum, MARCO and
Fluid Systems Divisions in the first quarter of 2000 and its Rubber Molding
Division in the second quarter of 2000. All were included in the Automotive
Segment. The net assets of these divisions, which were included in the caption
"Net assets of operations to be sold," were $35.1$59.1 million as of November 30,
1999.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS 131)
as of November 30, 1999. Additional information about reported segment income or
loss for the year ended November 30, 1999 in a format consistent with presenta-
tion under SFAS 131 is as follows:
Nine Months Twelve Months
Ended Ended
August 31, 1999 November 30, 1999
--------------- -----------------
Net Sales:
Automotive $405.7 $553.2
Industrial 269.9 360.1
------ ------
Total $675.6 $913.3
====== ======
Income (Loss) Before Taxes:
Automotive $ 8.3 $ (3.3)
Industrial .3 (7.1)
Corporate (7.1) (10.0)
------ ------
Total $ 1.5 $(20.4)
====== ======
G. SUPPLEMENTAL GUARANTOR INFORMATION
The indebtedness of the Company's wholly-owned subsidiary, Eagle-Picher
Industries, Inc. ("Subsidiary") includes a syndicated secured loan facility
("Credit Agreement") and $220.0 million in senior subordinated notes
("Subordinated Notes"). Both the Credit Agreement and the Subordinated Notes are
guaranteed on a full, unconditional and joint and several basis by the Company
and certain of the Subsidiary's wholly-owned domestic subsidiaries ("Subsidiary
Guarantors") including Carpenter Enterprises Ltd., which was acquired in 1999,
and Eagle-Picher Acceptance Corporation, which was formed in 1999. Management
has determined that full financial statements and other disclosures concerning
the Subsidiary or the Subsidiary Guarantors would not be material to investors
and such financial statements are not presented. The following supplemental
condensed combining financial statements present information regarding the
Subsidiary, the Subsidiary Guarantors and the subsidiaries that did not
guarantee the debt.
The Subsidiary and the Subsidiary Guarantors are subject to restrictions
on the payment of dividends under the terms of both the Credit Agreement and the
Indenture supporting the Subordinated Notes, both of which were filed with the
Company's Form S-4 Registration Statement No. 333-49957-01 filed on April 11,
1998 and both of which were incorporated by reference to the Company's Form 10-K
filed on February 28, 2000.
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBININGCOMBINED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 29,MAY 31, 2000
GUARANTORS
------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $45,980 $ -- $153,068 $22,432 $ -- $221,480
Intercompany 3,963 -- 4,493 2,742 (11,198) --
Operating Costs and Expenses:
Cost of products sold (exclusive of
depreciation) 38,166 -- 127,984 20,851 (11,172) 175,829
Selling and administrative 11,270 2 5,496 2,421 -- 19,189
Management compensation 1,560 -- -- -- -- 1,560
Intercompany charges (3,298) -- 3,298 -- -- --
Depreciation 2,868 -- 8,282 923 -- 12,073
Amortization of intangibles 1,104 -- 2,780 240 -- 4,124
(Gain) loss on sales of divisions (1,100) -- -- (3,233) -- (4,333)
(Gain) loss on sales of assets (34) -- (202) 10 -- (226)
------- ------- -------- ------- -------- --------
Total 50,536 2 147,638 21,212 (11,172) 208,216
------- ------- -------- ------- -------- --------
Operating Income (Loss) (593) (2) 9,923 3,962 (26) 13,264
Other Income (Expense)
Interest expense (4,017) -- (7,045) (1,132) 497 (11,697)
Other income (expense) 174 -- 532 (455) (497) (246)
Equity in earnings of
consolidated subsidiaries 3,500 (1,427) 419 -- (2,492) --
------- ------- -------- ------- -------- --------
Income (Loss) Before Taxes (936) (1,429) 3,829 2,375 (2,518) 1,321
Income Taxes (Benefit) 46 -- 3,180 (476) -- 2,750
------- ------- -------- ------- -------- --------
Net Income (Loss) $ (982) $(1,429) $ 649 $ 2,851 $ (2,518) $ (1,429)
======= ======= ======== ======= ======== ========
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED MAY 31, 2000
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 90,146 $ -- $295,039 $ 58,138 $ -- $443,323
Intercompany 8,128 -- 7,048 5,159 (20,335) --
Operating Costs and Expenses:
Cost of products sold (exclusive of
depreciation) 75,080 -- 244,065 54,509 (20,257) 353,397
Selling and administrative 21,278 7 11,672 5,484 (38) 38,403
Management compensation 1,560 -- -- -- -- 1,560
Intercompany charges (6,692) -- 6,691 (37) 38 --
Depreciation 5,677 -- 16,322 2,386 -- 24,385
Amortization of intangibles 2,259 -- 5,522 480 -- 8,261
Proceeds from insurance settlement (16,000) -- -- -- -- (16,000)
(Gain) loss on sales of subsidiaries 1,260 -- (3,976) (11,593) -- (14,309)
(Gain) loss on sales of assets (34) -- (394) 7 33 (388)
-------- ------ -------- -------- -------- --------
Total 84,388 7 279,902 51,236 (20,224) 395,309
-------- ------ -------- -------- -------- --------
Operating Income (Loss) 13,886 (7) 22,185 12,061 (111) 48,014
Other Income (Expense)
Interest expense (8,683) -- (14,500) (2,639) 1,103 (24,719)
Other income (expense) 403 -- 1,058 (735) (1,103) (377)
Equity in earnings of
consolidated subsidiaries 12,614 9,175 770 -- (22,559) --
-------- ------ -------- -------- -------- --------
Income (Loss) Before Taxes 18,220 9,168 9,513 8,687 (22,670) 22,918
Income Taxes 8,164 -- 5,465 121 -- 13,750
-------- ------ -------- -------- -------- --------
Net Income (Loss) $ 10,056 $9,168 $ 4,048 $ 8,566 $(22,670) $ 9,168
======== ====== ======== ======== ======== ========
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF MAY 31, 2000
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------------- -------------- ---------- ------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 44,166 $ -- $141,971 $35,706 $ -- $221,843
Intercompany 4,165 -- 2,555 2,417 (9,137) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation 36,914 -- 116,081 33,658 (9,085) 177,568
Selling and administrative 10,008 5 6,176 3,063 (38) 19,214
Intercompany charges (3,394) -- 3,393 (37) 38 --
Depreciation 2,809 -- 8,040 1,463 -- 12,312
Amortization of intangibles 1,155 -- 2,742 240 -- 4,137
Proceeds from insurance settlement (16,000) -- -- -- -- (16,000)
(Gain) loss on sales of divisions 2,360 -- (3,976) (8,360) -- (9,976)
(Gain) loss on sales of assets -- -- (192) (3) 33 (162)
-------- ------- -------- ------- -------- --------
Total 33,852 5 132,264 30,024 (9,052) 187,093
-------- ------- -------- ------- -------- --------
Operating Income (Loss) 14,479 (5) 12,262 8,099 (85) 34,750
Other Income (Expense)
Interest expense (4,666) -- (7,455) (1,507) 606 (13,022)
Other income (expense) 229 -- 526 (280) (606) (131)
Equity in earnings of
consolidated subsidiaries 9,114 10,602 351 -- (20,067) --
-------- ------- -------- ------- -------- --------
Income (Loss) Before Taxes 19,156 10,597 5,684 6,312 (20,152) 21,597
Income Taxes 8,118 -- 2,285 597 -- 11,000
-------- ------- -------- ------- -------- --------
Net Income (Loss) $ 11,038 $10,597 $ 3,399 $ 5,715 $(20,152) $ 10,597
======== ======= ======== ======= ======== ========
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF FEBRUARY 29, 2000
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- -------------- ---------- -------------- ------------ --------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 4,3704,409 $ 1 $ 571743 $ 6,6495,943 $ (63)186 $ 11,52811,282
Receivables, net 11,0052,767 -- 94,246 15,66994,272 25,536 -- 120,920122,575
Intercompany accounts receivable 4,17314,577 -- 10,974 323 (15,470)5,947 221 (20,745) --
Inventories 25,55825,902 -- 60,717 9,861 (1,318) 94,81860,438 9,730 (1,229) 94,841
Net assets of operations to be sold 22,6982,697 -- -- 5,508 -- 28,206-- 2,697
Prepaid expenses 2,2331,639 -- 6,024 1,577 (39) 9,7957,145 2,020 -- 10,804
Deferred income taxes 14,565 -- -- -- -- 14,565
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total current assets 84,60266,556 1 172,532 39,587 (16,890) 279,832168,545 43,450 (21,788) 256,764
Property, Plant & Equipment, net 39,79737,412 -- 179,929 26,815181,310 26,106 (33) 246,508244,795
Investment in Subsidiaries 117,900 158,656 7,183subsidiaries 121,241 157,229 7,602 -- (283,739)(286,072) --
Excess of Acquired Net Assets Over Cost, net 49,69648,881 -- 145,791 12,474143,047 12,235 -- 207,961204,163
Other Assets 54,46454,559 -- 16,786 4,210 (4,525) 70,93521,466 328 (6,056) 70,297
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total Assets $ 346,459 $ 158,657 $ 522,221 $ 83,086 $(305,187) $ 805,236$328,649 $157,230 $521,970 $82,119 $(313,949) $776,019
======== ======== ======== ======= ========= ========= ========= ========= ========= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 11,06421,774 $ -- $ 35,506 $ 4,34141,056 $(4,928) $ -- $ 50,91157,902
Intercompany accounts payable 17946 -- -- 8,958 (9,137)144 20,148 (20,338) --
Long-term debt - current portion 17,49126,607 -- 54,000 3,01854,500 1,670 (500) 74,00982,277
Income taxes 10,41010,583 -- -- 407145 -- 10,81710,728
Other current liabilities 43,10336,556 -- 22,420 6,132 (582) 71,07321,510 6,344 -- 64,410
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total current liabilities 82,24795,566 -- 111,926 22,856 (10,219) 206,810117,210 23,379 (20,838) 215,317
Long-term Debt - less current portion 406,260368,986 -- 5,701 2,423 (5,701) 408,6835,557 2,330 (5,557) 371,316
Deferred Income Taxes 10,086 -- -- -- -- 10,086
Other Long-Term Liabilities 21,162 1022,712 12 1,000 639 -- 22,811579 (2) 24,301
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total Liabilities 519,755 10 118,627 25,918 (15,920) 648,390497,350 12 123,767 26,288 (26,397) 621,020
Intercompany Accounts (321,105)315,765) -- 302,315 33,492 (14,702)296,512 29,782 (10,529) --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 100,916103,711 -- -- -- 100,916103,711
Shareholders' Equity 147,809 57,731 101,279 23,676 (274,565) 55,930147,064 53,507 101,691 26,049 (277,023) 51,288
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total Liabilities and Shareholders'& Equity $ 346,459 $ 158,657 $ 522,221 $ 83,086 $(305,187) $ 805,236$328,649 $157,230 $521,970 $82,119 $(313,949) $776,019
======== ======== ======== ======= ========= ========= ========= ========= ========= =================
1314
1415
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FEBRUARY 29,SIX MONTHS ENDED MAY 31, 2000
GUARANTORS
----------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------------- -------------- ---------- -------------- ------------ -------------------- -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $ 10,90910,056 $ 10,5979,168 $ 3,5284,048 $ 5,715 $(20,152)8,566 $(22,670) $ 10,5979,168
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries (9,114) (10,602) (351)(12,614) (9,175) (770) -- 20,06722,559 --
Depreciation and amortization 4,6699,346 -- 10,885 1,70322,050 2,866 -- 17,257
Gain34,262
(Gain) loss on sales of divisions 2,3601,260 -- (3,976) (8,360)(11,593) -- (9,976)(14,309)
Changes in assets and liabilities, net of
effect of acquisitions and divestitures 13,241 5 1,087 (7,204) (2,587) 4,54215,133 7 5,290 (12,037) (6,530) 1,863
-------- --------------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 22,06523,181 -- 11,173 (8,146) (2,672) 22,42026,642 (12,198) (6,641) 30,984
-------- --------------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sales of divisions 24,09045,834 -- 10,430 18,02327,616 -- 52,54383,880
Acquisition of division -- -- (6,758)(6,839) -- -- (6,758)(6,839)
Capital expenditures (494)(853) -- (3,692) (2,257)(13,666) (3,248) -- (6,443)(17,767)
Other 1,1422,264 -- 59 476 (589) 1,088372 (503) (688) 1,445
-------- --------------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 24,73847,245 -- 39 16,242 (589) 40,430(9,703) 23,865 (688) 60,719
-------- --------------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Reduction of long-term debt (3,657)(7,315) -- -- -- -- (3,657)(7,315)
Net borrowings (repayments) borrowings(repayments)under revolving
credit agreements (38,500)(63,000) -- (9,750) (8,974)(9,250) (10,148) -- (57,224)(82,398)
Other (6) -- -- (506)(773) -- (512)(779)
-------- --------------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (42,163)(70,321) -- (9,750) (9,480)(9,250) (10,921) -- (61,393)(90,492)
-------- --------------- -------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 4,640105 -- 1,462 (1,384) (3,261) 1,4577,689 746 (7,329) 1,211
Intercompany accounts (4,334)240 -- (1,761) 2,945 3,150(7,816) 109 7,467 --
Cash and cash equivalents,
beginning of period 4,064 1 870 5,088 48 10,071
-------- --------------- -------- -------- -------- --------
Cash and cash equivalents,
end of period $ 4,3704,409 $ 1 $ 571743 $ 6,6495,943 $ (63)186 $ 11,52811,282
======== =============== ======== ======== ======== ========
1415
1516
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28,MAY 31, 1999
GUARANTORS
----------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------------- -------------- ---------- -------------- ------------ --------------------- -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 50,983$58,820 $ -- $ 116,749 $ 26,711$164,172 $26,826 $ -- $ 194,443$249,818
Intercompany 3,1124,033 -- 2,634 1,879 (7,625)1,945 2,092 (8,070) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 40,40646,420 -- 94,740 24,260 (7,660) 151,746134,260 25,190 (8,113) 197,757
Selling and administrative 10,41711,052 -- 5,342 2,569 (64) 18,2646,144 2,565 (40) 19,721
Intercompany charges (2,357)(2,839) -- 2,357 (65) 652,838 (46) 47 --
Depreciation 2,9162,921 -- 6,046 1,1507,789 1,243 -- 10,11211,953
Amortization of intangibles 1,3851,759 -- 2,393 242243 -- 4,020
Loss4,395
(Gain) loss on salessale of assets (10)(6) -- (12) (12)12 17 -- (34)
--------- --------- --------- --------- --------- ---------23
------- ------ -------- ------- -------- --------
Total 52,75759,307 -- 110,866 28,144 (7,659) 184,108
--------- --------- --------- --------- --------- ---------153,436 29,212 (8,106) 233,849
------- ------ -------- ------- -------- --------
Operating Income 1,338(Loss) 3,546 -- 8,517 446 34 10,33512,681 (294) 36 15,969
Other Income (Expense)
Interest expense (4,738)11,810) -- (5,366) (1,238)(73) (224) -- (11,342)(12,107)
Other income (expense) 147398 -- 36 (14) -- 169(241) -- 157
Equity in earnings of
consolidated subsidiaries (590) (1,138) 67,982 2,369 254 -- 1,722(10,605) --
--------- --------- --------- --------- --------- ---------------- ------ -------- ------- -------- --------
Income (Loss) Before Taxes (3,843) (1,138) 3,193 (806) 1,756 (838)116 2,369 12,862 (759) (10,569) 4,019
Income Taxes (2,677)taxes (benefit) (2,471) -- 2,413 5643,916 205 -- 300
--------- --------- --------- --------- --------- ---------1,650
------- ------ -------- ------- -------- --------
Net Income (Loss) $ (1,166)2,587 $2,369 $ (1,138)8,946 $ 780(964) $(10,569) $ (1,370)2,369
======= ====== ======== ======= ======== ========
16
17
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED MAY 31, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $109,803 $ 1,756-- $280,921 $53,537 $ (1,138)
========= ========= ========= ========= ========= =========-- $444,261
Intercompany 7,145 -- 4,579 3,971 (15,695) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 86,826 -- 229,000 49,450 (15,773) 349,503
Selling and administrative 21,469 -- 11,486 5,134 (104) 37,985
Intercompany charges (5,196) -- 5,195 (111) 112 --
Depreciation 5,837 -- 13,835 2,393 -- 22,065
Amortization of intangibles 3,144 -- 4,786 485 -- 8,415
(Gain) loss on sale of assets (16) -- -- 5 -- (11)
-------- ------ -------- ------- -------- --------
Total 112,064 -- 264,302 57,356 (15,765) 417,957
-------- ------ -------- ------- -------- --------
Operating Income 4,884 -- 21,198 152 70 26,304
Other Income (Expense)
Interest expense (22,982) -- (73) (394) -- (23,449)
Other income (expense) 545 -- 36 (255) -- 326
Equity in earnings of
consolidated subsidiaries 13,826 1,231 260 -- (15,317) --
-------- ------ -------- ------- -------- --------
Income (Loss) Before Taxes (3,727) 1,231 21,421 (497) (15,247) 3,181
Income taxes (benefit) (5,148) -- 6,329 769 -- 1,950
-------- ------ -------- ------- -------- --------
Net Income (Loss) $ 1,421 $1,231 $ 15,092 $(1,266) $(15,247) $ 1,231
======== ====== ======== ======= ======== ========
1517
1618
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------------- -------------- ---------- -------------- ------------ --------------------- -----
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 4,064 $ 1 $ 870 $ 5,088 $ 48 $ 10,071
Receivables, net 13,428 -- 92,721 16,350 -- 122,499
Intercompany accounts receivable 8,368 -- 12,255 455 (21,078) --
Inventories 24,211 -- 57,014 10,618 (1,344) 90,499
Net assets of operations to be sold 46,641 -- 6,839 10,721 -- 64,201
Prepaid expenses 1,783 -- 4,355 925 -- 7,063
Deferred income taxes 16,665 -- -- -- -- 16,665
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total current assets 115,160 1 174,054 44,157 (22,374) 310,998
Property, Plant & Equipment, net 42,001 -- 184,295 26,197 (33) 252,460
Investment in Subsidiaries 109,009 148,054 6,834 -- (263,897) --
Excess of Acquired Net Assets Over Cost, net 50,799 -- 142,051 12,715 -- 205,565
Other Assets 49,460 -- 22,859 625 33 72,977
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total Assets $ 366,429 $ 148,055 $ 530,093 $ 83,694$366,429 $148,055 $530,093 $83,694 $(286,271) $ 842,000$842,000
======== ======== ======== ======= ========= ========= ========= ========= ========= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 9,928 $ -- $ 35,837 $ 4,823 -- $ 50,588
Intercompany accounts payable 124 -- -- 7,588 (7,712) --
Long-term debt - current portion 16,374 -- 63,750 6,194 -- 86,318
Income taxes 1,826 -- -- 465 -- 2,291
Other current liabilities 37,870 -- 22,970 3,486 (457) 63,869
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total current liabilities 66,122 -- 122,557 22,556 (8,169) 203,066
Long-term Debt - less current portion 449,534 -- 7,836 8,227 (7,836) 457,761
Deferred Income Taxes 10,086 -- -- -- -- 10,086
Other Long-Term Liabilities 23,047 5 -- 768 -- 23,820
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total liabilities 548,789 5 130,393 31,551 (16,005) 694,733
Intercompany Accounts (344,941)344,941) -- 324,500 36,660 (16,219) --
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 97,956 -- -- -- 97,956
Shareholders' Equity 162,581 50,094 75,200 15,483 (254,047) 49,311
-------- -------- -------- ------- --------- --------- --------- --------- --------- -----------------
Total Liabilities and Shareholders'
Equity $ 366,429 $ 148,055 $ 530,093 $ 83,694$366,429 $148,055 $530,093 $83,694 $(286,271) $ 842,000$842,000
======== ======== ======== ======= ========= ========= ========= ========= ========= =================
1618
1719
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
THREESIX MONTHS ENDED FEBRUARY 28,MAY 31, 1999
GUARANTORS
----------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------------- -------------- ---------- ------------- ------------ -------------------- -----
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)Income (Loss) $ (1,166)1,421 $1,231 $ (1,138)15,092 $(1,266) $(15,247) $ 780 $ (1,370) $ 1,756 $ (1,138)1,231
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated
subsidiaries 590 1,138 (6)(13,826) (1,231) (260) -- (1,722)15,317 --
Depreciation and amortization 4,99510,377 -- 8,439 1,39218,621 2,878 -- 14,82631,876
Changes in assets and liabilities,
net of effect of acquisitions
and divestitures (4,711)(9,140) -- (5,751) (3,062) 355 (13,169)(1,931) (1,124) 570 (11,625)
-------- ------ -------- -------- --------------- -------- --------
Net cash provided by (used in)
operating activities (292)(11,168) -- 3,462 (3,040) 389 51931,522 488 640 21,482
-------- ------ -------- -------- --------------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400 -- -- -- -- 12,400
Acquisition of division -- -- (60,168) -- -- (60,168)
Capital expenditures (1,615)(2,599) -- (4,664) (2,474)(16,165) (5,636) -- (8,753)(24,400)
Other (585)(682) -- (82) 90 357 (220)51 (416) 455 (592)
-------- ------ -------- -------- --------------- -------- --------
Net cash provided by (used in)
investing activities 10,2009,119 -- (4,746) (2,384) 357 3,427(76,282) (6,052) 455 (72,760)
-------- ------ -------- -------- --------------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (10,977)(13,469) -- -- -- -- (10,977)
Net borrowings(13,469)
Borrowings (repayments) on revolving
credit agreements 805 -- -- 3,081 -- 3,886
Otheragreement 59,175 -- -- -- (211) -- (211)59,175
Other (54) -- -- 3,258 -- 3,204
-------- ------ -------- -------- --------------- -------- --------
Net cash provided by (used in)
financing
activities (10,172)45,652 -- -- 2,8703,258 -- (7,302)48,910
-------- ------ -------- -------- --------------- -------- --------
Increase (decrease) in cash and
cash equivalents (264)43,603 -- (1,284) (2,554) 746 (3,356)(44,760) (2,306) 1,095 (2,368)
Intercompany accounts (2,470)(46,689) -- 1,444 2,106 (1,080)46,632 1,145 (1,088) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,464 1 712 5,125 379 13,681
-------- ------ -------- -------- --------------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,7304,378 $ 1 $ 8722,584 $ 4,6773,964 $ 45386 $ 10,32511,313
======== ====== ======== ======== =============== ======== ========
1719
1820
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company conducts its business through Eagle-Picher Industries,
Inc., ("Subsidiary"), a diversified manufacturing, mining and technology
company. The Subsidiary conducts its business through both unincorporated
divisions and separately incorporated subsidiaries, both of which are referred
to herein as divisions. The Subsidiary is the Company's only subsidiary,
therefore, the Company's results of operations and cash flow approximate
those of the Subsidiary. References herein will be to the Company, except for
instances where it is more appropriate to specifically refer to the Subsidiary.
Please refer to Note F. regarding Segment Reporting contained in Item 1. of this report.report regarding
Segment Reporting.
Net Sales. The Company's net sales were $221.8$221.5 million in the quarterthree
months ended February 29,May 31, 2000 compared to $194.4$249.8 million in the comparable period in
1999.of
1999, a decrease of 11.3%. The increaseprimary reasons for the decline are the effect of
14.1% is primarily due the acquisition of Carpenter
Enterprises Ltd. ("Carpenter"), which occurred in the second quarter of 1999. As
previously mentioned, the Company divested itselfsales of the Ross Aluminum, MARCO and Fluid Systems Divisions ("Divested Divisions")in the first
quarter of 2000 and declines in the sales of the Industrial Group discussed
below. Sales for the six months ended May 31, 2000 and 1999 were $443.3 million
and $444.3 million, respectively, a decline of 0.2%. The decreases in 2000
relating to divestitures in the first quarter and weaker demand in the
Industrial Group were offset by the inclusion of Carpenter Enterprises, Ltd.,
which was acquired as of March 1, 1999, in the full six months of 2000 compared
to only the second quarter of 1999.
Net sales of the Automotive Group declined 16.0% in the second quarter
of 2000 compared to the same period in 1999, primarily due to the divestitures
of the Ross Aluminum, MARCO and Fluid Systems Divisions, which were all
automotive divisions, in the first quarter of 2000. The Divested Divisions had little impact on the comparability of net sales in
the first quarters of 2000 and 1999 for two reasons. First, with the exception
of Ross Aluminum, which was sold effective January 1, 2000, these divestitures
occurred at or near the end of the quarter. Secondly, certain of the Divested
Divisions experienced revenue gains which nearly offset the loss of revenues
which occurred when Ross Aluminum was sold. Net sales were down 2.4% when the
effects of Carpenter and the Divested Divisions have been considered.
Net sales of the Automotive Group increased 31.3% in the first quarter of
2000 compared to the first quarter of 1999, primarily due to the Carpenter
acquisition. Excluding the effects of Carpenter and the
Divested Divisions
(which were included in the Automotive Segment),divestitures, automotive sales increased
3.0%were off 1.7%. In the Automotive Group, the
Company is under constant pressure from its customers to reduce prices. In
addition, the products it manufactures become obsolete from time to time as
customers change product designs and the Company must compete for the replacement
business. The North American automotive build
continues to be strong; however, the growth ofin the Company's automotive component sales washas been
tempered primarily by the discontinuation of certain customer programs. At the same time,
the acquisition of Carpenter has expanded the Company's precision-machined
automotive product lines.
Inlines and diversified its customer base. Sales for the six
months ended May 31, 2000 were flat compared to the comparable period of 1999 as
the addition of Carpenter in the second quarter of 1999 offset the decreases due
to the divestitures in 2000.
Net sales of the Industrial Group sales declined 7.8%3.5% in the firstsecond quarter
of 2000 fromcompared to the comparablesecond quarter of 1999 and 5.5% in the six months ended
May 31, 2000 compared to the same period in 1999. Demand for aerospace products
particularly
related to satellites,in general has been soft, particularly satellites, as existingcertain satellite programs
have struggled.struggled following the failure of Iridium. In addition, demand for
wheel-tractor scrapers weakenedhas been weak in the first
quarter of 2000 compared to the same period in 1999. Declines
resulting from these items were somewhat offset by increases in sales resulting
from strongerincreased demand for heavy-duty forklift trucks aand large shipment oforders for boron in the first quarter of
2000 and the growth of a newer program where parts are manufactured on a
contract basis for the construction equipment industry. The impact of the
Isonics acquisition was minimal in the first quarter of 2000; however, it is
expected that this business will complement the Company's existing boron
business, which serves the nuclear industry, in the future.products.
Cost of Products Sold. Cost of products sold (excluding depreciation
expense) was $177.6$175.8 million (79.4% of sales) in the threesecond quarter of 2000
compared to $197.8 million (79.2% of sales) in the same period of 1999. As a
percentage of sales, there was very little change. Cost of products sold for the
six months ended February 29,May 31, 2000 and
$151.7was $353.4 million (79.7% of sales) compared to
$349.5 million (78.7% of sales) in the comparablesame period of 1999. The increasepercentage of
sales is primarilyslightly higher in 2000 due to the acquisitioninefficiencies experienced at the
Fluid Systems Division in the first quarter of Carpenter2000. Also in the first quarter
of 2000, operations manufacturing construction equipment experienced poor
overhead absorption resulting from lower volumes and the effects of the sales of the Divested
Divisions.start-up costs for new
programs.
Selling and Administrative. Selling and administrative expenses were
$19.2 million and $18.3$19.7 million in the second quarters of 2000 and 1999,
respectively, and $38.4 million and $38.0 million in the six months ended May
31, 2000 and 1999, respectively. Declines due to the sales of the Ross Aluminum,
MARCO and Fluid Systems Divisions in the first quarter of 2000 were offset by
the costs of a long-term deferred compensation plan for managers.
20
21
Depreciation. Depreciation expense was $12.1 million and $12.0 million
in the second quarters of 2000 and 1999, respectively, and $24.4 million and
$22.1 million in the six months ended May 31, 2000 and 1999, respectively. In
accordance with purchase accounting, a company is allowed one year from the date
of an acquisition to finalize its purchase price adjustments. Although Carpenter
was acquired as of March 1, 1999, the appraisals necessary to adjust the
property, plant and equipment to fair value were not completed and analyzed
until November 30, 1999. Therefore, the depreciation expense in the second
quarter of 1999 does not reflect the total depreciation related to Carpenter. In
addition, depreciation increased in 2000 in divisions where significant capital
expenditures were recently made, notably operations manufacturing
precision-machined automotive parts and heavy-duty fork lift trucks. These
increases were offset by the sale of the Ross Aluminum, Fluid Systems and MARCO
divisions in the first quarter of 2000.
Amortization of Intangibles. Amortization of intangibles was $4.1
million and $4.4 million in the second quarters of 2000 and 1999, respectively.
The 4.9% increasedecrease in selling and administrative expensesamortization is due to the expenses incurredwrite-off of goodwill associated with
the divisions which were divested in the first quarter. Amortization of
intangibles was $8.3 million and $8.4 million in the six months ended May 31,
2000 and 1999, respectively. Amortization of intangibles has declined in 2000,
despite the acquisition of the Isonics assets, due to the reallocation of the
Carpenter purchase price from goodwill to property, plant and equipment as
previously discussed and the sale of the Ross Aluminum Division in the first
quarter of 2000 as a result of the Carpenter
acquisition and the restructuring of European Operations.
18
19
Depreciation. Depreciation expense was $12.3 million in the three months
ended February 29, 2000, a $2.2 million or 21.8% increase over the comparable
period in 1999. The additional depreciation in 2000 is due to the acquisition of
Carpenter in 1999.
Amortization of Intangibles. Amortization of intangibles increased
slightly from $4.0 million in the first quarter of 1999 to $4.1 million in 2000. Excess of acquired net assets over cost (goodwill) and its related amortization
increased in the first quarter of 2000 due to the Carpenter and Isonics
acquisitions. These increases were partially offset, however, by the decline inIn addition, goodwill resulting from the write down of impaired goodwill in the fourth
quarter of 1999, which related to certain divisions which wereanother division held for sale
had been deemed impaired as of November 30, 1999, and as such, had been written
off at that time.
Management Compensation - Special. Management compensation - special is
severance related to the saleseparation from employment of the Divested Divisions.a senior executive.
Proceeds from Insurance Settlement. The Company settled claims against
a former insurer regarding environmental remediation costs for $16.0 million and
received such proceeds in the first quarter of 2000.
Gain on Sale of Divisions. On May 31, 2000, the Company sold the assets
of the Rubber Molding Division, including the stock of its Spanish subsidiary,
Eagle-Picher Rubber Molding S.A., for approximately $31.4 million, resulting in
a gain of $4.3 million on the transaction. In the first quarter of 2000,addition, the Company sold the
assets of its Ross Aluminum and MARCO Divisions and its interest in the common
stock of the units of theits two subsidiaries which combined formed its Fluid Systems Division.
The aggregate net proceeds of and gain on these transactions in the six months
ended May 31, 2000 were approximately $52.5$83.9 million and $10.0$14.3 million,
respectively.
Interest Expense. Interest expense was $13.0$11.7 million and $11.3$12.1 million
in the firstsecond quarters of 2000 and 1999, respectively. Two factors contributedInterest expense was
$24.7 million in the six months ended May 31, 2000 compared to this increase. First,$23.4 million for
the Company'ssame period in 1999. Despite higher interest rates on variable debt level increased significantlyin 2000,
interest expense in the second quarter of 2000 was lower than that of 1999 due
to the application of the proceeds from the sales of the Ross Aluminum, MARCO
and Fluid Systems Divisions in the first quarter of 2000 to debt.
Income Before Taxes. Income before taxes was $1.3 million and $4.0
million in the second quarters of 2000 and 1999, respectively. Increases
resulting from the gain on the sale of the Rubber Molding Division in the second
quarter of 2000 were offset by results of that division that were lower than
those in the second quarter of 1999 when Carpenter was acquireddue to disruptions and remained at a higher
level until the endactivities of the first quarterthat
sale transaction, reduced volumes of 2000 when the proceeds of the sales
of the Divested Divisionsaerospace products and the insurance settlement were received and appliedseverance related to
the debt. Second, LIBOR rates, on which mostseparation from employment of the Company's debt subject to
variable interest is based, were up as much as 75 basis points in the first
quarter of 2000 over the comparable period in 1999.a senior executive.
Income (Loss) Before Taxes. Income (loss) before taxes was $21.6$22.9 million in the threesix months ended February 29,May 31,
2000 compared
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to $(0.8)$3.2 million in the same period inof 1999. The incremental difference is
comprised basically of basically fourthe following items: 1) the receipt of $16.0 million of
insurance proceeds in the first quarter of 2000; 2) the $10.0$14.3 million gain
resulting from the sale of the Divested Divisions;Ross Aluminum, MARCO, Fluid Systems and Rubber
Molding Divisions in 2000; 3) the increasereduction in interest expenseincome in 2000 from 1999
resulting from the sales of $1.7 million;the Ross Aluminum, MARCO and Fluid Systems Divisions
in the first quarter of 2000; 4) the operating contributioneffects of lower sales volumes and start-up
costs in the Industrial Group as described below; and 5) severance relating to
the termination of a senior executive.
Income before taxes in the Automotive Group in the second quarters of
2000 and 1999 was $6.7 million and $5.4 million, respectively. Income before
taxes for the six months ended May 31, 2000 was $17.0 million compared to $7.9
million for the same period in 1999. In the second quarter, increases resulting
from the gain on the sale of the Rubber Molding Division of $4.3 million were
somewhat offset by the results of that division that were lower than the second
quarter of 1999 due to the disruptions and activities of that sale transaction.
In addition, there were minor efficiency issues at one of the plants
manufacturing precision-machined automotive parts. The effects of the purchase
price allocation for the Carpenter acquisition described above and the effect of
unfavorable exchange rates on the translation of results of European operations
also had a negative impact on income before taxes in the Automotive Group. The
gain on the sales of Divisions of $14.3 million in the six months ended May 31,
2000 was also partially offset by the items discussed above and by the reduction
in income in 2000 from 1999 resulting from the sales of the Ross Aluminum, MARCO
and Fluid Systems Divisions in the first quarter of 2000.
Income before taxes in the first quarterIndustrial Group was $0.5 million and $0.6
million in the second quarters of 2000 for the Automotive Group
was $10.3 million compared to $2.5 millionand 1999, respectively. Reduced volumes
of aerospace products resulted in 1999. The increase is due
primarily to the $10.0 million gain on the salepoorer absorption of divisions, which was offset
by an aggregate decline inoverhead and lower
operating income and an increase in interest expense.
The decline in operating income was primarily due to the sale of the Ross
Aluminum Division and to continued manufacturing inefficiencies at the Fluid
Systems Division, which was sold February 29, 2000.margins. This decline was offset by lower interest costs in the
contribution of Carpenter in 2000Industrial Group due to lower net investment and modest increases inincreased operating income at
other operations, which correspond to modest increases in net sales.the Minerals Division. The
increase in interest costs is a result of both the acquisition of Carpenter and
the overall increase in interest rates.
The Industrial Products Group had net losses before taxes of $(2.2)
million and $(0.9) million in the first quarters ofIndustrial Group for the
six months ended May 31, 2000 and 1999 respectively,
due primarilywere $1.6 million and $0.3 million. In
addition to the lower volumes of wheel-tractor scrapers, which resulteditems discussed in poor absorption of fixed overhead. In addition,relation to the second quarter, there were
start-up costs relatedrelating to the contract manufacturing of parts were heavier than expected. Interest costs
increased primarilyfor construction
equipment and poor overhead absorption due to higher interest rates.low volumes of wheel-tractor
scrapers which affected the results of the first six months of 2000.
The corporate losses before taxes in the second quarters of 2000 and
1999 were $5.9 million and $2.0 million, respectively. Reasons for the larger
loss include costs of a long-term deferred compensation plan for managers,
severance costs relating to the separation from employment of a senior executive
and increased amortization of financing costs relating to the implementation of
the accounts receivable loan agreement in the third quarter of 1999. Corporate
income (loss) before taxes for the six months ended May 31, 2000 was $13.4$7.5 million
compared to a loss of $4.4 million in the threesame period of 1999. The same items
which contributed to the increased loss in the second quarter also apply to the
first six months ended February 29, 2000 compared to $(2.4) million forof 2000. However, these items were offset by the three months
ended February 28, 1999. If the insurance proceeds of $16.0 million
are
excluded, the lossinsurance settlement. Generally, corporate losses before taxes is comparable to that of the three months ended
February 28, 1999. These losses resultexist because the
Company does not allocate certain corporate expenses to its segments.
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20
Income Taxes. Income taxes and the effective rate of income tax vary
for several reasons, the most significant being the tax deductibility of
goodwill. A portion of the goodwill amortization relating to the Company's
acquisition of Eagle-Picher Industries, Inc. is deductible, however the amount
of goodwill that has tax basis changes as contingent liabilities that existed
for tax purposes at the time of that acquisition are resolved. Amortization of
the goodwill related to the acquisition of Carpenter is not deductible for tax
purposes. Goodwill associated with certain of the Divisions which were divested
was not deductible for tax purposes, which resulted in a tax gain in excess of
the gain on sales of divisions recognized in the statement of income.
Net Income (Loss). Net incomeThe net loss was $10.6$1.4 million in the three months
ended February 29,May 31, 2000 compared to a net lossincome of $(1.1)$2.4 million in the three months
ended February 28,May 31, 1999. Net
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income for the six months ended May 31, 2000 and 1999 was $9.2 million and $1.2
million, respectively. Factors contributing to the differencedifferences (discussed in
detail above) include the effects of the acquisition of Carpenter in the second
quarter of 1999, the effects of the divestituredivestitures of the Ross Aluminum, MARCO,
and
Fluid Systems and Rubber Molding Divisions in 2000 ("Divested Divisions"),
particularly the gain on the sale of those divisions, the insurance settlement
in 2000 and increased interest costs resulting from higher interest rates and increased
levels of debt.
Incomein
2000.
The loss applicable to common shareholders was decreasedincreased to $7.6$4.2
million by dividends accreted on the 11 3/4% Cumulative Redeemable Exchangeable
Preferred Stock ("Preferred Stock") of $3.0$2.8 million in the three months ended
February 29,May 31, 2000. The net lossincome applicable to common shareholders was increasedreduced to $(3.6)$(.3)
million by preferred stock dividends of $2.5$2.1 million in the three months ended
February 28,May 31, 1999. Preferred stock dividends of $5.8 million and $5.1 million in the
six months ended May 31, 2000 and 1999, respectively, reduced income applicable
to common shareholders to $3.4 million and $(3.9) million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The following are certain financial data regarding earnings before
interest, taxes, depreciation and amortization ("EBITDA"), cash flows and
earnings to fixed charges and preferred stock dividends:
ThreeSix Months Ended
February 29(28)
---------------May 31
----------------------
2000 1999
---- ---------- -----
(In millions of dollars)
EBITDA $25.0 $25.1$53.2 $58.1
Cash provided by operating activities 22.4 0.531.0 21.5
Cash provided by (used in) investing activities 40.4 3.460.7 (72.8)
Cash used inprovided by (used in) financing activities (61.4) (7.3)(90.5) 48.9
Preferred stock dividends accreted 3.0 2.55.8 5.1
Earnings/fixed charges and preferred stock dividends 2.14X .76X1.55X .93X
EBITDA
The Company's EBITDA is defined for purposes hereof as earnings before
interest expense, income taxes, depreciation and amortization, certain one-time
management compensation expenses and other non-cash items, such as gains and
losses on sales of divisions. EBITDA, as defined herein, may not be comparable
to similarly titled measures reported by other companies and should not be
construed as an alternative to operating income or to cash flows from operating
activities, as determined by generally accepted accounting principles,in accordance with GAAP, as a measure of the Company's
operating performance or liquidity, respectively.
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21 Funds depicted by EBITDA are
not available for management's discretionary use to the extent they are required
for debt service and other commitments.
The Company's EBITDA for the threesix months ended February 29,May 31, 2000 was $25.0$53.2
million, unchanged fromcompared to the EBITDA of the comparablesame period in 1999 of $25.1$58.1 million.
Increases in EBITDA resulting primarily from the Carpenter acquisition and
modest sales volume increases of rubber-coated metal products in the Automotive
Group were
offset by decreases resulting from lower volumes of wheel tractor scrapers and
satellite components, start up costs relatedaerospace products, and the results of operations and the timing of the sales of
the Divested Divisions. Excluding the results of the Divested Divisions, EBITDA
declined $3.1 million from the second quarter of 1999 to contract
manufacturingthe comparable period
in 2000. Reasons for this decline include lower volumes of components for the construction equipment industry, the sale of
Ross Aluminumaerospace products
and inefficiencies related to the production of multi-layer fuel
transfer systemsat a plant manufacturing precision-machined automotive parts
as well as slightly-lower volumes in Europe.certain precision-machined product lines.
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24
Operating Activities
Cash provided by operating activities was $22.4$31.0 million and $0.5$21.5
million for the threesix months ended February 29(28),May 31, 2000 and 1999, respectively, and
consisted of the following:
Three Months Ended February 29(28)
2000 1999
---- ----
(in millions of dollars)
Income (loss) before taxes $21.6 $(0.8)
Depreciation and amortization,
excluding amortization of
deferred financing costs 16.4 14.1
Gain on sales of divisions (9.9) --
Add back interest expense 13.0 11.3
Interest paid (7.4) 6.2)
Income taxes paid, net (.3) (4.8)
Working capital and other (11.0) (13.1)
----- -----
$22.4 $ 0.5Six Months Ended May 31
-----------------------
2000 1999
---- ----
(in millions of dollars)
Income (loss) before taxes $22.9 $3.1
Depreciation and amortization,
excluding amortization of
deferred financing costs 32.6 30.5
Gain on sales of divisions (14.3) -
Add back interest expense 24.7 23.5
Interest paid (23.3) (21.5)
Income taxes paid, net (3.2) (8.0)
Working capital and other (8.4) (6.1)
----- -----
$31.0 $21.5
===== =====
See "Results of Operations" for discussions concerning income (loss)
before taxes, depreciation and amortization, gain on sales of divisions and
interest expense.
Interest paid increased in 2000 due to the acquisition of Carpenter in
the second quarter of 1999 and higher interest rates.rates in 2000. Differences
between interest expense and interest paid result primarily from amortization of
deferred financing costs and the payment schedule
for interest on the Company's Subordinated Notes. The interest payments are due
semi-annually on March 1 and September 1; therefore, three months of interest
expense was accrued on these notes in the first quarters of both 2000 and 1999,
but was not paid until the following quarter.costs.
The Company determined that no Federal income tax extension payment was
needed in 2000 for the tax year ended November 30, 1999. Income taxes paid in
2000 relating to the tax year ended November 30, 2000 were somewhat offset by a
refund of income taxes in Germany. A portion of the Federal income tax liability
associated with the tax year ended November 30, 1998 was paid in fiscal year
1999.
WorkingGenerally, working capital generally increasesmanagement was better in 2000 than in 1999,
however this was offset by the first quartercollection of a receivable in 1999 related to the
sale of a division and by payments made in 2000 for bonuses related to the
acquisition of the year
resultingCompany in a use1998, several bankruptcy claims and post-closing
expenses of cash. Reasons for this include payment of incentives,
which had been accrued at the end of the year, and build up of inventories for
anticipated sales in the second quarter. Typically, the Company's net sales,
particularly in the Automotive Group, are higher in the second and fourth
quarters of the fiscal year.
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22divisions sold.
Investing Activities
Cash provided by investing activities was $40.4 million and $3.4$60.7 million in the threesix
months ended February 29 (28), 2000 and 1999, respectively.May 2000. Cash used in investing activities was $72.8 million in
the six months ended May 31, 1999. In the first quartersix months of 2000, the Company
sold theits Ross Aluminum, MARCO, and Fluid Systems and Rubber Molding Divisions. The
aggregate net proceeds of these transactions were $52.5$83.9 million. Early in the
first quarter of 1999, the Company received $12.4 million in cash relating to
the sale of the Trim Division.
On December 1, 1999, the Company acquired the assets of the depleted
zinc business of Isonics, which required $6.7 million cash at the closing. This
acquisition was financed from the Company's revolving credit facility.
Additional payments totaling $1.5 million are due over the next three years
provided certain contingencies are met. The Company also negotiated a warrant to
acquire four million shares of common stock of Isonics in exchange for materials
to be delivered in 2000. Effective March 15, 2000, the Company elected to
exercise its warrant using a "cashless exercise" feature, where the Company will
acquire
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25
fewer than four million shares of stock and pay for such shares by surrendering
a portion of the warrant. The number of shares the Company will receive is
currently being negotiated; however it is expected to be in excess of 3.1
million shares. The Company's cash requirement for the acquisition of Carpenter
in the second quarter of 1999 was $60.2 million, including transaction costs. In
addition, the Company also assumed $12.4 million in debt which was not
refinanced.
Capital expenditures were $6.4$17.8 million and $8.8$24.4 million in the first
quarters ofsix
months ended May 31, 2000 and 1999, respectively. Other than a small plant
expansion in 1999, these expenditures generally related to capital needed for
new programs and maintenance.to maintain existing business. The Credit Agreement currently
limits capital expenditures to $50 million annually and the Company does not
expect that capital expenditures will exceed this amount in 2000.
Financing Activities
Cash used in financing activities was $61.4$90.5 million in the first threesix
months of 2000, due primarily to repayments of loans under the various credit
agreements. The proceeds of the division sales and the insurance proceeds were
used to repay outstanding debt. Cash used inprovided by financing activities was $7.3$48.9
million for the comparable period in 1999. The Company madeCompany's borrowings to finance
the acquisition of Carpenter were in excess of regularly scheduled debt payments
and the 1998 excess cash flow payment required by the Credit Agreement in that
period.
Earnings to Fixed Charges and Preferred Stock Dividends
The ratio of earnings to fixed charges and preferred stock dividends
for the threesix months ended February 29(28)May 31 was 2.14x1.55X in 2000 and .76x.93X in 1999. In 1999,
earnings were insufficient to cover fixed charges and preferred stock dividends
by $3.3$2.0 million. The increase in 2000 is due primarily to the receipt of
insurance proceeds and the gain on sales of divisions. If these items were
excluded from income before taxes, the ratio of earnings to fixed charges and
preferred stock dividends would have been .55X.58X and earnings would have been
insufficient to cover fixed charges and preferred stock dividends by $7.3$13.1
million. The resulting decrease from .76X.93X to .55X.58X is due to increased interest
resulting from the Carpenter Acquisition and higher interest rates coupled with
flat or declining operating results as discussed in "Results of Operations."
Liquidity and Capital Resources
The revolving facility under the Credit Agreement of $220.0 million is
available for both borrowings and the issuance of letters of credit. At February 29,May 31,
2000 the Company had outstanding borrowings and letters of credit under the
Facility of $97.5$73.0 million and $52.1$52.3 million, respectively, leaving the Company
with available borrowing capacity of $70.4$94.7 million. The receipt of the insurance
proceeds and the proceeds of the division sales improved the Company's liquidity
since November 30, 1999. In addition, the borrowings outstanding on the
Company's European lines of credit were substantially reduced with the proceeds
of the sale of the Fluid Systems Division. The sale of the Fluid
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23
Systems Division resolved the situation where the Company had to obtain a waiver
from a lender because a financial covenant to one of the European credit
agreements had not been met. The Company was in compliance with the covenants of
its Credit Agreement and Subordinated Notes at February 29, 2000.
The Companyalso has an accounts
receivable loan agreement ("Receivables Agreement") which has a term of 364 days
and which is expected to be renewed over the term of the Credit Agreement. The
Company was in compliance with the covenants of all of its credit facilities,
including its Credit Agreement and Subordinated Notes, at May 31, 2000.
Excluding the Receivables Agreement, scheduled debt repayments are
$12.3$8.9 million
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26
in the remaining ninesix months of 2000. In addition to scheduled debt repayments,
the Company elected to redeem an $8.0 million industrial revenue bond which had
an original maturity date in 2012. No penalties were incurred for this
transaction and there was no impact on the Company's liquidity since the letter
of credit securing the outstanding industrial revenue bond against the Company's
revolving credit facility was canceled. The Credit Agreement, as amended,
requires the Company to make mandatory repayments of 50% of annual cash flow as
defined by the Credit Agreement, the net proceeds from sales of assets (subject
to certain conditions), the proceeds of new debt issued and 50% of the net
proceeds of any equity issued. No excess cash flow payment is due in 2000 for
the year ended November 30, 1999 and the proceeds from the sales of the Divested
Divisions are not required to be used to repay debt if such proceeds are used to
purchase assets within the period specified in the Credit Agreement. Scheduled
debt payments under the Credit Agreement and the industrial revenue bonds for
2001 and 2002 are $20.8 million and $25.6 million, respectively.
In addition to the sale of the Ross Aluminum, MARCO, and Fluid Systems
Division,On June 30, the Company continues to exploreacquired the salestock of other small divisions
which are expected to take place in 2000. Any proceeds resultingBlueStar Battery Systems
Corporation for $4.9 million. The acquisition was financed from the eventual sales of the other divisions will be applied to reduce debt or to fund
future growth.Company's
revolving credit facility.
The Subsidiary has reached an agreement in principle to settle the last
remaining claim from its chapter 11 reorganization. It is anticipated the second
and final bankruptcy distribution of approximately $11.3 million will be made in
2000, after the settlement of this last claim is final.
Cash and cash equivalents were $11.5$11.3 million at February 29,May 31, 2000. The
Company estimates that it needs approximately $10.0$8.0 million to $12.0$10.0 million in
cash for operations. The Company's liquidity needs are primarily for debt
service and capital maintenance. The Company believes that its cash flows from
operations and available borrowings under its bank credit facilities will be
sufficient to fund its anticipated liquidity requirements for the next twelve
months. In the event that the foregoing sources are not sufficient to fund the
Company's expenditures and service its indebtedness, the Company would be
required to raise additional funds.
YEAR 2000 READINESS DISCLOSURE
The Company completed its Year 2000 readiness project as scheduled,
including addressing leap year calendar date calculation concerns. The Company
did not experience any significant disruptions in its operating or business
systems during the transition from 1999 to 2000 or on February 29, 2000. Based
on operations since January 1, 2000, the Company does not expect any impact to
its ongoing business as a result of the Year 2000 issue. The Company has spent
approximately $5.2 million (including capital and internal resources that were
redeployed) to assess, remediate and test its computer hardware, software and
embedded systems.
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the
euro as their common legal currency and established fixed conversion rates
between their existing local currencies and the euro. During the transition
period, which runs from January 1, 1999 through December 31, 2002, transactions
may take place using either the euro or a local currency. However, conversion
rates will no longer be computed directly from one local currency to another,
but be converted from one local currency into an amount denominated in euro,
then be converted from the euro denominated amount into the second local
currency. On July 1, 2002, the local currencies will no longer be legal tender
for any transactions.
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24
The Company has both operating divisions and domestic export customers
located in Europe. In 1999, combined revenues from these sources were
approximately 11% of total revenues. The Company has operations in Germany and
just sold its operations in Spain, which are participating in the euro
conversion, and the United Kingdom, which has elected not to participate at this
time. Certain of our European operations have adopted the euro as their
reporting currency, although many transactions, such as payroll, some billing
and vendor invoicing, still occur in local currencies. The remaining operations
located in the participating countries plan to make the euro the functional
currency sometime during the transition period. The costs associated with the
conversion to date have not been material.
The Company is currently assessing the competitive impact of the euro
conversion on the Company's operations, both in Europe and in the United States.
In markets where sales
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27
are made in U.S. dollars, there may be pressures to denominate sales in the
euro, however, exchange risks resulting from these transactions could be
mitigated through hedging. Pressures to price products in euros may be more
urgent for operations located in the United Kingdom, particularly in the
automotive industry, as the European automotive industry is somewhat dominated
by German companies. The currency risk to the operations located in the United
Kingdom could also be hedged, however the risk is greater on a regional level
that the hedging could result in additional costs that could harm the cost
competitiveness of those operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which addresses the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in the fair value of a derivative depends on the its
intended use and the resulting designation. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." Based on the new
effective date, the Company will adopt the provisions of this statement in the
first quarter of the fiscal year ending November 30, 2001. In June 2000, the
FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," which amended certain provisions of SFAS No. 133.
The Company has not
yet determinedis currently assessing the impact this statementthat SFAS No. 133 and SFAS No. 138
will have on its financial position or the results of its operations.
Other recent accounting standards issued by the FASB since June 1998 are not applicable
to the Company.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Subsidiary and the Subsidiary Guarantors are subject to
restrictions on the payment of dividends and other forms of payment in both the
Credit Agreement and the Indenture for the Subordinated Notes. Those
restrictions generally prohibit the payment of dividends to the Company either
directly by the Subsidiary or indirectly through any Subsidiary Guarantor.
Certain limited exceptions are provided allowing for payments to the Company.
Specifically, the Subsidiary is authorized to make payments to the Company in
amounts not in excess of any amounts the Company is required to pay to meet its
consolidated income tax obligations. Additional payments from the Subsidiary to
the Company are permitted commencing September 1, 2003 in amounts not in excess
of the Company's obligations to make any cash dividend payments required to be
paid under the Company's Preferred Stock and to make any cash interest payments
required to be paid under any debentures issued by the Company in exchange for
the Company's Preferred Stock ("Exchange Debentures").
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FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are
not recitations of historical fact, constitute "forward looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934. The
words "estimate," "anticipate," "project," "intend," "believe," "expect," and
similar expressions are intended to identify forward-looking statements. Forward
looking statements in this report include, but are not limited to (1) statements
regarding the impact of the acquisition of Isonics under "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations;" (2) statements regarding the Company's anticipated
ownership interest in Isonics and anticipated capital expenditures for the
remaining six months of 2000 under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Investing
Activities;" (3) statements regarding the anticipated sale of other small
divisionsfinal bankruptcy
distribution in 2000 under "Item 2. Management's Discussion
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28
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources;" (4) statements regarding the anticipated final bankruptcy
distribution in 2000 under "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources;" (5) statements regarding the ability of the Company to fund
its anticipated liquidity requirements for the next twelve months under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources;" (6) statements regarding the
future impact of the Year 2000 issues under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Year 2000 Readiness
Disclosure;" and (7)(5) statements regarding the
potential costs associated with hedging currency risks to the operations and the
impact on the competitiveness of operations in the United Kingdom under "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Euro Conversion." Such forward-looking information involves
important risks and uncertainties that could materially alter results in the
future from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These risks and uncertainties include, but are not
limited to, the ability of the Company to maintain existing relationships with
customers; the ability of the Company to successfully implement productivity
improvements, cost reduction initiatives, facilities expansion; and the ability
of the Company to develop, market and sell new products and the ability of the
Company to continue to comply with environmental laws, rules and regulations.
Other risks and uncertainties include uncertainties relating to economic
conditions, acquisitions and divestitures, government and regulatory policies,
technological developments and changes in the competitive environment in which
the Company operates. Persons reading this Form 10-Q are cautioned that such
forward-looking statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, readers should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by such forward-looking
statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On February 26, 1998, the Company entered into a three-year interest
rate swap agreement ("Swap Agreement") with its lead bank to partially hedge its
interest rate exposure on variable rate loans under the Credit Agreement. Both
term loans and revolving credit loans under the Credit Agreement bear interest
at a variable rate equal to either (a) the average daily rate on overnight U.S.
federal funds transactions, or (b) the London Interbank Offered Rate shown on
Telerate Page 3750 for the applicable interest period ("LIBOR"), plus, in either
case, an applicable spread. Under this agreement, the Company pays a fixed rate
of 5.805% on a notional amount of $150.0 million and receives LIBOR on that
amount, effectively fixing the interest rate on $150.0 million of debt
outstanding under the Credit Agreement at 5.805% plus the applicable spread.
Loans under the Company's accounts receivable loan agreement
("Receivables Agreement") bear interest at a variable rate equal to market rates
on commercial paper having a term similar to the applicable interest period. The
Company's industrial revenue bonds ("IRB's") bear interest at variable rates
based on the market for similar issues.
Loans under the Receivables Agreement
and the IRB's are not covered by the Swap Agreement.
As of February 29,May 31, 2000, $175.1there was $229.9 million of revolving and term loans werevariable-rate debt
outstanding, under the Credit Agreement, of which interest on $150.0 million is essentially fixed by the
Swap Agreement. The interest rate risk on the remaining variable-rate debt
outstanding, under the Credit Agreement, as well as the debt outstanding
under the Receivables Agreements and the IRB's, which in the aggregate totals $107.5$79.9 million, has not been hedged.
Accordingly, a 1% increase in the applicable index rates would result in
additional interest expenses of $1.1$0.8 million per year, assuming no change in the
level of borrowing.
2628
2729
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.19 Restated Articles of Incorporation for EPMR Corporation (f/k/a Michigan
Automotive Research Corporation)
3.20 By Laws for EPMR Corporation (f/k/a Michigan Automotive Research
Corporation)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
2729
2830
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER HOLDINGS, INC.
/s/ Philip F. Schultz
----------------------------------------------------------------------------
Philip F. Schultz
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
28-------------------
30
2931
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER INDUSTRIES, INC.
/s/ Philip F. Schultz
----------------------------------------------------------------------------
Philip F. Schultz
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
29-------------------
31
3032
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS, INC.
/s/ Gary M. Freytag
----------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
30-------------------
32
3133
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/s/ Gary M. Freytag
----------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
31-------------------
33
3234
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FAR EAST, INC.
/s/ Gary M. Freytag
----------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
32-------------------
34
3335
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER MINERALS, INC.
/s/ Gary M. Freytag
----------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
33-------------------
35
3436
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ R. Doug Wright
----------------------------------------------------------------------------
R. Doug Wright
Vice President, Controller
and Chief Financial Officer
DATE April 11,July 13, 2000
---------------------
34-------------------
36
3537
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ Gary M. Freytag
----------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
35-------------------
37
3638
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPMR CORPORATION (F/K/A MICHIGAN
AUTOMOTIVE RESEARCH CORPORATION)
/s/ Gary M. Freytag
----------------------------------------------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE April 11,July 13, 2000
---------------------
36-------------------
38
3739
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.19 Restated Articles of Incorporation for EPMR
Corporation (f/k/a Michigan Automotive Research
Corporation)
3.20 By Laws for EPMR Corporation (f/k/a Michigan Automotive
Research Corporation)
27.1 Financial Data Schedule (submitted electronically to the
Securities and Exchange Commission for its information.)
3739