SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended MayAugust 31, 2002 Commission file number 333-49957-01
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EAGLE-PICHER HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11201 North Tatum Blvd., Suite 110, Phoenix, Arizona 85028
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 602-923-7200
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(Not Applicable)
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Former name, former address and former fiscal year,
if changed since last report
EAGLE-PICHER HOLDINGS, INC. IS FILING THIS REPORT VOLUNTARILY IN ORDER TO COMPLY
WITH THE REQUIREMENTS OF THE TERMS OF ITS 9 3/8% SENIOR SUBORDINATED NOTES AND
11 3/4% SERIES B CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND IS NOT REQUIRED TO
FILE THIS REPORT PURSUANT TO EITHER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. (See explanatory note immediately above.)
Yes No x
--- ------- ----
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
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963,500 shares of common capital stock, $.01 par value each, were outstanding at
JulyOctober 15, 2002.
1
TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------ ------
Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
EPMR Corporation (f/k/a Michigan
Automotive Research Corp.) Michigan 333-49957-08 38-2185909
2
TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements......................................... 4
Condensed Consolidated Statements of Income (Loss)(Unaudited).... 4
Condensed Consolidated Balance Sheets (Unaudited)................ 5
Condensed Consolidated Statements of Cash Flows (Unaudited)...... 7
Notes to Condensed Consolidated Financial Statements (Unaudited). 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 35
Item 6. Exhibits and Reports on Form 8-K............................. 35
Signatures............................................................ 36
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Condensed Consolidated Statements of Income (Loss) (Unaudited).... 4
Condensed Consolidated Balance Sheets (Unaudited)................. 5
Condensed Consolidated Statements of Cash Flows (Unaudited)....... 7
Notes to Condensed Consolidated Financial Statements (Unaudited).. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 31
Item 4. Controls and Procedures............................................. 32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 33
Signatures................................................................... 34
Certifications............................................................... 43
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended SixNine Months Ended
MayAugust 31 MayAugust 31,
---------------------- --------------------------------------------- ---------------------
2002 2001 2002 2001
---- ---- ---- ------------- --------- --------- ---------
Net Sales $ 181,327169,053 $ 184,127169,520 $ 340,676509,729 $ 348,156517,676
--------- --------- --------- ---------
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 140,279 147,499 266,326 277,627131,617 139,673 397,943 417,300
Selling and administrative 21,247 13,611 34,915 24,87114,295 13,054 49,210 37,925
Depreciation 11,714 11,379 22,331 21,63211,926 11,250 34,257 32,882
Amortization of intangibles 4,298 4,149 8,520 8,1054,214 4,135 12,734 12,240
Restructuring -- -- 2,998 - 2,998 ---
Divestitures 5,845 500 5,970161 -- 6,131 500
Management compensation - special 2,381 1,889 2,381 1,889524 609 2,905 2,498
Insurance related losses -- -- 3,100 - 3,100 ---
Other (36) (62) (222) (269)(83) 107 (305) (162)
--------- --------- --------- ---------
191,826 178,965 346,319 334,355162,654 168,828 508,973 503,183
--------- --------- --------- ---------
Operating Income (Loss) (10,499) 5,162 (5,643) 13,8016,399 692 756 14,493
Interest expense (11,222) (10,078) (22,303) (20,250)(9,632) (9,920) (31,935) (30,170)
Other income(expense) 573 (66) 976 839income (expense), net 412 1,600 1,388 2,439
--------- --------- --------- ---------
Income(Loss)Loss from Continuing Operations Before Taxes (21,148) (4,982) (26,970) (5,610)(2,821) (7,628) (29,791) (13,238)
Income Taxes (Benefit) 820 (1,645) 1,205 (1,775)750 (2,525) 1,955 (4,300)
--------- --------- --------- ---------
Income (Loss)Loss from Continuing Operations (21,968) (3,337) (28,175) (3,835)(3,571) (5,103) (31,746) (8,938)
Discontinued Operations:
Loss from operations of discontinued Segment,segment,
net of income taxes (benefit) of $(900) - - --- -- -- (1,657)
Loss on disposal of business segment Includingincluding
provisions of $682$1,733 and $1,768
For$4,138 for operating losses
during phase-out Periods,periods, net of income tax benefits
of $1,575$2,000 and $9,800 - (2,925) - (18,200)$11,800 -- (5,500) -- (23,700)
--------- --------- --------- ---------
Net Income (Loss)Loss $ (21,968)(3,571) $ (6,262)(10,603) $ (28,175)(31,746) $ (23,692)
--------- --------- --------- ---------
Income (Loss)(34,295)
========= ========= ========= =========
Loss Applicable to Common Shareholders $ (25,687)(7,289) $ (9,580)(13,921) $ (35,406)(42,695) $ (30,144)(44,065)
========= ========= ========= =========
Comprehensive Income (Loss) $ (20,776)(3,468) $ (7,082)(12,180) $ (26,832)(30,300) $ (24,589)(36,769)
========= ========= ========= =========
Basic Loss per Share to Common Shareholders:
Income (Loss)Loss from continuing operations $ (26.63)(7.57) $ (6.77)(8.58) $ (36.63)(44.22) $ (10.45)(19.02)
Discontinued operations net income (Loss) - (2.97) - (20.17)loss -- (5.60) -- (25.79)
--------- --------- --------- ---------
Net Income (Loss)Loss $ (26.63)(7.57) $ (9.74)(14.18) $ (36.63)(44.22) $ (30.62)(44.81)
========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements.
4
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
MayAugust 31 November 30
ASSETS 2002 2001
---- ------------ --------
CURRENT ASSETS
Cash and cash equivalents $ 22,08812,575 $ 24,620
Receivables, less allowances 54,642 105,622net 60,234 100,052
Inventories:
Raw materials and supplies 21,76725,059 24,737
Work in process 27,16728,002 32,038
Finished goods 12,79714,820 18,569
-------- --------
61,73167,881 75,344
Net assets of operations to be sold 4,298held for sale 1,753 3,258
Prepaid expenses 11,196 9,55212,071 15,122
Deferred income taxes 24,287 24,287
-------- --------
Total current assets 178,242178,801 242,683
-------- --------
PROPERTY, PLANT AND EQUIPMENT 354,622359,001 352,883
Less accumulated depreciation 152,646165,719 136,128
-------- --------
Net property, plant and equipment 201,976193,282 216,755
EXCESS OF ACQUIRED NET ASSETS OVER COST,GOODWILL, net of accumulated amortization of $65,536$69,492 and $57,624, respectively
171,850167,894 179,762
OTHER ASSETS 88,49787,023 86,711
-------- --------
Total Assets $640,565$627,000 $725,911
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)DEFICIT
CURRENT LIABILITIES
Accounts payable $ 83,06771,584 $ 86,297
Long-term debt - current portion 23,93520,966 41,957
Income taxes 783 1,209
Other accrued liabilities 78,120 71,81681,006 73,025
-------- --------
Total current liabilities 185,905173,556 201,279
LONG-TERM DEBT - less current portion 356,782358,831 401,169
DEFERRED INCOME TAXES 7,0017,088 6,277
OTHER LONG-TERM LIABILITIES 28,43728,553 27,755
-------- --------
Total Liabilities 578,125568,028 636,480
-------- --------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;shares authorized;
14,191 issued and outstanding 14,191 shares 130,317134,035 123,086
-------- --------
5
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
MayAugust 31 November 30
2002 2001
---- ------------- ---------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, voting - $.01 par value each:
1,000,000 shares authorized and issued 10 10
Additional paid-in capital 99,991 99,991
Deficit (158,799)Accumulated deficit (166,088) (123,393)
Other comprehensive income (loss) (4,387)loss (4,284) (5,730)
Treasury Stock, at cost: 36,500 and 27,750 shares (4,692) (4,533)
--------- ---------
Total Shareholders' Equity (Deficit) (67,877)Deficit (75,063) (33,655)
--------- ---------
Total Liabilities and Shareholders' Equity (Deficit)Deficit $ 640,565627,000 $ 725,911
========= =========
See accompanying notes to the condensed consolidated financial statements.
6
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
SixNine Months Ended
MayAugust 31
--------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(28,175) $(23,692)loss $(31,746) $(34,295)
Adjustments to reconcile net income (loss)loss to net cash provided by operating activities:
Depreciation and amortization 32,456 31,36049,344 47,611
Provision for discontinued operations - 18,200
Divestitures 5,970-- 23,700
Loss on divestitures 6,131 500
Deferred income taxes 811 --
Changes in assets and liabilities:liabilities, net of effect of non cash loss on divestitures:
Sale of receivables (see Note F) 40,975 --
Receivables 49,822 (14,492)(3,573) (7,840)
Inventories 8,973 5,5462,323 2,899
Prepaid expenses 3,025 (1,268)
Other assets (4,736) (4,569)
Accounts payable (2,692) 7,796(13,325) 13,055
Accrued liabilities 3,290 (1,790)3,823 (5,317)
Other (8,729) (1,562)-- (2,084)
-------- --------
Net cash provided by operating activities 60,915 21,86653,052 32,392
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions 6,300 -8,917 --
Capital expenditures (8,918) (22,344)
Other 1,082 (2,022)(12,611)
(34,874)
Proceeds from sale of property and equipment and other 639 (966)
-------- --------
Net cash provided by (used in)used in investing activities
(1,536) (24,366)(3,055) (35,840)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (18,520) (9,548)(22,579) (14,322)
Net borrowings (repayments) under revolving credit agreements (43,946) 11,556(40,750) 26,765
Acquisition of treasury stock (159) (1,692)
Other 555 (205)-- 1,432
-------- --------
Net cash provided by (used in) financing activities (61,911) 1,803(63,488) 12,183
-------- --------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS - 1,540-- 1,027
-------- --------
Effect of exchange rates on cash 1,446 (2,474)
-------- --------
7
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
SixNine Months Ended
MayAugust 31
----------------
2002 2001
---- ------------ --------
Net increase (decrease) in cash and cash equivalents (2,532) 843(12,045) 7,288
Cash and cash equivalents, beginning of period 24,620 7,467
-------- --------
Cash and cash equivalents, end of period $ 22,08812,575 $ 8,31014,755
======== ========
Supplemental cash flow information:
2002 2001
---- ----
Cash paid during the threenine months ended MayAugust 31:
Interest paid $ 14,37923,209 $ 14,46823,135
======== ========
Income taxes paid (refunded), net $ (5,074)(4,835) $ (135)
Cash paid during the six months ended May 31:
Interest paid $ 19,382 $ 18,704
Income taxes paid (refunded), net $ (4,801) $ (1,902)(1,695)
======== ========
See accompanying notes to the condensed consolidated financial statements.
8
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Eagle-Picher Holdings, Inc. (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and notes thereto for the
fiscal year ended November 30, 2001 presented in the Company's Form 10-K filed
with the SEC on February 15, 2002, as amended September 20, 2002. Certain
amounts herein have been reclassified to conform to the reclassifications made
in the amended Form 10-K filed on March 8,September 20, 2002.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the
three months and sixnine months ended MayAugust 31, 2002 and May 31, 2001. 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 withto current year financial statement presentation.
B. BASIC EARNINGSLOSS PER SHARE
The calculation of net income (loss)loss per share is based upon the average number of
common shares outstanding, which was 964,500963,500 in the three months ended MayAugust
31, 2002, 966,458965,472 in the sixnine months ended MayAugust 31, 2002, 983,500981,417 in the three
months ended MayAugust 31, 2001 and 984,333983,361 in the sixnine months ended MayAugust 31,
2001. 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 $3,719$3,718 and $7,231$10,949 for the
three and sixnine months ended MayAugust 31, 2002, respectively and $3,318 and $6,452$9,770
for the three and sixnine months ended MayAugust 31, 2001, respectively. No potential
common stock was outstanding during the three and sixnine months ended MayAugust 31,
2002 or 2001.
C. DISCONTINUED OPERATIONS
The assets and business of the Construction Equipment Division (CED),
which comprised the Company's Machinery Segment, were sold December 14, 2001 as
noted in the previous 10K10-K filing for the year ended November 30, 2001. Pursuant to the
transaction, $5,600 of liabilities were assumed or retained as of November 30,
2001. At MayAugust 31, 2002 the remaining balance of those liabilities was
approximately $3,340$2,600 recorded in Other Accrued Liabilities. The results of the
Machinery Segment's operations were reported separately as discontinued
operations throughout 2001.
Inventory of approximately $1,416 remains in the net assets of operations
to be soldNet Assets Held for Sale at
MayAugust 31, 2002, which the purchaser of CED is obligated to purchase during
2002. The Company believes that the purchaser of CED has defaulted on its
obligation to purchase this inventory and has initiated litigation to recover
this amount.
D. RESTRUCTURING
In Novemberthe fourth quarter of 2001, the Company recorded asset write-downs and
other charges totaling $14,163 in connection with a restructuring plan (the
"Plan"). announced in November 2001. The Plan primarily relocates
9
the Company's
corporate headquarters from Cincinnati, Ohio to Phoenix, Arizona and closes
three plants in the Technologies segmentSegment as it eliminates certain product lines
in the Special Purpose Battery category. The costs related to the Plan, which
were recognized as a separate component of operating expenses in the fourth
quarter of 2001, included approximately $5,425 related to the facilities, $5,044
related to involuntary severance of approximately 165 employees and $3,694 in
other costs to exit business activities. The Company anticipates substantially
completing the restructuring by year-end 2002.
Facility costs include adjustmentsa non-cash adjustment of $3,575 recorded against Property
Plant$1,250 to write down the
carrying value of the three plants to their estimated fair value in holding them
for sale. A non - cash charge of $2,325 represents the estimated loss on
abandoning the machinery and Equipment for asset impairmentsequipment and adjustmentsother assets at the plant locations
and corporate headquarters, and $1,850 represents an estimate of $1,850 recorded in
Other Accrued Liabilities for futurethe total lease
commitments less estimated proceeds received from subleasing.subleasing the various spaces.
The asset impairment adjustments are recorded against Property Plant and
Equipment and the liability for future lease commitments is included in Other
Accrued Liabilities in the condensed consolidated balance sheets.
9
The Company has determined that a portion of the assets in its over-funded
pension plan canat November 30, 2001 could be made available to pay severance costs
related to the restructuring plan. The Company has amended the pension plan and
has provided new or amended severance plans to allow for such payments.
Approximately $2,556$2,664 of severance has been paid out or is expected to be paid
out of the pension plan. ThisDuring the second quarter of 2002, this resulted in a
reduction of the restructuring provision originally recorded in the fourth
quarter of 2001.
The other shutdown costs to exit the business consist primarily of $3,000
in non-cash charges related to inventory. The remaining balance in other costs
is included in Other Accrued Liabilities.
On May 31, 2002 the Company announced it would exit the Gallium business
in its Technologies segment due to the downturn in the fiber-optic,
tele-communication and semiconductor markets, the primary markets for its
Gallium products. This action resulted in a $5,482 charge to restructuring
expense in the quarter ended May 31, 2002. This charge consists of an inventory
impairment totaling $2,943 representing the loss to be incurred from the
liquidation of current inventory. The charge also consists of an accrual
totaling $2,339 recorded in Other Accrued Liabilities representing the loss to
be incurred from the liquidation of inventory to be purchased under firm
purchase commitments, lease impairments and severance. A $200 asset impairment
was recorded against Property, Plant and Equipment at May 31, 2002. In the third
quarter, $732 of impairment was recorded against the inventory (reducing the
accrual recorded in Other Accrued Liabilities) purchased in the third quarter
under the previously mentioned firm purchase commitments.
An analysis of the asset impairment, accrued liabilities and amounts
utilized related to the plans is as follows:
FACILITIES SEVERANCE OTHER TOTAL
---------- --------- ----- ------------- -------- -------- --------
Original Charges $ 5,425 $ 5,044 $ 3,694 $ 14,163
Amounts Utilized -offset against asset values (3,575) -- (3,000) (6,575)
Amounts utilized -- (202) --- (202)
-------- -------- -------- --------
Balance at November 30, 2001 5,4251,850 4,842 3,694 13,961694 7,386
Amounts Utilized (29) (910) - (939)
-------- -------- -------- --------
Balance at February 28, 2002 5,396 3,932 3,694 13,022
-------- -------- -------- --------utilized (201) (1,670) (276) (2,147)
Amounts Utilized (172) (760) (1,419) (2,351)
Amounts Added/(Reversed) -added/(reversed) -- (2,664) 181 (2,483)180 (2,484)
New Restructuring -restructuring (exiting the Gallium business) -- 15 5,467 5,482
Amounts offset against asset values (3,575) --- -- (3,143) (6,718)(3,143)
-------- -------- -------- --------
Balance at May 31, 2002 1,649 523 2,922 5,094
Amounts utilized (160) (80) (209) (449)
Amounts offset against asset values -- -- (732) (732)
-------- -------- -------- --------
Balance at August 31, 2002 $ 1,6491,489 $ 523443 $ 4,7801,981 $ 6,9523,913
======== ======== ======== ========
E:E. DIVESTITURES
The $17,766 in reserves previously established for divestitures as
noted in the Company's Annual Report on Form 10-K for the fiscal year ended
November 30, 2001, totaled approximately $19,990$17,888 at May 30,August 31, 2002. The
activity in these reserves, recorded in Other Accrued Liabilities, for the sixnine
months ended MayAugust 31, 2002 was $940$3,147 in utilization and expenditures against
reserves and approximately $3,164$3,269 in additional accruals recorded primarily in
the second quarter of 2002 for costs related to certain litigation issues and
environmental remediation.
In the quarter ended May 31, 2002 the Company signed a letter of intent
to sell certain assets and liabilities of the Precision Products business in its
Technologies segmentSegment to a group of employees and divisional management
personnel. TheIn the second quarter, the Company recorded a $2,806 estimated
10
loss on sale
recordeddisclosed in the Divestitures line item on the Statementcondensed consolidated statements
of Income.income (loss). The net asset heldsale occurred on July 17, 2002, subject to potential
working capital adjustments. The Company has recorded an additional $337 in Net
Assets Held for sale after this write down, is $2,882.
F:Sale at August 31, 2002 related to the working capital
adjustment.
10
F. ACCOUNTS RECEIVABLE ASSET BACKED SECURITIZATION
In January 2002 the Company entered into an agreement with a major U.S.
financial institution to sell an undivided interest in certain receivables of
the Company and certain of its domestic subsidiaries through an unconsolidated
qualifying special purpose entity, Eagle-Picher Funding Corporation ("EPFC").
Initially $47,000 of proceeds from this new facility were used to payoff amounts
outstanding under the Company's existing Receivables Loan Agreement with its
wholly
ownedwholly-owned subsidiary Eagle-Picher Acceptance Corporation on the closing date
and for other corporate purposes. The agreement involves the sale of receivables
of the Company and certain of its domestic subsidiaries to EPFC, which in turn
sells an undivided beneficial interest in a revolving pool of receivables to the
financial institution. EPFC has no recourse against the Company and its
subsidiaries for failure of the debtors to pay when due. The agreement provides
for continuation of the program on a revolving basis for approximately a
three-year period.period, provided the Company has refinanced or extended its senior
credit facility by October 31, 2003.
The Company accounts for the securitization of accounts receivables in
accordance with SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, a replacement of FASB
Statement 125." At the time the receivables are sold, the balances are removed
from the condensed consolidated balance sheets. Costs associated with the
transactions, primarily related to the discount, are charged to the condensed
consolidated statement of income (loss).
In conjunction with the initial transaction, in which $82,475 of receivables
were sold to EPFC, and the Company incurred charges of approximately $1,500
which are included in Interest Expense on the condensed consolidated statements
of income (loss). The Company continues to service the sold receivables and
receives monthly servicing fees from EPFC of approximately 1% (annually)per annum of the
average balance of the receivables pool. The Company's retained interest in the
receivables are carried at fair value which is estimated as the net realizable
value. The net realizable value considers the collection period and includes an
estimated provision for credit losses and returns and allowances.
At MayAugust 31, 2002, the Company's retained interest, including a
service fee receivable of $89,$91, was approximately $32,900$36,800 and the revolving pool
of receivables that the Company services totaled approximately $85,983.$80,194. The
outstanding balance of the undivided interest sold to the financial institution
recorded on EPFC was $52,350$40,975 at MayAugust 31, 2002. During the quarterthree months and
sixnine months ended MayAugust 31, 2002, proceeds from new securitizations outside of
the initial sale, were $165,430$147,539 and $274,505$422,044, respectively, and proceeds from
collections reinvested in securitizations totaled $153,498$144,997 and $258,003$403,000,
respectively. The effective interest rate in the securitization was
approximately 2.9%.
G. INSURANCE RELATED LOSSES
In the second quarter ended May 31, 2002, the Company recorded a charge
against an insurance receivable related to the fire inat its Harrisonville,
Missouri bulk pharmaceutical manufacturing plant. This charge resulted from an
anticipateda
potential shortfall on insurance proceeds due to the insurance underwriter
contesting coverage. The fire occurred in the third quarter of 2001 in the
Technologies segment.Segment.
H. 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, 2001.
11
On January 25, 1996, Richard Darrell Peoples, a former employee of
Eagle-Picher Industries, Inc., filed a Qui Tam suit under seal in the United
States District Court for the Western District of Missouri (the "Missouri
Court"). A Qui Tam suit is a lawsuit brought by a private individual pursuant to
federal statute, allegedly on behalf of the U.S. Government. TheFollowing an
extensive investigation, the U.S. Government
has declined the opportunity to
intervene or take control of this Qui Tam suit. EPI became aware of the suit on
October 20, 1997, when it was served on EPI, after it had been unsealed. The
suit involves allegations of irregularities in testing procedures in connection
with certain U.S. Government contracts. The allegations are similar to
allegations made by the former employee, and investigated by outside counsel for
EPI, prior to the filing of the Qui Tam suit. Outside counsel's investigation
found no evidence to support any of the employee's allegations, except for some
inconsequential expense account matters. EPI, which believes that the U.S. Government did not incur any expense as a
result of those matters, reported to the U.S. Government the employee's
allegations and the results of outside counsel's investigation. The employee
also initiated a different action against EPI in 1996 for wrongful termination,
in which he alleged many of the same acts complained of in the Qui Tam suit. The
Missouri Court dismissed that action with prejudice in October 1996. On June 16,
1998, the Missouri Court granted EPI's Motion to Dismiss the Qui Tam suit. The
Court, however, allowed Mr. Peoples to amend his complaint. Mr. Peoples filed an
amended complaint, and EPI's Motion to Dismiss the Amended Complaint was denied
on January 20, 1999. Since that time the case has been inis a discovery phase. EPI
11
intends to contest this suit vigorously. EPI does not believe that resolution of
this lawsuit will have a material adverse effect on EPI's financial condition,
results of operations or cash flows.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed
suit against the Company's wholly owned subsidiary, Eagle-Picher Industries,
Inc. ("EPI") in the United States District Court for the Northern District of
Georgia (the "Georgia Court") alleging breach of contract, negligent
misrepresentation, and contributory infringement and seeking contribution and
indemnification in an amount not less than $10 million (the "Caradon Suit"). The
Caradon suit arose out of patent infringement litigation between Caradon and
Therma-Tru Corporation extending over the 1989-1996 time period, the result of
which was for Caradon to be held liable for patent infringement in an amount
believed to be in excess of $10 million. In June 1997, EPI filed a Motion with
the United States Bankruptcy Court for the Southern District of Ohio, Western
Division, ("Bankruptcy Court") seeking an order enforcing EPI's plan of
reorganization as confirmed by the Bankruptcy Court in November 1996 (the
"Plan") against Caradon, and enjoining the Caradon suit from going forward. The
Bankruptcy Court in a decision entered on December 24, 1997, held that the
Caradon suit did violate the Plan and enjoined Caradon from pursuing the Caradon
suit. Caradon appealed the Bankruptcy Court's decision to the United States
District Court for the Southern District of Ohio (the "District Court"), and in
a decision entered on February 3, 1999, the District Court reversed and remanded
the matter back to the Bankruptcy Court. The Bankruptcy Court held a hearing on
this matter on September 24 and 25, 2001, and again on May 9, 2002 again held that the
Caradon suit violated the Plan and therefore Caradon's claims had been
discharged and enjoined Caradon from pursuing the Caradon Suit. Caradon has
appealed this decision to the District Court. EPI intends to contest this suit
vigorously. EPI does not believe that resolution of this suit will have a
material adverse effect on EPI's financial condition, results of operations or
cash flows.
On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired
the depleted zinc distribution business (the "DZ Business") of Isonics
Corporation ("Isonics") for approximately $8.2 million, payable $6.7 million at
closing and $1.5 million in three installments of $500,000 each payable on the
first three anniversaries of the closing. At the time of the acquisition, a
single customer represented approximately 55% of the DZ Business. Following the
completion of the acquisition, this customer informed EPT that it would no
longer be purchasing depleted zinc from an outside supplier. EPT initiated
binding arbitration against Isonics on March 26, 2001 with the American
Arbitration 12
Association in Dallas, Texas for fraud and misrepresentation
pursuant to contractual dispute resolution procedures. EPT's arbitration demand is based on breach of representations and
warranties in the purchase and sale agreement for the DZ Business as well as
fraud and negligent misrepresentation, and seeks to recover damages in excess of
$10 million and other remedies. While the Company believes it has a meritorious
claim against Isonics, there can be no assurance that the Company will obtain
any recovery as a result of this claim. In connection with the
purchase of the DZ Business, EPT agreed to sell 200 kg of isotopically purified
silicon-28 to Isonics. Due to various factors, EPT hasdid not yet delivereddeliver any
silicon-28 to Isonics. Isonics has asserted a counterclaimclaim against EPI and EPT infor $75.0
million for the DZ Business arbitration described above for failure to deliver silicon-28, seeking damages in excess of $10 million.silicon-28. On July 24, 2002, EPT believes that any obligation to deliver silicon-28 has been excused by, among
other things, a force majeure clause in the purchase and sale agreement for the
DZ Business. Contemporaneously with the purchase and sale of the DZ Business,
EPT and Isonics entered into a supply agreement (the "Supply Agreement")
pursuant to which EPT agreed that, commencing upon delivery of 200 kg of
silicon-28, EPT would devote the capacity of a pilot plant used to produce such
material to producing silicon-28 and sell all silicon-28 produced in such pilot
plant and meeting certain specifications, as well as any silicon-29 or
silicon-30 actually produced as a byproduct,paid $2.5
million to Isonics for a ten year term.
Isonics amended its counterclaim in the DZ Business arbitration to assert a
claim that the Supply Agreement requires EPT to produce a certain amount of
silicon-28, silicon-29 and silicon-30 and alleging damages of not less than $75
million for anticipatory breach of such alleged obligation. EPT believes that
the terms of the Supply Agreement and applicable law clearly establish that the
Supply Agreement does not impose any obligation to produce any quantity of
silicon-28, silicon-29 or silicon-30 and that Isonics'settle all claims are without merit.
Isonics also amended its counterclaim to allege that EPT's parent company,
Eagle-Picher Industries, Inc. ("EPI") is liable for any damages of EPT under an
"alter ego" theory, a claim which EPI and EPT believe is also without merit. EPT
and EPI intend to assert other defenses as well and to defend this counterclaim
vigorously. EPT continues to explore alternative processes that may enable it to
produce silicon-28, but there is no assurance that such efforts will be
successful.among EPI, EPT and Isonics filed motions for summary judgement withincluding
the arbitration panel. The panel granted EPI's motions for summary judgement and
denied the other motions for summary judgement. An arbitration hearing is
scheduledremaining installment payments totaling $1.5 million for the week of July 29, 2002.DZ Business,
and the parties signed mutual general releases.
On September 25, 2001, Andries Ruijssenaars, former President and Chief
Executive Officer of the Company, filed a lawsuit against the Company, certain
of its directors and ABN AMRO Bank in the U.S. District Court for the Southern
District of Ohio, Western Division, relating to the purchase of Mr.
Ruijssenaar's common stock in the Company and his benefits under the EPI's
Supplemental Executive Retirement Plan (SERP). Mr. Ruijssenaars claims that the
per share price for 2001 under the Company's Incentive Stock Plan, which is
generally applicable to all Plan participants and results in approximately $2.8
million for Mr. Ruijssenaars' 30,000 shares of common stock, was not correctly
determined and claims approximately $4.7 million for his shares. Mr.
Ruijssenaars' lawsuit also challenges a rule adopted by the committee for the
Plan,SERP, deferring the obligation of the Company to repurchase stock in the event
contracts to which the Company is a party, including its debt agreements,
restrict such repurchase. Mr. Ruijssenaars' lawsuit also challenges EPI's
determination of benefits under the SERP and claims that EPI is obligated to
purchase an annuity for his additional SERP benefit accrued after 2000 based on
theories of promissory estoppel, equitable estoppel, breach of contract and
ERISA. Mr. Ruijssenaars has also asserted claims of fraud, conspiracy, breach of
fiduciary duty and conversion. Mr. Ruijssenaars seeks approximately $2.3 million
with respect to the SERP, as well as punitive damages. The Company has reached a
tentative agreement with Mr. Ruijssenaars to settle this litigation, subject to
negotiation of documentation, but the parties were unable to reach agreement on
documentation. If such agreement is not finalized, theThe Company intends to contest this suit vigorously. The Company
does not
13
believe that resolution of this lawsuit will have a material adverse
effect on its financial condition, result of operations or cash flows.
On October 30, 2001, GMAC Business Credit, LLC (GMAC) and Eagle Trim, Inc.
filed a lawsuit in the United States District Court for the Eastern District of
Michigan, Southern Division, against EPI arising out of the sale of EPI's former
automotive interior trim division to Eagle Trim. In connection with that sale,
EPI guaranteed to GMAC, which funded the acquisition, that approximately $3.9
million of receivables relating to tooling purchased by EPI on behalf of
customers would be paid by November 2001. Eagle Trim ceased operations during
2001, at which2001. At that time, Eagle Trim and GMAC allegealleged that approximately $2.7 million
of the tooling receivables had not been collected and did not exist at the time
of the sale. On September 30, 2002, EPI settled this matter by agreeing to pay
$5.4 million to GMAC, claims $2.7payable $1.5 million by December 5, 2002, $1.7 million in
monthly installments from January 2003 through June 2003 and $2.2 million in
monthly installments from July 2003 through October 2005 plus interest on the guaranty, and GMAC
and Eagle Trim have asserted claims for fraud and misrepresentation and are
seeking $24.5 million in damages. EPI is currently investigating these
allegations, but denies any fraud or misrepresentation. EPI intends to contest
this suit vigorously. EPI does not believe that resolution of this lawsuit will
have a material adverse effect on EPI's financial condition, results of
operations or cash flows.at 4.5%
per annum.
12
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.
I. SEGMENT REPORTING
The Company has the following reportable segments: Automotive,
Technologies and Minerals. The method for determining what information to report
is based on the way management organizes the operating segments within the
Company for making operational decisions and assessing performance. The
operations in the Automotive Segment provide mechanical and structural parts and
raw materials for passenger cars, vans, trucks and sport utility vehicles for
original equipment manufacturers and replacement markets. The operations in the
Technologies Segment produce a variety of products for the aerospace, nuclear,
telecommunications, electronics, and other industrial markets. The operations in
the Minerals Segment mine and refine diatomaceous earth products.
The accounting policies used to develop segment information correspond
to those disclosed in the Company's consolidated financial statements for the
year ended November 30, 2001 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
and nine months ended MayAugust 31, 2002 and 2001:
Three Months Ended SixNine Months Ended
MayAugust 31 MayAugust 31
---------------------- ---------------------------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
(In thousands of dollars)
Net Sales
Net Sales
AutomotivePrecision Machined Components $ 116,75484,690 $ 114,75186,498 $ 220,232267,566 $ 215,538
Technologies 47,839 52,460 88,360 100,327
Minerals 16,734 16,916 32,084 32,291264,269
Rubber Coated Metal Products 21,196 17,996 58,552 55,763
--------- --------- --------- ---------
Automotive 105,886 104,494 326,118 320,032
Special Purpose Batteries 27,768 25,674 76,450 73,472
Specialty Materials 14,130 18,912 44,025 57,855
Precision Products - divested July 17, 2002 832 2,238 3,435 8,476
Other Technologies Products 3,097 1,857 10,277 9,205
--------- --------- --------- ---------
Technologies 45,827 48,681 134,187 149,008
Minerals 17,340 16,345 49,424 48,636
--------- --------- --------- ---------
14
Total $ 181,327169,053 $ 184,127169,520 $ 340,676509,729 $ 348,156517,676
========= ========= ========= =========
Income (Loss) from Continuing
Operations Before Taxes:
Automotive $ (2,061)(4,622) $ (2,739)(5,885) $ (4,456)(9,078) $ (3,386)(9,271)
Technologies (12,817) (1,115) (16,010) (897)1,364 (1,814) (14,646) (2,711)
Minerals 2,610 191 2,933 (297)932 (51) 3,865 (348)
Divested Operations (5,845) (500) (5,970)(161) -- (6,131) (500)
Corporate (3,035) (819) (3,467) (530)(334) 122 (3,801) (408)
--------- --------- --------- ---------
Total $ (21,148)(2,821) $ (4,982)(7,628) $ (26,970)(29,791) $ (5,610)(13,238)
========= ========= ========= =========
Depreciation and Amortization:EBITDA
Automotive $ 10,95811,122 $ 10,1339,173 $ 20,60437,497 $ 19,38335,601
Technologies 3,616 3,776 7,275 7,3638,014 5,577 6,361 19,215
Minerals 1,328 1,390 2,748 2,7403,013 2,152 10,151 6,160
Divested Operations (161) -- (6,131) (500)
Corporate 110 229 224 251963 775 1,257 1,578
--------- --------- --------- ---------
Total $ 16,01222,951 $ 15,52817,677 $ 30,85149,135 $ 29,73762,054
========= ========= ========= =========
EBITDA, earnings before interest, taxes, depreciation and amortization, may not
be comparable to similarly titled measures reported by other companies and
should not be construed as an alternative to operating income or cash flows
from operating activities, as determined by accounting principles generally
accepted in the United States of America.
13
Three Months Ended Nine Months Ended
August 31 August 31
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
(In thousands of dollars)
Depreciation and Amortization:
Automotive $11,133 $ 9,982 $31,737 $29,365
Technologies 3,548 3,803 10,823 11,166
Minerals 1,327 1,466 4,075 4,206
Corporate 132 134 356 385
------- ------- ------- -------
Total $16,140 $15,385 $46,991 $45,122
======= ======= ======= =======
Interest Expense:
Automotive $ 4,9614,611 $ 5,310 $ 10,227 $ 10,4315,076 $14,838 $15,507
Technologies 3,584 3,610 7,082 7,1723,102 3,588 10,184 10,760
Minerals 752 785 1,457 1,565754 737 2,211 2,302
Corporate/Intersegment 1,925 (373) 3,537 1,082
--------- --------- --------- ---------1,165 519 4,702 1,601
------- ------- ------- -------
Total $ 11,2229,632 $ 10,0789,920 $31,935 $30,170
======= ======= ======= =======
August 31, November 30,
2002 2001
-------- ---------
Identifiable Assets:
Automotive $ 22,303293,829 $ 20,250
========= =========334,414
Technologies 170,276 206,033
Minerals 50,031 51,997
Corporate/Intersegment 112,864 133,467
------- ---------
$ 627,000 $ 725,911
========= =========
J. SUPPLEMENTAL GUARANTOR INFORMATION
The indebtedness of EPI includes a syndicated secured loan facility
("Credit Agreement") and $220.0 million in senior subordinated notes
("Subordinated Notes"). Both the Credit Agreement and the Subordinated Notes are
guaranteed on a full, unconditional and joint and several basis by the Company
and certain of EPI'SEPI's wholly-owned domestic subsidiaries ("Subsidiary
Guarantors") including Carpenter Enterprises Ltd., which was acquired in 1999.. Management has determined that full financial statements and other
disclosures concerning EPI or the Subsidiary Guarantors would not be material to
investors and such financial statements are not presented. The following
supplemental condensed combining financial statements present information
regarding EPI, the Subsidiary Guarantors and the subsidiaries that did not
guarantee the debt.
EPI and the Subsidiary Guarantors are subject to restrictions on the
payment of dividends under the terms of both the Credit Agreement and the
Indenture supporting the Subordinated Notes, both of which were filed with the
Company's Form S-4 Registration Statement No. 333-49957-01 filed on April 11, 1998 andas
amended on May 20, 1998 and June 5, 1998, and both of which were incorporated by
reference to the Company's Form 10-K which was filed on February 15, 2002 and
amended on March 8,September 20, 2002.
14
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED AUGUST 31, 2002
(in thousands)
GUARANTORS
---------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- --------- --------- --------- ---------
Net Sales:
Customers $ 13,492 $ -- $ 132,359 $ 23,202 $ -- $ 169,053
Intercompany 4,914 -- 4,108 -- (9,022) --
Operating Costs and Expenses:
Cost of products sold
(exclusive of depreciation) 10,907 -- 110,706 19,026 (9,022) 131,617
Selling and administrative 6,059 -- 6,173 1,963 100 14,295
Intercompany charges (3,064) -- 2,660 504 (100) --
Depreciation 1,592 -- 9,144 1,190 -- 11,926
Amortization of intangibles 935 -- 2,947 332 -- 4,214
Other 4,124 -- (3,629) 107 -- 602
--------- --------- --------- --------- --------- ---------
Total 20,553 -- 128,001 23,122 (9,022) 162,654
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (2,147) -- 8,466 80 -- 6,399
Other Income (Expense)
Interest expense (2,826) -- (5,838) (1,387) 419 (9,632)
Other income (expense), net 701 -- (176) 306 (419) 412
Equity in earnings (loss) of
consolidated subsidiaries 701 (3,571) 436 -- 2,434 --
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuting (3,571) (3,571) 2,888 (1,001) 2,434 (2,821)
Operations Before Taxes
Income Taxes (Benefit) -- -- -- 750 -- 750
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (3,571) (3,571) 2,888 (1,751) 2,434 (3,571)
Discontinued Operations -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (3,571) $ (3,571) $ 2,888 $ (1,751) $ 2,434 $ (3,571)
========= ========= ========= ========= ========= =========
15
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
THREE MONTHS ENDED MAYAUGUST 31, 20022001
(in thousands)
GUARANTORS
------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales--------- --------- --------- --------- --------- ---------
Net Sales:
Customers $ 13,06511,536 $ --- $ 145,484137,332 $ 22,77820,652 $ --- $ 181,327169,520
Intercompany 3,987 - 3,531 2 (7,520) -4,522 -- 3,099 -- (7,621) --
Operating Costs and Expenses:
Cost of products sold
(exclusive 10,140 - 119,538 18,121 (7,520) 140,279
of depreciation) 9,890 -- 120,215 16,981 (7,413) 139,673
Selling &and administrative 5,870 2 13,264 2,164 (53) 21,2475,208 4 5,966 1,965 (89) 13,054
Intercompany charges (3,210) - 2,516 641 53 -(1,642) -- 1,618 (65) 89 --
Depreciation 767 - 10,087 860 - 11,714950 -- 9,427 873 -- 11,250
Amortization of intangibles 932 - 3,060 306 - 4,298
Management compensation-special 2,381 - - - - 2,381
Insurance related losses - - 3,100 - - 3,100
Restructuring (2,483) - 5,481 - - 2,998
Divestitures 3,039 - 2,806 - - 5,845936 -- 2,846 353 -- 4,135
Other (3) - (33) - - (36)630 -- 112 (26) -- 716
--------- --------- --------- --------- --------- ---------
Total 17,433 2 159,819 22,092 (7,520) 191,82615,972 4 140,184 20,081 (7,413) 168,828
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (381) (2) (10,804) 688 - (10,499)86 (4) 247 571 (208) 692
Other Income (Expense):
Interest expense (3,394) - (6,534) (1,607) 313 (11,222)(2,482) -- (8,923) (344) 1,829 (9,920)
Other income (expense) 283 - 400 203 (313) 573438 -- 2,349 73 (1,260) 1,600
Equity in earnings (loss) of --
consolidated subsidiaries (15,742) (21,966) 589 - 37,119 -(6,416) (10,599) (390) -- 17,405 --
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuting (19,234) (21,968) (16,349) (716) 37,119 (21,148)(8,374) (10,603) (6,717) 300 17,766 (7,628)
Operations Before Taxes
Income Taxes (Benefit) - - - 820 - 820(3,275) -- 7 743 -- (2,525)
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (19,234) (21,968) (16,349) (1,536) 37,119 (21,968)(5,099) (10,603) (6,724) (443) 17,766 (5,103)
Discontinued Operations - - - - - -(5,500) -- -- 40 (40) (5,500)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (19,234)(10,599) $ (21,968)(10,603) $ (16,349)(6,724) $ (1,536)(403) $ 37,11917,726 $ (21,968)(10,603)
========= ========= ========= ========= ========= =========
16
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
SIXNINE MONTHS ENDED MAYAUGUST 31, 2002
(in thousands)
GUARANTORS
--------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales--------- --------- --------- --------- --------- ---------
Net Sales:
Customers $ 24,70038,192 $ --- $ 272,249404,608 $ 43,72766,929 $ --- $ 340,676509,729
Intercompany 7,610 - 6,35712,524 -- 10,465 4 (13,971) -(22,993) --
Operating Costs and Expenses:
Cost of products sold
(exclusive 18,652 - 226,588 35,057 (13,971) 266,326
of depreciation) 29,559 -- 337,294 54,083 (22,993) 397,943
Selling &and administrative 12,16918,228 2 18,763 4,081 (100) 34,91524,936 6,044 -- 49,210
Intercompany charges (5,860) - 4,982 778 100 -(8,924) -- 7,642 1,282 -- --
Depreciation 1,914 - 18,791 1,626 - 22,3313,506 -- 27,935 2,816 -- 34,257
Amortization of intangibles 1,866 - 6,101 553 - 8,520
Management compensation-special 2,381 - - - - 2,381
Insurance related losses - - 3,100 - - 3,100
Restructuring (2,483) - 5,481 - - 2,998
Divestitures 3,164 - 2,806 - - 5,9702,801 -- 9,048 885 -- 12,734
Other (7) - (215) - - (222)1,048 -- 13,674 107 -- 14,829
--------- --------- --------- --------- --------- ---------
Total 31,79646,218 2 286,397 42,095 (13,971) 346,319420,529 65,217 (22,993) 508,973
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) 5144,498 (2) (7,791) 1,636 - (5,643)(5,456) 1,716 -- 756
Other Income (Expense):
Interest expense (6,325) - (14,056) (2,880) 958 (22,303)(9,151) -- (19,894) (4,267) 1,377 (31,935)
Other income (expense) 761 - 804 369 (958) 976, net 1,462 -- 628 675 (1,377) 1,388
Equity in earnings (loss) of
consolidated subsidiaries (19,812) (28,173) 1,168 - 46,817 -(28,553) (31,744) 1,604 -- 58,693 --
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuting (24,862) (28,175) (19,875) (875) 46,817 (26,970)(31,744) (31,746) (23,118) (1,876) 58,693 (29,791)
Operations Before Taxes
Income Taxes (Benefit) - --- -- 12 1,193 - 1,2051,943 -- 1,955
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (24,862) (28,175) (19,887) (2,068) 46,817 (28,175)(31,744) (31,746) (23,130) (3,819) 58,693 (31,746)
Discontinued Operations - - - - - --- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (24,862)(31,744) $ (28,175)(31,746) $ (19,887)(23,130) $ (2,068)(3,819) $ 46,81758,693 $ (28,175)(31,746)
========= ========= ========= ========= ========= =========
17
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
ASCOMBINING STATEMENTS OF MAYINCOME (LOSS)
NINE MONTHS ENDED AUGUST 31, 20022001
(in thousands)
GUARANTORS
------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)--------- --------- --------- --------- --------- ---------
Assets
CashNet Sales:
Customers $ 36,320 $ -- $ 414,713 $ 66,643 $ -- $ 517,676
Intercompany 11,892 -- 10,620 1 (22,513) --
Operating Costs and cash equivalents $ 17,286 $ 1 $ 440 $ 4,361 $ - $ 22,088
Receivables, net 5,072 - 32,252 17,318 - 54,642Expenses:
Cost of products sold
(exclusive of depreciation) 28,453 -- 357,427 53,933 (22,513) 417,300
Selling and administrative 16,021 4 16,051 6,113 (264) 37,925
Intercompany accounts receivable 1,723 - 4,532 113 (6,368) -
Inventories 3,869 - 46,192 12,819 (1,149) 61,731
Net assetscharges (4,963) -- 4,861 (162) 264 --
Depreciation 3,105 -- 27,120 2,657 -- 32,882
Amortization of operations to be sold 245 - 4,053 - - 4,298
Prepaid expenses 1,718 - 7,630 3,055 (1,207) 11,196
Deferred income taxes 24,287 - - - - 24,287intangibles 2,800 -- 8,372 1,068 -- 12,240
Other 2,867 -- 12 (43) -- 2,836
--------- --------- --------- --------- --------- ---------
Total current assets 54,200 1 95,099 37,666 (8,724) 178,242
Property, Plant & Equipment, net 25,303 - 146,336 30,369 (32) 201,976
Investment in Subsidiaries 82,874 66,897 10,090 - (159,861) -
Excess of Acquired Net Assets Over Cost, net 40,075 - 114,499 20,415 (3,139) 171,850
Other Assets 74,313 - 21,658 12,706 (20,180) 88,49748,283 4 413,843 63,566 (22,513) 503,183
--------- --------- --------- --------- --------- ---------
Total Assets $ 276,765 $ 66,898 $ 387,682 $ 101,156 $(191,936) $ 640,565
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 14,642 $ - $ 63,463 $ 4,962 $ - $ 83,067
Intercompany accounts payable - - - 5,572 (5,572) -
Long-term debt - current portion 21,665 - - 2,270 - 23,935Operating Income taxes (392) - - 1,175 - 783(Loss) (71) (4) 11,490 3,078 -- 14,493
Other current liabilities 47,532 - 27,118 3,526 (56) 78,120Income (Expense):
Interest expense (7,442) -- (27,104) (1,375) 5,751 (30,170)
Other income (expense) 1,343 -- 5,835 1,012 (5,751) 2,439
Equity in earnings (loss) of
consolidated subsidiaries (9,322) (34,291) 311 -- 43,302 --
--------- --------- --------- --------- --------- ---------
Total current liabilities 83,447 - 90,581 17,505 (5,628) 185,905
Long-term Debt - less current portion 356,782 - - 10,086 (10,086) 356,782
DeferredIncome (Loss) from Continuting (15,492) (34,295) (9,468) 2,715 43,302 (13,238)
Operations Before Taxes
Income Taxes 9,363 - - - (2,362) 7,001
Other Long-Term Liabilities 26,173 22 970 1,272 - 28,437(Benefit) (6,558) -- (8) 2,266 -- (4,300)
--------- --------- --------- --------- --------- ---------
Total Liabilities 475,765 22 91,551 28,863 (18,076) 578,125
Intercompany Accounts (251,551) - 240,851 38,643 (27,943) -
11 3/4% Cumulative Redeemable
Exchangeable Preferred Stock - 130,317 - - - 130,317
Shareholders' Equity (Deficit) 52,551 (63,441) 55,280 33,650 (145,917) (67,877)Income (Loss) from Continuing
Operations (8,934) (34,295) (9,460) 449 43,302 (8,938)
Discontinued Operations (25,357) -- -- 67 (67) (25,357)
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity (Deficit)Net Income (Loss) $ 276,765(34,291) $ 66,898(34,295) $ 387,682(9,460) $ 101,156 $(191,936)516 $ 640,56543,235 $ (34,295)
========= ========= ========= ========= ========= =========
18
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTSBALANCE SHEETS
AS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MAYAUGUST 31, 2002
(IN THOUSANDS)
GUARANTORS
------------------------------------------------ NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------- ------------ -----
(IN THOUSANDS OF DOLLARS)--------- --------- --------- --------- --------- ---------
ASSETS
Cash Flows From Operating Activities:and cash equivalents $ 7,898 $ 1 $ 606 $ 4,070 $ -- $ 12,575
Receivables, net 3,731 -- 36,273 20,230 -- 60,234
Intercompany accounts receivable 2,514 -- 5,224 123 (7,861) --
Inventories 1,788 -- 52,495 13,598 -- 67,881
Net Income (Loss) $(24,862) $(28,175) $(19,887) $ (2,068) $ 46,817 $(28,175)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries 19,812 28,173 (1,168) -- (46,817) --
Depreciation and amortization 5,385 -- 24,892 2,179 -- 32,456
Divestitures 3,164 -- 2,806 -- -- 5,970
Changes in assets and liabilities, net of effect --
of acquisitions and divestitures 44,016 162 57,975 (4,478) (47,011) 50,664
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 47,515 160 64,618 (4,367) (47,011) 60,915
-------- -------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Proceeds from sales of divisions 6,300held for sale 1,753 -- -- -- -- 6,300
Capital expenditures (251)1,753
Prepaid expenses (193) -- (7,494) (1,173)7,929 4,335 -- (8,918)
Other 26812,071
Deferred income taxes 24,287 -- 1,675 (861) -- 1,082
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 6,317 -- (5,819) (2,034) -- (1,536)
-------- -------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Reduction of long-term debt (18,520)24,287
--------- --------- --------- --------- --------- ---------
Total current assets 41,778 1 102,527 42,356 (7,861) 178,801
PROPERTY, PLANT AND EQUIPMENT, net 25,653 -- (42,452)137,261 30,368 -- 42,452 (18,520)
Net borrowings(repayments)under revolving
credit agreements (30,500)193,282
Investment in Subsidiaries 48,636 63,326 17,662 -- (13,522) 76(129,624) --
(43,946)
OtherGOODWILL, net 35,998 -- (160) 658 57111,720 20,176 -- 555
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (49,020) (160) (55,316) 133 42,452 (61,911)
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 4,812167,894
OTHER ASSETS 72,093 -- 3,483 (6,268) (4,559) (2,532)
Intercompany accounts (4,671) -- (3,514) 3,693 4,492 --
Cash and cash equivalents,
beginning of period 17,145 1 471 6,936 67 24,620
-------- -------- -------- -------- -------- --------
Cash and cash equivalents,
end of period22,052 11,757 (18,879) 87,023
--------- --------- --------- --------- --------- ---------
Total Assets $ 17,286224,158 $ 163,327 $ 440391,222 $ 4,361104,657 $(156,364) $ 627,000
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 12,474 $ -- $ 22,088
======== ======== ======== ======== ======== ========53,909 $ 5,201 $ -- $ 71,584
Intercompany accounts payable -- -- -- 8,027 (8,027) --
Long-term debt - current portion 16,523 -- -- 4,443 -- 20,966
Other accrued liabilities 51,021 -- 23,409 6,576 -- 81,006
--------- --------- --------- --------- --------- ---------
Total current liabilities 80,018 -- 77,318 24,247 (8,027) 173,556
LONG-TERM DEBT - less current portion 358,831 -- -- 9,389 (9,389) 358,831
DEFERRED INCOME TAXES 7,088 -- -- -- -- 7,088
OTHER LONG-TERM LIABILITIES 27,116 22 107 1,308 -- 28,553
--------- --------- --------- --------- --------- ---------
Total Liabilities 473,053 22 77,425 34,944 (17,416) 568,028
Intercompany Accounts (297,274) -- 264,566 34,585 (1,877) --
Preferred Stock -- 134,035 -- -- -- 134,035
Shareholders' Equity (Deficit) 48,379 (70,730) 49,231 35,128 (137,071) (75,063)
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity (Deficit) $ 224,158 $ 63,327 $ 391,222 $ 104,657 $(156,364) $ 627,000
========= ========= ========= ========= ========= =========
19
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTSBALANCE SHEETS
AS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED MAY 31,NOVEMBER 30, 2001
(IN THOUSANDS)
GUARANTORS
-------------------------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -------
(IN THOUSANDS OF DOLLARS)--------- --------- --------- --------- --------- ---------
Net Sales
Customers $ 11,914 $ - $ 149,951 $ 22,262 $ - $ 184,127
Intercompany 3,520 - 3,652 - (7,172) -
Operating Costs and Expenses:
Cost of products sold (exclusive 9,123 - 128,043 17,712 (7,379) 147,499
of depreciation)
Selling & administrative 5,979 - 5,647 2,072 (87) 13,611
Intercompany charges (1,792) - 1,753 (48) 87 -
Depreciation 1,029 - 9,389 961 - 11,379
Amortization of intangibles 930 - 2,860 359 - 4,149
Other 2,378 - (44) (7) - 2,327
--------- --------- --------- --------- --------- ---------
Total 17,647 - 147,648 21,049 (7,379) 178,965
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (2,213) - 5,955 1,213 207 5,162
Other Income (Expense)
Interest expense (2,717) - (8,872) (480) 1,991 (10,078)
Other income (expense) 943 - 1,607 (56) (2,560) (66)
Equity in earnings (loss) of
consolidated subsidiaries (809) (6,261) 40 - 7,030 -
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuting (4,796) (6,261) (1,270) 677 6,668 (4,982)
Operations Before Taxes
Income Taxes (Benefit) (2,512) - (16) 883 - (1,645)
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (2,284) (6,261) (1,254) (206) 6,668 (3,337)
Discontinued Operations (2,925) - - (10) 10 (2,925)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (5,209) $ (6,261) $ (1,254) $ (216) $ 6,678 $ (6,262)
========= ========= ========= ========= ========= =========
20
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED MAY 31, 2001
GUARANTORS
------------------------ NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 24,784 $ - $ 277,381 $ 45,991 $ - $ 348,156
Intercompany 7,370 - 7,521 1 (14,892) -
Operating Costs and Expenses:
Cost of products sold (exclusive 18,563 - 237,212 36,952 (15,100) 277,627
of depreciation)
Selling & administrative 10,813 - 10,085 4,148 (175) 24,871
Intercompany charges (3,321) - 3,243 (97) 175 -
Depreciation 2,155 - 17,693 1,784 - 21,632
Amortization of intangibles 1,864 - 5,526 715 - 8,105
Other 2,237 - (100) (17) - 2,120
--------- --------- --------- --------- --------- ---------
Total 32,311 - 273,659 43,485 (15,100) 334,355
--------- --------- --------- --------- --------- ---------
Operating Income (Loss) (157) - 11,243 2,507 208 13,801
Other Income (Expense)
Interest expense (4,960) - (18,181) (1,031) 3,922 (20,250)
Other income (expense) 905 - 3,486 939 (4,491) 839
Equity in earnings (loss) of
consolidated subsidiaries (1,817) (23,692) 701 - 24,808 -
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuting (6,029) (23,692) (2,751) 2,415 24,447 (5,610)
Operations Before Taxes
Income Taxes (Benefit) (3,283) - (15) 1,523 - (1,775)
--------- --------- --------- --------- --------- ---------
Income (Loss) from Continuing
Operations (2,746) (23,692) (2,736) 892 24,447 (3,835)
Discontinued Operations (19,857) - - 27 (27) (19,857)
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (22,603) $ (23,692) $ (2,736) $ 919 $ 24,420 $ (23,692)
========= ========= ========= ========= ========= =========
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MAY 31, 2001
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) $(22,603) $(23,692) $ (2,736) $ 919 $ 24,420 $(23,692)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated subsidiaries 1,817 23,692 (701) - (24,808) -
Depreciation and amortization 5,432 - 23,429 2,499 - 31,360
Provision for discontinued operations 18,200 18,200
Divestitures 500 500
Changes in assets and liabilities, net of
effects of acquisitions and divestitures 3,525 - (12,712) 1,706 2,979 (4,502)
-------- -------- -------- -------- -------- --------
Net cash provided by operating activities 6,871 - 7,280 5,124 2,591 21,866
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,739) - (12,492) (5,113) - (22,344)
Other (1,116) (1,103) - 197 - (2,022)
-------- -------- -------- -------- -------- --------
Net cash used in investing activities (5,855) (1,103) (12,492) (4,916) - (24,366)
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (9,548) - - - - (9,548)
Borrowings (repayments) on revolving
credit agreements 11,340 - 1,000 (784) - 11,556
Other - - - (205) - (205)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) financing activities 1,792 - 1,000 (989) - 1,803
-------- -------- -------- -------- -------- --------
Net cash provided by (used in) discontinued operations 1,540 - - - - 1,540
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents 4,348 (1,103) (4,212) (781) 2,591 843
Intercompany accounts (3,657) 1,103 4,195 1,992 (3,633) -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,297 1 539 4,313 1,317 7,467
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,988 $ 1 $ 522 $ 5,524 $ 275 $ 8,310
======== ======== ======== ======== ======== ========
22
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2001
GUARANTORS
------------------------ NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
AssetsASSETS
Cash and cash equivalents $ 17,145 $ 1 $ 471 $ 6,936 $ 67 $ 24,620
Receivables, net (12,668) -(18,238) -- 103,168 15,122 - 105,622-- 100,052
Intercompany accounts receivable 46,674 --- 3,559 65 (50,298) ---
Inventories 4,129 --- 59,704 12,882 (1,371) 75,344
Net assets of operations to be soldheld for sale 3,610 - --- -- 5,954 (6,306) 3,258
Prepaid expenses 1,378 -6,948 -- 6,152 2,887 (865) 9,55215,122
Deferred income taxes 24,287 - - - --- -- -- -- 24,287
--------- --------- --------- --------- --------- ---------
Total current assets 84,555 1 173,054 43,846 (58,773) 242,683
Property, Plant & Equipment, net 28,733 --- 157,653 30,401 (32) 216,755
Investment in Subsidiaries 83,571 95,169 16,058 --- (194,798) -
Excess of Acquired Net Assets Over Cost,--
Goodwill, net 41,939 --- 120,969 19,994 (3,140) 179,762
Other Assets 73,049 --- 13,789 10,719 (10,846) 86,711
--------- --------- --------- --------- --------- ---------
Total Assets $ 311,847 $ 95,170 $ 481,523 $ 104,960 $(267,589) $ 725,911
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 16,156 $ --- $ 62,171 $ 7,970 $ --- $ 86,297
Intercompany accounts payable 76 --- 48 7,404 (7,528) ---
Long-term debt - current portion 25,569 --- 14,250 9,430 (7,292) 41,957
Income taxes (283) - - 1,491Other accrued liabilities 42,059 -- 26,363 4,602 1 1,209
Other current liabilities 42,342 - 26,363 3,111 - 71,81673,025
--------- --------- --------- --------- --------- ---------
Total current liabilities 83,860 --- 102,832 29,406 (14,819) 201,279
Long-term Debt - less current portion 401,169 --- 42,452 --- (42,452) 401,169
Deferred Income Taxes 9,362 - - --- -- -- (3,085) 6,277
Other Long-Term Liabilities 25,911 19 1,000 825 --- 27,755
--------- --------- --------- --------- --------- ---------
Total Liabilities 520,302 19 146,284 30,231 (60,356) 636,480
Intercompany Accounts (288,578) --- 262,878 35,782 (10,082) -
11 3/4% Cumulative Redeemable
Exchangeable--
Preferred Stock --- 123,086 - - --- -- -- 123,086
Shareholders' Equity (Deficit) 80,123 (27,935) 72,361 38,947 (197,151) (33,655)
--------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity (Deficit) $ 311,847 $ 95,170 $ 481,523 $ 104,960 $(267,589) $ 725,911
========= ========= ========= ========= ========= =========
2320
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 2002
(in thousands)
GUARANTORS
----------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------------------- ------------- ---------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(31,744) $(31,746) $(23,130) $ (3,819) $ 58,693 $(31,746)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings (loss) of consolidated
subsidiaries 28,553 31,744 (1,604) -- (58,693) --
Depreciation and amortization 8,660 -- 36,983 3,701 -- 49,344
Divestitures 3,325 -- 2,806 -- -- 6,131
Deferred income taxes 811 -- -- -- -- 811
Changes in assets and liabilities, net of effect
of non cash loss on divestitures 23,119 161 57,765 (8,414) (44,119) 28,512
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 32,724 159 72,820 (8,532) (44,119) 53,052
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions 6,100 -- 2,817 -- -- 8,917
Capital expenditures (894) -- (10,029) (1,688) -- (12,611)
Proceeds from sale of property and equipment and other 639 -- -- -- -- 639
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 5,845 -- (7,212) (1,688) -- (3,055)
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (22,770) -- -- 191 -- (22,579)
Net borrowings(repayments)under revolving
credit agreements (40,750) -- -- -- -- (40,750)
Acquisition of treasury stock -- (159) -- -- -- (159)
Other -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (63,520) (159) -- 191 -- (63,488)
-------- -------- -------- -------- -------- --------
Effect of exchange rates on cash -- -- -- 1,446 -- 1,446
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents (24,951) -- 65,608 (8,583) (44,119) (12,045)
-------- -------- -------- -------- -------- --------
Intercompany accounts 15,704 -- (65,473) 5,717 44,052 --
Cash and cash equivalents,
beginning of period 17,145 1 471 6,936 67 24,620
-------- -------- -------- -------- -------- --------
Cash and cash equivalents,
end of period $ 7,898 $ 1 $ 606 $ 4,070 $ -- $ 12,575
======== ======== ======== ======== ======== ========
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
NINE MONTHS AUGUST 31, 2001
(in thousands)
GUARANTORS
----------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------- -------- -------- -------- --------
Cash Flows From Operating Activities:
Net Income (Loss) $(34,291) $(34,295) $ (9,460) $ 516 $ 43,235 $(34,295)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity (loss) in earnings of
consolidated subsidiaries 9,342 34,291 (311) -- (43,322) --
Depreciation and amortization 8,070 -- 35,816 3,725 -- 47,611
Provision for discontinued operations 23,700 -- -- -- -- 23,700
Divestitures 500 -- -- -- -- 500
Changes in assets and liabilities, net
of effect of non cash loss on
divestitures (1,595) 4 (13,789) 4,608 5,648 (5,124)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities 5,726 -- 12,256 8,849 5,561 32,392
-------- -------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures (7,013) -- (16,602) (11,259) -- (34,874)
Proceeds from sale of property and
equipment and other 1,578 -- -- (2,544) -- (966)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities (5,435) -- (16,602) (13,803) -- (35,840)
-------- -------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Reduction of long-term debt (14,322) -- -- -- -- (14,322)
Borrowings (repayments) on revolving
credit agreement 30,340 -- (2,000) (1,575) -- 26,765
Acquisition of treasury stock -- (1,692) -- -- -- (1,692)
Other 1,625 -- -- (193) -- 1,432
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 17,643 (1,692) (2,000) (1,768) -- 12,183
-------- -------- -------- -------- -------- --------
Net cash provided by
discontinued operations 1,027 -- -- -- -- 1,027
-------- -------- -------- -------- -------- --------
Effect on exchange rates on cash -- -- -- (2,474) -- (2,474)
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents 18,961 (1,692) (6,346) (9,196) 5,561 7,288
Intercompany accounts (10,506) -- 6,347 10,986 (6,827) --
Cash and cash equivalents,
beginning of period 1,297 1 539 4,313 1,317 7,467
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,752 $ (1,691) $ 540 $ 6,103 $ 51 $ 14,755
======== ======== ======== ======== ======== ========
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SIGNIFICANTCRITICAL ACCOUNTING POLICIES
The condensed consolidated financial statements of Eagle-Picher
Holdings, Inc. are prepared in conformity with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires the use of estimates, judgments, and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periodperiods
presented. The Company believes that of its significantcritical accounting policies, the
following maywhich
involve a higher degree of judgments, estimates and complexity:complexity are as follows:
Environmental Reserves
The Company is subject to extensive and evolving federal, state and
local environmental laws and regulations. Governmental authorities may enforce
these laws and regulations with a variety of enforcement measures, including
monetary penalties and remediation requirements. The Company is involved in
various stages of investigation and remediation related to environmental
remediation projects at a number of sites as a result of past and present
operations, including currently-owned and formerly-owned plants. Also, the
Company has received notice that it may have liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as a Potentially
Responsible Party at a number of sites ("Superfund Sites"). The ultimate cost of
site remediation is difficult to predict given the uncertainties regarding the
extent of the required remediation, the interpretation of applicable laws and
regulations and alternative remediation methods. There can be no assurances that
environmental laws and regulations will not become more stringent in the future
or that the Company will not incur significant costs in the future to comply
with such laws and regulations. Accordingly, future information and developments
will require the Company to continually reassess the expected impact of these
environmental matters.
Impairment of Long-Lived Assets
The Company periodically reviews the carrying value of its long-lived
assets held and usedfor use and assets to be disposed of, including goodwill, when
circumstances warrant such a review. If the carrying value of a long-lived asset
is considered impaired, an impairment charge is recorded for the amount by which
the carrying value of the long-lived assets exceeds its fair value. The Company
believes its estimates of fair value are reasonable considering currently
applicable accounting guidance, howeverguidance. However, changes in the fair values and
circumstances and the implementation of Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Intangible Assets", which is discussed
in the Company's Form 10-K for the Year Ended November 30, 2001, and is
effective for the first quarter of fiscal year 2003, could affect the
evaluations.
Revenue Recognition
A portion of the Company's revenues is derived from contracts, which
are accounted for under the percentage of completion method of accounting. This
method requires a higher degree of judgment and the use of estimates than other
revenue recognition methods. The judgments and estimates involved include the
Company's ability to accurately estimate the contracts' percentage of completionpercent complete and the
reasonableness of the estimated costs to complete, among other factors, atas of
each financial reporting period.
Risk Management Activities
24
The Company is exposed to market risk including changes in interest
rates, currency exchange rates and commodity prices. The Company uses derivative
instruments to manage its interest rate and foreign currency exposures. The
Company does not use derivative instruments for speculative or trading purposes.
Generally, the Company enters into hedging relationships such that changes in
the fair values or cash flows of items and transactions being hedged are
expected to be offset by corresponding changes in the values of the derivatives.
The Company accounts for its derivatives in accordance with Statement of
Financial Accounting Standards (SFAS)SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". Such accounting
is complex, evidenced by the significant interpretations of the primary
accounting standard, which continues to evolve.
RESULTS OF OPERATIONS
Please refer to Note I.I regarding Segment Reporting contained in Item 1.1
of this report.
The Automotive Segment
Sales offor the Automotive Segment increased 1.7% from $114.8of $105.9 million in the secondthird quarter
of 20012002 increased $1.4 million or 1.3% compared to $116.8$104.5 million in the comparable periodthird
quarter of 2002.
In2001. Sales of $326.1 million in the first sixnine months of 2002
net sales were $220.2increased $6.1 million or 1.9% compared to $215.5$320.0 million in the same periodfirst nine
months of 2001, an increase of 2.2%.2001. The modest recovery in the United States automotive industry is
the primary reason for improved sales.sales, which was partially offset by a decline
during the third quarter of 2002 in the Company's precision machined components
business. North American sales of precision machined components were
consistent in the third quarter of 2002 compared to the
23
third quarter of 2001, and increased $7.1 million or 2.8% in the first nine
months of 2002 compared to the first nine months of 2001. The Company's
precision machined components European sales deceased $1.6 million or 40% in the
third quarter of 2002 compared to the third quarter of 2001, and $3.8 million or
26.6% in the first nine months of 2002 compared to the first nine months of
2001. The decrease in European sales is primarily attributed to market share and
volume losses experienced by a significant customer of the Company's Hillsdale
U.K. precision machined components business.
The loss from continuing operations before income taxes wasof ($2.1) million and
($4.5)4.6)
million in the third quarter and six months ended May 31,of 2002 improved $1.3 million or 21.5% compared to
a($5.9) million in the third quarter of 2001. The loss from continuing operations
before income taxes of ($2.7)9.1) million in the first nine months of 2002 improved
$0.2 million or 2.1% compared to ($9.3) million in the first nine months of
2001. The improved profitability during the third quarter of 2002 and ($3.4)the first
nine months of 2002 resulted primarily from the slightly higher sales compared
to the respective periods in 2001, improved sales mix, and productivity
improvements. Unusual expenses, totaling $0.6 million for the comparable periods in 2001, respectively. The improved earnings
inthird quarter of
2002 and $1.4 million for the quarter resulted from higher gross marginsfirst nine months of $.6 million from additional
volumes and a favorable mix shift, as well as productivity improvements yielding
$.7 million in incremental margins. Offsetting these gains2002 were $.7 millionincurred in
recruiting and severance paymentsrelocation related to restructuring the segment's management
team, and $.9workforce-related consulting fees that further dampened the segment's
profitability. An additional $1.1 million in higher depreciation and
amortization costs primarilyexpense was recorded
in the second quarter of 2002 related to an adjustmentadjustments to bring these coststhe estimated
useful lives of certain equipment within the Automotive Segment in line with
estimated periods of active production on existing automotive
programs. The Automotive segment also experienced $.4 million lower interest
allocations and had lower foreign currency transaction costs of $.9 million
comparedproduction.
EBITDA for the second quarter of last year primarily due to the strengthening of
the Euro. Automotive Segment Outlook
Sales in the third quarter of the fiscal year are expected to be
somewhat lower than those of the second quarter, which is typical in the
automotive industry, due to shutdowns of the major automobile manufacturers for
model changeovers and retooling. Sales$11.1 million in the third quarter
of 2002 are expectedincreased $1.9 or 21.2% compared to be flat$9.2 million in the third quarter of
2001. EBITDA of $37.5 million for the first nine months of 2002 increased $1.9
million or 5.3% compared to the same period last year. The outlookfirst nine months of 2001. These increases
occurred as a result of the items discussed above.
Automotive Segment Outlook
Projected sales for the fourth quarter of 2002 of approximately $108
million are consistent with the fourth quarter of 2001, which will result in
total projected 2002 sales for the Automotive Segment forof approximately $433
million to $435 million, an increase of approximately 1.5% compared to fiscal
2001. The relatively flat projected sales during the fourth quarter of 2002
compared to the prior year 2002 providedwill be primarily the result of increased sales
volume of rubber coated metal products, offset by decreases attributable to a
model phase-out of a transmission pump program within the Company's precision
machined components business, and the continued decreased volume in the
Company's Annual Report on Form
10-K continues to represent Management's viewHillsdale U.K. precision machined components business. The phase-out
of the Automotive Segment.pump program is expected to decrease fiscal 2003 revenues by
approximately $20 million, which the Company expects will be partially offset by
new business. Additionally, the Company is considering the closure or sale of
its Hillsdale U.K. precision machined components business which could lower 2003
sales by approximately $13 million, depending on the timing of the action.
The Technologies Segment
Sales of the Technologies Segment decreased $4.7of $45.8 million or 8.9% from
$52.5 million in the second quarter of 2001 to $47.8 million in the comparable
period of 2002, and decreased $11.9 million or 11.9% from $100.3 million to
$88.4 million for the six months ending May, 2002 as compared to the first six
months of 2001.
The second quarter 2002 sales decline was due primarily to $6.5 million
lower sales of products to telecommunications and semi-conductor customers, $1.2
million lower sales due to reduced volumes in the Precision Products commercial
metal fabrication operations, a business to be sold in the third quarter
of 2002 and $.5decreased $2.9 million less
25
or 5.9% compared to sales to satellite communications customers. These reductions were partially
offset by higher sales totaling approximately $4.5of $48.7 million for
the third quarter of 2001. Sales of $134.2 million in the higher margin
product linesfirst nine months of
enriched boric acid2002 decreased $14.8 million or 10.0% compared to sales of $149.0 million for
the first nine months of 2001. Sales of special purpose batteries increased $2.1
million or 8.2% during the third quarter of 2002 compared to the third quarter
of 2001, which was more than offset by a decrease of $4.8 million or 25.3% in
the specialty materials business. Also contributing to the sales decrease was
the sale of the Company's Precision Products business that occurred on July 17,
2002. Precision Products sales decreased $1.4 million in the third quarter of
2002 compared to the third quarter of 2001 and $5.0 million in the first nine
months of 2002 compared to the same period in 2001 due partially to the sale of
Precision Products. Within the specialty materials business, the demand for
Germanium and Gallium-based products, which are sold to the nuclear industry, military
batteriestelecommunications,
fiber optics and Chemsyn pharmaceutical products.
Thesemiconductor markets, was significantly impacted by the
extremely weak demand in these markets. Germanium and Gallium sales decline fordecreased
$5.1 million or 61.5% during the six months ended May,third quarter of 2002 resulted primarily
from $9.0compared to the third
quarter of 2001, which were partiality offset in the quarter by a $1.1 million
lower sales to telecommunications and semi-conductor
customers, $2.9 million lower sales to satellite customers and $3.6 million
lower sales of metal fabrication products, partially offset by $3.9 million
higheror 26.2% increase in sales of enriched boric acid products and $2.6sold to nuclear power
reactor facilities. Sales of special purpose batteries increased $3.0 million additionalor
4.1% during the first nine months of 2002 compared to the first nine months of
2001, which was offset by a decrease of $13.8 million or 23.9% in the specialty
materials business. Within the specialty materials business, sales of military batteries.
LossGermanium
and Gallium-based products decreased $14.2 million or 55.6% in the first nine
months of 2002 compared to the first nine months of 2001, which were partially
offset by a $5.0 million or 43.8% increase in sales of enriched boric acid
products sold to nuclear power reactor facilities.
Income from continuing operations before income taxes of $1.4 million
in the third quarter of 2002 increased $3.2 million or 175% compared to a loss
of ($1.8) million in the third quarter of 2001. The loss from continuing
operations before income taxes of ($14.6) million, in the first nine months of
2002, increased $11.9 million or 440% compared to a loss of ($2.7) million
during the
24
first nine months of 2001. The improved third quarter profitability in 2002
compared to 2001 is due to improved operating margins resulting from
productivity and restructuring efforts that commenced in the fourth quarter of
2001, as well as improved sales mix. Partially offsetting this was $(12.8)an expense of
$0.7 million in the third quarter of 2002 for consulting fees to develop a
strategy for the special purpose batteries business. The ($14.6) million loss
from continuing operations before income taxes for the first nine months of 2002
was primarily due to the following expenses and charges, which were primarily
recorded in the second quarter of 2002:
a. $5.7 million of legal expenses and settlement charges recorded
in selling and administrative expenses during the first half
of 2002 as discussed in Note H regarding Legal Matters
contained in Item 1 of this report;
b. $3.1 million charge in insurance related losses recorded in
the second quarter of 2002 compared tofor a losspotential shortfall in
insurance proceeds as described in Note G regarding
Insurance Related Losses contained in Item 1 of $(1.1)this report;
c. $1.4 million in expense for business consulting fees to
develop a strategy for the samespecial purpose batteries
business ($0.7 million was recorded in the second quarter
and in the third quarter of 2001. The $(12.8)2002); and
d. $5.5 million loss resulted from $1.6 millioncharge in higher gross
margin, despite lower sales, from favorable mix and productivity improvements,
offset by a $(5.5) million restructuring charge to earningsexpense in the second
quarter of 2002 associated with the decision to exit the
Company's Gallium-based materialsspecialty material business due to
continued soft demand from customers in the telecommunications
and semi-conductor markets (see
footnote D, above),markets. The $5.5 million restructuring
charge during the second quarter of 2002 consisted of an
inventory write-down of $2.9 million, representing the loss
incurred from the liquidation of current inventory. An
additional $2.4 million was recorded in other accrued
liabilities representing the loss to be incurred from the
liquidation of inventory to be purchased under a $(4.5)firm purchase
commitment, lease impairments and severance. Finally, a $0.2
million asset impairment charge was recorded against property,
plant and equipment.
Excluding the above expenses and charges, the Technologies Segment
would have reported income from continuing operations of $1.1 million for various legal issues describedthe
first nine months of 2002, a $3.8 million improvement compared to the reported
loss of ($2.7) million in footnote H2001. This increase is primarily attributed to
increased gross margins from improved sales mix and a $(3.1) million charge for insurance related losses as
described in footnote G. Additionally, the Segment incurred a $(1.1) million
expenseproductivity and
restructuring efforts that commenced in the fourth quarter of 2001.
EBITDA for business consulting fees relatedthe Technologies Segment of $8.0 million in the third
quarter of 2002 increased $2.4 million or 43.7% compared to development$5.6 million in the
third quarter of strategic initiatives.2001. EBITDA of $6.4 million in the first nine months of 2002
decreased $12.8 million or 66.9% compared to $19.2 million in the first nine
months of 2001. Excluding the $15.7 million in charges described above, EBITDA
for the first nine months of 2002 would have been $22.1 million, an increase of
$2.8 million or 15.0% as compared to the prior year.
Technologies Segment Outlook
During the second quarter the Company initiated the process of selling
its Precision Products commercial metal fabrication operations whichProjected sales for the first six monthsfourth quarter of fiscal 2002 reportedof approximately
$51 million will be consistent with the fourth quarter of 2001, which will
result in total projected 2002 sales of approximately $2.6$183 million and
$(.5)to $185
million, EBITDA. The salea decrease of that operation isapproximately 8% compared to fiscal 2001. This expected
to be completedincrease in sales during the third quarter.
Sales forfourth quarter of 2002 is the third quarter areresult of increased
sales of special purpose batteries in the military and space markets, offset by
continued reduced demand within specialty material products as a result of the
expected to be down slightly over the
second quarter and approximately 5% below the same period for fiscal year 2001
due to reducedcontinuing lower demand in the telecommunications and semi-conductingsemi-conductor
markets, for
Gallium and Germanium-based products and lostas well as reduced revenue associated with the sale of the Company's
Precision Products commercial metal fabrication operations.
The Company's outlook forbusiness. For the full year forof 2002 the Technologies segmentprojected decrease
in sales is fordue to the same factors described above in the first nine months of
2002, primarily the substantially lower Gallium and Germanium-based sales and
the sale of the Precision Products business, partially offset by increased
sales of approximately $190 million which is 5% below 2001. This reflects the
salespecial purpose batteries and exiting of certain product lines discussed above.
Theenriched boric acid products.
Minerals Segment
Comparative sales ofSales for the Minerals Segment were nearly flat at $16.8of $17.3 million in the secondthird quarter of
2002 increased $1.0 million or 6.1% compared to $16.9$16.3 million for the third
quarter of 2001. Sales of $49.4 million in 2001. Salesthe first nine months of 2002
increased $0.8 million or 1.6% from $48.6 million for the first sixnine months of
2001. The sales increase during the yearthird quarter of 2002 was primarily the
result of the strong recovery in sales volumes within the European markets,
which were $32.1 million insignificantly lower during the first half of 2002, together with
improved pricing and $32.3 million in
2001. Decreased international volumes primarily in Europe have offset increased
sales in North America.
Despite flat sales, incomemix throughout the first nine months of 2002.
Income from continuing operations before income taxes improvedof $0.9 in the
secondthird quarter of 2002 to $2.6increased $1.0 million or 1,928% compared to $.2the loss of
($0.1) million in the secondthird quarter of 2001. For the six-month period ended May 31, 2002
incomeIncome from continuing operations
before income taxes was $2.9of $3.9 million in the first nine months of 2002 increased
$4.2 million or 1,210% compared to a loss of $(.3)($0.3) million in the same periodfirst
25
nine months of 2001. Improved profitability for the
quarter was primarily attributable to $1.0 million from lower
energy costs, $.4 million
from favorable product mix shift to higher margin products, $.4 million fromand pricing, improved production
efficiencies and lower foreign currency transaction costs, of $.4
million compared to the second quarter of last year, primarily due to the
strengthening of the Euro.
Minerals Segment Outlook
26
Sales inEBITDA for the Minerals Segment forof $3.0 million in the third quarter of
fiscal year2002 increased $0.9 million or 40.0% compared to the third quarter of 2001.
EBITDA of $10.2 million in the first nine months of 2002 increased $4.0 million
or 64.8% compared to the first nine months of 2001. These increases occurred as
a result of the items discussed above.
Minerals Segment Outlook
Sales for the fourth quarter of 2002 are expected to be slightly higher thanincrease
approximately 3% compared to the fourth quarter of 2001 to approximately $17.5
million, which will result in total projected 2002 sales for the second quarter and ahead
of sales for the same period of fiscal year 2001. The outlook for the Minerals
Segment forof approximately $67.0 million, an increase of 2% compared to fiscal
year 2002 is for sales to be flat with 2001 but profitability
to be consistent with projections set forth in the Company's Annual Report on
Form 10K.2001.
Summary of the Company
Net Sales. The Company's netNet sales in the third quarter of 2002 were $181.3 million and $184.1consistent
compared to 2001. Net sales of $509.7 million in the second quartersfirst nine months of 2002
and 2001, respectively, a decrease of
1.5%. Increaseddecreased $8.0 million or 1.6% when compared to sales of $517.7 million in the
Automotivefirst nine months of 2001. For both the third quarter and the first nine months
of 2002, sales increases in the North American automotive business and the
Minerals Segment were more than offset by declines in the Technologies Segment which wasand the
Hillsdale U.K. precision machined components automotive business. The
Technology Segment's sales decreased $2.9 million or 5.9% in the third quarter
of 2002 and $14.8 million or 10% in the first nine months of 2002 compared to
2001, where sales were negatively impacted primarily by soft markets in
telecommunications and semi-conductors.semi-conductors markets.
Cost of Products Sold. CostSold (exclusive of products sold, decreased as a percentagedepreciation). Gross margins,
exclusive of net sales from 80.1%depreciation expense, increased 4.5% to 22.1% in the secondthird quarter
of 2002 compared to 17.6% for the third quarter of 2001. Gross margins
increased 2.6% to 22.0% in the first nine months of 2002 compared to 19.4% for
the first nine months of 2001. Improved sales mix and productivity improvements
contributed to the increased gross margins in each of the business segments
during the third quarter and first nine months of 2002 compared to 2001. The
Technologies Segment was also favorably impacted by the restructuring actions
initiated in the fourth quarter of 2001, to 77.4% inwhile the comparable
period of 2002. This decrease is attributable to theMinerals Segment benefited
from improved margins related topricing and significantly lower energy costs, and favorable mixwhich were usually
high in 2001 when the Minerals Segment, a change in
product mix and productivity that occurred in the Technologies Segment, and
improved sales mix and operating efficiencies in the Automotive Segment.Western United States experienced an energy crisis.
Selling and Administrative. Selling and administrative expenses increased to $21.2of
$14.3 million in the secondthird quarter of 2002 from $13.6increased $1.2 million or 9.5 %
compared to expenses of $13.1 million for the prior year. Selling and
administrative expenses of $49.2 million in the comparable periodfirst nine months of 2001. On a year-to-date basis, selling and
administrative2002
increased $11.3 million or 29.8% compared to expenses were $34.9of $37.9 million and $24.9 million in 2002 and 2001,
respectively.for the
first nine months of 2001. The increased costs for the secondthird quarter of 2002
were primarily attributable to $4.8$0.3 million expense for a recently adopted
long-term bonus plan for certain corporate and divisional management
executives, $0.7 million expense in the Technologies Segment for business
consulting fees to develop a strategy for the special purpose batteries
business, and approximately $0.6 million in reservesmanagement recruiting and
relocation costs. For the first nine months of fiscal 2002, the significant
increase is primarily related to:
a. $6.3 million in accruals relating to various legal matters
discussed in footnoteNote H regarding Legal Matters contained in Item
1 of this report;
b. $1.4 million in the Technologies Segment for business
consulting costs primarily relatedfees to development of
strategic initiativesdevelop a strategy for the Technologies segment, and $1.2special
purpose batteries business;
c. $2.3 million in severance (excluding management compensation -
special), recruiting and relocation costs as the Company has
continued its investment in strengthening theits leadership of the Company.team,
and
d. $0.8 million in increased compensation costs related to a
recently adopted long-term bonus plan for certain corporate
and divisional management executives.
Depreciation and Amortization. Depreciation and amortization expense
was $16.0 million and $15.5expenses
of $16.1 million in the second quartersthird quarter of 2002 and 2001,
respectively, and $30.9increased $0.7 million and $29.7or 4.8%
compared to $15.4 million in the sixprior year. Depreciation and amortization
expenses of $47.0 million in the first nine months ended May
31,of 2002 and 2001, respectively.increased $1.9
million or 4.1% compared to $45.1 million in the first nine months of 2001. The
increase is primarily attributable to higher depreciation costs as a $1.1 million chargeresult of
capital expenditures in 2001 primarily for new automotive programs and an
adjustment to bring the estimated useful lives of certain equipment in the
second quarter of 2002 to reflectAutomotive Segment in line with estimated periods of active production on
existing automotive programs.
26
Restructuring. On May 31, 2002 the Company announced it would exit the
Gallium business in its Technologies segmentSegment due to the downturn in the
fiber-optic, tele-communicationtelecommunication and semiconductor markets. This resulted in a
$5.5 million charge recorded to restructuring expense during the quarter. Thesecond quarter
of 2002. Also during the second quarter of 2002, the Company also reduced the
amounts accrued for restructuring that were recorded in 2001 by $2.5$2.7 million,
primarily to reflect severance payments made to eligible employees from the
Company's over funded pension plan to eligible employeeswhich was overfunded at November 30, 2001 as detailed in
footnoteNote D above,
which had previously beenregarding Restructuring contained in Item 1 of this report.
Divestitures. All amounts recorded as an expense.
Divestitures.in divestures expense relate to
operations that are sold or that were divested prior to November 30, 2001.
During the third quarter of 2002, the Company recorded $0.2 million primarily
related to costs associated with estimated increases in workmen's compensation
claims for employees of these divested businesses. During the second quarter of
2002, the Company recorded approximately $3.2 million in additional accruals
recorded for costs related to costs for certain litigation issues and environmental remediation
related to operations
divested prior to November 30, 2001 as notedcosts. In addition, in footnote E. In the second
quarter ofJuly 2002, the Company signed a lettercompleted the sale of intent to sell certain assets and
liabilities of theits
Precision Products business in its Technologies segmentSegment to a group of employees
and divisional management personnel. The Company recorded in the second quarter
of 2002 a $2.8 million estimated loss on sale related to this action. The net asset held for sale after
this write down, is $2.9 million.sale.
Management Compensation - Special. Management compensation - special
expenses primarily relate to the separation of $2.4 million and $1.9 millionofficer employment with the
Company. During 2002, the Company separated three officers of the Company (one
in the second quartersAutomotive Segment, one in the Corporate Segment and the other in the
Technologies Segment) that aggregated $2.9 million. During 2001, the Company
separated three of 2002 and 2001,
respectively, relate to compensation to former senior officers upon their
separation fromof the Company.Company in the Corporate Segment that
aggregated $2.5 million.
Insurance Related Losses. InDuring the second quarter 2002, the Company
recorded $3.1 27
million in charges primarily related tofor an insurance receivable related to theits
third quarter 2001 fire inat its Harrisonville, Missouri bulk pharmaceutical
manufacturing plant due toplant. The Company has recorded this charge because the insurance
underwriter is contesting the coverage. The Company disputesis disputing the insurance
carrier's position and is vigorously pursuing efforts to collect on its claims,
but the full realization of the receivable is uncertain at this time.
Interest Expense. Interest expense was $11.2of $9.6 million decreased $0.3
million or 2.9% in the third quarter of 2002 compared to $9.9 million in the
secondthird quarter of 20022001, primarily due to lower average borrowing levels and
$10.1 million inlower rates during the second quarter of 2001. Interest
expense was $22.3 million and $20.3 million for the six months ended May 31,
2002 and 2001, respectively.quarter. In the six monthsquarter ended MayAugust 31, 2001,
approximately $1.7$0.8 million in interest expense was included in Discontinued Operationsdiscontinued
operations. Interest expense of $31.9 million increased $1.8 million or 5.9% in
the condensed consolidated statementsfirst nine months of income (loss). Included2002 compared to $30.2 million in the first nine
months of 2001. In the nine months ended August 31, 2001, approximately $2.5
million in interest expense was included in discontinued operations, which
impacts the comparability with 2002. Also included in interest expense in the
first half of 2002 isare approximately $1.8$1.5 million in fees and other costs
primarily related to the accounts receivable asset backed securitization as
discussed in Note F regarding Accounts Receivable Asset Backed Securitization
as discussed in Note Fcontained in Item 1. In accordance with SFAS 140 "Accounting1 of this report. Adjusting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, a replacement of FASB
statement 125", the Company has expensed these costs as incurred, rather than
amortizing them over the term of the agreement. Amounts paid to banks and other
institutionstwo items, interest
expense decreased $2.2 million or 6.8% in the second quarterfirst nine months of 2002
for borrowed funds was $.6 million
less than similar amounts incurred forcompared to the second quarterfirst nine months of 2001. This
improvement reflectsThese decreases reflect actual lower
debt levels throughout the quarternine months and interest rates slightly lower in
2002 compared to 2001 on variable rate debt.
Income (Loss)Loss from Continuing Operations Before Taxes. Loss from continuing
operations before taxes of ($2.8) million decreased $4.8 million or 63.1% in the
third quarter of 2002 compared to the loss of ($7.6) million for the third
quarter of 2001. The loss from continuing operations before taxes of ($29.8)
million increased $16.6 million or 125% in the first nine months of 2002
compared to the loss of ($13.2) million for the first nine months of 2001. The
following items represent special charges (and reversals) by segment for the
first nine months of 2002.
2002 2001
---- ----
Amounts (in millions)
a. Management compensation- special $2.3 $2.5 Corporate
b. Management compensation- special 0.4 Technologies
c. Management compensation- special 0.2 - Automotive
d. Divestitures 6.1 0.5 Divested Divisions
e. Restructuring- exiting of the Gallium business 5.5 - Technologies
f. Restructuring- reversal of the fourth quarter 2001 expense related
to severance payments made by the pension plan (1.2) - Technologies
g. Restructuring- reversal of the fourth quarter 2001 expense related
to severance payments to be paid by the pension plan (1.5) - Corporate
h. Selling and administrative- legal and settlement costs 5.7 - Technologies
i. Selling and administrative - legal and settlement costs 0.6 - Corporate
j. Insurance related losses 3.1 - Technologies
k. Depreciation adjustment related to equipment useful lives 1.1 - Automotive
------------- ---------
Total $ 22.3 $ 3.0
============= =========
27
Excluding the above, the Company's loss from continuing operations was
$(21.1) million and $(5.0)($7.5) million in the second quartersfirst nine months of 2002 compared to a loss of ($10.2)
million for the first nine months of 2001. This improved loss from continuing
operations, despite lower sales for the first nine months of 2002, is primarily
attributable to an improvement in gross margins resulting from improved sales
mix and 2001, respectively. The difference is due primarily
to gross marginproductivity improvements across the Company, of approximately $4.5 million
and a $2.5 million reduction of previously accrued restructuring charges, offset
by the following special charges totaling approximately $23 million recordedlower energy costs in
the second quarterMinerals Segment.
In addition, during 2002, the Company incurred $1.4 million of 2002:
- Accruals related to various legal matters aggregating $7.6 million;
- Restructuring charges of $5.5 million related to the exiting of the
Gallium product line;
- Recognition of an estimated $2.8 million loss on sale of the Precision
Product businessexpenses
in the Technologies segment;
- Charges of $3.1 million related primarilySegment for business consulting fees to an insurance receivable
related todevelop a fire in 2001 in a chemical plant;
- A $1.1 million charge to depreciation to reflect estimated periods of
active production on existing automotive programs;
- Management compensation expenses of $2.4 million related to
compensation to former senior officers upon their separation fromstrategy
for the Company;special purpose batteries business, and - $.5 million of severance costs related to management changes, primarily
in the Company's Automotive segment.
The Company also incurred costs of $1.4$2.3 million in severance,
recruiting, relocation and workforce-related consulting projects as the second quarter of 2002
for consulting expenses for the development of strategic initiatives.Company
has continued its investment in strengthening its leadership team.
Income Taxes (Benefit). Income taxes (benefit) weretax expense was $.8 million and
$(1.6)for the
third quarter of 2002 compared to an income tax benefit of ($2.5) million in the
second quartersthird quarter of 2002 and 2001, respectively, and $1.2
million and $(1.8)2001. Income tax expense was $2.0 million in the sixfirst nine
months ended May 31,of 2002 compared to a benefit of ($4.3) million in the first nine months
of 2001. Differences in the income taxes recorded primarily relate to the
Company recording a tax benefit during 2001 on losses to the extent those losses
could be carried back to prior fiscal years and 2001,
respectively.a refund could be obtained from
the taxing authority. The Company has exhausted its ability to carry-back any
losses to obtain a refund. Therefore, the Company has elected to provide a
valuation allowance on all current tax losses. Accordingly, there is no tax
benefit recorded during 2002. The provision in 2002 relates to the allocation of
income and loss between the United States and foreign jurisdictions and
represents the estimated tax that will be due in certain jurisdictions where no
tax benefit can be assured from utilizing the Company's losses.
Discontinued Operations. Throughout 2001, the Company accounted for its
former Machinery Segment as a discontinued operation. This business was sold in
December 2001, but the Company has accounted for the business as if it had been
sold as ofeffective November 30, 2001. As a result, thereThere is no effect on the operations
in 2002 for this Segment.2002.
Net Income (Loss). Net income (loss) for the second quarters of 2002
and 2001 were $(22.0) million and $(6.3) million, respectively.Loss. The net loss in
2002 was significantly impacted by the provision of approximately $23 million in
charges for business restructuring, certain legal matters for divested
operations and other factors discussed under Income (Loss) from Continuing
Operations Before Taxes above.
28
Dividends accreted of $3.8 million and $3.3($3.6) million in the second
quartersthird quarter of 2002
and 2001, respectively,decreased 66.3 % compared to the loss of ($10.6) million in the third quarter of
2001. The net loss of ($31.7) million in the first nine months of 2002 decreased
7.5% from the net loss of ($34.3) million in the first nine months of 2001. The
decrease in net loss is the result of the items discussed above.
Dividend accretion on the 11 3/4% Cumulative Redeemable Exchangeable
Preferred Stock ("Preferred Stock") of $3.7 million increased 12.1% during the
third quarter of 2002 from the $3.3 million in the third quarter of 2001,
attributable to a higher liquidation preference balance resulting from the
ongoing accretion. This dividend accretion increased the net loss applicable to
common shareholders during the third quarter of 2002 to $25.7($7.3) million and
$9.6increased the net loss applicable to common shareholders during the third
quarter of 2001 to ($13.9) million. Dividend accretion was $10.9 million respectively.in the
first nine months of 2002 compared to $9.8 million in first nine months of 2001.
This dividend accretion increased the net loss applicable to common shareholders
in the first nine months of 2002 to ($42.7) million and increased the net loss
applicable to common shareholders during the nine months of 2001 to ($44.1)
million.
Company Outlook
The Company's sales for fiscal year 2002 are expected to be in the
range of $690$683 million to $695$687 million, which is down slightly from the $700 million
outlook set forth in its fiscal year 2001 Annual Report on Form 10-K. LowerThis
reduced forecast is primarily related to significantly lower sales in the
MineralsTechnologies Segment's specialty materials products, and Technologies segments will bethe sale of Precision
Products, partially offset by higher sales in the Automotive segment.
Pretax loss is now projected in the range of $(20) million to $(25)
million, compared the $(2) million to $(5) million outlook set forth in its
fiscal year 2001 Annual Report on Form 10-K. The difference is attributable to
the approximately $23 million in charges in the second quarter for business
restructuring, certain legal matters for divested operations and other factors
discussed under Income (Loss) from Continuing Operations Before Taxes above.Minerals
Segments.
The Company expects Credit Agreement EBITDA (as defined under
Financial Condition, below)for fiscal year 2002 to be within a range of $93 million to $97approximately $95
million. This estimate remains consistent with the outlook for the Company set
forth in its fiscal year 2001 Annual Report on Form 10K.
29
FINANCIAL CONDITION
The following are certain financial data regarding EBITDA, as defined
below, cash flows and earnings to fixed charges and preferred stock dividends
(excluding the Machinery Segment):
Six Months Ended
May 31
2002 2001
(In millions of dollars)
EBITDA $46.9 $46.8
Cash provided by operating activities 60.9 21.9
Cash provided by (used in)investing activities (1.5) (24.4)
Cash provided by (used in) financing
activities (61.9) 1.8
Cash provided by discontinued Operations - 1.5
Preferred stock dividends accreted 7.2 6.5
Earnings/fixed charges and preferred stock dividends (.14)X .56X
Deficiency 34.2 12.1
EBITDA
The Company's EBITDA is defined for purposes hereof as earnings from
continuing operations before income taxes, interest expense, depreciation and
amortization and certain items determined by management to be in the nature of
nonrecurring or special items. These are: gains or losses on sales of business
units, management compensation (special), accruals for non routine litigation,
divestiture related expenses, restructuring charges, insurance related gains and
losses and non-cash items relating to accruals for the Company's stock
appreciation rights plan. For a description of such items, see "Results of
Operations - Summary of the Company - Income (Loss) from Continuing Operations
Before Taxes" above. EBITDA, as defined herein, may not be comparable to
similarly titled measures reported by other companies and should not be
construed as an alternative to operating income or to cash flows from operating
activities, as determined by accounting principles generally accepted in the
United States of America, as a measure of the Company's operating performance
or liquidity, respectively. Funds depicted by EBITDA are not available for
management's discretionary use to the extent they are required for debt service
and other commitments.
The Company's EBITDA for the six months ended May 31, 2002 and 2001, was
$46.9 million and $46.8 million, respectively.
Operating Activities
Cash provided by operating activities was $60.9 million and $21.9 million
for the six months ended May 31, 2002 and 2001, respectively, and consisted of
the following:
Six Months Ended May 31
-----------------------
2002 2001
---- ----
(in millions of dollars)
Income (Loss) from continuing
Operations before taxes $ (27.0) $ (5.6)
Depreciation and amortization,
30
Excluding amortization of
Deferred financing costs 30.9 29.7
Divestitures 6.0 .5
Excess of interest expense
over interest paid 2.4 1.5
Income taxes refunded (paid), net 4.8 1.9
Working capital and other 43.8 (6.1)
----- -----
$60.9 $21.9
===== =====
See "Results of Operations" for discussions concerning income (loss)
before taxes, depreciation and amortization, divestitures and interest expense.
The excess of interest expense over interest paid results primarily from
amortization of deferred financing costs, which does not affect cash.
The Company received a "quick refund" in the second quarter of 2002 and
2001 of income taxes paid in the prior fiscal years.
Net cash provided by operating activities for the sixnine months ended
MayAugust 31, 2002 was $60.9$53.1 million compared to $21.9$32.4 million for the comparable
2001 period. The majority of the increase in net inflow of cash from operating
activities was $40.1 million, which occurred as a result of the Company selling
certain of its receivables to an unconsolidated qualifying special purpose
entity (see note F to
28
condensed consolidated financial statement). A decrease in the Company's
inventory provided $9.0$2.3 million, a decrease in accounts payable used $2.7$13.3
million and an increase in accrualsaccrued liabilities provided $3.3$3.8 million. Other
assets and liabilities, net, used $8.7$5.3 million.
The Company received "quick refunds" in 2002 and 2001 of income taxes
paid for in the prior fiscal years.
Investing Activities
Investing activityactivities used $1.5$3.1 million in cash during the sixnine months
ended MayAugust 31, 2002 compared to $24.4$35.8 million being used in the sixnine months ended
MayAugust 31, 2001 primarily for capital expenditures.2001. During the first quarter ofnine months ended August 31, 2002, $6.3$6.1 million was
provided from proceeds from the sale of CED.CED and $2.8 million was provided from
proceeds from the sale of Precision Products. Capital expenditures amounted to
$8.9$12.6 million for the sixnine months ended MayAugust 31, 2002 compared to $22.3$34.9
million for the sixnine months ended MayAugust 31, 2001.
Financing Activities
FinancialFinancing activities used $61.9$63.5 million for the sixnine months ended
MayAugust 31, 2002 compared to the sixnine months ended MayAugust 31, 2001 where $1.8$12.2
million was provided. During the sixnine months ended MayAugust 31, 2002, the Company
used $43.9$40.8 million to reduce its revolving credit facility primarily from
proceeds associated with the sale of the Company's receivables to an
unconsolidated qualifying special purpose entity. Both regularly scheduled debt
payments and the proceeds for the sale of CED and Precision Products resulted in
a $18.5$22.6 million decline in the Company's term debt during the sixnine months ended
MayAugust 31, 2002.
Earnings to Fixed Charges and Preferred Stock Dividends
Ratio of earnings from continuing operations to fixed charges and
preferred stock dividends forFor the sixnine months ended May 2002 and 2001 was (.14x)
and .56x, respectively. InAugust 31, 2002 and 2001, earnings were
insufficient to cover fixed charges and preferred stock dividends by $34.2$40.7
million and $12.1$23.0 million respectively. In 2002 the ratioability to cover fixed
charges and preferred stock dividends was significantly impacted by $6.0$6.1
million in divestiture related expenses, $3.0 million of restructuring charges
and $3.1 million in insurance related losses. If these items were excluded from
the calculation in 2002, the ratio of earnings from continuing operations to
31
fixed charges and preferred stock dividends would be .26x and earnings would not have been sufficient to cover fixed
charges and preferred stock dividends by $22.1$28.5 million. On that basis, 2002 and
2001 are more comparable.
Credit Agreement EBITDA
The Company's senior secured credit facility has several financial
covenants which are based on EBITDA as defined in the credit agreement for such
credit facility. EBITDA is defined in the credit agreement ("Credit Agreement
EBITDA") as earnings before interest expense, income taxes, depreciation and
amortization, determined (A) without giving effect to (i) any extraordinary
gains or losses but with giving effect to gains or losses from sales of assets
sold in the ordinary course of business, (ii) any impact from the LIFO method of
inventory accounting, (iii) any non-cash charge other than routine recurring
non-cash charges that result in an accrual of a reserve for cash charges in any
future period deducted in determining consolidated net income for such period,
(iv) amounts paid to present or future officers or employees in connection with
their separation from employment, up to a limit (together with any compensation
expense incurred in connection with the acquisition of the Company by Granaria)
of $43.2 million (of which $5.8 million remained unused as of August 31, 2002),
(v) a $16.0 million gain from the receipt of insurance proceeds in 2000, (vi)
the loss from the sale of the Company's former Machinery Segment and the loss
from operations of the Machinery Segment in 2001, and (B) with giving effect to
proforma pre-acquisition consolidated EBITDA attributable to businesses acquired
during the year.
The Company's earnings from continuing operations before interest,
income taxes, depreciation and amortization was $23.0 million and $49.1 million
for the three and nine months ended August 31, 2002. The following adjustments
have been made to the Company's earnings before interest, income taxes,
depreciation and amortization to arrive at Credit Agreement EBITDA:
29
Three months ended Nine months ended
August 31, 2002 August 31,2002
------------------ -----------------
Earnings from continuing operations before income taxes,
interest, depreciation, and amortization: $23.0 $49.1
Restructuring charges - 3.0
Losses from sale of divisions - Divestitures .2 6.1
Management compensation - special .5 2.9
Insurance related losses - 3.1
LIFO provision .1 .3
Other non-cash, non-recurring items - 6.7
----- -----
Credit Agreement EBITDA $23.8 $71.2
===== =====
Credit Agreement 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 cash flows from operating
activities, as determined by accounting principles generally accepted in the
United States of America, as a measure of the Company's operating performance or
liquidity, respectively. Funds depicted by Credit Agreement EBITDA are not
available for management's discretionary use to the extent they are required for
debt service and other commitments.
The three financial covenants contained in the Company's senior secured
credit agreement are a leverage ratio (the ratio of total debt plus the
outstanding balance of the undivided interest as stated in Note F in Item 1,
less cash on the balance sheet to Credit Agreement EBITDA), an interest coverage
ratio (the ratio of Credit Agreement EBITDA to interest expense) and a fixed
charge coverage ratio (the ratio of Credit Agreement EBITDA to the sum of
interest expense plus required principal payments plus cash dividends paid plus
income taxes paid) (all as defined in the Credit Agreement). The following table
presents the required ratios and the actual ratios at August 31, 2002.
Financial Covenant August 31, 2002
------------------ ---------------
Leverage Ratio - Required equal or less than 5.00
Leverage Ratio - Actual 4.41
Interest Coverage Ratio - Required equal to or greater than 2.00
Interest Coverage Ratio - Actual 2.46
Fixed Charges Coverage Ratio - Required equal to or greater than 1.25
Fixed Charges Coverage Ratio - Actual 1.57
Liquidity and Capital Resources
The Company's cash flow from operations and available credit facilities are
considered adequate to fund both the short-term and long-term capital needs of
the Company. As of MayAugust 31, 2002, the Company had $70.6$66.3 million unused under
its senior secured revolving credit facility and $1.4$1.5 million unused under its
European unsecured lines of credit. However, due to various financial covenant
limitations under the Company's senior secured credit agreement (the "Credit
Agreement") measured on the last day of each quarter, on MayAugust 31, 2002, the
Company could incur only an additional $47.5$42.5 million of indebtedness.
At MayAugust 31, 2002, the Company was in compliance with the covenants of its
senior secured credit agreement and senior subordinated notes. As noted in Note
F in Item 1 above, the Company has adopted Financial Accounting Standards Board
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" in conjunction with the Asset Backed
Securitization. However, under the definitions contained in the Credit
Agreement, the aggregate amount of capital investment by the conduit, $52.4$41.0
million as of MayAugust 31, 2002, is treated as indebtedness for purposes of
various financial covenants in the Credit Agreement.
The Company has entered into various interest rate swap agreements to
manage its variable interest rate exposure. Per the terms of the swap
agreements, the Company exchanges, at specified intervals, the difference
between fixed and variable interest amounts based on a notional amount of $90$90.0
million of the debt under the Credit Agreement at a weighted average interest
rate of 5.678% plus the applicable spread beginning March 5, 2001 and maturing
December 15, 2003.
Commencing March 1, 2003, dividends on the Company's Convertible
Exchangeable Preferred Stock become cash payable at 11-3/4% per annum; the first
semi-annual dividend payment of $8.3 million is due September 1, 2003. If the
Company does not pay cash dividends on the preferred stock, then holders of the
preferred stock become entitled to elect a majority of the Board of Directors of
Eagle-Picher Holdings. Dakruiter S.A., a company controlled by Granaria Holdings
B.V., holds approximately 51.8% of the preferred stock and therefore Granaria
Holdings B.V. would continue to be able to elect the entire Board of Directors
of Eagle-Picher Holdings.
30
The Company's $220$220.0 million revolving credit facility in its senior Credit
Agreement expires February 28, 2004. The Company will be required to extend or
replace this facility before that date. As of MayAugust 31, 2002, the Company had
borrowed approximately $111.5$115.5 million and had approximately $37.9$38.2 million of
letters of credit issued under this facility.
Restrictions on Payment of Dividends
EPI and the Subsidiary Guarantors are subject to restrictions on the
payment of dividends and other forms of payment in both the Credit Agreement and
the Indenture for the Subordinated Notes. Those restrictions generally prohibit
the payment of dividends to the Company either directly by EPI or indirectly
through any Subsidiary Guarantor. Certain limited exceptions are provided
allowing for payments to the Company. Specifically, EPI is authorized to make
payments to the Company in amounts not
32
in excess of any amounts the Company is
required to pay to meet its consolidated income tax obligations. Additional
payments from EPI to the Company are permitted commencing September 1, 2003 in
amounts not in excess of the Company's obligations to make any cash dividend
payments required to be paid under the Company's Preferred Stock and to make any
cash interest payments required to be paid under any debentures issued by the
Company in exchange for the Company's Preferred Stock ("Exchange Debentures").
Forward-Looking Statements
This report contains statements which, to the extent that they are not
statements of historical fact, constitute "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E
of the Securities Exchange Act of 1934. The words "estimate," "anticipate,"
"project," "intend," "believe," "expect," and similar expressions are intended
to identify forward-looking statements. Forward-looking statements include, but
are not limited to, statements under the headings "Automotive Segment Outlook,"
"Technologies Segment Outlook," "Minerals Segment Outlook," and "Company
Outlook." Such forward-looking information involves risks and uncertainties that
could cause actual results to differ materially from those expressed in any such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the ability of the Company to maintain existing relationships with
customers, demand for the Company's products, the ability of the Company to
successfully implement productivity improvements and/or cost reduction
initiatives, the ability of the Company to develop, market and sell new
products, the ability of the Company to obtain raw materials, increased
government regulation or changing regulatory policies resulting in higher costs
and/or restricting output, increased price competition, currency fluctuations,
general economic conditions, acquisitions and divestitures, technological
developments and changes in the competitive environment in which the Company
operates. Persons reading this report are cautioned that such forward-looking
statements are only predictions and that actual events or results may differ
materially.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company enters into interest rate swap agreements to manage interest
rate costs and risks associated with changing interest rates. The differential
to be paid or received under these agreements is accrued and recognized as
adjustments to interest expense. During the first quarter ended February 28,
2001, the Company had entered into various interest rate swap agreements with a
commercial bank having a total notional amount of $90$90.0 million. The effective
dates of these agreements are March 5, 2001 and March 15, 2001 and they mature
December 5, 2003 and December 15, 2003, respectively. These agreements
effectively change the interest rate exposure on $90$90.0 million of the Company's
floating debt to a fixed rate of 5.678% plus the applicable spread. The Company
may enter into additional interest rate swap agreements through the maturity
date of the Credit Agreement as market conditions warrant. Based on the fair
value of the interest rate swap agreements being held as of MayAugust 31, 2002, the
Company has recorded a net loss of $4.3$5.1 million in accumulated other
comprehensive incomeloss in the accompanying condensed consolidated balance sheets.
The remaining amount of loans outstanding under the Credit Agreement bear
interest at floating rates.
The Company's industrial revenue bonds ("IRB's") bear interest at
variable rates based on the market for similar issues. Loans under the IRB's are
not covered by the Swap Agreements.
As of MayAugust 31, 2002, $141.4$140.5 million of revolving and term loans were
outstanding under the Credit Agreement, of which, interest on $90.0 million is
essentially fixed by the Swap Agreements.Agreements discussed above. The interest rate risk
on the remaining debt outstanding under the foreign lines of credit, the IRB's,
and the IRB's,
which in$50.5 million remaining under the aggregate totals $19.3Credit Agreement totaling $69.8
million, has not been hedged. Accordingly, a 1% increase in the applicable index
rates would result in additional interest expensesexpense of $.7 million per year,
assuming no change in the current 33
level of borrowing.
31
The Company also enters into various foreign currency forward contracts
to hedge a portion of its forecasted sales, generally within the next 12 months.
The Company manages most of these exposures on a consolidated basis, which
allows for netting certain exposures to take advantage of any natural offsets.
The Company's principal areas of exposure are related to sales denominated in
the currencies of Europe, Mexico and Canada with the majority of this exposure
in European currencies. As of MayAugust 31, 2002, the Company had outstanding
foreign exchange forward contracts with aggregate notional amounts of $13.5$7.1
million. Based on the fair value of the futures contracts being held as of
MayAugust 31, 2002, the Company has recorded a net loss of $.5$.6 million in
accumulated other comprehensive incomeloss in the accompanying condensed consolidated
balance sheets.
34ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation (the "Evaluation"), the Company's Chief
Executive Officer, John Weber, and Chief Financial Officer, Thomas Pilholski,
have concluded that the Company's disclosure controls and procedures are
generally effective, but also concluded that there are several weaknesses in the
Company's Information Technology area (IT), including access security, network
monitoring, IT procurement and IT inventory management. The Company has
dedicated resources to correcting these issues, and the corrections are expected
to be completed by the end of the next quarter. These weaknesses did not have a
material impact on the accuracy of the Company's financial statements.
As of the date of this report, there have not been any significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the Evaluation.
32
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to Note H regarding Legal Matters contained in Part I,
Item 1 of this report, which is incorporated by reference in this Part II, as
its Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.65 Fifth Amendment to Credit Agreement dated as of May 3, 2002.*
* Incorporated by reference from the Company's Form 8-K filed
May 17, 2002.
(b) Reports on Form 8-K
Form 8-K filed May 17, 2002 reporting an amendment to Eagle Picher
Industries' senior secured credit facility.
3533
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/ Thomas R. Pilholski
------------------------------
Thomas R. Pilholski
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
36------------------------
34
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER INDUSTRIES, INC.
/s/ Thomas R. Pilholski
--------------------------------
Thomas R. Pilholski
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
37-----------------------
35
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS, INC.
/s/ Tom B. Scherpenberg
-----------------------------
Tom B. Scherpenberg
TreasurerKen Higgins
---------------
Ken Higgins
Chief Financial Officer
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
38-----------------------
36
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/s/ Tom B. ScherpenbergThomas R. Pilholski
--------------------------------------
Tom B. Scherpenberg
TreasurerThomas R. Pilholski
Senior Vice President
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
39-----------------------
37
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FAR EAST, INC.
/s/ Tom B. ScherpenbergThomas R. Pilholski
-----------------------------
Tom B. Scherpenberg
TreasurerThomas R. Pilholski
Senior Vice President
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
40-----------------------
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER MINERALS, INC.
/s/ Tom B. Scherpenberg
------------------------------
Tom B. Scherpenberg
TreasurerPaul Wonder
---------------
Paul Wonder
Vice President
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
41-----------------------
39
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ Bradley J. Waters
--------------------------------------------------------------------
Bradley J. Waters
Vice President, and
Chief Financial Officer
DATE JulyOctober 15, 2002
---------------------
42-----------------------
40
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ Tom B. Scherpenberg
----------------------------------
Tom B. Scherpenberg
TreasurerKen Higgins
---------------
Ken Higgins
Chief Financial Officer
(Principal Financial Officer)
DATE JulyOctober 15, 2002
---------------------
43-----------------------
41
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/ Tom B. Scherpenberg
-----------------------
Tom B. Scherpenberg
TreasurerThomas R. Pilholski
----------------------------------
Thomas R. Pilholski
Senior vice President
(Principal Financial Officer)
DATE JulyOctober 15, 2002
--------------------------------------------
42
CERTIFICATIONS
I, JOHN H. WEBER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, certify that:
1. I have reviewed this quarterly report on Form 10-K of Eagle-Picher Holdings,
Inc. , Eagle-Picher Industries, Inc., Daisy Parts, Inc., Eagle-Picher
Development Co., Inc., Eagle-Picher Far East, Inc., Eagle-Picher Minerals, Inc.,
Eagle-Picher Technologies, LLC, Hillsdale Tool & Manufacturing Co. and EPMR
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ JOHN H. WEBER Date: October 15, 2002
- ---------------------------------------------
John H. Weber, President and
Chief Executive Officer
43
I, THOMAS R. PILHOLSKI, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
certify that:
1. I have reviewed this quarterly report on Form 10-K of Eagle-Picher Holdings,
Inc. , Eagle-Picher Industries, Inc., Daisy Parts, Inc., Eagle-Picher
Development Co., Inc., Eagle-Picher Far East, Inc., Eagle-Picher Minerals, Inc.,
Eagle-Picher Technologies, LLC, Hillsdale Tool & Manufacturing Co. and EPMR
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ THOMAS R. PILHOLSKI Date: October 15, 2002
- ---------------------------------------------
Thomas R. Pilholski, Senior Vice President
and Chief Financial Officer
44