1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended MayAugust 31, 1998 Commission file number 333-49957
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EAGLE-PICHER INDUSTRIES, INC.
- - -------------------------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
-----------------------------------
OHIO 31-0268670
- - ---------------------------------- ----------------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
- - -------------------------------------------------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
-----------------------------
(Not Applicable)
-
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
---- ----
100 shares of common capital stock, no par value, were outstanding at June 26,September
28, 1998.
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TABLE OF ADDITIONAL REGISTRANTS
JurisdicationJurisdiction of Commission IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------------ -------------------- -------
Eagle-Picher Holdings, Inc. Delaware 333-49957-01 13-3989553
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Fluid Systems, Inc. Michigan 333-49957-05 31-1452637
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
Michigan Automotive Research Corp. Michigan 333-49957-08 38-2185909
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.........................................4
Condensed Consolidated Statements of Income (Loss)(Unaudited)...4....4
Condensed Consolidated Balance Sheets (Unaudited)................5
Condensed Consolidated Statements of Cash Flows (Unaudited)......7
Notes to Condensed Consolidated Financial Statements (unaudited)(Unaudited).9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................21Operations.............................22
Item 3. Quantitative and Qualitative Disclosures About Market Risk..25Risk..27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................26
Signature............................................................278-K............................28
Signatures...........................................................29
Exhibit Index........................................................37Index........................................................39
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Six Months Three Months Nine Months
Three Months Ended Three Months Ended Six Months Ended MayEnded
August 31 August 31 February 28 August 31
------------------ May 31
------------------ May 31 Feb. 28 ----------------
1998 1997 1998 1998 1997
---- ---- ---- ---- ----
Predecessor Predecessor Predecessor
Net Sales $219,921 $242,183 $219,921 $205,842 $465,790
-------- -------- -------- -------- --------
Net Sales $206,356 $216,756 $426,277 $205,842 $682,546
-------- -------- -------- -------- --------
Operating Costs and Expenses:
Cost of products sold 169,575 194,578 169,575163,518 174,103 333,093 162,796 374,979549,082
Selling and administrative 20,287 19,619 20,28718,042 17,503 38,329 17,141 39,34356,846
Management compensation expense 17,3214,395 - 17,32121,716 2,056 -
Depreciation 9,773 10,643 9,7739,644 9,688 19,417 8,983 21,00930,697
Amortization of intangibles 4,497 4,079 4,4974,244 4,084 8,741 3,839 8,15512,239
Loss on division sales - 1,803 - - 1,803
-------- -------- -------- -------- --------
221,453 228,919 221,453------- -------
199,843 207,181 421,296 194,815 443,486650,667
-------- -------- -------- -------- --------------- -------
Operating Income (Loss) (1,532) 13,264 (1,532)6,513 9,575 4,981 11,027 22,30431,879
Interest expense (12,554) (7,924) (12,554)(12,132) (7,540) (24,686) (6,940) (16,851)(24,391)
Other income 326 (347) 326(expense) 681 (817) 1,007 820 1,356539
-------- -------- -------- -------- --------------- -------
Income (Loss) Before Taxes (13,760) 4,993 (13,760)(4,938) 1,218 (18,698) 4,907 6,8098,027
Income Taxes (4,461) 4,448 (4,461)(1,135) 2,337 (5,596) 4,100 7,4849,821
-------- -------- -------- -------- --------------- -------
Net Income (Loss) $ (9,299)(3,803) $ 545 $ (9,299)(1,119) $(13,102) $ 807 $ (675)(1,794)
======== ======== ======== ======== ========
Income (Loss) per Share $(92,990.00) $.05 $(92,990.00)$(38,030.00) $ (.11) $(131,020.00) $.08 $(.07)
==========$ (.18)
=========== ======== ============ ==== ========== ==== ===========
See accompanying notes to the consolidated financial statements.
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5
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
May
August 31 Nov.November 30
1998 1997
---- ----
ASSETS
Predecessor
CURRENT ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,97821,098 $ 53,739
Receivables, less allowances 121,257120,444 130,927
Income tax refunds receivable 1,9561,341 3,025
Inventories:
Raw materials and supplies 53,65355,354 51,592
Work in process 19,69017,547 25,801
Finished goods 17,50017,712 14,803
------- -------
90,84390,613 92,196
Prepaid expenses 8,4578,440 8,290
Deferred income taxes 18,935 13,793
------- -------
Total current assets 252,426260,871 301,970
------- -------
PROPERTY, PLANT AND EQUIPMENT 248,675255,653 279,847
Less accumulated depreciation 9,81319,505 36,309
------- -------
Net property, plant and equipment 238,862236,148 243,538
DEFERRED INCOME TAXES -1,144 98,991
EXCESS OF ACQUIRED NET ASSETS OVER COST NET OF
ACCUMULATED AMORTIZATION OF $4,491 251,004$8,729 233,106 -
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS NET OF ACCUMULATED AMORTIZATION
OF $16,284 - 48,837
OTHER ASSETS 86,60185,162 53,545
------- -------
Total Assets $828,893$816,431 $746,881
======= =============== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 48,04544,062 $ 52,886
Long-term debt - current portion 13,02814,072 3,403
Income taxes 6,8783,246 2,294
Other current liabilities 64,65575,136 55,419
------- -------
Total current liabilities 132,606136,516 114,002
------- -------
LONG-TERM DEBT - less current portion 498,773487,209 269,994
DEFERRED INCOME TAXES 1,115 -
OTHER LONG TERM LIABILITIES 25,04025,676 26,768
------- -------
Total Liabilities 657,534649,401 410,764
------- -------
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EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)SHEETS(UNAUDITED)
(Dollars in thousands)
MayAugust 31 Nov.November 30
1998 1997
------ -------------- ----
Predecessor
SHAREHOLDERS' EQUITY
Common shares -- authorized 20,000,000 shares;
issued and outstanding 100 and 10,000,000 shares, respectively 180,005 341,807
Foreign currency translation 653127 (1,836)
Accumulated deficit (9,299)(13,102) (3,854)
------- -------
Total Shareholders' Equity 171,359167,030 336,117
------- -------
Total Liabilities and Shareholders' Equity $828,893$816,431 $746,881
======== ========
See accompanying notes to the consolidated financial statements.
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EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Three Months Nine Months
Ended Six Months
------------------ Ended MayEnded
August 31 Feb.February 28 MayAugust 31
1998 1998 1997
---- ---- ----
Predecessor Predecessor
Predecessor Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (9,299)$(13,102) $ 807 $ (675)$(1,794)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,95229,522 12,822 29,15942,936
Proceeds from insurance settlement 13,659 - -
Loss on division sales - - 1,803
Changes in assets and liabilities:
Receivables 14,37515,188 (4,705) 1174,072
Income tax refunds receivable 45660 1,024 69,74169,771
Inventories 4,2054,435 (2,235) (3,946)985
Accounts payable (2,854)(6,837) (2,787) 4,5717,063
Accrued liabilities 14,72425,205 (5,488) (4,206)8,334
Other (298)(4,784) (8,521) 8,0947,561
------- ------- -------
Net cash provided by (used in)
operating activities 35,85063,946 (9,083) 102,855140,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from division sales - - 38,417
Capital expenditures (9,064)(16,053) (5,692) (29,264)(41,476)
Other 56194 (1,042) (2,025)(2,407)
------- ------- -------
Net cash used in
investing activities (8,503)(15,959) (6,734) (31,289)(5,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 445,000 -8,000
Reduction of long-term debt -(2,580) (250,000) (69,658)(127,411)
Borrowings under revolving credit agreement 14,82547,825 79,100 -
Repayments under revolving credit agreement (49,925)(91,925) - -
Redemption of common stock - (446,638) -
Issuance of common stock - 180,005 -
Debt issuance cost - (26,062) -
Other (236)824 (360) 2,3114,876
------- -------- -------
Net cash used in
financing activities (35,336)(45,856) (18,955) (67,347)(114,535)
------- -------- -------
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EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Three Months Nine Months
Ended Six Months
------------------- Ended MayEnded
August 31 Feb.February 28 MayAugust 31
1998 1998 1997
---- ---- ----
Predecessor Predecessor
Net increase (decrease) in cash and cash equivalents (7,989)2,131 (34,772) 4,21920,730
Cash and cash equivalents, beginning of period 18,967 53,739 32,725
------ ------- -------- -------------
Cash and cash equivalents, end of period $10,978$21,098 $ 18,967 $36,944$53,455
====== ======= ======
Supplemental cash flow information: 1998 1997
- - ----------------------------------- ---- ----
Cash paid during the six months ended May 31:
Interest paid $ 13,492 $ 16,501
Income taxes paid (refunded), net $ 305 $(67,229)
Cash paid during the three months ended May 31:
Interest paid $ 7,090 $ 16,026
Income taxes paid (refunded), net $ 681 $(51,301)
Supplemental cash flow information: 1998 1997
Cash paid during the nine months ended August 31: ---- ----
Interest paid $19,060 $ 18,052
Income taxes paid (refunded), net $ 4,446 $(66,016)
Cash paid during the three months ended August 31:
Interest paid $ 6,250 $ 1,551
Income taxes paid (refunded), net $ 4,141 $ 1,213
See accompanying notes to the consolidated financial statements.
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EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The unaudited financial statements included herein 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 generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included for the
fiscal year ended November 30, 1997 and for the three months ended February 28,
1998, presented in the Company's Form S-4/A filed with the SEC on June 5, 1998.
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 and sixnine month periods ended MayAugust 31, 1998 and 1997. (See Note B.)
Results of operations for interim periods are not necessarily indicative of
results to be expected for an entire year.
The six and three month periods ended MayAugust 31, 1998 and February 28,
1998 (Predecessor), respectively, included in the Condensed Consolidated
Statements of Income (Loss) and of Cash Flows are presented for comparison to
the sixnine months ended MayAugust 31, 1997 of the Predecessor Company. (See Note B.)
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc.
("Company") was acquired by a subsidiary of Granaria Industries BV, Eagle-Picher
Holdings, Inc. ("Parent"), from the Eagle-Picher Industries, Inc. Personal
Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was established
pursuant to the Company's Plan of Reorganization upon its emergence from
bankruptcy.
The unaudited condensed consolidated financial statements as of and for
the three months ended February 28, 1998 include the effects of the Acquisition
as of February 24, 1998. Accordingly, the condensed consolidated statement of
income (loss) for the three months ended February 28, 1998 includes results of
operations from (1) December 1, 1997 through February 24, 1998 of the Company
prior to the consummation of the Acquisition (for clarity, sometimes referred to
herein as the "Predecessor Company") and (2) February 25 through February 28,
1998 of the Company. The Company, which is the operating entity, is a
wholly-owned subsidiary of the Parent. The Parent's results of operations and
cash flow approximate those of the Company.
The Acquisition was accounted for using the purchase method of accounting.
The preliminary allocation of the purchase price of the Company has been
determined based on estimates of fair value and are subject to change.
Appraisals are currently being completed
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EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
to value property, plant, equipment and identifiable intangible assets. The
excess of purchase price over the assessed values of those assets will be
allocated to goodwill. The Company expects to finalize the purchase price
allocation by November 30, 1998. Adjustments are not expected to be material.
The following pro forma information for the sixnine months ended MayAugust 31,
1998 and 1997 gives effect to the Acquisition as if it had been consummated on
December 1, 1997 and 1996, respectively. This information is not necessarily
indicative of either the future results of operations or the results of
operations that would have occurred if those events had been consummated on the
indicated dates.
Six Months Ended
May 31
-----------
1998 1997
---- ----
(In thousands of
dollars, except
per share amounts)
Net Sales $425,763 $465,790
Net income (loss) $(12,700) $(17,100)
Net income (loss) per share $(127,000.00) $(171,000.00)Nine Months Ended
August 31
-------------------
1998 1997
---- ----
(In thousands of
dollars, except
per share amounts)
Net Sales $632,119 $682,546
Net income (loss) $(16,500) $(21,100)
Net income (loss) per share $(165,000.00) $(211,000.00)
Average number of shares outstanding 100 100
Upon closing of the acquisition, the Parent received $100 million equity
investment from Granaria Industries BV and an equity partner. The Parent also
received proceeds approximating $80 million from its offering of preferred
stock. These proceeds were invested in the Company, which issued approximately
$180 million of common stock to the Parent. The Company also borrowed $225
million in term loans and $79.1 million in revolving credit loans under a
syndicated senior secured loan facility ("Credit Agreement"), and issued $220
million in senior subordinated notes ("Subordinated Notes"), the proceeds of
which were used to redeem the Company's 10% Senior Unsecured Sinking Fund
Debentures ("Debentures") and common stock, both held by the Trust.
Both the Credit Agreement and the Subordinated Notes are guaranteed on a
full, unconditional and joint and several basis by certain of the Company's
wholly-owned domestic subsidiaries ("Guarantors"). Management has determined
that full financial statements of the Guarantors would not be material to
investors and such financial statements are not presented. The following
supplemental condensed combining financial statements present information
regarding the Guarantors, the issuer of the debt and the subsidiaries that did
not guarantee the debt.
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED MAYAUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- --------- --------- ----------------------- -------------- ---------------- --------------- --------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 69,23363,628 $ 125,525117,887 $ 25,16324,841 $ --- $ 219,921206,356
Intercompany 4,151 2,631 2,329 (9,111) --3,793 2,193 1,012 (6,998) -
Operating Costs and Expenses
Cost of products sold 54,282 101,847 22,499 (9,053) 169,57551,580 97,338 21,581 (6,981) 163,518
Selling and administrative 12,094 5,796 2,397 -- 20,28711,160 4,487 2,395 - 18,042
Management compensation expense 17,321 -- -- -- 17,3214,395 - - - 4,395
Intercompany charges (2,297) 2,297 -- -- --(2,241) 2,241 - - -
Depreciation 3,050 5,785 999 (61) 9,7732,990 5,683 1,046 (75) 9,644
Amortization of intangibles 863610 3,634 -- -- 4,497- - 4,244
-------- --------- --------- --------- ----------------- ------- ---------
Total 85,313 119,359 25,895 (9,114) 221,45368,494 113,383 25,022 (7,056) 199,843
Operating Income (Loss) (11,929) 8,797 1,597 3 (1,532)(1,073) 6,697 831 58 6,513
Other Income (Expense)
Interest expense (12,417) -- (137) -- (12,554)(12,005) - (127) - (12,132)
Other income (expense) 191 86 49 -- 326434 178 72 (3) 681
-------- --------- --------- --------- ----------------- ------- ---------
Income (Loss) Before Taxes (24,155) 8,883 1,509 3 (13,760)(12,644) 6,875 776 55 (4,938)
Income taxes (8,167) 2,825 881 -- (4,461)(3,866) 2,081 650 - (1,135)
--------- --------- --------- ----------------- ------- ---------
Net Income (Loss) $ (15,988)(8,778) $ 6,0584,794 $ 628126 $ 355 $ (9,299)(3,803)
======== ========= ========= ========= ========= ================= ======= ==========
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME (LOSS) (UNAUDITED)
FOR SIX MONTHS ENDED AUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- --------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 132,861 $ 243,412 $ 50,004 $ - 426,277
Intercompany 7,944 4,824 3,341 (16,109) -
Operating Costs and Expenses
Cost of products sold 105,862 199,185 44,080 (16,034) 333,093
Selling and administrative 23,254 10,283 4,792 - 38,329
Management expenses 21,716 - - - 21,716
Intercompany charges (4,538) 4,538 - - -
Depreciation 6,040 11,468 2,045 (136) 19,417
Amortization of intangibles 1,473 7,268 - - 8,741
--------- --------- -------- -------- -------
Total 153,807 232,742 50,917 (16,170) 421,296
Operating Income (Loss) (13,002) 15,494 2,428 61 4,981
Other Income (Expense)
Interest expense (24,422) - (264) - (24,686)
Other income (expense) 625 264 121 (3) 1,007
--------- --------- -------- -------- -------
Income (Loss) Before Taxes (36,799) 15,758 2,285 58 (18,698)
Income taxes (12,033) 4,906 1,531 - (5,596)
--------- --------- -------- -------- -------
Net Income (Loss) $ (24,766) $ 10,852 $ 754 $ 58 $ (13,102)
========= ========= ======== ======== =========
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- --------- ------------ ---------------------- ------------- --------------- -------------- -------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 61,071 $ 123,181 $ 21,590 $ --- $ 205,842
Intercompany 3,381 2,421 1,451 (7,253) ---
Operating Costs and Expenses
Cost of products sold 48,329 102,771 18,772 (7,076) 162,796
Selling and administrative 9,673 5,167 2,301 --- 17,141
Management compensation expense 2,056 -- -- --- - - 2,056
Intercompany charges (2,172) 2,172 -- -- --- - -
Depreciation 2,823 5,220 940 --- 8,983
Amortization of intangibles 765 3,064 10 --- 3,839
-------- --------- --------- --------- ----------------- ------- ---------
Total 61,474 118,394 22,023 (7,076) 194,815
Operating Income (Loss) 2,978 7,208 1,018 (177) 11,027
Other Income (Expense)
Interest expense (6,844) --- (96) --- (6,940)
Other income (expense) 812 333 (325) --- 820
-------- --------- --------- --------- ----------------- ------- ---------
Income (Loss) Before Taxes (3,054) 7,541 597 (177) 4,907
Income taxes 1,083 2,486 531 --- 4,100
-------- --------- --------- --------- ----------------- ------- ---------
Net Income (Loss) $ (4,137) $ 5,055 $ 66 $ (177) $ 807
======== ========= ========= ========= ================= ======= =========
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF MAYAUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- --------- --------- ---------------------- ------------- --------------- ------------ ----------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 4,16913,383 $ 795710 $ 7,3256,908 $ (1,311)97 $ 10,97821,098
Receivables 37,080 71,545 12,632 -- 121,25739,082 70,218 11,144 - 120,444
Intercompany accounts receivable 180 194 6,809 (7,183) --179 165 8,230 (8,574) -
Income tax refunds receivable 1,956 -- -- -- 1,9561,341 - - - 1,341
Inventories 35,121 42,634 14,46333,231 43,363 15,394 (1,375) 90,84390,613
Prepaid expenses 4,498 3,156 803 -- 8,4573,973 3,524 973 (30) 8,440
Deferred income taxes 18,935 -- -- --- - - 18,935
-------- -------- ------- --------- --------- --------- --------- -----------------
Total current assets 101,939 118,324 42,032 (9,869) 252,426110,124 117,980 42,649 (9,882) 260,871
Property, plant and equipment 72,467 128,950 37,445 -- 238,86271,930 126,177 38,041 - 236,148
Deferred income taxes 1,144 - - - 1,144
Investment in subsidiaries 62,901 5,185 -- (68,086) --86,543 6,252 - (92,795) -
Excess of acquired net assets over
cost 51,143 199,861 -- -- 251,00447,809 185,297 - - 233,106
Other Assets 68,364 18,024 213 -- 86,60166,782 18,026 354 - 85,162
-------- -------- ------- --------- --------- --------- --------- -----------------
Total Assets $ 356,814 $ 470,344 $ 79,690 $ (77,955) $ 828,893$384,332 $453,732 $81,044 $(102,677) $816,431
======== ======== ======= ========= ========= ========= ========= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 15,72314,275 $ 22,92220,500 $ 9,4009,287 $ --- $ 48,04544,062
Intercompany accounts payable 150 175 8,096 (8,421) --
Accrued liabilities 40,507 21,154 2,994 -- 64,655
Income taxes 6,092 -- 786 -- 6,878183 166 7,917 (8,266) -
Long-term debt - current portion 10,280 -- 2,748 -- 13,028- 3,792 - 14,072
Income taxes 2,264 - 982 - 3,246
Other current liabilities 49,828 22,235 3,073 - 75,136
-------- -------- ------- --------- --------- --------- --------- -----------------
Current liabilities 72,752 44,251 24,024 (8,421) 132,60676,830 42,901 25,051 (8,266) 136,516
Long-term debt - less current portion 497,120 -- 1,653 -- 498,773485,540 - 1,669 - 487,209
Deferred income taxes 1,115 -- -- -- 1,115- - - - -
Other liabilities 25,040 -- -- -- 25,04025,676 - - - 25,676
-------- -------- ------- --------- --------- --------- --------- -----------------
Total liabilities 596,027 44,251 25,677 (8,421) 657,534588,046 42,901 26,720 (8,266) 649,401
Intercompany accounts (403,230) 373,232 22,958 7,040 --(358,953) 353,204 24,514 (18,765) -
Shareholders' Equity 164,017 52,861 31,055 (76,574) 171,359155,239 57,627 29,810 (75,646) 167,030
-------- -------- ------- --------- --------- --------- --------- -----------------
Total Liabilities and
Shareholders' Equity $384,332 $453,732 $81,044 $(102,677) $ 356,818 $ 470,344 $ 79,690 $ (77,955) $ 828,893816,431
======== ======== ======= ========= ========= ========= ========= ===================
1314
1415
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THREESIX MONTHS ENDED MAYAUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
----------------- ----------- ------------ --------------------------- -------------- --------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(15,988) $ 6,058(24,766) $ 62810,852 $ 3754 $ (9,299)58 $ (13,102)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,595 9,419 999 (61) 14,952
Changes in assets8,877 18,736 2,045 (136) 29,522
Proceeds from insurance settlement 13,659 - - - 13,659
Working capital and liabilities 17,996 12,758 1,148 (1,705) 30,197other 22,315 11,724 (43) (129) 33,867
--------- -------- -------- -------- -------- --------------- ------- ---------
Net cash provided by (used in)
operating activities 6,603 28,235 2,775 (1,763) 35,85020,085 41,312 2,756 (207) 63,946
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,436) (2,620) (3,008) -- (9,064)(5,985) (5,321) (4,747) - (16,053)
Other (1,989) 21 397 2,132 561(2,276) (275) (878) 3,523 94
--------- -------- -------- -------- -------- --------------- ------- ---------
Net cash provided by (used in)
investing activities (5,425) (2,599) (2,611) 2,132 (8,503)(8,261) (5,596) (5,625) 3,523 (15,959)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (2,580) - - - (2,580)
Borrowings under revolving credit agreement 14,825 -- -- -- 14,82547,825 - - - 47,825
Repayments under revolving credit agreement (49,925) -- -- -- (49,925)(91,925) - - - (91,925)
Other -- -- (236) -- (236)- - 824 - 824
--------- -------- -------- -------- -------- --------------- ------- ---------
Net cash used in
financing activities (35,100) -- (236) -- (35,336)(46,680) - 824 - (45,856)
--------- -------- -------- -------- -------- --------------- ------- ---------
Increase (decrease) in cash and
cash equivalents (33,922) 25,636 (72) 369 (7,989)(34,856) 35,716 (2,045) 3,316 2,131
Intercompany accounts 25,976 (25,986) 1,884 (1,874) --36,124 (36,151) 3,440 (3,413) -
Cash and cash equivalents,
beginning of period 12,115 1,145 5,513 194 18,967
--------- -------- -------- -------- -------- --------------- ------- ---------
Cash and cash equivalents,
end of period $ 4,16913,383 $ 795710 $ 7,3256,908 $ (1,311)97 $ 10,97821,098
========= ======== ======== ======== ======== =============== ======= =========
1415
1516
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTSSTATEMENT OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- --------- --------- ----------------- ----------- ------------- ------------- -------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (4,137) $ 5,055 $ 66 $ (177) $ 807
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,588 8,284 950 --- 12,822
Changes in assets and liabilities (16,059) (9,247) $ 2,019 575 (22,712)
--------- --------- --------- --------- ----------------- ------- ------- ------ --------
Net cash provided by (used in)
operating activities (16,608) 4,092 3,035 398 (9,083)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,300) (1,833) (1,559) --- (5,692)
Other (956) 65 (846) 695 (1,042)
--------- --------- --------- --------- ----------------- ------- ------- ------ --------
Net cash provided by (used in)
investing activities (3,256) (1,768) (2,405) 695 (6,734)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 445,000 - - - 445,000
Reduction of long-term debt (250,000) - - - (250,000)
Borrowings under revolving credit agreement 79,100 -- -- --- - - 79,100
Redemption of common stock (446,638) -- -- --- - - (446,638)
Issuance of common stock 180,005 -- -- --- - - 180,005
Debt issue cost (26,062) -- -- --- - - (26,062)
Other -- --- - (360) --- (360)
--------- --------- --------- --------- ----------------- ------- ------- ------ --------
Net cash used inprovided by (used in)
financing activities (18,595) --- (360) --- (18,955)
--------- --------- --------- --------- ----------------- ------- ------- ------ --------
Increase (decrease) in cash and
cash equivalents (38,459) 2,324 270 1,093 (34,772)
Intercompany accounts 1,740 (1,740) 899 (899) ---
Cash and cash equivalents,
beginning of period 48,834 561 4,344 --- 53,739
--------- --------- --------- --------- ----------------- ------- ------- ------ --------
Cash and cash equivalents,
end of period $ 12,115 $ 1,145 $ 5,513 $ 194 $ 18,967
========= ========= ========= ========= =========
15
16
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED MAY 31, 1997
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- --------- --------- --------- ----- ---------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 63,341 $ 125,689 $ 20,546 $ 32,607 $ -- $ 242,183
Intercompany 2,631 2,411 1,278 (8) (6,312) --
Operating Costs and Expenses
Cost of products sold 49,357 105,265 17,058 29,173 (6,275) 194,578
Selling and administrative 11,161 4,843 1,557 2,058 -- 19,619
Intercompany charges (3,277) 2,716 -- 561 -- --
Depreciation 2,922 5,341 882 1,498 -- 10,643
Amortization of intangibles 813 3,258 8 -- -- 4,079
--------- --------- --------- --------- --------- ---------
Total 60,976 121,423 19,505 33,290 (6,275) 228,919
Operating Income (Loss) 4,996 6,677 2,319 (691) (37) 13,264
Other Income (Expense)
Interest expense (7,845) (1) (78) -- -- (7,924)
Other income (expense) (45) (47) (337) 82 -- (347)
--------- --------- --------- --------- ---------- ---------
Income (Loss) Before Taxes (2,894) 6,629 1,904 (609) (37) 4,993
Income taxes 740 2,263 1,381 64 -- 4,448
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (3,634) $ 4,366 $ 523 $ (673) $ (37) $ 545
========= ========= ========= ========= ========= ================= ======= ======= ====== ========
16
17
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR SIX MONTHS ENDED MAY 31, 1997
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- --------- --------- --------- ------------ ---------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 123,651 $ 240,087 $ 40,191 $ 61,861 $ -- $ 465,790
Intercompany 6,096 5,010 2,419 29 (13,554) --
Operating Costs and Expenses
Cost of products sold 96,934 201,082 33,911 56,472 (13,420) 374,979
Selling and administrative 22,383 9,686 3,578 3,696 -- 39,343
Intercompany charges (6,795) 5,228 -- 1,567 -- --
Depreciation 5,788 10,501 1,790 2,930 -- 21,009
Amortization of intangibles 1,626 6,516 13 -- -- 8,155
--------- --------- --------- --------- --------- ---------
Total 119,936 233,013 39,292 64,665 (13,420) 443,486
Operating (Loss) Income 9,811 12,084 3,318 (2,775) (134) 22,304
Other Income (Expense)
Interest expense (16,744) (1) (106) -- -- (16,851)
Other income (expense) 1,371 165 (262) 82 -- 1,356
--------- --------- --------- --------- --------- ---------
Income (Loss) Before Taxes (5,562) 12,248 2,950 (2,693) (134) 6,809
Income taxes 853 4,303 2,195 133 -- 7,484
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ (6,415) $ 7,945 $ 755 $ (2,826) $ (134) $ (675)
========= ========= ========= ========= ========= =========
17
18
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1997
PREDECESSOR
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- --------- --------- ------------- ----------------- ------------ -------------- -------------- --------
(IN THOUSANDS OF DOLLARS)
ASSETS
ASSETS
Cash and cash equivalents $ 48,834 $ 561 $ 4,344 $ --- $ 53,739
Receivables 36,541 72,992 21,394 --- 130,927
Intercompany accounts receivable 2,982 3,295 --- (6,277) ---
Income tax refunds receivable 3,025 -- -- --- - - 3,025
Inventories 32,309 48,830 12,432 (1,375) 92,196
Prepaid expenses 5,618 2,401 271 --- 8,290
Deferred income taxes 13,793 -- -- --- - - 13,793
--------- --------- ----------------- --------- ---------
Total current assets 143,102 128,079 38,441 (7,652) 301,970
Property, plant and equipment 72,630 135,560 35,348 --- 243,538
Investment in subsidiaries 59,981 5,186 --- (65,167) ---
Deferred income taxes 98,991 98,991
Reorganization value in excess of
amounts allocable to identifiable assets 9,746 39,091 -- --- - 48,837
Other assets 36,395 16,462 688 --- 53,545
--------- --------- ----------------- --------- ---------
Total Assets $ 420,845 $ 324,378 $ 74,477 $ (72,819) $ 746,881
========= ========= ================= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 16,974 $ 28,257 $ 7,655 $ --- $ 52,886
Intercompany accounts payable -- --- - 6,247 (6,247) --
Accrued-
Long-term debt - current portion 80 - 3,323 - 3,403
Income taxes 2,284 - 10 - 2,294
Other current liabilities 29,404 22,440 3,713 (138) 55,419
Income taxes 2,284 -- 10 -- 2,294
Long-term debt - current portion 80 -- 3,323 -- 3,403
--------- --------- ----------------- --------- ---------
Current liabilities 48,742 50,697 20,948 (6,385) 114,002
Long-term debt - less current portion 268,320 --- 1,674 --- 269,994
Other liabilities 26,768 -- -- --- - - 26,768
--------- --------- ----------------- --------- ---------
Total liabilities 343,830 50,697 22,622 (6,385) 410,764
Intercompany accounts (240,324) 210,930 16,895 12,499 ---
Shareholders' Equity 317,339 62,751 34,960 (78,933) 336,117
--------- --------- ----------------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 420,845 $ 324,378 $ 74,477 $ (72,819) $ 746,881
========= ========= ======== ========= =========
17
18
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED AUGUST 31, 1997
PREDECESSOR
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
---------- ------------ ------------- ---------- ------------- -----------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 60,421 $ 121,793 $ 20,815 $ 13,727 $ - $ 216,756
Intercompany 3,478 2,375 1,456 - (7,309) -
Operating Costs and Expenses
Cost of products sold 47,814 103,117 18,061 12,370 (7,259) 174,103
Selling and administrative 9,608 5,062 2,055 778 - 17,503
Intercompany charges (2,305) 1,965 - 340 - -
Depreciation 2,920 5,342 873 553 - 9,688
Amortization of intangibles 813 3,258 13 - - 4,084
Loss on Division sales 1,803 - - - - 1,803
-------- --------- -------- -------- ------- ---------
Total 60,653 118,744 21,002 14,041 (7,259) 207,181
Operating Income (Loss) 3,246 5,424 1,269 (314) (50) 9,575
Other Income (Expense)
Interest expense (7,463) - (77) - - (7,540)
Other income (expense) 2,013 (2,986) 125 31 - (817)
-------- --------- -------- -------- ------- ---------
Income (Loss) Before Taxes (2,204) 2,438 1,317 (283) (50) 1,218
Income taxes (431) 1,827 916 25 - 2,337
-------- --------- -------- -------- ------- ---------
Net Income (Loss) $ (1,773) $ 611 $ 401 $ (308) $ (50) $ (1,119)
======== ========= ======== ======== ======= =========
18
19
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWSINCOME (LOSS) (UNAUDITED)
FOR SIXNINE MONTHS ENDED MAYAUGUST 31, 1997
PREDECESSOR
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
----------- --------------- ------------ ------------ ------------ -----------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 184,072 $ 361,880 $ 61,006 $ 75,588 $ - $ 682,546
Intercompany 9,574 7,385 3,875 29 (20,863) -
Operating Costs and Expenses
Cost of products sold 144,748 304,199 51,972 68,842 (20,679) 549,082
Selling and administrative 31,991 14,748 5,633 4,474 - 56,846
Intercompany charges (9,100) 7,193 - 1,907 - -
Depreciation 8,708 15,843 2,663 3,483 - 30,697
Amortization of intangibles 2,439 9,774 26 - - 12,239
Loss on Division sales 1,803 - - - - 1,803
--------- --------- -------- -------- -------- ---------
Total 180,589 351,757 60,294 78,706 (20,679) 650,667
Operating Income (Loss) 13,057 17,508 4,587 (3,089) (184) 31,879
Other Income (Expense)
Interest expense (24,207) (1) (183) - - (24,391)
Other income (expense) 3,384 (2,821) (137) 113 - 539
--------- --------- -------- -------- -------- ---------
Income (Loss) Before Taxes (7,766) 14,686 4,267 (2,976) (184) 8,027
Income taxes 422 6,130 3,111 158 - 9,821
--------- --------- -------- -------- -------- ---------
Net Income (Loss) $ (8,188) $ 8,556 $ 1,156 $ (3,134) $ (184) $ (1,794)
========= ========= ======== ======== ======== =========
19
20
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR NINE MONTHS ENDED AUGUST 31, 1997
PREDECESSOR
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
------------- ------------ -------------- ------------ ------------- ----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (6,415)(8,188) $ 7,9458,556 $ 7551,156 $ (2,826)(3,134) $ (134)(184) $ (675)(1,794)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,414 17,017 1,798 2,930 -- 29,15911,147 25,617 2,689 3,483 - 42,936
(Gain) loss on sale of divisions 1,803 - - - - 1,803
Income tax refunds 69,741 -- -- -- -- 69,74169,771 - - - - 69,771
Working capital and other 7,241 633 (379) (2,205) (660) 4,630
--------- --------- --------- --------- --------- ---------14,090 11,475 1,724 560 166 28,015
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
operating activities 77,981 25,595 2,174 (2,101) (794) 102,85588,623 45,648 5,569 909 (18) 140,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of divisions 38,417 - - - - 38,417
Capital expenditures (4,368) (19,031) (5,188) (677) (29,264)(6,444) (25,282) (8,974) (776) - (41,476)
Other (175) (1,571) (392) (8) 121 (2,025)
--------- --------- --------- --------- --------- ---------(536) (1,640) (578) (9) 356 (2,407)
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
investing activities (4,543) (20,602) (5,580) (685) 121 (31,289)31,437 (26,922) (9,552) (785) 356 (5,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (69,658) -- -- -- -- (69,658)(126,039) - (1,372) - - (127,411)
Issuance of long-term debt 8,000 - - - - 8,000
Other -- -- 2,311 -- -- 2,311
--------- --------- --------- --------- --------- ---------- - 4,876 - - 4,876
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
financing activities (69,658) -- 2,311 -- -- (67,347)
--------- --------- --------- --------- --------- ---------(118,039) - 3,504 - - (114,535)
-------- ------- ------- -------- ------ --------
Increase (decrease) in cash and
cash equivalents 3,780 4,993 (1,095) (2,786) (673) 4,2192,021 18,726 (479) 124 338 20,730
Intercompany accounts 1,934 (4,810) 123 2,794 (41) --18,618 (18,622) 461 (119) (338) -
Cash and cash equivalents,
beginning of yearperiod 26,089 553 5,985 98 --- 32,725
--------- --------- --------- --------- --------- ----------------- ------- ------- -------- ------ --------
Cash and cash equivalents
end of yearperiod $ 31,80346,728 $ 736657 $ 5,0135,967 $ 106103 $ (714)- $ 36,944
========= ========= ========= ========= =========53,455
======== ======= ======= ======== ====== =========
1920
2021
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
C. BASIC AND DILUTED EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding, which was 9,555,560 in the three months
ended February 28, 1998, 10,000,000 in the sixthree months and nine months ended
MayAugust 31, 1997, and 100 and 10,000,000 in the three months and six months ended MayAugust 31,
1998 and 1997,
respectively.1998. In 1998, 100 shares were outstanding after the acquisition. Prior to the
acquisition, 10,000,000 shares were outstanding. No potential common stock was
outstanding during the nine months ended August 31, 1998 and 1997.
D. INTANGIBLE ASSETS
Excess of acquired net assets over cost is being amortized on a
straight-line basis over fifteen years. The recoverability of these assets is
evaluated periodically based on current and estimated future cash flows of each
of the related business units over the remaining amortization period.
Reorganization value in excess of amounts allocable to identifiable assets was
being amortized on a straight-line basis over four years.
E. LEGAL MATTERS
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 managements'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.
20F. SUBSEQUENT EVENT
On September 28, 1998, the Committee of the Incentive Stock Plan of
Eagle-Picher Industries, Inc. ("Stock Plan") voted to amend the Stock Plan to
accelerate the vesting of all participants, which was to take place in various
increments through 2001, so that all participants will be fully vested as of
November 1, 1998. This action will result in additional management expense of
approximately $3.3 million in the fourth quarter over what would have been
recognized if the Stock Plan had not been amended.
21
2122
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
As a result of the Acquisition of the Company by Granaria Industries B.V.
from the Trust as of February 24, 1998, which was accounted for as a purchase,
the Company's results of operations and financial position for periods after
February 24, 1998 are not comparable to prior periods. The unaudited condensed
consolidated statement of income (loss) as of February 28, 1998 includes results
of operations from (1) December 1, 1997 through February 24, 1998 of the
Predecessor Company and (2) February 25 through February 28, 1998 of the
Company.
In addition to the effects of the Acquisition, another factor affecting
comparability of operations is the sale of the Plastics, Transicoil and Fabricon
Products divisions in 1997. The Company also contributed the assets of its
former Suspension Systems division to Eagle-Picher-Boge, L.L.C., a joint venture
formed in 1997 in which the Company has a 45% interest. These divisions are
collectively referred to as the "Divested Divisions."
The following table sets forth certain sales and operating data, net of
all inter-segmentinter- segment transactions, for the Company's businesses for the periods
indicated:
Three months ended
Three months ended ------------------ Six months ended
May 31 May 31 Feb. 28 May 31
1998 1997 1998 1998 1997
---- ---- ---- ---- ----
(In millions of dollars)
Predecessor Predecessor Predecessor
Net sales by segment:
Industrial $ 36.4 $ 54.8 $ 36.4 $ 37.6 $104.9
Machinery 68.9 68.9 68.9 64.4 133.6
Automotive 114.6 118.5 114.6 103.8 227.3
----- ----- ----- ----- -----
Total $219.9 $242.2 $219.9 $205.8 $465.8Six months Three months Nine months
Three months ended ended ended ended
August 31 August 31 February 28 August 31
------------------
1998 1997 1998 1998 1997
---- ---- ---- ---- ----
(In millions of dollars)
Predecessor Predecessor Predecessor
Net sales by segment:
Industrial $ 35.1 $ 52.4 $ 71.5 $ 37.6 $157.3
Machinery 68.0 65.8 136.8 64.4 199.4
Automotive 103.3 98.6 218.0 103.8 325.8
----- ----- ----- ----- -----
Total $206.4 $216.8 $426.3 $205.8 $682.5
===== ===== ===== ===== =====
EBITDA by segment:
Industrial $ 7.0 $ 8.1 $ 14.1 $ 6.6 $ 23.8
Machinery 9.6 6.6 20.5 7.8 22.9
Automotive 13.5 13.1 31.3 15.2 43.1
Corporate overhead (5.3) (2.7) (11.0) (3.7) (13.2)
----- ----- ----- ----- -----
$ 24.8 $ 25.1 $ 54.9 $ 25.9 $ 76.6
===== ===== ===== ===== =====
EBITDA by segment:
Industrial $ 7.1 $ 8.6 $ 7.1 $ 6.6 $ 15.7
Machinery 10.9 8.3 10.9 7.8 16.3
Automotive 17.8 16.6 17.8 15.2 30.0
Corporate overhead (5.7) (5.5) (5.7) (3.7) (10.5)
----- ----- ----- ----- -----
$ 30.1 $ 28.0 $ 30.1 $ 25.9 $ 51.5
====== ===== ===== ===== =====
Total
Net Sales. The Company's net sales were $219.9$206.4 million for the secondthird
quarter ended MayAugust 31, 1998, a decrease of $22.3$10.4 million or 9.2%4.8% from the
comparable period of 1997. Included in the results of the secondthird quarter of 1997
are $32.6$13.7 million of sales of the Divested Divisions, which, if excluded, would
result in an increase in the Company's quarterly net sales of approximately
4.9%1.6%.
2122
2223
Net sales of Industrial products, excluding net sales of the Divested
Divisions, decreased 17.9%22.4% in the secondthird quarter of 1998 from the comparable
period in 1997, due primarily to decreased salesprices of germanium products.
Germanium sales have been affected by lower market prices which have resulted
from increased supplies, the completion of a major satellite project and the
increased use of recycled germanium by the Company's customers in response to
sharp increases in germanium prices which took place in 1996. Since the
customers now supply a larger portion of the Company's raw materials, theits sales
volume is less as a toll refiner than as a buyer and seller of germanium.
Operating margins, however, have been maintained.
Net sales for the Machinery Group in the secondthird quarter of 1998, excluding
the Divested Divisions, increased 7.9%8.2% due in part to an increaseincreases in demand for
heavy-duty fork lift trucks. Although demand remains low fortrucks and wheel tractor scrapers. Sales of special purpose
can-washing equipment, resources at that operation have been successfully
redeployedbatteries are comparable to produce and market other industrial machinery, which also
contributed to the increased net salesthose of the Machinery Group.same period in 1997.
The Automotive Group's net sales, excluding the Divested Divisions,
increased 13.0%8.7% primarily due to increased market penetration of precision
machined components, many of which are used in light trucks, vans and sport
utility vehicles which have recently grown in popularity. Volumes of fuel
systems have also increased as new programs are implemented.
The Ford Motor Company ("Ford") has recently notified the Company that it
will no longer purchase certain products from the Automotive Group. Sales
contributed by those products in 1997 were $19.4 million. The Company
anticipates that these programs will be discontinued gradually through 1999 and
that this revenue will be replaced by new programs currently being implemented.
The current strike by the United Auto Workers at certain General Motors
Corporation ("GM") plants has not impacted the second quarter results ofCompany expects strong price pressure to continue across all product
lines, particularly in the Automotive Group. However, the third quarter of 1998 could be significantly
impacted. Some of the Automotive Group operations have experienced lay-offs as a
result of the strike at GM.The Company will continue to pursue
productivity improvements and material cost reductions to mitigate such price
pressure.
Historically, the third quarter results of the Automotive Group are
depressed as most of the automobile companies shut their plants for two weeks in
July to retool for new model years. In 1998, these results were further
depressed by the strike by the United Auto Workers at certain General Motors
Corporation ("GM") plants and the resulting closure of other GM plants. Some of
the Automotive Group operations experienced lay-offs as a result of the strike
at GM. It is estimated that the Company lost approximately $7.0 million in
revenue and $2.5 million in operating income during the strike.
Since the 1980's, original equipment manufacturers ("OEM's") such as Ford,
GM and the Chrysler Corporation have been outsourcing an increasing percentage
of their production requirements. OEM's benefit from outsourcing because outside
suppliers generally have significantly lower cost structures and can assist in
shortening development periods for new products. The Company expects to continue
to benefit from the trend toward outsourcing.
The Company expects strong price pressure to continue across all product
lines, particularly in the Automotive Group. The Company will continue to pursue
productivity improvements and material cost reductions to mitigate such price
pressure.
Historically, sales to certain Asian markets have been insignificant to
the Company's total net sales; therefore, the current economic conditions in
Asia have not had, nor are they expected to have, a material adverse effect on
the Company's operations. The Company believes that despite these conditions,
the Asian region has solid long-term growth opportunities and will continue to
explore these opportunities.
Cost of Products Sold. Cost of products sold, excluding depreciation
expense, decreased by $25.0$10.6 million or 12.8%6.1% from the secondthird quarter of 1997
compared to the comparable period in 1998. Excluding the results of Divested
Divisions, as a percentage of sales, cost of products sold declined from 78.9%79.7%
in the secondthird quarter of 1997 to 77.1%79.2% in the secondthird quarter of 1998. Reasons for
this decline include better absorption of overhead due to increased sales volumes and
improved performance at certain start-up operations.
22operations,
increased operating efficiencies and changes in product mix in certain
operations in the Machinery Group.
23
2324
Selling and Administrative. Selling and administrative expenses increased
by $.7$.6 million or 3.4%3.1% in the quarter ended MayAugust 31, 1998 from the quarter
ended MayAugust 31, 1997. Excluding results of Divested Divisions, these expenses
increased $2.5$1.3 million or 14.1%7.9% over the same time frame. Besides a general
increase due to activity relating to increased sales volumes, items contributing
to this increase include management fees now payable to Granaria Industries B.V.
and a retention program for mid-level management.
Depreciation and Amortization. Depreciation and amortization are not
comparable for the three months ended MayAugust 31, 1998 and 1997 due to the
differences in asset bases as a result of the Acquisition on February 24, 1998.
EBITDA. The Company defines EBITDA as earnings before interest, taxes,
depreciation, amortization and management expenses. Due to the differences in
the asset bases, it is preferable to compare EBITDA rather than operating
income. EBITDA increaseddecreased from $28.0$25.1 million in the three months ended MayAugust 31,
1997 to $30.1$24.8 million for the same period in 1998 or 7.5%1.2%. The increase is 14.0%
afterAfter excluding the
results of Divested Divisions.Divisions, EBITDA increased .8%.
In the secondthird quarter of 1998, EBITDA for the Industrial Group declined to
$7.1$7.0 million from $8.6$8.1 million in the comparable period of 1997. Excluding the
results of Divested Divisions, this decline was $.4$.5 million or 5.3%6.7% on a 17.9%22.4%
decrease in sales. As previously mentioned, although lower germanium prices have
contributed to reduced sales, EBITDA has remained relatively consistent for
these operations as did results at other Industrial Group operations.
In the Machinery Group, EBITDA increased from $8.3$6.6 million in the secondthird
quarter of 1997 to $10.9$9.6 million in the same period of 1998. Excluding results of
the Divested Divisions, the increase was $3.1$3.2 million. Reasons for this increase
include improved efficiencies at operations manufacturing special-purpose
batteries and at the aluminum foundry, and a shift in product mix toward more profitable products at operations
manufacturing special-purpose batteries, better absorption of
overhead on increased sales volumes at theconstruction and other industrial equipment facilities
previously mentioned and improved efficiencies at the aluminum foundry.equipment.
EBITDA for the Automotive Group increased to $17.8$13.5 million in the secondthird
quarter of 1998 from $16.6$13.1 million in the same period in the prior year.
Excluding the results of Divested Divisions, the increase was 7.9%.7%. This
increase resultsAny increases
in EBITDA resulting from the increased volumes previously discussed.discussed have been
offset by losses related to the GM strike situation.
Interest Expense. Interest expense for the three months ended MayAugust 31,
1998 and 1997 was $12.6$12.1 million and $7.9$7.5 million, respectively. In 1997,
interest expense included interest on the $250 million Subordinated Debentures
held by the Trust which were retired upon the Acquisition and the $50 million
Divestiture Notes retired in August 1997. In 1998, the increase in interest was
attributable to the borrowings against the new credit facility totaling $304.1
million, the issuance of $220 million in Subordinated Notes and the issuance of
an additional $8 million industrial revenue bond in June 1997.
FINANCIAL CONDITION
TheSince the Acquisition, the Company has generated cash from operations of
$63.9 million which has enabled it to repay a net amount of $46.7 million in
debt and expend $16.1 million for capital. Significant factors contributing to
cash provided by operations include:
1) the second quarterreceipt of 1998
despite the net loss$13.7 million from an insurance company in settlement
of $9.3 million. EBITDAcertain claims relating primarily to environmental remediation
expenses;
2) a $15.2 million reduction of $30.1 was sufficient to cover
interest payments of $7.1 million and capital expenditures of $9.1 million. The
receivablesaccounts receivable from what were
atconsidered high levels at February 28, 1998 primarily due to February
being a short month. Receivables are at what would be considered a more normal levellevels at
MayAugust 31, 1998, resulting in an influx1998;
3) the funding of cash in the second quarter of
$14.4 million. After drawing down cash balances byapproximately $8.0 million of employee health care
expenses from a trust that had been earmarked for this purpose rather
than from Company funds; and
4) the Companyaccrual of $10.3 million in interest (which was ablepaid September 1,
1998) relating to repay $35.1 million of the debt incurred upon the Acquisition.
23Senior Subordinated Notes.
24
2425
The Company's liquidity needs are primarily for capital maintenance and
debt service andservice. With the exception of an expansion at a plant manufacturing
industrial machinery, capital expenditures in the six months ended August 31,
1998 have been primarily for capital maintenance. The Company anticipates that
capital spending will be approximately $9.0 to $11.0 million in the fourth
quarter of 1998. The Company has scheduled debt payments of $5.3$2.7 million in the
second halffourth quarter of 1998 and $10.4 million in 1999.
The Company anticipateshas entered into a letter of intent for the sale of its Trim
Division for $14.5 million in cash. The transaction is conditioned on, among
other things, the buyer's due diligence investigation and the buyer obtaining
financing. There is not assurance that capital spendingthis transaction will be approximately $15.0completed on
these terms. If consummated, the transaction is not expected to $18.0 millionresult in the second half
of 1998.a
material gain or loss.
The Company believes that its cash flows from operations and available
borrowings under its bank credit facilities will be sufficient to fund its
anticipated liquidity requirements for the next twelve months. In the event that
the foregoing sources are not sufficient to fund the Company's expenditures and
service its indebtedness, the Company would be required to raise additional
funds.
YEAR 2000
The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20." If not corrected, many
computer programs could fail or cause erroneous results. Failures of this nature
could cause interruptions to manufacturing processes, business and financial
functions and communications with customers and suppliers.
Due to the diverse nature of the Company's operations, each operating
division has its own discrete computer systems. The Company is performing a
comprehensive review to identify the systems affected by the Year 2000 issue.
The Company is assessing its information technology systems such as business
computing systems, end user computer systems and technical infrastructure, as
well as embedded systems commonly found in manufacturing and service equipment,
testing equipment and environmental operations. The assessments also include the
Company's products and evaluation of the readiness of its suppliers and service
providers.
The review of each of the systems involves a five step process. The
Company first inventories areas of potential risk based on comparison to
published industry guidelines. Each component identified in the inventory is
then evaluated for its risk of failure and the impact of potential failure to
the Company's operations and its customers. Once the risks are assessed,
remediation is commenced. Options for remediation may include replacement,
modification or continued use depending on information gathered during the
inventory and assessment stages. The remediated system is then tested and
reviewed before the determination is made as to the readiness of the system. A
project committee meets regularly to review the status of the investigation into
and resolution of Year 2000 issues. As a
resultMost of the committee's progressCompany's divisions have
completed the inventory and assessment phases and are working on remediation and
testing. The remaining divisions have the inventory and assessment phases
underway. The Company expects that all divisions will have completed the
inventory and assessment phases by February 28, 1999 and will have implemented
initial remediation attempts and testing by June 30, 1999.
The Company's remaining costs to remediate the Year 2000 problem are not
expected to exceed $4.0 million. Of this amount, approximately $1.5 million will
be spent in the form of capital for systems replacement and approximately $1.0
million will be incremental costs. The remaining costs relate to the
redeployment of the Company's existing resources to assess and remediate the
Year 2000 problem. Projects being deferred by this issue include items such as
system enhancements that would improve performance or functionality. The impact
on net income (loss) to date has not been material.
25
26
The Company suspects its greatest risk lies within its financial computer
systems and Electronic Data Interchange ("EDI") capabilities with its customers
and suppliers. The Company relies on customer requirements and outside services
for most of its EDI capabilities and therefore is dependent on such parties
addressing Year 2000 issues. If these systems were to fail, the Company would
encounter difficulty performing functions such as compiling financial data,
invoicing customers, accepting electronic customer orders or informing customers
of shipment electronically. While some of these functions could be performed
manually, the Company presently is not certain what the extent of the impact on
operations would be. There is also risk associated with certain suppliers,
including utility companies, over which the Company has little control. The
Company is presently working on contingency plans to address issues related to
potential failures of critical systems due to Year 2000 problems, and it expects
to modify or
upgrade existing systems and,have those plans in some cases, replace systems. The Company does
not expect to spend any significant incremental amounts with outside contractors
to complete any necessary modifications or conversions, but is redeploying
existing internal resources.place by May 31, 1999.
The Company presently believes that through the planned modification to
existing systems and conversion to new systems, as well as ongoing
correspondence with suppliers and customers, the Year 2000 issue will not
materially impair the Company's ability to conduct business.
EURO CONVERSION
The Company has both operating divisions and domestic export customers
located in Europe. In 1997, combined revenues from these sources was
approximately 13% of total revenues. Revenues involving countries participating
in the Euro conversion were somewhat lower. The Company is currently assessing
the impact of the Euro conversion on its operations.
The Company's European operations are taking steps to ensure their
capability of entering Euro transactions as of January 1, 1999. It is not
anticipated that changes to information technology and other systems which are
necessary to enter these transaction will be resolved on a timely basis, and any related costs will not have a materialmaterial. The affected operations
plan to make the Euro the functional currency sometime during the transition
period.
It is difficult to assess the competitive impact of the Euro conversion on
the results of operations, cash flows or financial condition ofCompany's operations. In some markets, where customers already appear to be
considering the Company.exchange rates when considering prices, this process may be
accelerated. In other markets, where sales are made in U.S. dollars, there may
be pressures to denominate sales in the Euro, however, exchange risks resulting
from these transactions would be hedged.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934. The words
"estimate," "anticipate," "project," "intend," "believe," "expect," and similar
expressions are intended to identify forward looking statements. Such
forward-looking information involves important risks and uncertainties that
could materially alter results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and uncertainties include, but are not limited to, the ability of the Company to
maintain existing relationships with long-standing customers, the ability of the Company to
successfully implement productivity improvements, cost reduction initiatives,
facilities expansion and the ability of the Company to develop, market and sell
new products and to continue to comply with environmental laws, rules and
regulations. Other risks and uncertainties include uncertainties relating to
economic conditions, acquisitions and divestitures, government and regulatory
policies, technological developments and changes in the competitive environment
in which the Company operates. Persons reading this Form 10-Q are cautioned that
such forward-looking statements are only predictions and that actual events or
results may differ materially. In evaluating such forward-looking statements, readers should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by such forward-looking
statements.
2426
2527
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's $225 million term loan facility (the "Term Loan Facility")
bears interest at a variable rate equal to either (a) the average daily rate on
overnight U.S. federal funds transactions ("Federal Funds Rate"), or (b) the
London Interbank Offered Rate shown on Telerate Page 3750 for the applicable
interest period ("LIBOR"), plus, in either case, an applicable spread.
On February 26, 1998, the Company entered into a three year interest rate
swap agreement with its lead bank to partially hedge its interest rate risk on
the Term Loan Facility. Under this agreement the Company pays a fixed rate of
5.805% on a notional amount of $150 million and receives LIBOR on that amount.
This swap transaction effectively fixes the interest rate on $150 million of the
Term Loan Facility at 5.805% plus the applicable spread for the duration of the
interest rate swap.
The remaining $75 million of the Term Loan Facility bears interest at the
variable rates described above. In addition, the Company has a revolving loan
facility that had a balance of $35 million at August 31, 1998, which also bears
interest at the variable rates described above. Accordingly, a 1% increase in an
applicable index rate would result in additional interest expense of $750,000$1.1
million per year.
25year assuming no change in the level of borrowing under the
revolving loan facility.
27
2628
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.29 Share Appreciation Plan of Eagle-Picher Industries, Inc.
27.1 Financial Data Schedule
(b) Reports on Form 8-K--None
2628
2729
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/ David S. Hall
------------------------------------
David S. Hall
Senior/S/ CARROLL D. CURLESS
--------------------------------
Carroll D. Curless
Vice President - Finance and Chief Financial OfficerController
DATE JuneOctober 1, 1998
---------------------
29
1998
27
2830
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER HOLDINGS, INC.
/s/ David S. Hall
------------------------------------
David S. Hall
Senior/S/ CARROLL D. CURLESS
----------------------------------
Carroll D. Curless
Vice President - Finance and Chief Financial OfficerController
DATE June 29,October 1, 1998
28-------------------
30
2931
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS, INC.
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
-------------------------------
David G. Krall
Secretary
DATE June 29,October 1, 1998
29--------------------
31
3032
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
-------------------------------
David G. Krall
Secretary
DATE June 29,October 1, 1998
30-----------------------
32
3133
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FAR EAST, INC.
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
-----------------------------------
David G. Krall
Secretary
DATE June 29,October 1, 1998
31---------------------
33
3234
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FLUID SYSTEMS, INC.
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
----------------------------
David G. Krall
Secretary
DATE June 29,October 1, 1998
32----------------------
34
3335
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER MINERALS, INC.
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
------------------------------
David G. Krall
Secretary
DATE June 29,October 1, 1998
33----------------------
35
3436
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ William/S/ WILLIAM E. Long
------------------------------------LONG
---------------------------------
William E. Long
President
DATE June 29,October 1, 1998
34--------------------
36
3537
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
-----------------------------
David G. Krall
Secretary
DATE June 29,October 1, 1998
35---------------------
37
3638
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHIGAN AUTOMOTIVE RESEARCH CORPORATION
/s/ David/S/ DAVID G. Krall
------------------------------------KRALL
------------------------------
David G. Krall
Assistant Secretary
DATE June 29,October 1, 1998
36--------------------
38
3739
EXHIBIT INDEX
-------------
Exhibit No. Description
-
- ----------- -----------
10.29 Share Appreciation Plan of Eagle-Picher Industries, Inc.
27.1 Financial Data Schedule (submitted
electronically to the Securities
and Exchange Commission for its
information)
3739