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 August 31, 1998February 28, 1999 Commission file number 333-49957
----------333-49957-01
-------------
EAGLE-PICHER INDUSTRIES,HOLDINGS, INC.
-----------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
OHIO 31-0268670DELAWARE 13-3989553
- --------------------------------- ----------------------------------------------------------------------- ------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(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 X No
--- ---
Indicate by check mark whether the additional registrant, Eagle-Picher
Industries, Inc., has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes X No
--- ----
----
100625,001 shares of Class A common capital stock, no$.01 par value each, were
outstanding at September
28, 1998.March 26, 1999.
374,999 shares of Class B common capital stock, $.01 par value each, were
outstanding at March 26, 1999.
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TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------ -------------
Eagle-Picher Holdings,Industries, Inc. Delaware 333-49957-01 13-3989553Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Fluid Systems, Inc. Michigan 333-49957-05 31-1452637
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
Michigan Automotive Research Corp. Michigan 333-49957-08 38-2185909
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.........................................4
Condensed Consolidated Statements of Income (Loss)(Unaudited)....4
Condensed Consolidated Balance Sheets (Unaudited)................5
Condensed Consolidated Statements of Cash Flows (Unaudited)......7
Notes to Condensed Consolidated Financial Statements (Unaudited).9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................22
Item 3. Quantitative and Qualitative Disclosures About Market Risk..27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................28
Signatures...........................................................29
Exhibit Index........................................................39
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.........................................4
Condensed Consolidated Statements of Income (Loss)(Unaudited)....4
Condensed Consolidated Balance Sheets (Unaudited)................5
Condensed Consolidated Statements of Cash Flows (Unaudited)......7
Notes to Condensed Consolidated Financial Statements (Unaudited).9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk..23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................24
Signatures...........................................................25
Exhibit Index........................................................35
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER INDUSTRIES,HOLDINGS, 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 Ended Ended
August 31 August 31
February 28 August 31
------------------February 28
1999 1998
1997 1998 1998 1997
---- ---- ---- ---- ----
Predecessor Predecessor
Predecessor
Net Sales $206,356 $216,756 $426,277$194,443 $205,842 $682,546
-------- -------- --------
-------- --------
Operating Costs and Expenses:
Cost of products sold 163,518 174,103 333,093(exclusive
of depreciation) 151,746 162,796 549,082
Selling and administrative 18,042 17,503 38,32918,264 17,141 56,846
Management compensation expense 4,395 - 21,716special - 2,056
-
Depreciation 9,644 9,688 19,41710,112 8,983 30,697
Amortization of intangibles 4,244 4,084 8,7414,020 3,839
12,239
Loss Loss(gain)on division sales of assets (34) - 1,803 - - 1,803
-------- --------
-------- ------- -------
199,843 207,181 421,296184,108 194,815 650,667
-------- --------
-------- ------- -------
Operating Income 6,513 9,575 4,98110,335 11,027 31,879
Interest expense (12,132) (7,540) (24,686)(11,342) (6,940) (24,391)
Other income (expense) 681 (817) 1,007169 820
539
-------- -------- -------- ------- -------
Income (Loss) Before Taxes (4,938) 1,218 (18,698)(838) 4,907 8,027
Income Taxes (1,135) 2,337 (5,596)300 4,100
9,821
-------- -------- -------- ------- -------
Net Income (Loss) $ (3,803) $ (1,119) $(13,102)$(1,138) $ 807
$ (1,794)
======== ========
========Income (Loss) Applicable
to Common Shareholders $(3,632) $ 807
======== ========
Income (Loss) per Common Share $(38,030.00) $ (.11) $(131,020.00) $.08(3.63) $ (.18)
===========.08
======== ============ ==== ==============
Comprehensive Income (Loss) $(2,109) $(1,002)
======== ========
See accompanying notes to the condensed consolidated financial statements.
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5
EAGLE-PICHER INDUSTRIES,HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31February 28 November 30
ASSETS 1999 1998 1997
---- ----
ASSETS
Predecessor
CURRENT ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 21,09810,325 $ 53,73913,681
Receivables, less allowances 120,444 130,927
Income tax refunds receivable 1,341 3,025127,312 144,844
Inventories:
Raw materials and supplies 55,354 51,59254,668 52,384
Work in process 17,547 25,80123,019 20,641
Finished goods 17,712 14,80316,718 15,848
------- -------
90,613 92,19694,405 88,873
Prepaid expenses 8,440 8,29010,927 8,338
Deferred income taxes 18,935 13,79310,851 10,851
------- -------
Total current assets 260,871 301,970253,820 266,587
------- -------
PROPERTY, PLANT AND EQUIPMENT 255,653 279,847285,814 279,061
Less accumulated depreciation 19,505 36,30939,126 30,524
------- -------
Net property, plant and equipment 236,148 243,538
DEFERRED INCOME TAXES 1,144 98,991246,688 248,537
------- -------
EXCESS OF ACQUIRED NET ASSETS OVER COST, NET OF
ACCUMULATED AMORTIZATION OF $8,729 233,106 -
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS NET OF ACCUMULATED AMORTIZATION
OF $16,284 - 48,837net of
accumulated amortization of $16,321 and
$12,300, respectively 224,889 228,910
------- -------
OTHER ASSETS 85,162 53,54573,483 72,293
------- -------
Total Assets $816,431 $746,881
======== ========$798,880 $816,327
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 44,06247,905 $ 52,88650,307
Long-term debt - current portion 14,072 3,40319,246 25,173
Income taxes 3,246 2,2942,365 6,282
Other current liabilities 75,136 55,41972,713 74,260
------- -------
Total current liabilities 136,516 114,002
------- -------142,229 156,022
LONG-TERM DEBT - less current portion 487,209 269,994457,808 459,183
DEFERRED INCOME TAXES 7,743 8,304
OTHER LONG TERMLONG-TERM LIABILITIES 25,676 26,76825,210 24,819
------- -------
Total Liabilities 649,401 410,764632,990 648,328
------- -------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares; issued
and outstanding 14,191 shares 89,881 87,387
------- -------
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EAGLE-PICHER INDUSTRIES,HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)SHEETS (UNAUDITED)
(Dollars in thousands)
August 31February 28 November 30
1999 1998 1997
---- ----
Predecessor
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Class A Common stock, authorized 625,001 shares,
-- authorized 20,000,000 shares;$.01 par value each; issued and outstanding
100625,001 shares 6 6
Class B Common stock, authorized 374,999 shares,
$.01 par value each; issued and 10,000,000outstanding
374,999 shares respectively 180,005 341,807
Foreign currency translation 127 (1,836)
Accumulated deficit (13,102) (3,854)
------- -------4 4
Additional paid-in capital 99,991 99,991
Deficit (25,378) (21,746)
Other comprehensive income 1,386 2,357
------ ------
Total Shareholders' Equity 167,030 336,11776,009 80,612
------- -------
Total Liabilities and Shareholders' Equity $816,431 $746,881$798,880 $816,327
======== ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER INDUSTRIES,HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Three Months NineEnded Three Months Ended
Ended Ended
August 31 February 28 August 31February 28
1999 1998 1998 1997
----
---- ----
Predecessor
Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(13,102)$(1,138) $ 807 $(1,794)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 29,52214,826 12,822 42,936
Proceeds from insurance settlement 13,659 - -
Loss on division sales - - 1,803
Changes in assets and liabilities:liabilities,
net of effect of divestitures:
Receivables 15,188 (4,705) 4,072
Income tax refunds receivable 660 1,024 69,7712,691 (3,681)
Inventories 4,435(5,494) (2,235) 985
Accounts payable (6,837)(2,442) (2,787) 7,063
Accrued liabilities 25,205(1,547) (5,488)
8,334
Other (4,784)(6,377) (8,521)
7,561
------- --------------- -------
Net cash provided by (used in)
operating activities 63,946519 (9,083)
140,731-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division sales12,400 - - 38,417
Capital expenditures (16,053)(8,753) (5,692)
(41,476)
Other 94(220) (1,042)
(2,407)
------- --------------- -------
Net cash used inprovided by (used in)
investing activities (15,959)3,427 (6,734)
(5,466)-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 445,000
8,000
Reduction of long-term debt (2,580)(10,977) (250,000)
(127,411)
Borrowings (repayments)under revolving
credit agreement 47,825805 79,100 -
Repayments under revolving credit agreement (91,925) - -
Redemption of common stock - (446,638)
-
Issuance of common stock - 180,005100,001
Issuance of preferred stock - 80,005
Debt issuance cost - (26,062)
-
Other 8242,870 (360) 4,876
-------
-------- -------
Net cash used in
financing activities (45,856) (18,955) (114,535)
-------(7,302) (18,954)
-------- -------
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EAGLE-PICHER INDUSTRIES,HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six Months Three Months NineEnded Three Months Ended Ended Ended
August 31Months
February 28 August 31February 28
1999 1998
1998 1997
---- ---- ----
Predecessor
Predecessor
Net increase (decrease)decrease in cash and cash equivalents 2,131 (34,772) 20,730(3,356) (34,771)
Cash and cash equivalents, beginning of period 18,96713,681 53,739
32,725
------ ------- ------
Cash and cash equivalents, end of period $21,098$10,325 $ 18,967 $53,45518,968
====== =======
======
Supplemental cash flow information: 1999 1998
---- ----
Cash paid during the three months ended February 28:
Interest paid $6,201 $ 6,390
Income taxes paid (refunded), net $4,778 $(2,283)
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 condensed consolidated financial statements.
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EAGLE-PICHER INDUSTRIES,HOLDINGS, 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/A10-K filed
with the SEC on June 5, 1998.March 1, 1999.
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 ended February 28, 1999 and nine month periods ended August 31, 1998 and 1997.1998. (See Note B.) Results of
operations for interim periods are not necessarily indicative of results to be
expected for an entire year.
The sixEffective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting comprehensive income and three month periods ended August 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 nine months ended August 31, 1997 of the Predecessor Company. (See Note B.)its components.
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc.
("Company"Subsidiary") was acquired by a subsidiary of Granaria Industries BV,
Eagle-Picher Holdings, Inc. ("Parent"Company"), from the Eagle-Picher Industries, Inc.
Personal Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was
established pursuant to the Company'sSubsidiary's Plan of Reorganization upon its
emergence from bankruptcy. The Company's results of operations and cash flows
approximate those of the Subsidiary, the operating entity. References will be to
the Company except where it is more appropriate to specifically refer to the
Subsidiary.
The unaudited condensed consolidated financial statements as of and for
the three months ended February 28, 1998 include the effects of the Acquisition
as of February 24, 1998. Accordingly, the condensed consolidated statement of
income (loss) for the three months ended February 28, 1998 includes results of
operations from (1) December 1, 1997 through February 24, 1998 of the Company
prior to the consummation of the Acquisition (for clarity, sometimes referred to
herein as the "Predecessor Company") and (2) February 25 through February 28,
1998 of the Company.
The 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 ofpurchase price has been allocated to the purchase priceassets and liabilities of the
Company has been
determined based on estimates oftheir respective 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.values as determined primarily by
independent appraisals. The excess of the purchase price over the assessed
values of thosethe net assets will bewas allocated to goodwill. The Company expectsexcess of acquired net assets over
cost. A vertical black line is shown in the consolidated financial statements to
finalizeseparate operations after the purchase price
allocation by November 30, 1998. Adjustments are not expected to be material.
The following pro forma information for the nine months ended August 31,
1998 and 1997 gives effectAcquisition from those prior 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.
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(which are 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"labeled "Predecessor") 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 andsince such financial statements arehave 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.been prepared on a comparable basis.
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED AUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------------- -------------- ---------------- --------------- --------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 63,628 $ 117,887 $ 24,841 $ - $ 206,356
Intercompany 3,793 2,193 1,012 (6,998) -
Operating Costs and Expenses
Cost of products sold 51,580 97,338 21,581 (6,981) 163,518
Selling and administrative 11,160 4,487 2,395 - 18,042
Management compensation expense 4,395 - - - 4,395
Intercompany charges (2,241) 2,241 - - -
Depreciation 2,990 5,683 1,046 (75) 9,644
Amortization of intangibles 610 3,634 - - 4,244
-------- --------- -------- ------- ---------
Total 68,494 113,383 25,022 (7,056) 199,843
Operating Income (Loss) (1,073) 6,697 831 58 6,513
Other Income (Expense)
Interest expense (12,005) - (127) - (12,132)
Other income (expense) 434 178 72 (3) 681
-------- --------- -------- ------- ---------
Income (Loss) Before Taxes (12,644) 6,875 776 55 (4,938)
Income taxes (3,866) 2,081 650 - (1,135)
--------- --------- -------- ------- ---------
Net Income (Loss) $ (8,778) $ 4,794 $ 126 $ 55 $ (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 AUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- --------------- ------------ ----------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 13,383 $ 710 $ 6,908 $ 97 $ 21,098
Receivables 39,082 70,218 11,144 - 120,444
Intercompany accounts receivable 179 165 8,230 (8,574) -
Income tax refunds receivable 1,341 - - - 1,341
Inventories 33,231 43,363 15,394 (1,375) 90,613
Prepaid expenses 3,973 3,524 973 (30) 8,440
Deferred income taxes 18,935 - - - 18,935
-------- -------- ------- --------- --------
Total current assets 110,124 117,980 42,649 (9,882) 260,871
Property, plant and equipment 71,930 126,177 38,041 - 236,148
Deferred income taxes 1,144 - - - 1,144
Investment in subsidiaries 86,543 6,252 - (92,795) -
Excess of acquired net assets over
cost 47,809 185,297 - - 233,106
Other Assets 66,782 18,026 354 - 85,162
-------- -------- ------- --------- --------
Total Assets $384,332 $453,732 $81,044 $(102,677) $816,431
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 14,275 $ 20,500 $ 9,287 $ - $ 44,062
Intercompany accounts payable 183 166 7,917 (8,266) -
Long-term debt - current portion 10,280 - 3,792 - 14,072
Income taxes 2,264 - 982 - 3,246
Other current liabilities 49,828 22,235 3,073 - 75,136
-------- -------- ------- --------- --------
Current liabilities 76,830 42,901 25,051 (8,266) 136,516
Long-term debt - less current portion 485,540 - 1,669 - 487,209
Deferred income taxes - - - - -
Other liabilities 25,676 - - - 25,676
-------- -------- ------- --------- --------
Total liabilities 588,046 42,901 26,720 (8,266) 649,401
Intercompany accounts (358,953) 353,204 24,514 (18,765) -
Shareholders' Equity 155,239 57,627 29,810 (75,646) 167,030
-------- -------- ------- --------- --------
Total Liabilities and
Shareholders' Equity $384,332 $453,732 $81,044 $(102,677) $ 816,431
======== ======== ======= ========= ==========
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR SIX MONTHS ENDED AUGUST 31, 1998
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- ----------- -------------- -------------- --------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (24,766) $ 10,852 $ 754 $ 58 $ (13,102)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,877 18,736 2,045 (136) 29,522
Proceeds from insurance settlement 13,659 - - - 13,659
Working capital and other 22,315 11,724 (43) (129) 33,867
--------- -------- ------- ------- ---------
Net cash provided by (used in)
operating activities 20,085 41,312 2,756 (207) 63,946
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,985) (5,321) (4,747) - (16,053)
Other (2,276) (275) (878) 3,523 94
--------- -------- ------- ------- ---------
Net cash provided by (used in)
investing activities (8,261) (5,596) (5,625) 3,523 (15,959)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (2,580) - - - (2,580)
Borrowings under revolving credit agreement 47,825 - - - 47,825
Repayments under revolving credit agreement (91,925) - - - (91,925)
Other - - 824 - 824
--------- -------- ------- ------- ---------
Net cash used in
financing activities (46,680) - 824 - (45,856)
--------- -------- ------- ------- ---------
Increase (decrease) in cash and
cash equivalents (34,856) 35,716 (2,045) 3,316 2,131
Intercompany accounts 36,124 (36,151) 3,440 (3,413) -
Cash and cash equivalents,
beginning of period 12,115 1,145 5,513 194 18,967
--------- -------- ------- ------- ---------
Cash and cash equivalents,
end of period $ 13,383 $ 710 $ 6,908 $ 97 $ 21,098
========= ======== ======= ======= =========
15
16
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENT 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 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 provided 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
======== ======= ======= ====== ========
16
17
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
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) -
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
--------- --------- -------- --------- ---------
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 INCOME (LOSS) (UNAUDITED)
FOR NINE MONTHS ENDED AUGUST 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) $ (8,188) $ 8,556 $ 1,156 $ (3,134) $ (184) $ (1,794)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 11,147 25,617 2,689 3,483 - 42,936
(Gain) loss on sale of divisions 1,803 - - - - 1,803
Income tax refunds 69,771 - - - - 69,771
Working capital and other 14,090 11,475 1,724 560 166 28,015
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
operating activities 88,623 45,648 5,569 909 (18) 140,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of divisions 38,417 - - - - 38,417
Capital expenditures (6,444) (25,282) (8,974) (776) - (41,476)
Other (536) (1,640) (578) (9) 356 (2,407)
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
investing activities 31,437 (26,922) (9,552) (785) 356 (5,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (126,039) - (1,372) - - (127,411)
Issuance of long-term debt 8,000 - - - - 8,000
Other - - 4,876 - - 4,876
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
financing activities (118,039) - 3,504 - - (114,535)
-------- ------- ------- -------- ------ --------
Increase (decrease) in cash and
cash equivalents 2,021 18,726 (479) 124 338 20,730
Intercompany accounts 18,618 (18,622) 461 (119) (338) -
Cash and cash equivalents,
beginning of period 26,089 553 5,985 98 - 32,725
-------- ------- ------- -------- ------ --------
Cash and cash equivalents
end of period $ 46,728 $ 657 $ 5,967 $ 103 $ - $ 53,455
======== ======= ======= ======== ====== =========
20
21
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 9,555,5601,000,000 and 9,600,071
in the three months ended February 28, 1999 and 1998, respectively. Prior to the
Acquisition, 10,000,000 inshares were outstanding. The net loss applicable to
common shareholders represents the net loss increased by accumulated dividends
on preferred stock of $2.5 million for the three months and nine months ended August 31, 1997, and 100 in the three months and six months ended August 31,
1998. In 1998, 100 shares were outstanding after the acquisition. Prior to the
acquisition, 10,000,000 shares were outstanding.February 28, 1999.
No potential common stock was outstanding during the ninethree months ended August 31,February
28, 1999.
D. SUPPLEMENTAL GUARANTOR INFORMATION
Upon closing of the Acquisition, the Company's wholly-owned subsidiary,
Eagle-Picher Industries, Inc. (the "Subsidiary") borrowed $225.0 million in term
loans and $79.1 million in revolving credit loans under a syndicated senior
secured loan facility ("Credit Agreement"), and issued $220.0 million in senior
subordinated notes ("Subordinated Notes"). Both the Credit Agreement and the
Subordinated Notes are guaranteed on a full, unconditional and joint and several
basis by the Company and certain of the Subsidiary's wholly-owned domestic
subsidiaries ("Subsidiary Guarantors"). Management has determined that full
financial statements and other disclosures concerning the Subsidiary or the
Subsidiary Guarantors would not be material to investors and such financial
statements are not presented. The following supplemental condensed combining
financial statements present information regarding the Subsidiary, the
Subsidiary Guarantors and the subsidiaries that did not guarantee the debt.
The Subsidiary and the Subsidiary Guarantors are subject to
restrictions on the payment of dividends under the terms of both the Credit
Agreement and the Indenture supporting the Subordinated Notes, both of which
were filed with the Company's Form S-4 Registration Statement No. 333-49957
filed on April 11, 1998 and 1997.
D. INTANGIBLE ASSETS
Excessboth of acquired net assets over cost is being amortizedwhich were incorporated by reference to the
Company's Form 10-K filed 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.March 1, 1999.
10
11
EAGLE-PICHER HOLDINGS,INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1999
GUARANTORS
------------------------------ NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
---------- -------------- -------------- ---------------- ---------------- ----------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 50,983 $ - $116,749 $ 26,711 $ - $194,443
Intercompany 3,112 - 2,634 1,879 (7,625) -
Operating Costs and Expenses
Cost of products sold
(exclusive of depreciation) 40,406 - 94,740 24,260 (7,660) 151,746
Selling and administrative 10,417 - 5,342 2,569 (64) 18,264
Intercompany charges (2,357) - 2,357 (65) 65 --
Depreciation 2,916 - 6,046 1,150 - 10,112
Amortization of intangibles 1,385 - 2,393 242 - 4,020
Loss on sale of assets (10) - (12) (12) - (34)
-------- -------- -------- -------- -------- --------
Total 52,757 - 110,866 28,144 (7,659) 184,108
-------- -------- -------- -------- -------- --------
Operating Income 1,338 - 8,517 446 34 10,335
Other Income (Expense)
Interest expense (11,172) - - (170) - (11,342)
Other income (expense) 147 - 36 (14) - 169
Equity in earnings of
consolidated subsidiaries 5,844 (1,138) 6 - (4,712) --
-------- -------- -------- -------- -------- --------
Income (Loss) Before Taxes (3,843) (1,138) 8,559 262 (4,678) (838)
Income Taxes (2,677) - 2,413 564 -- 300
-------- -------- -------- -------- -------- --------
Net Income (Loss) $ (1,166) $ (1,138) $ 6,146 $ (302) $ (4,678) $ (1,138)
======== ======== ======== ======== ======== ========
11
12
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF FEBRUARY 28, 1999
GUARANTORS
--------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS
----------- ---------------- -------------- -------------- ---------------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 4,730 $ 1 $ 872 $ 4,677 $ 45
Receivables, net 35,549 - 69,334 22,429 -
Intercompany accounts receivable 3,142 - 4,078 27 (7,247)
Inventories 33,503 - 45,244 17,033 (1,375)
Prepaid expenses 4,654 - 4,700 1,573 -
Deferred income taxes 10,851 - - - -
--------- --------- --------- --------- ---------
Total current assets 92,429 1 124,228 45,739 (8,577)
Property, Plant and Equipment, net 65,149 - 142,562 38,977 -
Investment in Subsidiaries 128,423 164,503 6,422 - (299,348)
Excess of Acquired Net Assets Over Cost, net 77,452 - 133,862 13,575 -
Other Assets 55,121 - 18,042 320 -
--------- --------- --------- --------- ---------
Total Assets $ 418,574 $ 164,504 $ 425,116 $ 98,611 $(307,925)
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 11,754 $ - $ 24,547 $ 11,604 $ -
Intercompany accounts payable 104 - 27 6,971 (7,102)
Long-term debt - current portion 11,550 - - 7,696 -
Income taxes 1,535 - - 830 -
Other current liabilities 48,724 - 20,914 3,085 (10)
--------- --------- --------- --------- ---------
Total current liabilities 73,667 - 45,488 30,186 (7,112)
Long-term Debt - less current portion 455,903 - - 1,905 -
Deferred Income Taxes 7,743 - - - -
Other Long-Term Liabilities 25,210 - - -- -
--------- --------- --------- --------- ---------
Total liabilities 562,523 - 45,488 32,091 (7,112)
Intercompany Accounts (322,742) - 305,649 30,806 (13,713)
11-3/4% Cumulative Redeemable
Exchangeable Preferred Stock - 89,881 - - -
Shareholders' Equity 178,793 74,623 73,979 35,714 (287,100)
--------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 418,574 $ 164,504 $ 425,116 $ 98,611 $(307,925)
========= ========= ========= ========= =========
TOTAL
-------------
ASSETS
Cash and cash equivalents $ 10,325
Receivables, net 127,312
Intercompany accounts receivable -
Inventories 94,405
Prepaid expenses 10,927
Deferred income taxes 10,851
---------
Total current assets 253,820
Property, Plant and Equipment, net 246,688
Investment in Subsidiaries -
Excess of Acquired Net Assets Over Cost, net 224,889
Other Assets 73,483
---------
Total Assets $ 798,880
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 47,905
Intercompany accounts payable -
Long-term debt - current portion 19,246
Income taxes 2,365
Other current liabilities 72,713
---------
Total current liabilities 142,229
Long-term Debt - less current portion 457,808
Deferred Income Taxes 7,743
Other Long-Term Liabilities 25,210
---------
Total liabilities 632,990
Intercompany Accounts -
11-3/4% Cumulative Redeemable
Exchangeable Preferred Stock 89,881
Shareholders' Equity 76,009
---------
Total Liabilities and Shareholders'
Equity $ 798,880
=========
12
13
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1999
GUARANTORS
------------------------------ NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS
---------- ---------------- ----------- ------------------ ------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,166) $ (1,138) $ 6,146 $ (302) $ (4,678)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated subsidiaries (5,844) 1,138 (6) -- 4,712
Depreciation and amortization 4,995 -- 8,439 1,392 --
Changes in assets and liabilities,
net of effect of divestitures (4,711) -- (5,751) (3,062) 355
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities (6,726) -- 8,828 (1,972) 389
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400 -- -- -- --
Capital expenditures (1,615) -- (4,664) (2,474) --
Other (585) -- (82) 90 357
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities 10,200 -- (4,746) (2,384) 357
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (10,977) -- -- -- --
Borrowings (repayments) on revolving
credit agreement 805 -- -- -- --
Other -- -- -- 2,870 --
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities (10,172) -- -- 2,870 --
-------- -------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents (6,698) -- 4,082 (1,486) 746
Intercompany accounts 3,964 -- (3,922) 1,038 (1,080)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,464 1 712 5,125 379
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,730 $ 1 $ 872 $ 4,677 $ 45
======== ======== ======== ======== ========
TOTAL
-----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,138)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated subsidiaries -
Depreciation and amortization 14,826
Changes in assets and liabilities,
net of effect of divestitures (13,169)
--------
Net cash provided by (used in)
operating activities 519
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400
Capital expenditures (8,753)
Other (220)
--------
Net cash provided by (used in)
investing activities 3,427
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (10,977)
Borrowings (repayments) on revolving
credit agreement 805
Other 2,870
--------
Net cash provided by (used in)
financing activities (7,302)
--------
Increase (decrease) in cash and
cash equivalents (3,356)
Intercompany accounts -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 13,681
--------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 10,325
========
13
14
EAGLE-PICHER HOLDINGS, INC
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1998
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
---------- ---------------- ------------ --------------- ------------ -----------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 7,464 $ 1 $ 712 $ 5,125 $ 379 $ 13,681
Receivables, net 52,197 - 70,418 22,229 - 144,844
Intercompany accounts receivable 3,414 - 3,874 154 (7,442) --
Inventories 30,755 - 43,708 15,785 (1,375) 88,873
Prepaid expenses 4,073 - 3,614 651 - 8,338
Deferred income taxes 10,851 - - - - 10,851
-------- -------- -------- -------- --------- ---------
Total current assets 108,754 1 122,326 43,944 (8,438) 266,587
Property, Plant and Equipment, net 66,500 - 143,872 38,165 - 248,537
Investment in Subsidiaries 113,265 165,641 6,416 - (285,322) --
Excess of Assets Acquired Over Cost, net 78,838 - 136,253 13,819 - 228,910
Other Assets 54,187 - 17,675 431 - 72,293
-------- -------- -------- -------- --------- ---------
Total Assets $421,544 $165,642 $426,542 $ 96,359 $(293,760) $816,327
======== ======== ======== ======== ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable $ 15,064 $ - $ 24,648 $ 10,595 $ - $ 50,307
Intercompany accounts payable 85 - 16 7,561 (7,662) --
Long-term debt - current portion 18,777 - - 6,396 - 25,173
Income taxes 5,296 - - 986 - 6,282
Other current liabilities 45,744 - 24,464 4,052 - 74,260
-------- -------- -------- -------- --------- ---------
Total current liabilities 84,966 - 49,128 29,590 (7,662) 156,022
Long-term Debt - less current portion 458,848 - - 335 - 459,183
Deferred Income Taxes 8,304 - - - - 8,304
Other Long-Term Liabilities 24,819 - - - - 24,819
-------- -------- -------- -------- --------- ---------
Total liabilities 576,937 - 49,128 29,925 (7,662) 648,328
Intercompany Accounts (326,706) - 309,571 29,768 (12,633) --
11-3/4% Cumulative Exchangeable
Preferred Stock - 87,387 - - - 87,387
Shareholders' Equity 171,313 78,255 67,843 36,666 (273,465) 80,612
-------- -------- -------- -------- --------- --------
Total Liabilities and Shareholders'
Equity $421,544 $165,642 $426,542 $ 96,359 $(293,760) $816,327
======== ======== ======== ======== ========= ========
14
15
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------------ ------------- ---------------- -------------- ------------
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 61,071 $ 123,181 $ 21,590 $ -- $ 205,842
Intercompany 3,381 2,421 1,451 (7,253) --
Operating Costs and Expenses
Cost of products sold
(exclusive of depreciation) 48,329 102,771 18,772 (7,076) 162,796
Selling and administrative 9,673 5,167 2,301 -- 17,141
Management compensation 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
Equity in earnings of
consolidated subsidiaries 4,785 (270) -- (4,515) --
--------- --------- --------- --------- ---------
Income (Loss) Before Taxes 1,731 7,271 597 (4,692) 4,907
Income Taxes 1,083 2,486 531 -- 4,100
--------- --------- --------- --------- ---------
Net Income (Loss) $ 648 $ 4,785 $ 66 $ (4,692) $ 807
========= ========= ========= ========= =========
15
16
EAGLE-PICHER HOLDINGS, INC
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
GUARANTORS
--------------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS
----------- ---------------- -------------- -------------- ----------------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 648 $ - $ 4,785 $ 66 $ (4,692)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of
consolidated subsidiaries (4,785) - 270 - 4,515
Depreciation and amortization 3,588 - 8,284 950 -
Changes in assets and liabilities,
net of effect of divestitures (16,059) - (9,247) 2,019 575
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities (16,608) - 4,092 3,035 398
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiary - (180,005) - - 180,005
Capital expenditures (2,300) - (1,833) (1,559) -
Other (956) - 65 (846) 695
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities (3,256) (180,005) (1,768) (2,405) 180,700
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 445,000 - - - -
Reduction of long-term debt (250,000) - - - -
Borrowings under revolving credit
agreement 79,100 - - - -
Redemption of common stock (446,638) - - - -
Issuance of common stock 180,005 100,001 - - (180,005)
Issuance of preferred sock - 80,005 - - -
Debt issue cost (26,062) - - - -
Other - - - (360) -
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities (18,595) 180,006 - (360) (180,005)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and
cash equivalents (38,459) 1 2,324 270 1,093
Intercompany accounts 1,740 - (1,740) 899 (899)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 48,834 - 561 4,344 --
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 12,115 $ 1 $ 1,145 $ 5,513 $ 194
========= ========= ========= ========= =========
TOTAL
------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 807
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of
consolidated subsidiaries -
Depreciation and amortization 12,822
Changes in assets and liabilities,
net of effect of divestitures (22,712)
---------
Net cash provided by (used in)
operating activities (9,083)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiary -
Capital expenditures (5,692)
Other (1,042)
---------
Net cash provided by (used in)
investing activities (6,734)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 445,000
Reduction of long-term debt (250,000)
Borrowings under revolving credit
agreement 79,100
Redemption of common stock (446,638)
Issuance of common stock 100,001
Issuance of preferred sock 80,005
Debt issue cost (26,062)
Other (360)
---------
Net cash provided by (used in)
financing activities (18,954)
---------
Increase (decrease) in cash and
cash equivalents (34,771)
Intercompany accounts -
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 53,739
---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 18,968
=========
16
17
E. LEGAL MATTERS
The United States Bankruptcy Court for the Southern District of Ohio,
Western Division, and the United States District Court for the Southern District
of Ohio jointly issued an order confirming a plan of reorganization for the
Subsidiary and four Subsidiary Guarantors on November 18, 1996 (the
"Confirmation Order"). The Unofficial Committee of Co-Defendants appealed the
Confirmation Order, and the United States Circuit Court of Appeals for the Sixth
Circuit affirmed the Confirmation Order and dismissed the subject appeal as
moot. The Confirmation Order has not been appealed further and therefore became
final and nonappealable as of March 23, 1999.
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,
1998.
In addition, the Company is involved in routine litigation,
environmental proceedings and claims pending with respect to matters arising out
of the normal course of business. In management's opinion, the ultimate
liability resulting from all claims, individually or in the aggregate, will not
materially affect the Company's consolidated financial position, results of
operations or cash flows.
F. SUBSEQUENT EVENT
On September 28, 1998, the Committee17
18
Item 2. Management's Discussion and Analysis of the Incentive Stock PlanFinancial Condition and Results
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
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.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 those of
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 divisionsTrim
Division in 1997. The Company also contributed the assets of its
former Suspension Systems division to Eagle-Picher-Boge, L.L.C., a joint venture
formedfourth quarter in 1997 in which the Company has a 45% interest. These divisions are
collectively referred to as the "Divested Divisions."1998.
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:
Six months Three months Nine months
Three months ended Three months ended ended ended
August 31 August 31
February 28 August 31
------------------February 28
1999 1998 1997 1998 1998 1997
---- ---- ----
---- ----
(In millions of dollars)
Predecessor
Predecessor Predecessor
Net sales by segment:
Automotive $103.7 $103.8
Machinery 53.0 64.4
Industrial $ 35.1 $ 52.4 $ 71.5 $37.7 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$194.4 $205.8 $682.5
===== ===== =====
===== =====
EBITDA by segment:
Automotive $ 15.7 $ 15.2
Machinery 7.1 7.8
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 43.16.8 6.8
Corporate overhead (5.3) (2.7) (11.0) (3.7) (13.2)
----- ----- -----(4.5) (4.1)
----- -----
$ 24.8 $ 25.1 $ 54.9 $ 25.9 $ 76.6
===== ===== =====25.7
===== =====
Total
Net Sales. The Company's net sales were $206.4$194.4 million for the thirdfirst
quarter ended August 31, 1998,February 28, 1999, a decrease of $10.4$11.4 million or 4.8%5.5% from the
comparable period of 1997.1998. Included in the results of the thirdfirst quarter of 19971998
are $13.7 million of sales of the Divested Divisions,Trim Division, which, if excluded, would result in an increasea decrease
in the Company's quarterly net sales of approximately 1.6%2.2%.
2218
23
Net sales of Industrial products, excluding net sales of the Divested
Divisions, decreased 22.4% in the third quarter of 1998 from the comparable
period in 1997, due primarily to decreased prices 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, its 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 third quarter of 1998, excluding
the Divested Divisions, increased 8.2% due in part to increases in demand for
heavy-duty fork lift trucks and wheel tractor scrapers. Sales of special purpose
batteries are comparable to those of the same period in 1997.19
The Automotive Group's net sales, excluding the Divested Divisions,Trim Division,
increased 8.7% primarily7.2%. A substantial portion of the increase was due to increased market penetrationimplementation
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 1999Europe at facilities manufacturing precision-machined
components and that this revenue will be replaced by new programs currently being implemented.
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, 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.multi-layer fuel transfer systems. 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. Historically,Net sales to certain Asian markets have been insignificantfor the Machinery Group in the first quarter
of 1999, decreased 17.7% due in part to the Company's total net sales; therefore,completion of a major satellite
program early in 1998. Demand for industrial cleaning machinery is also down
from the current economic conditionsprevious year. Increases in Asia have not had, nor are they expected to have, a material adverse effect ondemand for wheel tractor scrapers were
offset by decreases in shipments of heavy-duty forklift trucks. Net sales of
Industrial Group products were unchanged in the Company's operations. The Company believes that despite these conditions,first quarter of 1999 from the
Asian region has solid long-term growth opportunities and will continue to
explore these opportunities.comparable period in 1998.
Cost of Products Sold. Cost of products sold, excludingwhich excludes
depreciation expense, decreased by $10.6$11.1 million or 6.1% from6.8% in the thirdfirst quarter of
1997
compared to1999 from the comparable period in 1998. Excluding the results of Divested
Divisions,the Trim
Division, as a percentage of sales, cost of products sold declined from 79.7%79.0% in
the thirdfirst quarter of 19971998 to 79.2%78.1% in the thirdfirst quarter of 1998.1999. Reasons for
this decline include improved performance at certain start-up operations,
increased operating efficiencies, and changes in product mix in certain
operations in the Machinery Group.
23
24Since 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.
Selling and Administrative. Selling and administrative expenses
increased by $.6$1.1 million or 3.1%6.6% in the quarter ended August 31, 1998February 28, 1999 from
the quarter ended August 31, 1997.February 28, 1998. Excluding results of Divested Divisions,the Trim Division, these expenses
increased $1.3$1.8 million or 7.9%11.2% over the same time frame. Besides a general
increase due to activity relating to increased sales volumes, itemsItems contributing to
this increase include management fees now payable to Granaria IndustriesHoldings B.V. and
a retention program for mid-level management.
Depreciation and Amortization. Depreciation and amortization are not
comparable for the three months ended August 31,February 28, 1999 and 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 expense,
income taxes, depreciation and amortization, certain one-time management
compensation expenses, gain (loss) on sales of divisions and management expenses.certain other non-
cash charges. Due to the differences in the asset bases, it is preferable to
compare EBITDA rather than operating income. EBITDA decreased from $25.1$25.7 million
in the three months ended August 31,
1997February 28, 1998 to $24.8$25.1 million for the same period
in 19981999 or 1.2%2.3%. After excluding the results of Divested Divisions,the Trim Division, EBITDA
increaseddecreased .8%.
In the third quarter of 1998, EBITDA for the Industrial Group declined to
$7.0 million from $8.1 million in the comparable period of 1997. Excluding the
results of Divested Divisions, this decline was $.5 million or 6.7% on a 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 $6.6 million in the third
quarter of 1997 to $9.6 million in the same period of 1998. Excluding results of
the Divested Divisions, the increase was $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 at operations
manufacturing construction and other industrial equipment.
EBITDA for the Automotive Group increased to $13.5$15.7 million in the thirdfirst
quarter of 19981999 from $13.1$15.2 million in the same period in the prior year.year, or
3.3%. Excluding the results of Divested Divisions,the Trim Division, the increase was .7%6.1%.
Any increasesIncreases in EBITDA resulting from the increased volumes previously discussed have beendue to modest volume increases at most divisions were
somewhat offset by losses relatedstart-up costs associated with new multi-layer fuel transfer
systems programs. In the Machinery Group, EBITDA declined from $7.8 million in
the first quarter of 1998 to $7.1 million in the comparable period of 1999, or
9.0%. The decline in EBITDA is due to costs involved in moving production of
forklift trucks to another facility during the quarter and to the GM strike situation.decrease in
volumes of industrial cleaning machinery. In the first quarters of 1999 and
1998, EBITDA for the Industrial Group was constant at $6.8 million.
Interest Expense. Interest expense for the three months ended August 31,February
28, 1999 and 1998 and 1997 was $12.1$11.3 million and $7.5$6.9 million, respectively. In 1997,1998,
interest expense included interest on the $250$250.0 million Subordinated Debentures
held by the Trust, which were retired upon the Acquisition and the $50 million
Divestiture Notes retired in August 1997.Acquisition. In 1998,1999, the
increase in interest wasis attributable to debt issued in conjunction with the
borrowings against the new credit facility totaling $304.1
million, the issuance of $220Acquisition which included $220.0 million in Subordinated Notes and borrowings
against the issuance of
an additional $8Credit Facility which totaled $229.5 million industrial revenue bond in June 1997.at February 28.
19
20
FINANCIAL CONDITION
SinceOperating Activities
Cash provided by operating activities was $.5 million for the Acquisition,three months
ended February 28, 1999 and consisted of the following:
(in millions of dollars)
EBITDA $25.1
Income taxes paid (4.8)
Interest paid (6.2)
Working capital and other (13.6)
------
$ .5
======
Income taxes paid relate to foreign taxes and Federal income tax
payments for the tax period February 25, 1998 through November 30, 1998.
Interest expense exceeded interest paid by $5.1 million primarily because the
interest on the Subordinated Notes is due semiannually, March 1 and September 1.
The first quarter of the year has historically been one where working capital
increases substantially. Generally, accounts payable and accruals for items such
as compensation are paid down in the first quarter of the year. In 1999,
inventory increases primarily within the Machinery Group also contributed to the
increases in working capital.
Investing Activities
In December 1998, the Company received $12.4 million in cash relating
to the sale of the Trim Division, which was effective as of October 31, 1998.
Capital expenditures for the three months ended February 28, 1998 were $8.8.
Besides a small expansion to a plant manufacturing bulk pharmaceuticals, these
expenditures generally related to capital needed for new programs and
maintenance. The Company anticipates capital expenditures will be approximately
$32-34 million for the remaining nine months of 1999.
In December 1998, the Company signed a letter of intent to acquire the
stock of Charterhouse Automotive Group, Inc., a holding company whose only
operating subsidiary is Carpenter Enterprises, Ltd. ("Carpenter"), a
manufacturer of precision-machined automotive parts. Although the letter of
intent has generatedexpired, the Company still expects to consummate the transaction in
the second quarter of 1999 subject to various conditions. This acquisition is
expected to expand both the Company's product lines and its customer base for
precision-machined automotive products. The Company anticipates that the
purchase price will be approximately $41.0 million in cash, which will be
financed from operations of
$63.9 million which has enabledthe Company's revolving credit facility ("Facility"). In addition,
it to repay a net amount of $46.7is expected that Carpenter will have approximately $32.0 million in debt at
the time of closing, of which $20.0 million will be refinanced from the Facility
and expend $16.1the remainder will be assumed. The acquisition will be accounted for as a
purchase.
Financing Activities
The Company repaid the revolving loans outstanding at November 30, 1998
of $19.8 million for capital. Significant factors contributingearly in the first quarter, then borrowed $20.6 million in
revolving loans toward the end of the quarter, in part to repay $11.0 due on the
term loans, primarily a result of excess cash provided by operations include:
1)flow payments required under
provisions of the receiptCredit Agreement.
As of $13.7February 28, 1999, letters of credit outstanding against the
Facility were $38.3 million. This coupled with the $20.6 million from an insurance company in settlement
of certain claims relating primarily to environmental remediation
expenses;
2) a $15.2 million reduction of accounts receivable from what were
considered high levelsoutstanding
borrowings at February 28, 1998, to more normal levels at
August 31, 1998;
3)leave the fundingCompany with available borrowing
capacity of approximately $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 accrual of $10.3$101.1 million. The Carpenter Acquisition will result
in approximately $61.0 million in interest (which was paid September 1,
1998) relating to the Senior Subordinated Notes.
24
25
The Company's liquidity needs are primarily for capital maintenance and
debt service. 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.additional borrowings which will further
reduce available borrowing capacity. 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 $2.7 million in the
fourth quarter of 1998 and $10.4 million in 1999.
The Company has entered into a letter of intent for the sale of its
TrimRoss Aluminum Division for $14.5 millionwill close late in cash.the second quarter or early in the
third quarter of 1999. The transaction is conditioned on, among
other things, the buyer's due diligence investigation and the buyer obtaining
financing. There is not assurance thatproceeds from this transaction, will be completed on
these terms. If consummated,reduce
outstanding borrowing against the transaction is not expected to result in a
material gain or loss.Facility. The Company believes that its cash flows fromEuropean 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.had $18.5
million of borrowing capacity at February 28, 1999.
20
21
YEAR 2000 READINESS DISCLOSURE
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 performingcurrently has a Year
2000 program in place which includes a comprehensive review to identify the
areas of concern in each of the systems affected by the Year 2000 issue.issue and
follows up with design and implementation of measures to address those issues.
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 systemsCompany's Year 2000 program involves a five step process.process applied to
each of eight different application areas within each operation and at the
Corporate level. The Company first inventories areas of potential risk based on
comparison to guidelines published industry guidelines.by the Automotive Industry Action Group. 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.
Most of theThe Company's divisions have substantially 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 thereof by June 30, 1999. The final step of the program is review by
the Company's outside consultant for Year 2000 readiness, a review that is
ongoing. The Company maintains a record of its progress to date, and publishes
reports for each of its domestic divisions on its web site at www.epcorp.com.
The Company's remaining costs to remediate the Year 2000 problem are
not expected to exceed $4.0$2.5 million. Of this amount, approximately $1.5$1.0 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,
the Company estimates it has spent approximately $3.0 million in assessing and
remediating the Year 2000 problem, of which $1.0 million was for capital
equipment, $1.2 million related to date has not been material.
25
26incremental costs.
The Company suspects its greatest risk lies within its financial
computer systems and Electronic Data Interchange ("EDI") capabilities with its
customers and suppliers. The Company relies on customer requirements and outside
services for most of its EDI capabilities and therefore is dependent on such
parties addressing Year 2000 issues. If these systems were to fail, the Company
would encounter difficulty performing functions such as compiling financial
data, invoicing customers, accepting electronic customer orders or informing
customers of shipmentshipments 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 littlelimited
control.
The Company is presently working on contingency plans on a case by case
basis to address issues related to potential failures of critical systems due to
Year 2000 problems, and it expects to have those plans in place by May 31, 1999.
The Company believes that the most likely worst case scenario will be limited to
isolated disruptions that will affect individual business processes, facilities,
suppliers or customers for a relatively short time.
The Company presently believes that through the planned modification to
existing systems and conversion to new systems, as well as ongoing
correspondence with suppliers and customers, the Year 2000 issue will not
materially impair the Company's ability to conduct business.
21
22
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the
euro as their common legal currency and established fixed conversion rates
between their existing local currencies and the euro. During the transition
period, which runs from January 1, 1999 through December 31, 2002, transactions
may take place using either the euro or a local currency. However, conversion
rates will no longer be computed directly from one local currency to another,
but be converted from one local currency into an amount denominated in euro,
then be converted from the euro denominated amount into the second local
currency. On July 1, 2002, the local currencies will no longer be legal tender
for any transactions.
The Company has both operating divisions and domestic export customers
located in Europe. In 1997,1998, combined revenues from these sources waswere
approximately 13%15% of total revenues. Revenues involving countriesThe Company has operations in Germany, the
Netherlands, France and Spain, which are participating in the Euroeuro conversion,
were somewhat lower. The Company is currently assessingand the impact of the Euro conversion on its operations.
The Company's European operations are taking stepsUnited Kingdom, which has elected not 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 material.participate at this time. The
affected operations plan to make the Euroeuro the functional currency sometime
during the transition period.period, although certain of the Company's European
operations have already entered into euro-based transactions, such as bank
borrowing and collection of accounts receivable.
It is difficult to assess the competitive impact of the Euroeuro conversion
on the Company's operations.operations, both in Europe and in the United States. In some markets, where customers already appear to be
considering the 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,euro, however, exchange risks resulting from these transactions wouldcould be
hedged.mitigated through hedging. Pressures to price products in euro may be more
urgent for operations located in the United Kingdom, particularly in the
automotive industry, as the European automotive industry is somewhat dominated
by German companies. The currency risk to the operations located in the United
Kingdom could also be hedged, however the risk is greater on a regional level
that the hedging could result in additional costs that could harm the cost
competitiveness of those operations. It is not anticipated that changes to
information technology and other systems which are necessary for the euro
conversion will be material. The Company is currently assessing the impact the
euro conversion may have on items such as taxation and other issues.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Subsidiary and the Subsidiary Guarantors are subject to
restrictions on the payment of dividends and other forms of payment in both the
Credit Agreement and the Indenture for the Subordinated Notes. Those
restrictions generally prohibit the payment of dividends to the Company either
directly by the Subsidiary or indirectly through any Subsidiary Guarantor.
Certain limited exceptions are provided allowing for payments to the Company.
Specifically, the Subsidiary is authorized to make payments to the Company in
amounts not in excess of any amounts the Company is required to pay to meet its
consolidated income tax obligations. Additional payments from the Subsidiary to
the Company are permitted commencing September 1,2003 in amounts not in excess
of the Company's obligations to make any cash dividend payments required to be
paid under the Company's Preferred Stock and to make any cash interest payments
required to be paid under any debentures issued by the Company in exchange for
the Company's Preferred Stock ("Exchange Debentures").
ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in fair value of a derivative depends on the its intended
use and the resulting designation. The provisions of this statement are
effective for the first quarter of the fiscal year ending November 30, 2000. The
Company has not yet determined the impact this statement will have on its
financial position or the results of its operations. The FASB has issued two
additional pronouncements since June 1998, neither of which is applicable to the
Company.
22
23
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 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 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.
26
27
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$150.0 million and receives LIBOR on that amount.
This swap transaction effectively fixes the interest rate on $150$150.0 million of
the Term Loan Facility at 5.805% plus the applicable spread for the duration of
the interest rate swap.
The remaining $75$58.8 million of the Term Loan Facility outstanding at
February 28, 1999 bears interest at the variable rates described above. In
addition, the Company has a revolving loan facility that had a balance of $35$20.6
million at August 31, 1998,February 28, 1999, 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 $1.1$.8 million per year assuming no change
in the level of borrowing under the revolving loan facility.
2723
2824
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K--None
24
25
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER HOLDINGS, INC.
/s/ Carroll D. Curless
------------------------
Carroll D. Curless
Vice President and Controller
(Principal Financial Officer and
Principal Accounting Officer)
DATE March 31, 1999
--------------
25
26
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER INDUSTRIES, INC.
/s/ Carroll D. Curless
----------------------
Carroll D. Curless
Vice President and Controller
(Principal Financial Officer and
Principal Accounting Officer)
DATE March 31, 1999
--------------
26
27
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS, INC.
/s/ Gary M. Freytag
-------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE March 31, 1999
---------------
27
28
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/s/ Gary M. Freytag
-----------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE March 31, 1999
--------------
28
29
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dulydully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER INDUSTRIES,FAR EAST, INC.
/S/ CARROLL D. CURLESS
--------------------------------
Carroll D. Curless/s/ Gary M. Freytag
----------------------------
Gary M. Freytag
Vice President and ControllerTreasurer
(Principal Financial Officer)
DATE October 1, 1998
---------------------March 31, 1999
--------------
29
30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dulydully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER HOLDINGS,FLUID SYSTEMS, INC.
/S/ CARROLL D. CURLESS
----------------------------------
Carroll D. Curless
Vice President and Controller/s/ Gary M. Freytag
-----------------------------
Gary M. Freytag
Treasurer
(Principal Financial Officer)
DATE October 1, 1998
-------------------March 31, 1999
--------------
30
31
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dulydully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS,EAGLE-PICHER MINERALS, INC.
/S/ DAVID G. KRALL
-------------------------------
David G. Krall
Secretary/s/ Gary M. Freytag
-------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE October 1, 1998
--------------------March 31, 1999
--------------
31
32
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dulydully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/S/ DAVID G. KRALL
-------------------------------
David G. Krall
SecretaryTECHNOLOGIES, LLC
/s/ J. D. Seller
----------------
J. D. Seller
Vice President, Controller
and Chief Financial Officer
DATE October 1, 1998
-----------------------March 31, 1999
--------------
32
33
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 G. KRALL
-----------------------------------
David G. Krall
Secretary
DATE October 1, 1998
---------------------
33
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 FLUID SYSTEMS, INC.
/S/ DAVID G. KRALL
----------------------------
David G. Krall
Secretary
DATE October 1, 1998
----------------------
34
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.
EAGLE-PICHER MINERALS, INC.
/S/ DAVID G. KRALL
------------------------------
David G. Krall
Secretary
DATE October 1, 1998
----------------------
35
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 TECHNOLOGIES, LLC
/S/ WILLIAM E. LONG
---------------------------------
William E. Long
President
DATE October 1, 1998
--------------------
36
37
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dulydully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/S/ DAVID G. KRALL
-----------------------------
David G. Krall
Secretary/s/ Gary M. Freytag
-------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE October 1, 1998
---------------------
37March 31, 1999
--------------
33
3834
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dulydully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHIGAN AUTOMOTIVE RESEARCH CORPORATION
/S/ DAVID G. KRALL
------------------------------
David G. Krall
Assistant/s/ Terence J. Rhoades
----------------------
Terence J. Rhoades
Secretary and Treasurer
(Principal Financial Officer)
DATE October 1, 1998
--------------------
38March 31, 1999
--------------
34
3935
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule (submitted
electronically to the Securities
and Exchange Commission for its
information)
3935