1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended February 28, 1999 Commission file number 333-49957-01
-------------
EAGLE-PICHER HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
- ----------------------------------- ------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
(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
--- ----
625,001 shares of Class A common capital stock, $.01 par value each, were
outstanding at 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 Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher 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
------
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 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended Three Months Ended
February 28 February 28
1999 1998
---- ----
Predecessor
Net Sales $194,443 $205,842
-------- --------
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 151,746 162,796
Selling and administrative 18,264 17,141
Management compensation - special - 2,056
Depreciation 10,112 8,983
Amortization of intangibles 4,020 3,839
Loss(gain)on sales of assets (34) -
-------- --------
184,108 194,815
-------- --------
Operating Income 10,335 11,027
Interest expense (11,342) (6,940)
Other income 169 820
-------- --------
Income (Loss) Before Taxes (838) 4,907
Income Taxes 300 4,100
-------- --------
Net Income (Loss) $(1,138) $ 807
======== ========
Income (Loss) Applicable
to Common Shareholders $(3,632) $ 807
======== ========
Income (Loss) per Common Share $ (3.63) $ .08
======== ========
Comprehensive Income (Loss) $(2,109) $(1,002)
======== ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
February 28 November 30
ASSETS 1999 1998
---- ----
CURRENT ASSETS
Cash and cash equivalents $ 10,325 $ 13,681
Receivables, less allowances 127,312 144,844
Inventories:
Raw materials and supplies 54,668 52,384
Work in process 23,019 20,641
Finished goods 16,718 15,848
------- -------
94,405 88,873
Prepaid expenses 10,927 8,338
Deferred income taxes 10,851 10,851
------- -------
Total current assets 253,820 266,587
------- -------
PROPERTY, PLANT AND EQUIPMENT 285,814 279,061
Less accumulated depreciation 39,126 30,524
------- -------
Net property, plant and equipment 246,688 248,537
------- -------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $16,321 and
$12,300, respectively 224,889 228,910
------- -------
OTHER ASSETS 73,483 72,293
------- -------
Total Assets $798,880 $816,327
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 47,905 $ 50,307
Long-term debt - current portion 19,246 25,173
Income taxes 2,365 6,282
Other current liabilities 72,713 74,260
------- -------
Total current liabilities 142,229 156,022
LONG-TERM DEBT - less current portion 457,808 459,183
DEFERRED INCOME TAXES 7,743 8,304
OTHER LONG-TERM LIABILITIES 25,210 24,819
------- -------
Total Liabilities 632,990 648,328
------- -------
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 HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
February 28 November 30
1999 1998
---- ----
SHAREHOLDERS' EQUITY
Class A Common stock, authorized 625,001 shares,
$.01 par value each; issued and outstanding
625,001 shares 6 6
Class B Common stock, authorized 374,999 shares,
$.01 par value each; issued and outstanding
374,999 shares 4 4
Additional paid-in capital 99,991 99,991
Deficit (25,378) (21,746)
Other comprehensive income 1,386 2,357
------ ------
Total Shareholders' Equity 76,009 80,612
------- -------
Total Liabilities and Shareholders' Equity $798,880 $816,327
======== ========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended Three Months Ended
February 28 February 28
1999 1998
---- ----
Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,138) $ 807
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 14,826 12,822
Changes in assets and liabilities,
net of effect of divestitures:
Receivables 2,691 (3,681)
Inventories (5,494) (2,235)
Accounts payable (2,442) (2,787)
Accrued liabilities (1,547) (5,488)
Other (6,377) (8,521)
-------- -------
Net cash provided by (used in)
operating activities 519 (9,083)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400 -
Capital expenditures (8,753) (5,692)
Other (220) (1,042)
-------- -------
Net cash provided by (used in)
investing activities 3,427 (6,734)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 445,000
Reduction of long-term debt (10,977) (250,000)
Borrowings (repayments)under revolving
credit agreement 805 79,100
Redemption of common stock - (446,638)
Issuance of common stock - 100,001
Issuance of preferred stock - 80,005
Debt issuance cost - (26,062)
Other 2,870 (360)
-------- -------
Net cash used in
financing activities (7,302) (18,954)
-------- -------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended Three Months MonthsEnded
February 28 February 28
1999 1998
---- ----
Predecessor
Net decrease in cash and cash equivalents (3,356) (34,771)
Cash and cash equivalents, beginning of period 13,681 53,739
------ -------
Cash and cash equivalents, end of period $10,325 $ 18,968
====== =======
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)
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The 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, 1998 presented in the Company's Form 10-K filed
with the SEC on 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 1998. (See Note B.) Results of
operations for interim periods are not necessarily indicative of results to be
expected for an entire year.
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting comprehensive income and its components.
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc.
("Subsidiary") was acquired by a subsidiary of Granaria Industries BV,
Eagle-Picher Holdings, Inc. ("Company"), from the Eagle-Picher Industries, Inc.
Personal Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was
established pursuant to the Subsidiary'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 Acquisition was accounted for using the purchase method of accounting.
The purchase price has been allocated to the assets and liabilities of the
Company based on their respective fair values as determined primarily by
independent appraisals. The excess of the purchase price over the assessed
values of the net assets was allocated to excess of acquired net assets over
cost. A vertical black line is shown inAs a result, the consolidated financial statements relating to
separate operations
after the Acquisition fromare not comparable to those prior to the Acquisition.
Accordingly, the period prior to the Acquisition (which are alsohas been labeled "Predecessor") since such financial statements have not
been prepared on a comparable basis."Predecessor."
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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 1,000,000 and 9,600,071
in the three months ended February 28, 1999 and 1998, respectively. Prior to the
Acquisition, 10,000,000 shares 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 ended February 28, 1999.
No potential common stock was outstanding during the three months ended 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. 333-49957333-49957-01
filed on April 11, 1998 and both of which were incorporated by reference to the
Company's Form 10-K filed on March 1, 1999.
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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)
======== ======== ======== ======== ======== ========
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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
=========
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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
========
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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
======== ======== ======== ======== ========= ========
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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.
17
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
As a result of the Acquisition 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 Trim
Division in the fourth quarter in 1998.
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated:
Three months ended Three months ended
Three Months Ended Three Months Ended
February 28 February 28
1999 1998
---- ----
(In millions of dollars)
Predecessor
Net sales by segment:
Automotive $103.7 $103.8
Machinery 53.0 64.4
Industrial 37.7 37.6
----- -----
Total $194.4 $205.8
===== =====
Operating income by segment:
Automotive $ 8.4 $ 8.2
Machinery 3.4 5.4
Industrial 3.5 3.2
Corporate overhead (5.0) (5.8)
----- -----
Total $ 10.3 $ 11.0
===== =====
EBITDA by segment:
Automotive $ 15.7 $ 15.2
Machinery 7.1 7.8
Industrial 6.8 6.8
Corporate overhead (4.5) (4.1)
----- -----
$ 25.1 $ 25.7
===== =====
Total
Net Sales. The Company's net sales were $194.4 million for the first
quarter ended February 28, 1999, a decrease of $11.4 million or 5.5% from the
comparable period of 1998. Included in the results of the first quarter of 1998
are sales of the Trim Division, which, if excluded, would result in a decrease
in the Company's quarterly net sales of approximately 2.2%.
18
19
The Automotive Group's net sales, excluding the Trim Division,
increased 7.2%. A substantial portion of the increase was due to implementation
of new programs in Europe at facilities manufacturing precision-machined
components and 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. Net sales for the Machinery Group in the first quarter
of 1999, decreased 17.7% due in part to the completion of a major satellite
program early in 1998. Demand for industrial cleaning machinery is also down
from the previous year. Increases in demand 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 first quarter of 1999 from the
comparable period in 1998.
Cost of Products Sold. Cost of products sold, which excludes
depreciation expense, decreased $11.1 million or 6.8% in the first quarter of
1999 from the comparable period in 1998. Excluding the results of the Trim
Division, as a percentage of sales, cost of products sold declined from 79.0% in
the first quarter of 1998 to 78.1% in the first quarter of 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.
Since 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 $1.1 million or 6.6% in the quarter ended February 28, 1999 from
the quarter ended February 28, 1998. Excluding the Trim Division, these expenses
increased $1.8 million or 11.2% over the same time frame. Items contributing to
this increase include management fees now payable to Granaria Holdings B.V. and
a retentionlong-term incentive program for mid-level management.managers.
Depreciation. Depreciation was $10.1 million and Amortization. Depreciation and amortization are not
comparable$9.0 million for the
three months ended February 28, 1999 and 1998, respectively. These amounts are
not comparable due to the differences in asset bases as a result ofresulting from the
Acquisition on February 24, 1998. EBITDA. The Company defines EBITDA as earnings before interest expense,
income taxes, depreciationIn accordance with purchase accounting, the
basis of property, plant and amortization, certain one-time management
compensation expenses, gain (loss) on sales of divisions and certain other non-
cash charges. Dueequipment was adjusted to the differencesfair value of such
assets as of the date of the Acquisition. This adjustment resulted in
approximately $0.5 million greater depreciation in the asset bases, itfirst quarter of 1999
than the same period of 1998. The remaining difference is preferabledue to compare EBITDA rather than operating income. EBITDA decreased from $25.7projects,
including a plant location where most of the expenditures occurred in 1997, but
the assets were not put into use until 1998.
Amortization. Amortization was $4.0 million inand $3.8 million for the
three months ended February 28, 1999 and 1998, respectively. However, these
amounts are not comparable. Prior to $25.1the Acquisition, the Company was amortizing
reorganization value in excess of amounts allocable to identifiable assets of
$65.1 million over four years. In accordance with purchase accounting, this
asset was not allocated a fair value in the Acquisition. The excess of acquired
net assets over cost of $241.2 million, which resulted from the Acquisition, is
being amortized over 15 years.
Operating Income. Operating income was $10.3 million and $11.0 million
for the three months ended February 28, 1999 and 1998, respectively. Many
factors affect the comparability of operating income in 1999 and 1998.
Depreciation and amortization have been computed using asset bases in 1999
different from those used in 1998. There were management compensation - special
expenses of $2.1 million in the first quarter of 1998 for which there were no
comparable expenses in the same period of 1999. Conversely, there were
management sees to Granaria Holdings B.V. and expenses related to a long-term
incentive program for managers in the first quarter of 1999 or 2.3%. After excludingwhich were not
incurred before the results ofAcquisition. In addition, the Trim Division EBITDAwas sold in the
fourth quarter of 1998. After excluding these items, operating income decreased
.8%.
EBITDA for the Automotive Group increased to $15.7 million8.9% in the first quarter of 1999 from $15.2the first quarter 1998.
Operating income of the Automotive Group increased $0.2 million or 2.4%
in the first quarter of 1999 compared to the same period inof the prior year, or
3.3%.year.
Excluding the results of the Trim Division, the increase was 6.1%3.7%. Increases in
EBITDAoperating income due to modest volume increases at most divisions were somewhat
offset by start-up costs associated with new multi-layer fuel transfer systems
programs. In the Machinery Group, EBITDAoperating income declined from $7.8$2.0 million or
37.0% in the first quarter of 19981999 from the first quarter of 1998. However, the
majority of the increased depreciation resulting from the adjustment to $7.1 millionasset
bases affected the Machinery Group. In addition, a greater portion of the
intangible asset associated with the Acquisition was allocated to the Machinery
Group than was the intangible asset associated with the Reorganization. After
considering these items, the decline in operating income in the comparable period of 1999, or
9.0%Machinery Group
was approximately 20.3%. TheReasons for this decline in EBITDA is due toinclude costs involved in
moving production of forklift trucks to another facility duringand start-up cost at
the quartersecond facility and to the decreasedecreases in volumes of industrial cleaning and
finishing machinery. In the first quartersOperating income of 1999 and
1998, EBITDA for the Industrial Group was constant at $6.8 million.increased $0.3
million or 9.4% in the first quarter of 1999 from the comparable period in 1998.
However, this increase is due to the reallocation of amortization which impacted
the Machinery Group. Operating income remained relatively flat in the Industrial
Group, if the effect of the reallocation is excluded. The 13.8% decline in
corporate overhead is due to the management compensation - special in 1998,
which is partially offset by the expenses incurred after the Acquisition in
1999.
Interest Expense. Interest expense for the three months ended February
28, 1999 and 1998 was $11.3 million and $6.9 million, respectively. In 1998,
interest expense included interest on the $250.0 million Subordinated Debentures
held by the Trust, which were retired upon the Acquisition. In 1999, the
increase in interest is attributable to debt issued in conjunction with the
Acquisition which included $220.0 million in Subordinated Notes and borrowings
against the Credit Facility which totaled $229.5 million at February 28.
Income Taxes. Income taxes for the three months ended February 28, 1999
and 1998 were $0.3 million and $4.1 million, respectively. The relationship of
Income tax expense to income before taxes varies because the amortization of the
reorganization value in excess of amounts allocable to identifiable assets in
1998 was not deductible for tax purposes, however, a substantial portion of the
amortization of the excess of acquired net assets over cost created during the
Acquisition is deductible for tax purposes in 1999. In addition the effect of
income taxes in countries having different tax structures, such as Germany,
varies as taxable income in those countries varies in proportion to the
Company's total income (loss).
Net Income (Loss). Net income (loss) for the three months ended
February 28, 1999 and 1998 was $(1.1) million and $0.8 million, respectively.
However, the comparability of net income has been significantly affected by
the Acquisition and the application of purchase accounting and the effect of
divested divisions in 1998, as discussed above.
In addition to the net loss of $(1.1) million in 1999, dividends were
accreted on the 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock
("Preferred Stock") of $2.5 million, which increased the loss attributable to
common Shareholders in 1999 to $(3.6) million. Since the Preferred Stock was
issued upon the Acquisition, net income applicable to common shareholders of
$0.8 million for the three months ended February 28, 1999 was not reduced.
19
20
FINANCIAL CONDITION
Liquidity and Capital Resources
Other financial data is as follows:
Three Months Ended
February 28
------------------
1999 1998
---- ----
(In millions of dollars)
EBITDA $25.1 $26.9
Cash provided by (used in)
operating activities .5 (9.1)
Cash provided by (used in)
investing activities 3.4 (6.7)
Cash used in financing
activities (7.3) (19.0)
Preferred Stock dividends
accreted 2.6 --
Earnings to fixed charges and
preferred stock dividends .76x 1.69x
EBITDA
The Company's EBITDA is defined by the terms of the 11 3/4% Cumulative
Redeemable Exchangeable Preferred Stock and the Indenture for the 9 3/8% Senior
Subordinated Notes as earnings before interest expense, income taxes,
depreciation and amortization, certain one-time management compensation items
and other non-cash charges. EBITDA, as defined herein, may not be comparable to
similarly titled measures reported by other companies and should not be
construed as an alternative to operating income or to cash flows from operating
activities, as determined by generally accepted accounting principles, as a
measure of the Company's operating performance or liquidity, respectively. Funds
depicted by EBITDA are not available for management's discretionary use to the
extent they are required for debt service and other commitments.
EBITDA has decreased from the first quarter of 1998 to the first
quarter of 1999 by $1.8 million or 6.7% due to the impact of the decline in
demand for forklift trucks and industrial cleaning machinery, the cost of moving
forklift production to another facility, expenses incurred by the Company
post-Acquisition for which there are no comparable expenses in 1998, and the
decline in interest income as the Company had cash balances prior to the
Acquisition which were invested.
Operating Activities
Cash provided by (used in) operating activities was $.5 million and
$(9.1) million for the three months ended February 28, 1999 and 1998,
respectively, and consisted of the following:
Three Months Ended
February 28
------------------
1999 1998
---- ----
(in millions of dollars)
EBITDA $25.1Operating income $10.3 $11.0
Depreciation and amortization,
excluding amortization of
deferred financing costs 14.1 12.8
Income taxes paid(paid) refunded (4.8) 2.3
Interest paid (6.2) (6.4)
Funding of Management Trust -- (10.0)
Working capital and other (13.6)
------(12.9) (18.8)
----- -----
$ .5 ======$(9.1)
===== =====
Income taxes paid in 1999 relate to foreign taxes and Federal income
tax payments for the tax period February 25, 1998 through November 30, 1998. In
1998, one of the European operations had received a large refund. Interest
expense exceeded interest paid by $5.1 million in the first quarter of 1999
primarily because the interest on the Subordinated Notes is due semiannually,
March 1 and September 1. The funding of the management trust relates to one-time
management compensation items and was done in conjunction with the Acquisition.
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
Cash provided by investing activities was $3.4 million in the three
months ended February 28, 1999. 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, 19981999 were $8.8.$8.8 million. 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. The
Company spent $5.7 million for capital projects in the first quarter of 1998,
primarily for maintenance capital and new programs.
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 expired, 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 the Company's revolving credit facility ("Facility"). In addition,
it is 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 the remainder will be assumed. The acquisition will be accounted for as a
purchase.
Financing Activities
Net Cash used in financing activities was $7.3 million and $ 19.0
million in the quarters ended February 28, 1999 and 1998 respectively. The
Company repaid the revolving loans outstanding at November 30, 1998 of $19.8
million early in the first quarter of 1999, 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 flow payments required under
provisions of the Credit Agreement.
As of February 28, 1999, letters of credit outstanding against the
Facility were $38.3 million. This coupled with the $20.6 million in outstanding
borrowings at February 28, 1998, leave the Company with available borrowing
capacity of approximately $101.1 million. The Carpenter Acquisition will result
in approximately $61.0 million in additional borrowings which will further
reduce available borrowing capacity. The Company anticipates the sale of its
Ross Aluminum Division will close late in the second quarter or early in the
third quarter of 1999. The proceeds from this transaction, will reduce
outstanding borrowing against the Facility. The European operations had $18.5
million of borrowing capacity at February 28, 1999.
Earnings to Fixed Charges and preferred Stock Dividends
Earnings to fixed charges and preferred stock dividends were .76x for
the first quarter ended February 28, 1999. Earnings were insufficient by $3.3
million to cover fixed charges and preferred stock dividends of $2.5 million in
the period. Earnings to fixed charges and preferred dividends were 1.69x for the
quarter ended February 28, 1998.
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 currently 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 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 Company's Year 2000 program involves a five step 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 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.
The Company's divisions have substantially completed the inventory and
assessment phases and are working on remediation and testing. The Company
expects that all divisions 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 $2.5 million. Of this amount, approximately $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. 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 incremental 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 shipments 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 limited
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 1998, combined revenues from these sources were
approximately 15% of total revenues. The Company has operations in Germany, the
Netherlands, France and Spain, which are participating in the euro conversion,
and the United Kingdom, which has elected not to participate at this time. The
affected operations plan to make the euro the functional currency sometime
during the transition 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 euro conversion
on the Company's operations, both in Europe and in the United States. In markets
where sales are made in U.S. dollars, there may be pressures to denominate sales
in the euro, however, exchange risks resulting from these transactions could be
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 1,20031, 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's 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 $150.0 million and receives LIBOR on that amount.
This swap transaction effectively fixes the interest rate on $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 $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 $20.6
million at 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 $.8 million per year assuming no change
in the level of borrowing under the revolving loan facility.
23
24
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 dullyduly 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,May 27, 1999
--------------------------
25
26
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly 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,May 27, 1999
--------------------------
26
27
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly 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,May 27, 1999
---------------------------
27
28
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly 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,May 27, 1999
--------------------------
28
29
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FAR EAST, INC.
/s/ Gary M. Freytag
----------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE March 31,May 27, 1999
--------------------------
29
30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FLUID SYSTEMS, INC.
/s/ Gary M. Freytag
-----------------------------
Gary M. Freytag
Treasurer
(Principal Financial Officer)
DATE March 31,May 27, 1999
--------------------------
30
31
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER MINERALS, INC.
/s/ Gary M. Freytag
-------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE March 31,May 27, 1999
--------------------------
31
32
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ J. D. Seller
----------------
J. D. Seller
ViceWilliam E. Long
------------------
William E. Long
President
/s/ R. Doug Wright
------------------
R. Doug Wright
Controller
and Chief(Principal Financial OfficerOfficer)
DATE March 31,May 27, 1999
--------------
32
33
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ Gary M. Freytag
-------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE March 31,May 27, 1999
--------------------------
33
34
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has dullyduly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHIGAN AUTOMOTIVE RESEARCH CORPORATION
/s/ Terence J. Rhoades
----------------------
Terence J. Rhoades
Secretary and Treasurer
(Principal Financial Officer)
DATE March 31,May 27, 1999
--------------------------
34
35
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule (submitted
electronically to the Securities
and Exchange Commission for its
information)
35