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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended February 28,August 31, 1999        Commission file number 333-49957-01
                                                                   -------------



                         EAGLE-PICHER HOLDINGS, INC.
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            (Exact name of registrant as specified in its charter)



           DELAWARE                                    13-3989553
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  (State or other jurisdiction of         (I.R.S. Employer Identification No.)
   incorporation or organization)


         250 East Fifth Street, Suite 500, Cincinnati, Ohio    45202
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         (Address of principal executive offices)             Zip Code


Registrant's telephone number, including area code       513-721-7010
                                                  ---------------------------------------------------------


                               (Not Applicable)
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              Former name, former address and former fiscal year,
                         if changed since last report


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---   ---

Indicate by check mark whether the additional registrant, Eagle-Picher
Industries, Inc., has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes X  No
                                                                 ---   -------

625,001 shares of Class A common capital stock, $.01 par value each, were
outstanding at March 26,September 24, 1999.

374,999 shares of Class B common capital stock, $.01 par value each, were
outstanding at March 26,September 24, 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
2 3 TABLE OF CONTENTS
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements.........................................4Statements............................................ 4 Condensed Consolidated Statements of Income (Loss)(Unaudited)....4....... 4 Condensed Consolidated Balance Sheets (Unaudited)................5................... 5 Condensed Consolidated Statements of Cash Flows (Unaudited)......7......... 7 Notes to Condensed Consolidated Financial Statements (Unaudited).9.... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................18Operations.......................................23 Item 3. Quantitative and Qualitative Disclosures About Market Risk..23Risk......31 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................24 Signatures...........................................................258-K................................32 Signatures...............................................................33 Exhibit Index........................................................35Index............................................................43
3 4 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 Nine Months Six Months Three Months August 31 Ended February 28Ended Ended ------------------------ August 31 August 31 February 28 1999 1998 ---- ----1999 1998 1998 --------- --------- --------- --------- --------- Predecessor Net Sales $194,443 $205,842 -------- --------$ 231,308 $ 206,356 $ 675,569 $ 426,277 $ 205,842 --------- --------- --------- --------- --------- Operating Costs and Expenses: Cost of productsProducts sold (exclusive of depreciation) 151,746185,283 163,518 534,786 333,093 162,796 Selling and administrative 18,26417,874 18,042 55,859 38,329 17,141 Management compensation - special --- 4,395 -- 21,716 2,056 Depreciation 10,11211,836 9,644 33,901 19,417 8,983 Amortization of intangibles 4,0204,413 4,244 12,828 8,741 3,839 Loss(gain)Loss (gain) on sales of assets (34) - -------- -------- 184,108148 -- 137 -- -- --------- --------- --------- --------- --------- 219,554 199,843 637,511 421,296 194,815 -------- ----------------- --------- --------- --------- --------- Operating Income 10,33511,754 6,513 38,058 4,981 11,027 Interest expense (11,342)(14,137) (12,132) (37,586) (24,686) (6,940) Other income 169659 681 985 1,007 820 -------- ----------------- --------- --------- --------- --------- Income (Loss) Before Taxes (838)(1,724) (4,938) 1,457 (18,698) 4,907 Income Taxes 300(Benefit) 350 (1,135) 2,300 (5,596) 4,100 -------- ----------------- --------- --------- --------- --------- Net Income (Loss) $(1,138)$ (2,074) $ (3,803) $ (843) $ (13,102) $ 807 ======== ================= ========= ========= ========= ========= Income (Loss) Applicable to Common Shareholders $(3,632)$ (4,714) $ (6,338) $ (8,617) $ (17,990) $ 807 ======== ================= ========= ========= ========= ========= Income (Loss) per Common Share $ (3.63)(4.71) $ (6.34) $ (8.62) $ (17.99) $ .08 ======== ================= ========= ========= ========= ========= Comprehensive Income (Loss) $(2,109) $(1,002) ======== ========Loss $ (1,561) $ (4,329) $ (3,035) $ (12,975) $ (1,002) ========= ========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements. 4 5 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
February 28August 31 November 30 ASSETS 1999 1998 ---- ------------ -------- CURRENT ASSETS Cash and cash equivalents $ 10,3254,957 $ 13,681 Receivables, less allowances 127,312142,061 144,844 Inventories: Raw materials and supplies 54,66860,520 52,384 Work in process 23,01929,018 20,641 Finished goods 16,71816,943 15,848 ------- ------- 94,405-------- -------- 106,481 88,873 Prepaid expenses 10,9279,649 8,338 Deferred income taxes 12,129 10,851 10,851 ------- --------------- -------- Total current assets 253,820275,277 266,587 ------- --------------- -------- PROPERTY, PLANT AND EQUIPMENT 285,814351,775 279,061 Less accumulated depreciation 39,12662,301 30,524 ------- --------------- -------- Net property, plant and equipment 246,688289,474 248,537 ------- --------------- -------- EXCESS OF ACQUIRED NET ASSETS OVER COST, net of accumulated amortization of $16,321$25,128 and $12,300, respectively 224,889239,230 228,910 ------- --------------- -------- OTHER ASSETS 73,48376,855 72,293 ------- --------------- -------- Total Assets $798,880$880,836 $816,327 ======= =============== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 47,90559,328 $ 50,307 Long-term debt - current portion 19,24622,125 25,173 Income taxes 2,3652,919 6,282 Other current liabilities 72,71377,673 74,260 ------- --------------- -------- Total current liabilities 142,229162,045 156,022 LONG-TERM DEBT - less current portion 457,808518,197 459,183 DEFERRED INCOME TAXES 7,74310,404 8,304 OTHER LONG-TERM LIABILITIES 25,21025,244 24,819 ------- --------------- -------- Total Liabilities 632,990715,890 648,328 ------- --------------- -------- 11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK; authorized 50,000 shares; issued and outstanding 14,191 shares 89,88195,161 87,387 ------- --------------- --------
5 6 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
February 28August 31 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)(30,363) (21,746) Other comprehensive income 1,386147 2,357 ------ --------------- --------- Total Shareholders' Equity 76,00969,785 80,612 ------- ---------------- --------- Total Liabilities and Shareholders' Equity $798,880 $816,327 ======== ========$ 880,836 $ 816,327 ========= =========
See accompanying notes to the condensed consolidated financial statements. 6 7 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Nine Months Six Months Three Months Ended Three Months Ended February 28Ended August 31 August 31 February 28 1999 1998 ---- ----1998 --------- -------- --------- Predecessor CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(1,138)$ (843) $(13,102) $ 807 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 14,82648,851 29,522 12,822 Proceeds from insurance settlement -- 13,659 -- Changes in assets and liabilities, net of effect of acquisitions and divestitures: Receivables 2,6917,701 15,848 (3,681) Inventories (5,494)(12,587) 4,435 (2,235) Accounts payable (2,442)(5,677) (6,837) (2,787) Accrued liabilities (1,547)1,516 25,205 (5,488) Other (6,377)(4,026) (4,784) (8,521) --------- -------- ---------------- Net cash provided by (used in) operating activities 51934,935 63,946 (9,083) --------- -------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of division 12,400 --- -- Acquisition (60,209) -- -- Capital expenditures (8,753)(39,860) (16,053) (5,692) Other (220)517 94 (1,042) --------- -------- ---------------- Net cash provided by (used in)used in investing activities 3,427(87,152) (15,959) (6,734) --------- -------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt --- -- 445,000 Reduction of long-term debt (10,977)(136,522) (2,580) (250,000) BorrowingsNet borrowings (repayments)under revolving credit agreement 805 79,100agreements 180,285 (43,253) 78,740 Redemption of common stock --- -- (446,638) Issuance of common stock --- -- 100,001 Issuance of preferred stock --- -- 80,005 Debt issuance cost -(54) -- (26,062) Other 2,870 (360)(216) (23) -- --------- -------- ---------------- Net cash used inprovided by (used in) financing activities (7,302)43,493 (45,856) (18,954) --------- -------- ----------------
7 8 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Nine Months Six Months Three Months Ended Three Months Months February 28Ended Ended August 31 August 31 February 28 1999 1998 ---- ----1998 -------- ------- -------- Predecessor Net decreaseincrease (decrease) in cash and cash equivalents (3,356)(8,724) 2,131 (34,771) Cash and cash equivalents, beginning of period 13,681 18,968 53,739 -------------- ------- -------- Cash and cash equivalents, end of period $10,325$ 4,957 $21,099 $ 18,968 ============== ======= ========
Supplemental cash flow information: 1999 1998 ---- ---- Cash paid during the nine months ended August 31: Interest paid $29,527 $19,060 Income taxes paid, net $10,122 $ 4,446 Cash paid during the three months ended February 28:August 31: Interest paid $6,201 $ 6,3907,968 $ 6,250 Income taxes paid, (refunded), net $4,778 $(2,283)$ 2,124 $ 4,141
See accompanying notes to the condensed consolidated financial statements. 8 9 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-K10-K/A filed with the SEC on March 1,June 28, 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 nine months ended August 31, 1999, the six months ended August 31, 1998 and the three months ended August 31, 1999 and 1998, and 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. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. 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.bankruptcy in November 1996. 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." 9 10 C. ACQUISITION On April 14, 1999, the Company acquired all of the outstanding capital stock of Charterhouse Automotive Group, Inc. ("Charterhouse"), a holding company whose only operating subsidiary was Carpenter Enterprises, Ltd. ("Carpenter"), a manufacturer of precision-machined automotive parts. Immediately following the acquisition, Charterhouse was merged into Carpenter. The total consideration paid for Charterhouse was approximately $72.0 million consisting of $37.9 million for the stock of Charterhouse, a $3.1 million payment to the former president of Carpenter under a phantom stock plan and $31.0 million of existing indebtedness of Carpenter, of which approximately $18.6 million was refinanced from the Company's Revolving Credit Facility. The acquisition of Charterhouse was effective as of March 1, 1999 for accounting purposes and was accounted for as a purchase. The preliminary allocation of the purchase price has been determined based on estimates of fair value and is subject to change. Appraisals are currently being completed to value property, plant and equipment. The excess of the purchase price over the assessed values of those assets has been allocated to goodwill. The Company expects to finalize the purchase price allocation by November 30, 1999. Other than adjustments to record property, plant and equipment at fair value, adjustments are not expected to be material. The following pro forma information for the nine months ended August 31, 1999 and 1998 gives effect to the acquisition of Carpenter as if it had been consummated on December 1, 1998 and 1997, 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 --------------------------- 1999 1998 ---- ---- (Dollars in thousands, except per share amounts) (unaudited) Net sales $ 707,100 $ 698,200 Net income (loss) $ (1,100) $ (12,100) Net income (loss) applicable to common shareholders $ (8,928) $ (16,988) Net loss per common share $ (8.93) $ (16.99) Average number of common shares 1,000,000 1,000,000
D. 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 in the three months and nine months ended August 31, 1999 and in the three months and six months ended August 31, 1998 and 9,600,071 in the three months ended February 28, 1999 and 1998, respectively.1998. Prior to the Acquisition, 10,000,000 shares were 10 11 outstanding. The net loss applicable to common shareholders represents the net income reduced by, or the net loss increased by, accumulatedaccreted dividends on preferred stock of $2.6 million and $7.8 million for the three and nine months ended August 31, 1999, respectively, and $2.5 million and $4.9 million for the three months and six months ended February 28, 1999.August 31, 1998, respectively. No potential common stock was outstanding during the threenine months ended February 28,August 31, 1999 or 1998. E. LONG-TERM DEBT On May 18, 1999, the Company amended its syndicated secured loan facility ("Credit Agreement") to provide for a) a securitization transaction ("Securitization"); b) an increase in the revolving credit facility ("Revolving Credit Facility") provided under the Credit Agreement; and c) the repayment and cancellation of a portion of the term loan facility ("Term Loan Facility") provided under the Credit Agreement. The transaction was funded on June 4, 1999. D.In connection with the Securitization, the Company will sell its domestic trade receivables on an ongoing basis to a wholly-owned, consolidated subsidiary, Eagle-Picher Acceptance Corporation. The receivables are then used as security for loans made under a separate revolving credit facility providing up to $75.0 million. In addition, the Credit Agreement was amended to increase the amount available for borrowings under the Revolving Credit Facility from $160.0 million to $220.0 million and allow the Company to repay two of the term loans under the Term Loan Facility without requiring that the third term loan be ratably reduced. Interest rate spreads under the Credit Agreement increased by .25% and loans outstanding under the Securitization are at variable rates equal to market rates on commercial paper with fees of .75% on 102% of the maximum amount available. Approximately $120.5 million in term loans were repaid upon closing of this transaction with the proceeds from the Securitization of $65.0 million and additional borrowings under the revolving Credit Facility. F. 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"), andSubsidiary issued $220.0 million in senior subordinated notes ("Subordinated Notes"). in addition to its borrowings under the Credit Agreement. Both the Credit Agreement and the Subordinated Notes are guaranteed on a full, unconditional and joint and several basis by the Company and certain of the Subsidiary's wholly-owned domestic subsidiaries ("Subsidiary Guarantors"). including Carpenter and Eagle-Picher Acceptance Corporation. 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-K10-K/A filed on March 1,June 28, 1999. 1011 1112 EAGLE-PICHER HOLDINGS,INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) THREE MONTHS ENDED FEBRUARY 28,AUGUST 31, 1999
GUARANTORS -------------------------------------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- -------------- -------------- ---------------- ---------------- ---------------------- ------------ ----- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 50,98353,009 $ - $116,749-- $ 26,711150,027 $ - $194,44328,272 $ -- $ 231,308 Intercompany 3,112 - 2,634 1,879 (7,625) -2,817 -- 3,101 2,099 (8,017) -- Operating Costs and ExpensesExpenses: Cost of products sold (exclusive of depreciation) 40,406 - 94,740 24,260 (7,660) 151,74641,039 -- 125,464 26,823 (8,043) 185,283 Selling and administrative 10,417 - 5,342 2,569 (64) 18,2649,933 -- 5,164 2,828 (51) 17,874 Intercompany charges (2,357) - 2,357 (65) 65(2,883) -- 2,883 (50) 50 -- Depreciation 2,916 - 6,046 1,150 - 10,1122,863 -- 7,717 1,256 -- 11,836 Amortization of intangibles 1,385 -1,778 -- 2,393 242 - 4,020 Loss-- 4,413 (Gain) loss on sale of assets (10) - (12) (12) - (34)(4) -- 152 -- -- 148 -------- ------- --------- -------- ------- --------- Total 52,726 -- 143,773 31,099 (8,044) 219,554 -------- ------- --------- -------- -------- -------- Total 52,757 - 110,866 28,144 (7,659) 184,108 -------- -------- -------- -------- -------- --------------- --------- Operating Income 1,338 - 8,517 446 34 10,335(Loss) 3,100 -- 9,355 (728) 27 11,754 Other Income (Expense) Interest expense (11,172) - - (170) - (11,342)(11,903) -- (2,664) (231) 661 (14,137) Other income (expense) 147 - 36 (14) - 169213 -- 958 149 (661) 659 Equity in earnings of consolidated subsidiaries 5,844 (1,138) 6 - (4,712)3,969 (2,074) 301 -- (2,196) -- -------- ------- --------- -------- -------- -------- -------- --------------- --------- Income (Loss) Before Taxes (3,843) (1,138) 8,559 262 (4,678) (838)(4,621) (2,074) 7,950 (810) (2,169) (1,724) Income Taxes (2,677) - 2,413 564taxes (benefit) (2,821) -- 3002,654 517 -- 350 -------- ------- --------- -------- -------- -------- -------- --------------- --------- Net Income (Loss) $ (1,166)(1,800) $(2,074) $ (1,138)5,296 $ 6,146(1,327) $(2,169) $ (302) $ (4,678) $ (1,138)(2,074) ======== ======= ========= ======== ======== ======== ======== ========
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 FLOWSINCOME (LOSS) (UNAUDITED) THREENINE MONTHS ENDED FEBRUARY 28,AUGUST 31, 1999
GUARANTORS ----------------------------------------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ---------------- ----------- ------------------ ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Sales Customers $ 162,812 $ -- $ 430,948 $ 81,809 $ -- $ 675,569 Intercompany 9,962 -- 7,680 6,070 (23,712) -- Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) 127,865 -- 354,464 76,273 (23,816) 534,786 Selling and administrative 31,402 -- 16,650 7,962 (155) 55,859 Intercompany charges (8,079) -- 8,078 (161) 162 -- Depreciation 8,700 -- 21,552 3,649 -- 33,901 Amortization of intangibles 4,922 -- 7,179 727 -- 12,828 (Gain) loss on sale of assets (20) -- 152 5 -- 137 --------- ----- --------- -------- -------- --------- Total 164,790 -- 408,075 88,455 (23,809) 637,511 --------- ----- --------- -------- -------- --------- Operating Income (Loss) 7,984 -- 30,553 (576) 97 38,058 Other Income (Expense) Interest expense (34,885) -- (2,737) (625) 661 (37,586) Other income (loss)(expense) 758 -- 994 (106) (661) 985 Equity in earnings of consolidated subsidiaries 17,795 (843) 561 -- (17,513) -- --------- ----- --------- -------- -------- --------- Income (Loss) Before Taxes (8,348) (843) 29,371 (1,307) (17,416) 1,457 Income taxes (benefit) (7,969) -- 8,983 1,286 -- 2,300 --------- ----- --------- -------- -------- --------- Net Income (Loss) $ (1,166)(379) $(843) $ (1,138)20,388 $ 6,146(2,593) $(17,416) $ (302)(843) ========= ===== ========= ======== ======== =========
13 14 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED) AS OF AUGUST 31, 1999
GUARANTORS -------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) ASSETS Cash and cash equivalents $ (4,678)383 $ 1 $ 1,125 $ 3,247 $ 201 $ 4,957 Receivables, net 14,209 -- 104,271 23,581 -- 142,061 Intercompany accounts receivable 4,037 -- 3,818 448 (8,303) -- Inventories 30,702 -- 57,962 19,192 (1,375) 106,481 Prepaid expenses 3,671 -- 4,803 1,219 (44) 9,649 Deferred income taxes 12,129 -- -- -- -- 12,129 --------- -------- -------- --------- --------- -------- Total current assets 65,131 1 171,979 47,687 (9,521) 275,277 Property, Plant & Equipment, net 61,903 -- 185,682 41,889 -- 289,474 Investment in Subsidiaries 140,523 164,798 6,978 -- (312,299) -- Excess of Acquired Net Assets Over Cost, net 97,064 -- 129,074 13,092 -- 239,230 Other Assets 63,478 -- 21,368 614 (8,605) 76,855 --------- -------- -------- --------- --------- -------- Total Assets $ 428,099 $164,799 $515,081 $ 103,282 $(330,425) $880,836 ========= ======== ======== ========= ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 12,003 $ -- $ 36,259 $ 11,066 $ -- $ 59,328 Intercompany accounts payable 140 -- 442 7,673 (8,255) -- Long-term debt - current portion 14,882 -- -- 7,243 -- 22,125 Income taxes 2,524 -- -- 395 -- 2,919 Other current liabilities 48,653 -- 23,794 5,296 (70) 77,673 --------- -------- -------- --------- --------- -------- Total current liabilities 78,202 -- 60,495 31,673 (8,325) 162,045 Long-term Debt - less current portion 445,814 -- 71,855 9,133 (8,605) 518,197 Deferred Income Taxes 10,934 -- -- (530) -- 10,404 Other Long-Term Liabilities 25,244 -- -- -- -- 25,244 --------- -------- -------- --------- --------- -------- Total liabilities 560,194 -- 132,350 40,276 (16,930) 715,890 Intercompany Accounts (311,674) -- 294,528 31,004 (13,858) -- 11-3/4% Cumulative Redeemable Exchangeable Preferred Stock -- 95,161 -- -- -- 95,161 Shareholders' Equity 179,579 69,638 88,203 32,002 (299,637) 69,785 --------- -------- -------- --------- --------- -------- Total Liabilities and Shareholders' Equity $ 428,099 $164,799 $515,081 $ 103,282 $(330,425) $880,836 ========= ======== ======== ========= ========= ========
14 15 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED AUGUST 31, 1999
GUARANTORS -------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) Cash Flows From Operating Activities: Net Income (Loss) $ (379) $(843) $ 20,388 $(2,593) $(17,416) $ (843) 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)(17,795) 843 (561) -- 4,71217,513 -- Depreciation and amortization 4,99515,744 -- 8,439 1,39228,731 4,376 -- 48,851 Changes in assets and liabilities, net of effect of acquisitions and divestitures (4,711)16,264 -- (5,751) (3,062) 355(24,254) (5,325) 242 (13,073) --------- ----- -------- ------- -------- -------- -------- ----------------- Net cash provided by (used in) operating activities (6,726)13,834 -- 8,828 (1,972) 38924,304 (3,542) 339 34,935 --------- ----- -------- ------- -------- -------- -------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of division 12,400 -- -- -- -- 12,400 Acquisition of division -- -- (60,209) -- -- (60,209) Capital expenditures (1,615)(4,055) -- (4,664) (2,474)(26,772) (9,033) -- (39,860) Other (585)(757) -- (82) 90 357749 (183) 708 517 --------- ----- -------- ------- -------- -------- -------- ----------------- Net cash provided by (used in) investing activities 10,2007,588 -- (4,746) (2,384) 357(86,232) (9,216) 708 (87,152) --------- ----- -------- ------- -------- -------- -------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term debt (10,977)(136,522) -- -- -- -- (136,522) Borrowings (repayments) on revolving credit agreement 805107,175 -- 63,250 9,860 -- 180,285 Other (54) -- -- (216) -- -- Other -- -- -- 2,870 --(270) --------- ----- -------- ------- -------- -------- -------- ----------------- Net cash provided by (used in) financing activities (10,172)(29,401) -- 63,250 9,644 -- 2,870 --43,493 --------- ----- -------- ------- -------- -------- -------- ----------------- Increase (decrease) in cash and cash equivalents (6,698)(7,979) -- 4,082 (1,486) 7461,322 (3,114) 1,047 (8,724) Intercompany accounts 3,964898 -- (3,922) 1,038 (1,080)(909) 1,236 (1,225) -- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,464 1 712 5,125 379 13,681 --------- ----- -------- ------- -------- -------- -------- ----------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,730383 $ 1 $ 8721,125 $ 4,6773,247 $ 45201 $ 4,957 ========= ===== ======== ======= ======== ======== ======== =================
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 ========
1315 1416 EAGLE-PICHER HOLDINGS, INCINC. SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETSCOMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) AS OF NOVEMBER 30,THREE MONTHS ENDED AUGUST 31, 1998
GUARANTORS ----------------------------------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ---------------- ------------ --------------- ------------ ---------------- (IN THOUSANDS OF DOLLARS) ASSETS CashNet Sales Customers $ 63,628 $ -- $117,887 $ 24,841 $ -- $ 206,356 Intercompany 3,793 -- 2,193 1,012 (6,998) -- Operating Costs and cash equivalentsExpenses: Cost of products sold (exclusive of depreciation) 51,580 -- 97,338 21,581 (6,981) 163,518 Selling and administrative 11,160 -- 4,487 2,395 -- 18,042 Intercompany charges (2,241) -- 2,241 -- -- -- Depreciation 2,990 -- 5,683 1,046 (75) 9,644 Amortization of intangibles 610 -- 3,634 -- -- 4,244 Management compensation-special 4,395 -- -- -- -- 4,395 -------- ------- -------- -------- ------- --------- 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 434 -- 178 72 (3) 681 Equity in earnings of consolidated subsidiaries 5,000 (3,803) 80 -- (1,277) -- -------- ------- -------- -------- ------- --------- Income (Loss) Before Taxes (7,644) (3,803) 6,955 776 (1,222) (4,938) Income taxes (benefit) (3,866) -- 2,081 650 -- (1,135) -------- ------- -------- -------- ------- --------- Net Income (Loss) $ 7,464(3,778) $(3,803) $ 14,874 $ 712126 $(1,222) $ 5,125(3,803) ======== ======= ======== ======== ======= =========
16 17 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) SIX MONTHS ENDED AUGUST 31, 1998
GUARANTORS --------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 379132,861 $ 13,681 Receivables, net 52,197 - 70,418 22,229 - 144,844-- $243,412 $ 50,004 $ -- $ 426,277 Intercompany accounts receivable 3,414 - 3,874 154 (7,442)7,944 -- 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 - - - - 10,8514,824 3,341 (16,109) -- Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) 105,862 -- 199,185 44,080 (16,034) 333,093 Selling and administrative 23,254 -- 10,283 4,792 -- 38,329 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 Management compensation-special 21,716 -- -- -- -- 21,716 --------- -------- -------- -------- -------- --------- --------- 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)153,807 -- Excess of Assets Acquired Over Cost, net 78,838 - 136,253 13,819 - 228,910 Other Assets 54,187 - 17,675 431 - 72,293232,742 50,917 (16,170) 421,296 --------- -------- -------- -------- -------- --------- --------- 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)Operating Income (Loss) (13,002) -- Long-term debt - current portion 18,777 - - 6,396 - 25,17315,494 2,428 61 4,981 Other Income taxes 5,296 - - 986 - 6,282(Expense) Interest expense (24,422) -- -- (264) -- (24,686) Other current liabilities 45,744 - 24,464 4,052 - 74,260income 625 -- 264 121 (3) 1,007 Equity in earnings of consolidated subsidiaries 11,729 (13,102) 123 -- 1,250 -- --------- -------- -------- -------- -------- --------- --------- 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 (Loss) Before Taxes 8,304 - - - - 8,304 Other Long-Term Liabilities 24,819 - - - - 24,819(25,070) (13,102) 15,881 2,285 1,308 (18,698) Income taxes (benefit) (12,033) -- 4,906 1,531 -- (5,596) --------- -------- -------- -------- -------- --------- --------- 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 $426,542Net Income (Loss) $ 96,359 $(293,760) $816,327(13,037) $(13,102) $ 10,975 $ 754 $ 1,308 $ (13,102) ========= ======== ======== ======== ======== ======== ========= ========
1417 1518 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 ExpensesExpenses: Cost of products sold (exclusive of depreciation)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 Management compensation-special 2,056 -- -- -- 2,056 -------- --------- --------- --------- ----------------- ------- --------- 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 Taxestaxes 1,083 2,486 531 -- 4,100 -------- --------- --------- --------- ----------------- ------- --------- Net Income (Loss) $ 648 $ 4,785 $ 66 $ (4,692)$(4,692) $ 807 ======== ========= ========= ========= ================= ======= =========
1518 1619 EAGLE-PICHER HOLDINGS, INCINC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTSCOMBINED BALANCE SHEETS (UNAUDITED) AS OF CASH FLOWS (UNAUDITED) FOR THREE MONTHS ENDED FEBRUARY 28,NOVEMBER 30, 1998 PREDECESSOR
GUARANTORS ------------------------------------------------------------ NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS ----------- ----------------TOTAL ------ -------------- -------------- -------------------------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: 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 & 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 SHAREHOLDERS' 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 --------- -------- -------- ------- --------- -------- 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 ========= ======== ======== ======= ========= ========
19 20 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED) FOR SIX MONTHS ENDED AUGUST 31, 1998
GUARANTORS --------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) Cash Flows From Operating Activities: Net income (loss)Income (Loss) $(13,037) $(13,102) $ 64810,975 $ -754 $ 4,785 $ 66 $ (4,692)1,308 $(13,102) 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(11,729) 13,102 (123) -- (1,250) -- Depreciation and amortization 3,588 - 8,284 950 -8,877 -- 18,736 2,045 (136) 29,522 Proceeds from insurance settlement 13,659 -- -- -- -- 13,659 Changes in assets and liabilities net of effect of divestitures (16,059) - (9,247) 2,019 575 --------- --------- --------- --------- ---------22,315 -- 11,724 (43) (129) 33,867 -------- -------- -------- ------- ------- -------- Net cash provided by (used in) operating activities (16,608) - 4,092 3,035 398 --------- --------- --------- --------- ---------20,085 -- 41,312 2,756 (207) 63,946 -------- -------- -------- ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in Subsidiary - (180,005) - - 180,005 Capital expenditures (2,300) - (1,833) (1,559) -(5,985) -- (5,321) (4,747) -- (16,053) Other (956) - 65 (846) 695 --------- --------- --------- --------- ---------(2,276) -- (275) (878) 3,523 94 -------- -------- -------- ------- ------- -------- Net cash provided by (used in) investing activities (3,256) (180,005) (1,768) (2,405) 180,700 --------- --------- --------- --------- ---------(8,261) -- (5,596) (5,625) 3,523 (15,959) -------- -------- -------- ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt 445,000 - - - - Reduction of long-term debt (250,000) - - - -(2,580) -- -- -- -- (2,580) Borrowings under(repayments) on 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) - - - -(44,100) -- -- 847 -- (43,253) Other - - - (360) - --------- --------- --------- --------- ----------- -- -- (23) -- (23) -------- -------- -------- ------- ------- -------- Net cash provided by (used in) financing activities (18,595) 180,006 - (360) (180,005) --------- --------- --------- --------- ---------(46,680) -- -- 824 -- (45,856) -------- -------- -------- ------- ------- -------- Increase (decrease) in cash and cash equivalents (38,459) 1 2,324 270 1,093(34,856) -- 35,716 (2,045) 3,316 2,131 Intercompany accounts 1,740 - (1,740) 899 (899)36,124 -- (36,151) 3,440 (3,413) -- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 48,834 - 561 4,344 -- --------- --------- --------- --------- ---------12,115 1 1,145 5,513 194 18,968 -------- -------- -------- ------- ------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,11513,383 $ 1 $ 1,145710 $ 5,5136,908 $ 194 ========= ========= ========= ========= =========97 $ 21,099 ======== ======== ======== ======= ======= ========
20 21 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 TOTAL ------ -------------- ---------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Cash Flows From Operating Activities: Net income (loss)Income (Loss) $ 648 $ -- $ 4,785 $ 66 $ (4,692) $ 807 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 -- 12,822 Changes in assets and liabilities, net of effect of divestitures (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: Investment in Subsidiary --- (180,005) -- -- 180,005 -- 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) (180,005) (1,768) (2,405) 180,700 (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(repayments) on revolving credit agreement 79,100 -- -- (360) -- 78,740 Redemption of common stock (446,638) -- -- -- -- (446,638) Issuance of common stock 180,005 100,001 -- -- (180,005) 100,001 Issuance of preferred sockstock -- 80,005 -- -- -- 80,005 Debt issue cost (26,062) Other (360)-- -- -- -- (26,062) --------- --------- ------- ------- --------- --------- Net cash provided by (used in) financing activities (18,595) 180,006 -- (360) (180,005) (18,954) --------- --------- ------- ------- --------- --------- Increase (decrease) in cash and cash equivalents (38,459) 1 2,324 270 1,093 (34,771) 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 $ 1,145 $ 5,513 $ 194 $ 18,968 ========= ========= ======= ======= ========= =========
1621 17 E.22 G. 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-K10-K/A 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. 17H. SUBSEQUENT EVENT On September 1, 1999, the Board of Directors approved a plan to explore the sale of several smaller divisions in addition to the Ross Aluminum Division (which, as previously announced, the Company is in the process of selling) in order to focus on core businesses. None of the divisions under consideration had sales in excess of approximately $35.0 million in the nine months ended August 31, 1999 or $40.0 million in the twelve months ended November 30, 1998. In the aggregate, the divisions under consideration for sale (including the Ross Aluminum Division) had sales of approximately $95.0 million in the nine months ended August 31, 1999 and $125 million in the twelve months ended November 30, 1998. The Company had previously entered in a letter of intent for the sale of the Ross Aluminum Division, however, the potential buyer terminated the letter of intent due to a lack of financing. The Company intends to continues to pursue the sale of the Ross Aluminum Division. These divestitures are at an early stage and are subject to acceptable prices being achieved and there can be no assurances that they will be completed. The proceeds of such sales will be used to repay debt and finance future growth. 22 1823 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 factorother factors affecting the comparability of operations isare the sale of the Trim Division in the fourth quarter in 1998.1998 and the acquisition of Carpenter in the second quarter of 1999. 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 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 ===== ===== 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 ===== =====
Three Months Nine Months Six Months Three Months Ended August 31 Ended Ended Ended --------------------- August 31 August 31 February 28 1999 1998 1999 1998 1998 -------- -------- -------- -------- -------- (In millions of dollars) Predecessor Net sales by segment: Automotive $ 135.8 $ 103.3 $ 390.1 $ 218.0 $ 103.8 Machinery 58.2 68.0 174.9 136.8 64.4 Industrial 37.3 35.1 110.6 71.5 37.6 -------- -------- -------- -------- -------- Total $ 231.3 $ 206.4 $ 675.6 $ 426.3 $ 205.8 ======== ======== ======== ======== ======== Operating income by segment: Automotive $ 8.3 $ 6.0 $ 29.8 $ 16.1 $ 8.2 Machinery 3.7 6.9 11.6 15.1 5.4 Industrial 4.2 3.4 11.7 6.7 3.2 Corporate overhead (4.4) (9.8) (15.0) (32.9) (5.8) -------- -------- -------- -------- -------- Total $ 11.8 $ 6.5 $ 38.1 $ 5.0 $ 11.0 ======== ======== ======== ======== ========
Net Sales. The Company's net sales were $194.4$231.3 million for the firstthird quarter ended February 28,August 31, 1999, a decreasean increase of $11.4$24.9 million or 5.5%12.1% from the comparable period of 1998. Included in the results of the firstthird quarter of 1999 are net sales of Carpenter, which was acquired in the second quarter of 1999, and included in the second quarter of 1998 are net sales of the Trim Division, which ifwas sold in the fourth quarter of 1998. If the net sales of the Trim Division and Carpenter are excluded, would result in a decrease in the Company's quarterly net sales decreased 1.1%. On a year-to-date basis, net sales increased 6.9% in 1999 from the comparable period in 1998. However if the net sales of approximately 2.2%the Trim Division and Carpenter are excluded, net sales decreased 1.0%. 1823 1924 The Automotive Group's net sales in the third quarter of 1999, excluding Carpenter and the Trim Division, increased 7.2%.5.5% over the same period in 1998. A substantial portionpart of the increase wasis due to implementationbroader market penetration of new programs in Europe at facilities manufacturing precision-machined components in Europe. Sales of precision-machined components in the United States were relatively flat as the Company added new business with different customers to replace programs with Ford which were discontinued throughout 1999. The acquisition of Carpenter is expected to further expand the Company's product lines and multi-layer fuel transfer systems.its customer base for precision-machined components. Demand for rubber-coated metal products has been stronger throughout 1999 than 1998, but particularly in the third quarter, due to improvements in certain Asian markets. Since the 1980's, original equipment manufacturers ("OEM's"), such as Ford GM and the Chrysler CorporationGeneral Motors, 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 frombenefits of this trend have been somewhat offset by the trend toward outsourcing.effects of intense pricing pressures by the OEM's on their supplier base. Net sales for the Machinery Group in the firstthird 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 199914.3% from the comparable period in 1998.1998 due primarily to the declines in sales of heavy-duty forklift trucks resulting from a decline in demand coupled with increased competition. Net sales for the Industrial Group increased 6.3% in the third quarter of 1999. The increase can be attributed in part to an increase in shipments of boron products. Cost of Products Sold. Cost of products sold, which excludes depreciation expense, decreased $11.1increased $21.8 million or 6.8%13.3% in the firstthird quarter of 1999 from the comparable period in 1998. Excluding the results of the Trim Division, asAs a percentage of sales, cost of products sold declined from 79.0%was 80.1% for the three months ended August 31, 1999 compared to 79.2% for the same period in the prior year. Excluding the results of Carpenter and the Trim Division, cost of sales as a percentage of sales was 78.9% and 78.8% in the three month periods ended August 31, 1999 and 1998, respectively, and 78.3% and 78.1% for the nine month periods ended August 31, 1999 and 1998, respectively. Positive trends 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, andsuch as changes in product mix in certain operations in the Machinery Group.Group and productivity improvements, continued into the second and third quarters, but were offset by the effects of the decline in shipments of heavy-duty forklift trucks, which resulted in higher fixed costs on a per unit basis, and costs related to inefficiencies in manufacturing new multi-layer fuel transfer systems programs in Europe. 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.pressures. Selling and Administrative. Selling and administrative expenses increased by $1.1decreased $0.2 million or 6.6%1.0% in the third quarter ended February 28,of 1999 from the quarter ended February 28,same period in 1998. Excluding those of Carpenter and the Trim Division, theseselling and administrative expenses increased $1.8$0.4 million or 11.2% over2.6% from the same time frame. Items contributingthird quarter of 1998 to thisthe third quarter of 1999. On a year to date basis, selling and administrative expenses, excluding those of Carpenter and the Trim Division, have increased 3.7%. This increase includeis due to expenses incurred by the Company as a result of the Acquisition in February 1998 which were not incurred in the first quarter of 1998, including management fees now payable to Granaria Holdings B.V. and a retentionlong-term incentive program for mid-level management. Depreciation and Amortization. Depreciation and amortization are not comparable formanagers. Management Compensation-Special. The management compensation-special of $21.7 million in the threesix months ended February 28,August 31, 1998 and $2.1 million in the first quarter of 1998 is a one-time item related to the Acquisition. Depreciation. Depreciation expense was $11.8 million and $9.6 million in the third quarters of 1999 and 1998, respectively, and $33.9 million and $28.4 million in the nine months ended August 31, 1999 and 1998, respectively. Depreciation is not comparable due to the differences in asset bases as a result of the Acquisition in February 1998. Purchase accounting allows a company to take up to a year to allocate the purchase price to its assets and liabilities based on their fair values. Although the Acquisition took place in February, final adjustments to the fair values of plant, property and equipment and depreciation expense in 1998 were not made until November 1998, after appraisals had been obtained and analyzed. Other factors affecting the comparability of depreciation expense include the depreciation attributable to Carpenter in 1999 and the Trim Division in 1998. Amortization. Amortization of intangibles was $4.4 million and $4.2 million in the third quarters of 1999 and 1998, respectively, and $12.8 million and $12.6 million in the nine months ended August 31, 1999 and 1998, respectively. Amortization is not comparable 24 25 due to the differences in the asset bases as a result of the Acquisition in 1998 and the acquisition of Carpenter in 1999. In the first quarter of 1998, the reorganization value in excess of amounts allocable to identifiable assets of $65.1 million was being amortized 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 $241.1 million, which resulted from the Acquisition, is being amortized over 15 years. However, the final adjustment of the amount of the excess of acquired net assets over cost and amortization thereof was not made until November 1998. EBITDA.Operating Income. Operating income was $11.8 million and $6.5 million for the three months ended August 31, 1999 and 1998, respectively. Many factors affect the comparability of operating income in 1999 and 1998. Depreciation and amortization have been computed using different asset bases in 1999 than in 1998. Purchase accounting allows up to one year to allocate the purchase price to assets and liabilities based on fair value of those assets. The final adjustments to the fair values of property, plant and equipment were made in the fourth quarter of 1998. Therefore, depreciation expense in the second and third quarters of 1998 was computed based on an estimate of those values while 1999 depreciation was computed on fair values based on appraisals. These adjustments also affected amortization of intangible assets. In addition, there were management compensation - special expenses of $21.7 million in the six months ended August 31, 1998 for which there were no comparable expenses in 1999. Finally, Carpenter was acquired in the second quarter of 1999 and the Trim Division was sold in the fourth quarter of 1998. After excluding all of these items, operating income decreased 13.7% in the third quarter of 1999 compared to the third quarter of 1998. Operating income of the Automotive Group increased $2.3 million or 39% in the third quarter of 1999 compared to the same period of the prior year. Excluding the results of Carpenter and the Trim Division and the effects of the changes in depreciation and amortization from 1998 to 1999, operating income decreased 6.4% in the third quarter. Increases in operating income due to increased volumes of rubber-coated metal products and improved efficiencies at certain facilities that produce precision machined components have been offset by operating losses caused by manufacturing inefficiencies related to new multi-layer fuel transfer systems programs in Europe. In the Machinery Group, operating income declined $3.2 million or 46.4% in the third quarter of 1999 from the same quarter in 1998. This decline was partially the result of a greater portion of the intangible asset associated with the Acquisition being allocated to the Machinery Group in the final adjustment of the purchase price allocation with occurred in the fourth quarter of 1998. Additionally, the majority of the increased depreciation resulting from the adjustment to asset bases affected the Machinery Group. After considering these items, the decline in operating income in the Machinery Group was approximately 35.5% in the third quarter. The majority of this decline is due to reduced volumes of fork-lift trucks and start-up costs resulting from moving production of fork-lift trucks to another facility. In addition, on a year-to-date basis, increases in operating income in 1999 resulting from a more favorable mix of special-purpose batteries sold was offset by losses resulting from low volumes of industrial cleaning and finishing machinery. Operating income of the Industrial Group increased $.8 million or 23.5% in the third quarter of 1999 from the comparable period in 1998. However, the majority of this increase is due to the reallocation of the intangible asset which also impacted the Machinery Group. Operating income increased 9.0% in the third quarter if the effect of the reallocation of the intangible asset is excluded. This increase is due to modest operating gains in diatomaceous earth and specialty materials operations. For the nine months ended August 31, 1999, operating income was $38.1 million. After excluding the effects of the difference in depreciation and amortization, the acquisition of Carpenter, the divestiture of Trim Division and the management compensation - special, operating income decreased 12.7% from the comparable period in 1998 for the same reasons discussed above. Interest Expense. Interest expense for the three months ended August 31, 1999 and 1998 was $14.1 million and $12.1 million, respectively. This increase is due to the acquisition of Carpenter. Interest expense was $37.6 million and $31.6 million for the nine months ended August 31, 1999 and 1998, respectively. Upon the Acquisition in February of 1998, the Company definesrepaid $250.0 million of subordinated debentures, and borrowed $524.1 million in new debt, which, together with the additional debt resulting from the acquisition of Carpenter, accounts for most of the increase in year-to-date interest expense in 1999. Income Taxes. Income taxes were $0.4 million and $(1.1) million in the three months ended August 31, 1999 and 1998, respectively, and $2.3 million and $(1.5) million in the nine months ended August 31, 1999 and 1998, respectively. Effective tax rates vary for a number of reasons including: 1) the amortization of the reorganization value in excess 25 26 of amounts allocable to identifiable assets in the first quarter of 1998 was not deductible for tax purposes while a substantial portion of the amortization of the excess of acquired net assets over costs created during the Acquisition is deductible; 2) the amortization of the excess of acquired net assets over costs created upon the acquisition of Carpenter is not deductible for tax purposes; and 3) the effect of income taxes in countries with higher tax rates, such as Germany, varies as income in those countries varies in proportion to the Company's total income. Net Income. The income (loss) for the three months ended August 31, 1999 and 1998 was $(2.1) million and $(3.8) million, respectively, $(0.8) million for the nine months ended August 31, 1999, $(13.1) million for the six months ended August 31, 1998 and $0.8 million for the three months ended February 28, 1998. However, as discussed above, the comparability of net income has been significantly affected by the Acquisition and the application of purchase accounting, the effects of the Trim Division divestiture, which was sold in the fourth quarter of 1998, and the impact of the Carpenter acquisition in the second quarter of 1999. The loss applicable to common shareholders was increased by dividends accreted on the 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock ("Preferred Stock") of $2.6 million and $7.8 million for the three months and nine months ended August 31, 1999, respectively, to $4.7 million and $8.6 million, respectively. The net loss applicable to common shareholders was increased by preferred stock dividends of $2.5 million and $4.9 million in the three months and six months ended August 31, 1998, respectively, to $6.3 million and $18.0 million, respectively. 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, 1998 was not reduced. LIQUIDITY AND CAPITAL RESOURCES The following are certain financial data regarding earnings before interest, taxes, depreciation and amortization ("EBITDA"), cash flows and earnings to fixed charges and preferred stock dividends:
Nine Months Six Months Three Months Ended August 31 Ended August 31 Ended February 28 1999 1998 1998 ---- ---- ---- (in million of dollars) Predecessor EBITDA $ 87.1 $ 56.7 $ 27.0 Cash provided by (used in) operating activities 34.9 63.9 (9.1) Cash used in investing activities (87.2) (16.0) (6.7) Cash provided by (used in) financing activities 43.5 (45.9) (19.0) Preferred stock dividends accreted 7.8 4.9 -- Earnings/fixed charges and preferred stock dividends .86X .22X 1.69x
EBITDA The Company's EBITDA is defined by the terms of the 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 expenses gain (loss) on salesand 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 divisions and certain other non- cash charges. Duethe Company's operating performance or liquidity, respectively. Funds depicted by EBITDA are not available for management's discretionary use to the differences inextent they are required for debt service and other commitments. The Company's EBITDA for the asset bases, it is preferable to compare EBITDA rather than operating income. EBITDA decreased from $25.7 million in the threenine months ended February 28, 1998 to $25.1August 31, 1999 was $87.1 million, foran increase of 4.1% over the EBITDA of the same period in 1999 or 2.3%. After excluding the results of the Trim Division, EBITDA decreased .8%. EBITDA for the Automotive Group increased to $15.7 million in the first quartercomparable year of 1999 from $15.2 million in the same period in the prior year, or 3.3%. Excluding the results of the Trim Division, the increase was 6.1%.$83.7 million. Increases in EBITDA due to modest volume increases at most divisionsresulting from the Carpenter Acquisition, improvements in operating efficiencies in certain facilities manufacturing precision-machined automotive components and better volumes of rubber-coated metal products in Automotive Group were somewhatpartially offset by start-updecreases resulting from low volumes of fork-lift trucks and costs associated with26 27 incurred as a result of moving production of such trucks to another facility and inefficiencies related to the production of 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 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 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. 19 20 FINANCIAL CONDITIONEurope. Operating Activities Cash provided by operating activities was $.5$34.9 million, and $54.8 million for the threenine months ended February 28,August 31, 1999, and 1998 and consisted of the following:
Nine Months Ended August 31, ---------------------------- 1999 1998 ---- ---- (in millions of dollars) Operating income $ 38.1 $ 16.0 Depreciation and amortization, excluding amortization of deferred financing costs 46.7 41.0 Interest paid (29.5) (19.1) Income taxes paid, net (10.1) (4.4) Insurance settlement -- 13.7 Funding of management trust upon acquisition -- (10.0) Working capital and other (10.3) 17.6 ------ ------ $ 34.9 $ 54.8 ====== ======
See "Results of dollars) EBITDA $25.1 IncomeOperations" for discussions concerning operating income and depreciation and amortization. Interest paid has increased in conjunction with the increase in interest expense described in "Results of Operations." Net income taxes paid (4.8) Interest paid (6.2) Working capital and other (13.6) ------ $ .5 ====== Income taxes paid relate toin 1999 have increased in part because: 1) there was a refund of foreign taxes received early in 1998; 2) the Predecessor Company had net operating loss carryforwards and as a result, there were no Federal income taxes payable for income earned prior to the Acquisition (approximately the first three months of 1998); and 3) a portion of the tax payments forliability associated with the tax period February 25, 1998 throughended November 30, 1998. Interest expense exceeded interest1998 was paid by $5.1 million primarilyin fiscal year 1999. The proceeds from the insurance settlement in 1998 related to contingent assets at the time of the Acquisition which were recognized as adjustments to excess of acquired net assets over cost when realized. In 1998, the Eagle-Picher Management Trust was funded upon the Acquisition for the benefit of certain senior management of the Company. See discussion of this item in "Management Compensation" in the Company's 10-K/A filed with the SEC on June 28, 1999. The decrease in cash in 1999, due to increases in working capital, versus decreases in working capital in 1998, can be attributed to several items: 1)in 1998, much of the increase was because the interest onCompany elected to use cash in an employee benefits trust to pay for such benefits rather than the Subordinated Notes is due semiannually, March 1 and September 1. The first quarterCompany's cash; 2) a major customer changed its payment schedule from the end of the month in 1998 to the beginning of the next month in 1999; 3) the timing of the Thanksgiving holiday at the end of fiscal year has historically been1997 resulted in delayed payments from customers which were received in early 1998; and 4) inventories have increased at various divisions in 1999 due to preparation for fourth quarter shipments of boron products and other items, increased mining activities due to favorable weather conditions, rebuilding of inventory after a fire at one where working capital increases substantially. Generally, accounts payablelocation, changes in certain shipping schedules and accruals for items such as compensation are paid downYear 2000 preparedness. Investing Activities Cash used in investing activities was $87.2 million and $22.7 million in the nine months ended August 31, 1999 and 1998, respectively. Early 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 threenine months ended February 28, 1998August 31, 1999 were $8.8.$40.0 million compared to $21.7 million for the same period in 1998. Besides expenditures to complete a new plant in Mt. Pleasant, Michigan for Carpenter and a small expansion to a plant manufacturing bulk pharmaceuticals in 1999, these expenditures generally related to capital needed for new programs and maintenance. The Company anticipates capital expenditures will be approximately $32-34not exceed $10.0 million for the remaining nine monthsremainder of 1999. In December 1998,On April 14, 1999, the Company signed a lettercompleted the acquisition 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 27 28 products. The Company anticipates that the purchase price will betotal consideration included approximately $41.0 million in cash, which will bewas financed from the Company's revolving credit facility ("Facility"). In addition, it is expected thatRevolving Credit Facility, and approximately $31.0 million of existing indebtedness of Carpenter, will have approximately $32.0 million in debt at the time of closing, of which $20.0approximately $18.6 million will bewas refinanced from the Facility and theCompany's Revolving Credit Facility. The remainder will beof Carpenter's debt was assumed. The acquisition will bewas accounted for as a purchase.purchase and was effective March 1, 1999 for accounting purposes. On September 1, 1999 the Board of Directors approved a plan to explore the sale of several smaller divisions in addition to the Ross Aluminum Division (which, as previously announced, the Company is in the process of selling) in order to focus on core businesses. None of the divisions under consideration had sales in excess of approximately $35.0 million in the nine months ended August 31, 1999 or $40.0 million in the twelve months ended November 30, 1998. In the aggregate, the divisions under consideration for sale (including the Ross Aluminum Divisions) had sales of approximately $95.0 million in the nine months ended August 31, 1999 and $125.0 million in the twelve months ended November 30, 1998. The Company had previously entered into a letter of intent for the sale of the Ross Aluminum Division, however, the potential buyer terminated the letter of intent due to a lack of financing. The Company intends to continue to pursue the sale of the Ross Aluminum Division. These divestitures are at an early stage and are subject to acceptable prices being achieved. There can be no assurances that they will be completed. The proceeds of such sales will be used to repay debt and finance future growth. Financing Activities The Company repaid the revolving loans outstanding at November 30, 1998 of $19.8Cash provided from financing activities was $43.5 million early in the first quarter, then borrowed $20.6nine months of 1999, due primarily to borrowings under the Credit Agreement to finance the acquisition of Carpenter. Cash used in financing activities was $64.8 million for the comparable period in revolving loans toward1998 as the end of the quarter, in part to repay $11.0 due on the term loans, primarilyCompany repaid borrowings incurred as a result of excessthe Acquisition during the second and third quarters of 1998 and used cash flow payments required under provisionsin connection with the Acquisition transaction itself during the first quarter of the Credit Agreement.1998. As of February 28,August 31, 1999, letters of credit outstanding against the Revolving Credit Facility were $38.3 million. This$53.0 million, which, coupled with the $20.6$127.0 million in outstanding borrowings at February 28, 1998, leaveAugust 31, 1999, left the Company with available borrowing capacity of approximately $101.1 million. The Carpenter Acquisition will result in approximately $61.0$40.0 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.at that date. The European operations had $18.5$10.7 million of borrowing capacity at February 28, 1999. 20 21August 31, 1999; however, the Company is in the process of renegotiating certain of its credit agreements in Europe. Earnings to Fixed Charges and Preferred Stock Dividends The earnings to fixed charges and preferred stock dividends for the nine months ended August 31, 1999 were .86X and earnings were insufficient to cover fixed charges and preferred stock dividends by $6.3 million in that period. The earnings to fixed charges and preferred stock dividends for the six months ended August 31, 1998 is not meaningful. Earnings were insufficient to cover fixed charges and preferred stock dividends by $23.6 million in this period. However, one time management compensation expenses of $21.7 million are included in this period. Excluding this item, earnings to fixed charges and preferred stock dividends would have been .94X and earnings would have been insufficient to cover fixed charges and preferred stock dividends by $1.9 million. 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 includesincluded a comprehensive review to identify the areas of concern in each of the systems affected by the Year 2000 issue and followsfollowed up with design and implementation of measures to address those issues. The Company is assessinghas assessed 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 includeincluded 28 29 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 inventoriesinventoried areas of potential risk based on comparison to guidelines published by the Automotive Industry Action Group. Each component identified in the inventory iswas then evaluated for its risk of failure and the impact of potential failure to the Company's operations and its customers. Once the risks arewere assessed, remediation iswas commenced. Options for remediation may includeincluded 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 onin the final phases of 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.ongoing, to ensure that procedures are properly documented and that modifications or upgrades will not interfere with the Company's preparedness. 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$1.0 million. Of this amount, approximately $1.0$0.3 million will be spent in the form of capital for systems replacement and approximately $1.0$0.4 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,Through August 31, 1999, the Company estimates it has spent approximately $3.0$4.6 million in assessing and remediating the Year 2000 problem, of which $1.0$1.3 million was for capital equipment $1.2and $2.1 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 electronically of shipments electronically.shipments. 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 riskFailures in the Company's supply chain, particularly in locations where the Company operates in a "just-in-time" environment, pose another risk. The Company's year 2000 program involves a cooperative effort with its suppliers to exchange information regarding year 2000 preparedness. Additionally, there are special risks associated with certain suppliers, including utility companies, due to the Company's limited control over which the Companythose critical suppliers. Each Division has limited control. The Companycompleted and is presently working onstrengthening its contingency plans on a case by case basis towhich address issues related to potential failures of critical systems due to Year 2000 problems,problems. The Company will continue to review and it expects to havestrengthen those plans in place by May 31, 1999.throughout the balance of this year. 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 29 30 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. TheMost of the affected operations plan to make the euro the functional currency sometime during the transition period,in fiscal year 2000, although certain of the Company's European operations have already entered into euro-based transactions, such as bank borrowing and collection of accounts receivable.transactions. 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 or British pounds, 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 euroeuros 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. Some customers have initiated the process to price products in euros, but the process has not been progressing quickly. It is not anticipated that costs incurred for 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 arebecome effective for the first quarter of the fiscal year ending November 30,Company beginning December 1, 2000. The Company has not yet determined the impact this statement will have on its financial position or the results of its operations. TheOther pronouncements issued by the FASB has issued two additional pronouncements since June 1998 neither of which isare not 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 30 31 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 TheBoth the Company's term loan facility (the "TermTerm Loan Facility") bearsFacility and Revolving Credit Facility under the Credit Agreement bear interest at a variable rate equal to either (a) the average daily rate on overnight U.S. federal funds transactions ("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 loans under the Term Loan Facility.Credit Agreement. 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 debt outstanding under the Term Loan FacilityCredit Agreement at 5.805% plus the applicable spread for the duration of the interest rate swap. The remaining $58.8 million ofCredit Agreement was amended in May 1999 to increase the Revolving Credit Facility, reduce the Term Loan Facility and provide for the Securitization. In June 1999, approximately $120.5 million in term loans were repaid with the proceeds from the Securitization of $65.0 million and additional borrowings under the Revolving Credit Facility. The interest rate swap agreement was not impacted by this transaction; however, it does not cover debt outstanding under the Securitization. Loans under the Securitization bear interest at February 28,a variable rate equal to market rates on commercial paper having a term similar to the applicable interest period. As of August 31, 1999, $210.5 million in debt was outstanding under the Credit Agreement, of which interest on $150.0 million is essentially fixed by the interest rate swap agreement. The remaining $123.8 million of debt outstanding bears interest at the variable rates described above. In addition,under either 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 ratesRevolving Credit Agreement or Securitization as described above. Accordingly, a 1% increase in anboth the applicable index raterates would result in additional interest expense of $.8$1.2 million per year assuming no change in the level of borrowing under the revolving loan facility. 23borrowing. 31 2432 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 248-K None. 32 2533 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,September 24, 1999 -------------- 25-------------------------------- 33 2634 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,September 24, 1999 -------------- 26-------------------------------- 34 2735 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,September 24, 1999 --------------- 27-------------------------------- 35 2836 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,September 24, 1999 -------------- 28-------------------------------- 36 2937 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,September 24, 1999 -------------- 29-------------------------------- 37 3038 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,September 24, 1999 -------------- 30-------------------------------- 38 3139 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,September 24, 1999 -------------- 31-------------------------------- 39 3240 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. SellerR. Doug Wright -------------------------------- R. Doug Wright Vice President, Controller and Chief Financial Officer DATE March 31,September 24, 1999 -------------- 32-------------------------------- 40 3341 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,September 24, 1999 -------------- 33-------------------------------- 41 3442 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,September 24, 1999 -------------- 34----------------------------------- 42 3543 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule (submitted electronically to the Securities and Exchange Commission for its information) 35 information.) 43