SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2001
COMMISSION FILE NUMBER 333-49957-01
------------------------
EAGLE-PICHER HOLDINGS, INC.
A Delaware Corporation
I.R.S. Employer Identification
NO. 13-3989553
------------------------
250 EAST FIFTH STREET, SUITE 500, P. O. BOX 779, CINCINNATI, OHIO 45201
Registrant's telephone number, including area code:
513-721-7010
------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
EAGLE-PICHER HOLDINGS, INC. IS FILING THIS REPORT VOLUNTARILY IN ORDER TO
COMPLY WITH THE REQUIREMENTS OF THE TERMS OF ITS 9 3/8% SENIOR
SUBORDINATED NOTES AND 11 3/4% SERIES B CUMULATIVE EXCHANGEABLE
PREFERRED STOCK AND IS NOT REQUIRED TO FILE THIS REPORT PURSUANT
TO EITHER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [ ] No [X] (See explanatory note immediately above.)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
No voting stock is held by non-affiliates of the registrant.
Indicate by check mark whether Eagle-Picher Industries, Inc., an additional
registrant on this filing, 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 [ ] No [X]
1,000,000 shares of common capital stock, $.01 par value each, were outstanding
at February 14, 2002.
TABLE OF ADDITIONAL REGISTRANTS
<Table>
<Caption>
JURISDICTION OF IRS EMPLOYER
INCORPORATION OR COMMISSION IDENTIFICATION
NAME ORGANIZATION FILE NUMBER NUMBER
---- ---------------- ------------ --------------
Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
EPMR Corporation (f/k/a Michigan Michigan 333-49957-08 38-2185909
Automotive Research Corp.)
</Table>
TABLE OF CONTENTS
<Table>
<Caption>
ITEM PAGE
- ---- ----
PART I
1. Business.................................................... 1
2. Properties.................................................. 7
3. Legal Proceedings........................................... 9
4. Submission of Matters to a Vote of Security Holders......... 14
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 15
6. Selected Financial Data..................................... 15
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 26
8. Financial Statements and Supplementary Data................. 28
9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 65
PART III
10. Directors and Executive Officers of the Registrant.......... 65
11. Executive Compensation...................................... 67
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 71
13. Certain Relationships and Related Transactions.............. 73
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 74
Signatures.................................................. 79
Exhibit Index............................................... 88
</Table>
i
PART I
ITEM 1. BUSINESS
General Development of Business
Eagle-Picher Holdings, Inc. ("EP Holdings") was incorporated under the laws
of the State of Delaware in 1997 by Granaria Industries B.V. to serve as the
vehicle to acquire Eagle-Picher Industries, Inc., an Ohio corporation ("EPI").
EP Holdings does not conduct any business of its own, rather EP Holdings acts as
the holding company of EPI.
EPI is a diversified manufacturer of hundreds of products for the
automotive, defense and aerospace markets, as well as other industrial markets.
Founded in 1843, EPI began as a manufacturer of paint pigments, marketed under
the brand name Eagle White Lead. In 1876, the Picher family of Joplin, Missouri
formed the Picher Lead Mining Company. The two firms merged in 1916 forming the
Eagle-Picher Lead Company, which was renamed Eagle-Picher Industries, Inc. in
1966 to reflect its ongoing expansion into a wide and diversified group of
industries. EPI conducts its business through both unincorporated divisions and
separately incorporated subsidiaries. EPI is the only subsidiary of EP Holdings.
Therefore, EP Holdings' results of operations and cash flow approximate those of
EPI. Unless the context indicates otherwise, the term the "Company" as used
herein refers to EP Holdings and its subsidiaries. References to divisions of
the Company include both unincorporated divisions and separately incorporated
subsidiaries.
As a result of sales prior to 1971 of asbestos-containing insulation
materials, EPI became the target of numerous lawsuits seeking damages for
illness resulting from exposure to asbestos. By the end of 1990, EPI had paid
hundreds of millions of dollars to asbestos litigation plaintiffs and their
lawyers. In January of 1991, EPI filed for protection under chapter 11 of the
U.S. Bankruptcy Code as a direct consequence of cash shortfalls attributable to
pending asbestos litigation liabilities. On November 18, 1996, the U.S.
Bankruptcy Court together with the U.S. District Court for the Southern District
of Ohio, issued an order confirming the Third Amended Plan of Reorganization
(the "Plan") of EPI and seven of its domestic subsidiaries. The Plan became
effective November 29, 1996. The Order confirming the Plan contains a permanent
injunction which precludes holders of present and future asbestos-related or
lead-related personal injury claims from pursuing their claims against the
reorganized EPI. Consequently, EPI has no further liability in connection with
such asbestos-related or lead-related personal injury claims. Instead, those
claims will be channeled to the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust (the "PI Trust") which is an independently administered
qualified settlement trust established to resolve and satisfy those claims.
Under the terms of the Plan, all of the outstanding common stock of EPI was
cancelled and newly issued common stock of the reorganized EPI was contributed
to the PI Trust, together with certain notes and cash. On February 24, 1998, EP
Holdings acquired EPI from the PI Trust for $702.5 million.
Effective December 14, 2001, the Company sold certain of the assets of its
Construction Equipment Division. This division represented the Company's entire
Machinery Segment. The sale price was $6.1 million in cash plus assumption of
approximately $6.7 million of current liabilities. The Company retained the land
and buildings of the Construction Equipment Division's main facility in Lubbock,
Texas and leased the facility to the buyer of the division's assets and business
for a five year term. The buyer has an option to buy the facility for $2.5
million, increasing $100,000 per year over the term. The Company also retained
approximately $2.3 million book value of raw materials inventory, which the
buyer agreed to purchase within one year, and approximately $0.9 million of
accounts receivable.
During 2000, as part of its previously announced program to focus
management, technical and financial resources on core businesses, the Company
completed the sale of its Ross Aluminum Foundries, Fluid Systems, Michigan
Automotive Research Corporation, Rubber Molding, and Cincinnati Industrial
Machinery divisions for aggregate net proceeds of $85.0 million. These divisions
are referred to herein as the "Divested Divisions."
On June 30, 2000 the Company's Technologies Division acquired the stock of
BlueStar Battery Systems Corporation for $4.9 million in cash. Immediately
following the transaction the name of the corporation was
1
changed to Eagle-Picher Energy Products Corp. ("EPEP"). EPEP manufactures
batteries using lithium based technology, which is of strategic importance to
the battery manufacturing operations at the Technologies Division. Substantially
all of EPEP's products are sold to the United States Army, a branch of the
military previously not counted among the significant customers of the
Technologies Division.
The Company's Technologies Division acquired the assets of the isotopically
depleted zinc business of Isonics Corporation for $8.2 million effective
December 1, 1999. The Technologies Division paid $6.7 million of the purchase
price at the closing, and the remaining $1.5 million is payable in three annual
$.5 million installments, subject to certain contingencies. The Company is
disputing its obligation to make the remaining $1.5 million of deferred
payments. See Item 3 -- Legal Proceedings. Isotopically depleted zinc is used as
a corrosion inhibiting additive to water in nuclear reactors. This product
compliments the enriched boron products sold by the Technologies Division to
enhance the safety and efficiency of nuclear power plants.
The Company's Hillsdale Division acquired the stock of Charterhouse
Automotive Group, Inc., a holding company whose only operating subsidiary was
Carpenter Enterprises Limited ("Carpenter"), as of March 1, 1999 for a purchase
price of approximately $73.0 million. Carpenter is a supplier of precision
machined components to the automotive industry with operations, products and a
customer base complimentary to those of the Hillsdale Division. Immediately
following the transaction Charterhouse Automotive Group, Inc. was merged into
Carpenter.
The Company's new management team is completing a strategic and operational
review of the Company's businesses, including a review of portfolio mix, within
the limits of the Company's financial resources and credit instruments.
Financial Information About Industry Segments
Commencing with the Company's fiscal year ending November 30, 2000, the
Company changed the composition of its reportable business segments to include
the following three segments:
1. Automotive;
2. Technologies; and
3. Minerals.
Prior to March 1, 2001, the Company also operated a Machinery Segment; from that
date until its sale as of December 14, 2001 the Company treated the Machinery
Segment as a discontinued operation. The Company has restated items of segment
information for earlier periods in order to facilitate comparison. Industry
segment data is included in the Company's Consolidated Financial Statements for
the years ended November 30, 2001, 2000 and 1999. See Note P to the Consolidated
Financial Statements contained in Item 8 below.
Narrative Description of Business
THE AUTOMOTIVE SEGMENT
The Automotive Segment consists of the Company's Hillsdale and Wolverine
Divisions. Together these two divisions produce systems, components and raw
materials for passenger cars, trucks, vans and sport utility vehicles. These
products are sold to major automotive manufacturers and their suppliers in North
America, Europe and Asia. The Automotive Segment's products can be broken down
into two categories: Precision Machined Components and Rubber Coated Metal
Products. The following table sets forth the percentage of the Company's
Consolidated Net Sales contributed by each product category:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Precision Machined Components.............................. 50.9% 49.5% 42.5%
Rubber Coated Metal Products............................... 10.7% 10.9% 10.1%
Divested Automotive Products............................... 0.0% 5.7% 15.8%
---- ---- ----
Total................................................. 61.6% 66.1% 68.4%
==== ==== ====
</Table>
2
Precision Machined Components. The largest of the Company's divisions, the
Hillsdale Division is a provider of noise, vibration and harshness solutions to
the worldwide automotive market. The Hillsdale Division also supplies complex
machined components and systems for engine, transmission, axle/driveline and
chassis/ suspension applications. The Hillsdale Division's expertise runs from
product design and development, through prototypes and testing, launch and
production. Widely recognized as North America's leading torsional damper
manufacturer with custom rubber compounding and manufacturing capabilities, the
Hillsdale Division's product line also includes transmission oil pumps,
vibration dampening devices and a variety of other products that are precision
machined from castings and forgings. The Hillsdale Division is skilled at
working with a wide range of metals, including magnesium, aluminum, steel, gray
iron and nodular iron. Its products are manufactured in facilities located in
the United States, Mexico and the United Kingdom. The Hillsdale Division,
through its Tech Center located in Hillsdale, Michigan, offers technical,
cost-effective solutions for today's demanding customers and applications. The
market for precision machined components has many competitors, including a few
strong and well-positioned competitors and the original equipment manufacturers
("OEMs") themselves. The Hillsdale Division competes in this market primarily on
the basis of quality, price, delivery and service.
Rubber Coated Metal Products. The Company's Wolverine Division pioneered
and perfected the technology to produce rubber coated paper and metal using the
line coating process. In this process, bulk rolls of metal or paper run through
a "coating line," which prepares the material for coating, applies specially
formulated and proprietary rubber and other compounds to the material in precise
thicknesses, and dries and cures the coated material to bond the compound to the
metal or paper and achieve the sealing, heat resistance, durability and precise
thickness characteristics required for the intended application. These coated
materials are impervious to fluid penetration and can withstand high compression
loads, making these materials ideal for applications where high temperature and
pressure create a requirement for close tolerances, exceptional sealing
characteristics and durability. Typical applications include sealing systems
(i.e. gaskets) for engines, transmissions and compressors. These materials are
also used as a noise suppressant for brakes, a product in which the Wolverine
Division dominates the worldwide market. The rubber coated materials are
manufactured in the United States. Certain sealing and insulating products, such
as compressor gaskets for air conditioning units and brake noise insulators, are
stamped out of the rubber coated materials both in the United States and in
Germany. The primary competition of the Wolverine Division's products is a
process known as curtain coating, which refers to a process of coating metal
products with rubber after stamping or cutting the metal into the required
shape. The Company does not believe that the curtain coating process can offer
the close tolerances or exceptional sealing characteristics and durability of
the Wolverine Division's line coating process.
The Automotive Segment distributes its products primarily through internal
sales personnel located in offices in North America, Japan and Europe.
Generally, competitive conditions for the Automotive Segment are characterized
by intense pricing pressures from major customers and by an emphasis on quality,
delivery and services.
The Automotive Segment's largest customer in fiscal year 2001 was Honda,
accounting for $90.9 million of the Company's consolidated net sales.
Consolidated net sales to Ford Motor Company were $45.6 million in fiscal year
2001, however, this figure does not include sales to Visteon Corporation, which
was spun off by Ford Motor Company in fiscal year 2000, and which were $33.8
million in fiscal year 2001. Consolidated net sales to Ford Motor Company and
Visteon Corporation were $118.0 million in fiscal year 2000. Prior to fiscal
year 2000, Ford Motor Company (including Visteon) was the Company's largest
customer, with consolidated sales amounting to $137.8 million in fiscal year
1999 and $160.9 million in fiscal year 1998. No other customer of the Company
accounted for 10% or more of consolidated net sales.
THE TECHNOLOGIES SEGMENT
The Technologies Segment is a diverse group of businesses with a broad
spectrum of technology and capabilities. Its products can be segregated into the
following three product categories: Special Purpose
3
Batteries, Specialty Materials and Other Technologies Products. The following
table sets forth the percentage of the Company's Consolidated Net Sales
contributed by each product category:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Special Purpose Batteries.................................. 15.9% 13.6% 13.8%
Specialty Materials........................................ 7.2% 6.2% 5.6%
Other Technologies Products................................ 5.8% 5.5% 4.7%
---- ---- ----
Total................................................. 28.9% 25.3% 24.1%
==== ==== ====
</Table>
Special Purpose Batteries. The Technologies Segment is a major supplier of
batteries and power systems components for the aerospace, defense and
telecommunications industries. The Company has been providing the aerospace and
defense industries with high quality, reliable batteries for more than 50 years.
The Company's batteries have been on every United States' manned space flight,
and the Company's silver zinc batteries provided the power for the safe return
to earth of the famed Apollo 13 flight crew. Its nickel hydrogen batteries power
more than 85% of the United States' most advanced communications and
surveillance satellites as well as items such as the Hubble Telescope and the
International Space Station. Other batteries manufactured by the Technologies
Segment serve as launch batteries in booster rockets and support a variety of
military applications, including missile guidance, seat ejection and weapons
systems. The Technologies Segment also manufactures a line of batteries sold
commercially for use in items such as industrial fire and burglary alarm panels,
telecommunications backup, remote global positioning units, animal tracking and
incarceration bracelets. Major customers of the group include satellite
builders, defense contractors and the United States government. The Technologies
Segment has only a few competitors for some of its highly technological products
and it competes for those products primarily on the basis of quality and
performance. The Technologies Segment has many large and small competitors for
its other products. For much of its business with the United States government,
the Technologies Segment bids competitively against other producers of special
purpose batteries.
Specialty Materials. The Company's Technologies Segment also manufactures
and tests high purity specialty material compounds for a wide range of services
and products. For example, the Company is a major source for high purity
isotopically enriched boron compounds and isotopically purified zinc, both of
which are used in nuclear power plants. The Company's Technologies Segment also
refines rare metals, such as high purity germanium, germanium compounds, gallium
and gallium compounds. These products serve several markets, including fiber
optic cable, plastics, semiconductors, infrared thermal imaging and substrates
for satellite solar cell arrays. The major customers for these products include
fiber optic cable manufacturers, satellite builders and other aerospace
companies.
Other Technologies Products. The Technologies Segment also manufactures
bulk pharmaceutical products and industrial chemicals, and produces a wide range
of super clean containers, which meet strict EPA protocols, for environmental
sampling.
The Technologies Segment distributes its products primarily through
internal sales personnel. The Technologies Segment also has a sales office in
Europe to serve that market.
THE MINERALS SEGMENT
The Company's Minerals Segment is recognized as a world leader in the
mining, process technology and marketing of diatomaceous earth and perlite
filter aids. This segment comprised 9.5% of the Company's Consolidated Net Sales
in 2001, 8.6% in 2000 and 7.5% in 1999.
Diatomaceous earth, or diatomite, is a non-metallic material that is
odorless, tasteless and highly stable. With its natural honeycomb structure,
strength and low bulk density, diatomite is an ideal medium for filtration
applications. Perlite is a mineral of volcanic origin, also with natural
qualities that make it valuable as a filter aid. These products are used in a
variety of industrial and commercial applications, including liquid solid
separation in food and beverage, chemical, pharmaceutical and wastewater
industries and as catalyst carriers and for liquid waste solidification. The
Minerals Segment is second to Allegheny Corporation in the
4
sale of filter aid products made using diatomaceous earth, perlite and
cellulose. The Minerals Segment sells its filter aid products under the
trademark CELATOM(R) both directly and through distributors to many large and
small customers.
The Company's Minerals Segment also produces industrial absorbents,
functional fillers and soil amendments and conditioners. The Minerals Segment is
the world's number one producer of granular diatomite absorbent products known
as FLOOR DRY, as well as AXIS(R) and PLAY BALL!(R) soil amendments and
conditioners. In the North American market for industrial absorbents, the
Company's Minerals Segment has a variety of competitors due to a number of other
materials, such as clay, which are also used for this purpose.
The Minerals Segment serves over 35 markets and more than 2,000 customers
around the globe with its various products. Shipments to these customers
worldwide place Minerals among the top ten container shippers from ports along
the West Coast of the United States.
The Minerals Segment competes based on price, service and quality as well
as technical support provided to filter aid customers. The Minerals Segment
operates three mining and processing facilities in the United States. The
Minerals Segment's sales offices located in the United States and Europe market
diatomite, perlite and cellulose directly and through distributors in North
America, Europe, Asia, Africa and the Middle East.
THE MACHINERY SEGMENT
As noted above, the Company's former Machinery Segment was sold as of
December 14, 2001. Since 1964, the Machinery Segment had been the sole supplier
of elevating wheel tractor scrapers to Caterpillar Inc. An elevating wheel
tractor scraper is a large earth-moving machine used for the removal of
overburden for open pit mining, and for site preparation for highways and other
commercial, municipal and industrial projects. The Machinery Segment also
manufactured its own brand and line of rough terrain lift trucks and various
component parts used in agricultural and construction machinery. The Machinery
Segment's manufacturing facilities were located in the United States and Mexico.
The elevating wheel tractor scrapers were marketed and sold by Caterpillar Inc.
and its existing network of distributors, and Caterpillar Inc. was the sole
customer of the segment for elevating wheel tractor scrapers. The component
parts for agricultural and construction machinery manufactured by the Machinery
Segment were sold primarily through internal sales and engineering personnel to
the manufacturers of the machinery. The Machinery Segment's branded line of
forklifts were also sold through internal sales personnel.
For financial information on the Company's former Machinery Segment, see
the Company's Consolidated Statements of Income (Loss) and Note B to the
Consolidated Financial Statements contained in Item 8 below.
OTHER INFORMATION
Raw Materials. The prices of the Company's raw materials are subject to
volatility. The Company's principal raw materials are rubber, steel, zinc,
nickel, gallium, germanium, boron and aluminum. With the exception of gallium
and germanium, these raw materials are commodities that are widely available.
The Company believes that the gallium and germanium supply available to the
Company will be sufficient to satisfy the Company's requirements for 2002.
Although the Company has alternate sources for most of its raw materials, the
Company's policy is to establish arrangements with select vendors, based upon
price, quality and delivery terms. By limiting the number of its suppliers, the
Company believes that it obtains materials of consistently high quality at
favorable prices.
Due to their manufacturing processes, the Minerals Segment and the
Wolverine Division are heavy consumers of natural gas.
Intellectual Property. The Company holds approximately 34 patents,
primarily in the United States. Many of the Company's products incorporate a
wide variety of technological innovations, some of which are protected by
individual patents. Many of these innovations are treated as trade secrets with
programs in place
5
to protect these trade secrets. No one patent or group of related patents is
material to the Company's business. The Company also has numerous trademarks,
including the Eagle-Picher name, and considers the Eagle-Picher name to be
material to its business.
Backlog. At November 30, 2001, 2000 and 1999, the Company's order backlog
was approximately $134.3 million, $134.6 million and $144.1 million,
respectively. The Company expects the order backlog outstanding at November 30,
2001 to be filled within the 2002 fiscal year. As is customary in the automotive
industry, the Company enters into blanket purchase orders with its customers
with respect to specific product orders. From time to time, the customer,
depending on its needs, will provide the Company with releases on a blanket
purchase order for a specified amount of products. As a result, the backlog for
the Automotive Segment is not significant.
Government Contracts. The Company's Technologies Segment has contracts
with the U.S. Government that have standard termination provisions. The U.S.
Government retains the right to terminate the contracts at its convenience.
However, if contracts are terminated, the Company is entitled to be reimbursed
for allowable costs and profits to the date of the termination relating to
authorized work performed to such date. U.S. Government contracts are also
subject to reduction or modification in the event of changes in Government
requirements or budgetary constraints.
Research and Development. The Company spent approximately $10.4 million on
research and development activities, primarily for the development of new
products or the improvement of existing products in 2001. Comparable costs were
$11.7 million in 2000 and $13.3 million in 1999.
Environmental Regulatory Compliance. The Company had total expenditures
for environmental compliance and remediation of $9.1 million in the year ended
November 30, 2001, including $0.3 million of capital expenditures. The Company
estimates that it will expend $11.5 million, including $0.9 million in capital
expenditures, in 2002. Certain amounts resulting from existing conditions
relating to past operations have been provided for. As of November 30, 2001, the
Company had $15.0 million of liabilities recorded in connection with these
environmental matters, and believes such reserves to be adequate under the
circumstances. See Item 3 below for information with respect to various other
environmental proceedings.
Employees. As of November 30, 2001, the Company employed approximately
4,100 persons in its operations, of whom approximately 1,100 were salaried
employees and 3,000 were hourly employees. Approximately 50% of the Company's
hourly employees are represented by one of five labor organizations. The Company
believes that its relations with its employees are generally good.
Financial Information about Foreign and Domestic Operations and Export
Sales. Financial information about Foreign and Domestic Operations and Export
Sales is included in Item 8 below, the Company's Consolidated Financial
Statements for the years ended November 30, 2001, 2000 and 1999. (See Note P to
the Company's financial statements contained in Item 8 below.)
6
ITEM 2. PROPERTIES
The principal fixed assets of the Company consist of its manufacturing,
processing and storage facilities and its transportation and plant vehicles.
Substantially all of the Company's owned properties and assets are pledged as
collateral under its syndicated senior loan facility. The following sets forth
selected information regarding the Company's active manufacturing and processing
facilities:
<Table>
<Caption>
DESCRIPTION OF
SEGMENT LOCATION PROPERTY INTEREST
------- -------- -----------------
AUTOMOTIVE
Domestic Blacksburg, Virginia (2 plant locations) owned
Hillsdale, Michigan (4 plant locations) owned
Hamilton, Indiana owned
Inkster, Michigan owned
Jonesville, Michigan owned
Leesburg, Florida owned
Manchester, Tennessee leased
Mount Pleasant, Michigan owned
Traverse City, Michigan owned
Vassar, Michigan leased
International Ohringen, Germany owned
San Luis Potosi, Mexico owned
Tamworth, England owned
TECHNOLOGIES
Domestic Colorado Springs, Colorado (2 plant locations) owned & leased
Galena, Kansas owned
Grove, Oklahoma owned
Harrisonville, Missouri owned
Joplin, Missouri (7 plant locations) owned & leased
Lenexa, Kansas owned
Miami, Oklahoma (3 plant locations) owned & leased
Quawpaw, Oklahoma (2 plant locations) owned
Seneca, Missouri owned
Stella, Missouri owned
International Vancouver, Canada leased
MACHINERY
Domestic Lubbock, Texas owned
International Acuna, Coahuila, Mexico (sold as of December 15, owned
2001)
MINERALS(1)
Domestic Clark Station, Nevada owned
Lovelock, Nevada owned
Vale, Oregon owned
</Table>
- ---------------
(1) In addition to the facilities listed, the Company's Minerals Segment has
mining locations and numerous claims in Nevada, Oregon and California.
The Company owns or leases additional office space, including its corporate
headquarters in Cincinnati, Ohio and sales offices in Europe and Asia, and
warehouse space for certain of its operations. In December 2001, the Company
announced the relocation of its headquarters office from Cincinnati to Phoenix,
Arizona scheduled to take place in the second quarter of 2002.
The Company's properties are adequate and suitable for its business and
generally have capacity for expansion of existing buildings on owned real
estate. Plants range in size from 420,000 square feet of floor space to under
50,000 square feet and generally are located away from large urban centers.
Substantially all of its buildings have been well maintained and are in sound
operating condition and regular use.
7
Mining. The Minerals Segment owns and leases diatomaceous earth and
perlite mining locations as well as numerous claims in Nevada, Oregon and
California (collectively, "mining properties"). The Company's owned and leased
mining properties, including those not currently being mined, comprise a total
of approximately 10,500 acres in Storey, Lyon, Pershing and Churchill Counties
in Nevada and 5,000 acres in Malhuer and Harney Counties in Oregon, as well as
rights on 2,500 acres not currently being mined in Siskiyou County in
California. The Company continually evaluates potential mining properties, and
additional mining properties may be acquired in the future. The Minerals
division extracts diatomaceous earth and perlite through open-pit mining using a
combination of bulldozers, wheel type tractor scrapers, excavators and
articulated trucks. The extracted materials are carried by truck to separate
processing facilities. A total of approximately 446,000 tons of diatomaceous
earth and perlite were extracted from the Company's mining properties in Nevada
and Oregon in fiscal year 2001. On average, the Company has extracted a total of
approximately 433,000 tons of diatomaceous earth and perlite from its Nevada and
Oregon properties each year for the past five years. As ore deposits are
depleted, the Company reclaims the land in accordance with plans approved by the
relevant federal, state and local regulators. The following mining properties
are of major significance to the Company's mining operations.
Nevada. The Company's diatomaceous earth mining operations in Nevada
commenced in 1945 in Storey County. The Company commenced perlite-mining
operations in Churchill County in 1993. The Company extracted a total of
approximately 228,000 tons of diatomaceous earth and perlite form Nevada
mining properties in fiscal 2001 and, on average, extracted a total of
approximately 274,000 tons of diatomaceous earth and perlite from its
Nevada mining properties each year for the past five years, or
approximately 67% of the Company's total diatomaceous earth and perlite
production (and including 100% of its perlite production). Approximately
265 acres in Storey County, where mining activities commenced 55 years ago,
and approximately 62 acres in the Counties of Lyon and Churchill are
actively being mined by the Company for diatomaceous earth. Diatomaceous
earth from Storey, Churchill and Lyon mining properties is processed at the
Clark Station, Nevada facility. The Company believes its diatomaceous earth
reserves in the Counties of Storey, Churchill and Lyon, including mining
properties not actively being mined, are in excess of 30 years at current
levels of extraction based upon estimates prepared by its mining and
exploration personnel. Diatomaceous earth extractions from the Pershing
mining properties, which commenced more than 40 years ago, are processed at
the Lovelock, Nevada facility. Approximately 975 acres are actively being
mined for diatomaceous earth in Pershing. The Company believes its
diatomaceous earth reserves in Pershing, including mining properties not
actively being mined, to be in excess of 15 years at the current level of
extraction based on estimates prepared by its mining and exploration
personnel. Beginning in 1993, the Company has actively mined approximately
25 acres in Churchill County for perlite, which is processed at the
Lovelock, Nevada facility. The Company believes its perlite reserves in
Churchill County, including mining properties not actively mined, are in
excess of 30 years at the current level of extraction based upon estimates
prepared by it mining and exploration personnel.
Oregon. The Company commenced mining diatomaceous earth in Oregon in
1985 at its mining properties in Harney and Malhuer Counties. Approximately
88 acres in Harney County and 80 acres in Malhuer County are actively being
mined. Diatomaceous earth extracted from these mines is processed at the
Company's Vale, Oregon facility. The Company extracted approximately
218,000 tons of diatomaceous earth from the Harney County and Malhuer
County mining properties during fiscal 2001 and on average, has extracted
approximately 159,000 tons of diatomaceous earth each year for the past
five years from these mining properties, or approximately 33% of the
Company's total diatomaceous earth and perlite production. The Company
believes its diatomaceous earth reserves in Harney County and Malhuer
County, including mining properties not actively being mined, are in excess
of 30 years at the current level of extraction based on estimates prepared
by its mining and exploration personnel.
8
ITEM 3. LEGAL PROCEEDINGS
(a) Chapter 11 Proceedings.
On January 7, 1991 ("Petition Date"), EPI and seven of its domestic
subsidiaries each filed a voluntary petition for relief under chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of Ohio, Western Division, in Cincinnati, Ohio ("Bankruptcy
Court"). All of the chapter 11 cases were consolidated for procedural purposes
only under the caption: "In re Eagle-Picher Industries, Inc., et al.,"
Consolidated Case No. 1-91-00100, before the Honorable Burton Perlman, United
States Bankruptcy Judge.
In August 1996, EPI, together with the Injury Claimants' Committee and the
Representative for Future Claimants who was appointed by the Bankruptcy Court,
proposed a plan of reorganization to the Bankruptcy Court (the "Plan"). The
Bankruptcy Court and the United States District Court for the Southern District
of Ohio (the "Ohio District Court") jointly issued the Order confirming the Plan
on November 18, 1996 (the "Confirmation Date"), and the Plan was consummated on
November 29, 1996 (the "Consummation Date"). The major component of the Plan was
a settlement of EPI's liability for present and future asbestos-related personal
injury claims arising out of business operations prior to the petition date
under which it was agreed that these claims had a total value of $2 billion.
Pursuant to the Plan, (i) the Eagle-Picher Personal Injury Settlement Trust (the
"PI Trust") was established and EPI contributed assets to the PI Trust valued at
approximately $730 million in the aggregate (representing the approximately 37%
distribution upon the $2 billion allowed claim of the asbestos claimants, as
unsecured creditors), consisting of $51.3 million in cash, $250 million in the
10% Debentures, $69.1 million in Tax Refund Notes, $18.1 million in Divestiture
Notes and 10,000,000 shares of Common Stock (representing all outstanding shares
of Common Stock), and (ii) the PD Trust was established in 1999 and was funded
by EPI with $3 million in cash plus interest that had accrued since EPI had
funded this obligation and set aside the $3 million pending establishment of the
PD Trust. Pursuant to the Plan, the asbestos-related claims are discharged and
EPI has no further liability in connection with such claims.
Pursuant to the Plan, EPI is discharged of the burden of defending more
than 150,000 asbestos-related claims, as well as any lead-related claims, that
had been, as well as any such claims that may in the future be, filed against
EPI. This relief has been accomplished through the establishment of the
independent trusts under the Plan to assume, administer, settle and pay such
claims. In addition, the Order includes an injunction (the "Injunction"), which
prohibits claimants with asbestos-related or lead-related claims from bringing
actions against EPI, and instead requires these claimants to assert such claims
only against the PI Trust or, as to asbestos-related property damage claims,
against the PD Trust, each of which was funded by EPI pursuant to the Plan.
Under the Plan the PI Trust assumed all liability and responsibility for
asbestos-related and lead-related personal injury claims against EPI, and the PD
Trust will assume all liability and responsibility for asbestos-related property
damage claims. EPI believes that the Plan, the Injunction and the Bankruptcy
Code together will enjoin any claims against EPI with respect to any past,
present, or future asbestos-related or lead-related liabilities arising from or
based upon business operations prior to the Petition Date.
Following confirmation of the Plan, notices of appeal of the Order were
filed by one general unsecured creditor (the "Creditor Appellant") and the
Unofficial Committee of Co-Defendants (the "Co-Defendants"), a group of former
manufacturers and distributors of asbestos-containing products that have been
named as co-defendants with one or more members of EPI in asbestos personal
injury lawsuits and have asserted claims against EPI for contribution, indemnity
and subrogation. The allowance of contribution claims against EPI is subject to
Section 502(e) of the Bankruptcy Code which states that a claim for contribution
asserted by an entity that is liable with a chapter 11 debtor shall be
disallowed to the extent such contribution claim is contingent as of the time of
allowance or disallowance of such claim. Neither the Creditor Appellant nor the
Co-Defendants requested that the Order be stayed pending appeal. The Creditor
Appellant withdrew its notice of appeal by a stipulation dated January 24, 1997.
The Co-Defendants appealed the Order directly to the United States Circuit
Court of Appeals for the Sixth Circuit (the "Sixth Circuit") (the "Confirmation
Order Appeal"), raising a variety of objections to the Plan and to the Trust's
procedures for processing, allowing and paying the Co-Defendants' claims. The
Co-
9
Defendants also asserted, among other things, that Section 524(g) of the
Bankruptcy Code, which authorizes courts to issue injunctions to channel
asbestos claims away from a reorganized Subsidiary to a personal injury trust
established by such Subsidiary is unconstitutional. The Sixth Circuit in a
decision and order issued December 21, 1998, affirmed the Confirmation Order and
dismissed the subject appeal as moot. As a result, the Confirmation Order became
final and nonappealable as of March 23, 1999.
The Bankruptcy Court and the Ohio District Court entered the Injunction
pursuant to Section 524(g) of the Bankruptcy Code. Section 524(g) of the
Bankruptcy Code was enacted by Congress in 1994 to provide a statutory
safe-harbor for asbestos manufacturing companies faced with numerous
asbestos-related personal injury claims. Section 524(g) grants bankruptcy courts
express statutory authority to issue injunctions that prohibit present and
future asbestos claimants from suing a reorganized debtor; provided that a trust
is established and funded to pay asbestos-related claims through procedures that
reasonably assure that claimants with similar injuries will receive similar
payments and other specific statutory requirements are satisfied.
Under Section 524(g), if the injunction is issued or affirmed by a district
court with jurisdiction over the reorganization, the injunction will be
permanent and not subject to modification by any court once the injunction
becomes final and nonappealable. In confirming the Plan and issuing the
Injunction, the Bankruptcy Court and the Ohio District Court determined that the
PI Trust and the PD Trust each satisfied the requirements of Section 524(g) and
that they had jurisdiction to issue the Injunction under both Section 524(g) of
the Bankruptcy Code and their more general powers under the Bankruptcy Code to
issue orders that are necessary or appropriate in bankruptcy cases.
While Section 524(g) specifically addresses trusts created to resolve
asbestos-related litigation and injunctions issued in connection therewith, it
does not specifically address whether an injunction directing claims to a trust
that will pay both asbestos-related and non-asbestos-related claims, as in this
case, is protected under Section 524(g). While there is a risk that the
Injunction would not apply to future lead-related claimants because lead-related
claims are not addressed in Section 524(g), EPI believes that the Injunction
would be upheld and enforced against lead-related claimants if challenged. That
belief is based on the fact that the Bankruptcy Court and the Ohio District
Court, in confirming the Plan and entering the Injunction, specifically ruled
that Section 524(g) does not prohibit channeling of non-asbestos related claims
along with asbestos-related claims. In the event that Section 524(g) does not
operate to protect the Injunction's channeling of lead-related claims, such
channeling could be upheld as a necessary or appropriate order under Section
105(a) of the Bankruptcy Code. Although the filing of future lead-related
lawsuits cannot be predicted, EPI believes that this risk is limited because to
date, only approximately 125 lead-related claims have been asserted against EPI
(as compared to the tens of thousands of asbestos-related claims asserted
against EPI).
On and shortly after the Consummation Date, EPI made distributions (the
"Initial Distribution") under the Plan totaling approximately $800 million in
cash, common stock and debt securities (including the approximately $730 million
contributed to the PI Trust, $3.0 million set aside for the PD Trust and the
remainder in connection with various other allowed claims (including the
environmental claims described below). Following resolution of all claims (other
than asbestos-related and lead-related claims), EPI made a second and final
distribution of approximately $10.9 million in 2001.
Although a bankruptcy plan of reorganization generally serves to resolve
all claims that arose prior to the chapter 11 proceedings, courts in a number of
cases have limited the types of environmental obligations that can be discharged
by bankruptcy (concluding, for example, that an order to conduct an
environmental clean-up of a site may not be a "claim" or that an environmental
claim did not "arise" before the bankruptcy). EPI has entered into the
Environmental Settlement, discussed below, which is intended to relieve EPI of
the burden of defending against certain claims asserted under Environmental Laws
relating to conditions occurring prior to the date of the bankruptcy petition
and governs certain environmentally related claims that have been or may yet be
asserted against EPI after the Consummation Date relating to conditions
occurring prior to the date of the bankruptcy petition. See "Environmental
Matters." Nevertheless, due to the limitations on the types of environmental
obligations that can be discharged by bankruptcy, EPI may have
10
obligations relating to historical noncompliance with environmental laws with
respect to sites owned by EPI as of the Confirmation Date that were not asserted
in the chapter 11 proceedings. See "Environmental Matters."
(b) Other.
On January 25, 1996, Richard Darrell Peoples, a former employee of EPI,
filed a Qui Tam suit under seal in the United States District Court for the
Western District of Missouri (the "Missouri Court"). A Qui Tam suit is a lawsuit
brought by a private individual pursuant to federal statute, allegedly on behalf
of the U.S. Government. The U.S. Government has declined the opportunity to
intervene or take control of this Qui Tam suit. EPI became aware of the suit on
October 20, 1997, when it was served on EPI, after it had been unsealed. The
suit involves allegations of irregularities in testing procedures in connection
with certain U.S. Government contracts. The allegations are similar to
allegations made by the former employee, and investigated by outside counsel for
EPI, prior to the filing of the Qui Tam suit. Outside counsel's investigation
found no evidence to support any of the employee's allegations, except for some
inconsequential expense account matters. EPI, which believes that the U.S.
Government did not incur any expense as a result of those matters, reported to
the U.S. Government the employee's allegations and the results of outside
counsel's investigation. The employee also initiated a different action against
EPI in 1996 for wrongful termination, in which he alleged many of the same acts
complained of in the Qui Tam suit. That action was dismissed with prejudice by
the Missouri Court in October 1996. On June 16, 1998, the Missouri Court granted
EPI's Motion to Dismiss the Qui Tam suit. The Court, however, allowed Mr.
Peoples to amend his complaint. Mr. Peoples filed an amended complaint, and
EPI's Motion to Dismiss the Amended Complaint was denied on January 20, 1999.
Since that time the case has been in a discovery phase. EPI's lawyers recently
discovered that Mr. Peoples altered documents produced by EPI in that case, a
fact which Mr. Peoples has acknowledged to the court. The Company believes the
alterations were an attempt to fabricate evidence against EPI. EPI filed a
motion for sanctions, including dismissal of the lawsuit, which was denied by
the court. EPI believes that the court erroneously believed that EPI's motion
for sanctions related to an earlier discovery dispute that had been resolved.
EPI has filed a motion for reconsideration of the denial of its motion for
sanctions. If the lawsuit is not dismissed, EPI intends to contest this suit
vigorously. EPI does not believe that resolution of this lawsuit will have a
material adverse effect on EPI's financial condition, results of operations or
cash flows.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit
against the Company's wholly owned subsidiary, Eagle-Picher Industries, Inc.
("EPI") in the United States District Court for the Northern District of Georgia
(the "Georgia Court") alleging breach of contract, negligent misrepresentation,
and contributory infringement and seeking contribution and indemnification in an
amount not less than $10 million (the "Caradon suit"). The Caradon suit arose
out of patent infringement litigation between Caradon and Therma-Tru Corporation
extending over the 1989-1996 time period, the result of which was for Caradon to
be held liable for patent infringement in an amount believed to be in excess of
$10 million. In June 1997, EPI filed a Motion with the United States Bankruptcy
Court for the Southern District of Ohio, Western Division, ("Bankruptcy Court")
seeking an order enforcing EPI's plan of reorganization as confirmed by the
Bankruptcy Court in November 1996 (the "Plan") against Caradon, and enjoining
the Caradon suit from going forward. The Bankruptcy Court in a decision entered
on December 24, 1997, held that the Caradon suit did violate the Plan and
enjoined Caradon from pursuing the Caradon suit. Caradon appealed the Bankruptcy
Court's decision to the United States District Court for the Southern District
of Ohio (the "District Court"), and in a decision entered on February 3, 1999,
the District Court reversed and remanded the matter back to the Bankruptcy
Court. The Bankruptcy Court held a hearing on this matter on September 24 and
25, 2001 and no decision has been rendered as of February 14, 2002. EPI intends
to contest this suit vigorously. EPI does not believe that resolution of this
suit will have a material adverse effect on EPI's financial condition, results
of operations or cash flows.
On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired the
depleted zinc distribution business (the "DZ Business") of Isonics Corporation
("Isonics") for approximately $8.2 million, payable $6.7 million at closing and
$1.5 million in three installments of $500,000 each payable on the first three
anniversaries of the closing. At the time of the acquisition, a single customer
represented approximately 55% of the DZ Business. Following the completion of
the acquisition, this customer informed EPT that it would no longer be
purchasing depleted zinc from an outside supplier and that Isonics had been
informed of this prior to
11
the acquisition of the DZ business by EPT. However, Isonics did not disclose
this to EPT. EPT initiated binding arbitration against Isonics on March 26, 2001
with the American Arbitration Association in Dallas, Texas pursuant to
contractual dispute resolution procedures. EPT's arbitration demand is based on
breach of representations and warranties in the purchase and sale agreement for
the DZ Business as well as fraud and negligent misrepresentation, and seeks to
recover damages in excess of $10 million and other remedies. While the Company
believes it has a meritorious claim against Isonics, there can be no assurance
that the Company will obtain any recovery as a result of this claim.
In connection with the purchase of the DZ Business, EPT agreed to sell 200
kg of isotopically purified silicon-28 to Isonics. Due to various factors, EPT
has not yet delivered any silicon-28 to Isonics. Isonics has asserted a
counterclaim against EPT in the DZ Business arbitration described above for
failure to deliver silicon-28, seeking damages in excess of $10 million. EPT
believes that any obligation to deliver silicon-28 has been excused by, among
other things, a force majeure clause in the purchase and sale agreement for the
DZ Business. Contemporaneously with the purchase and sale of the DZ Business,
EPT and Isonics entered into a supply agreement (the "Supply Agreement")
pursuant to which EPT agreed that, commencing upon delivery of 200 kg of
silicon-28, EPT would devote the capacity of a pilot plant used to produce such
material to producing silicon-28 and sell all silicon-28 produced in such pilot
plant and meeting certain specifications, as well as any silicon-29 or
silicon-30 actually produced as a byproduct, to Isonics for a ten year term.
Isonics amended its counterclaim in the DZ Business arbitration to assert a
claim that the Supply Agreement requires EPT to produce a certain amount of
silicon-28, silicon-29 and silicon-30 and alleging damages of not less than $75
million for anticipatory breach of such alleged obligation. EPT believes that
the terms of the Supply Agreement and applicable law clearly establish that the
Supply Agreement does not impose any obligation to produce any quantity of
silicon-28, silicon-29 or silicon-30 and that Isonics' claims are without merit.
Isonics also amended its counterclaim to allege that EPT's parent company,
Eagle-Picher Industries, Inc. ("EPI") is liable for any damages of EPT under an
"alter ego" theory, a claim which EPI and EPT believe is also without merit. EPT
and EPI intend to assert other defenses as well and to defend this counterclaim
vigorously. EPT continues to explore alternative processes that may enable it to
produce silicon-28, but there is no assurance that such efforts will be
successful.
On September 25, 2001, Andries Ruijssenaars, former President and Chief
Executive Officer of the Company, filed a lawsuit against the Company, certain
of its directors and ABN AMRO Bank in the U.S. District Court for the Southern
District of Ohio, Western Division, relating to the purchase of Mr.
Ruijssenaar's common stock in the Company and his benefits under EPI's
Supplemental Executive Retirement Plan (SERP). Mr. Ruijssenaars claims that the
per share price for 2001 under the Company's Incentive Stock Plan, which is
generally applicable to all Plan participants and results in approximately $2.8
million for Mr. Ruijssenaars' 30,000 shares of common stock, was not correctly
determined and claims approximately $4.7 million for his shares. Mr.
Ruijssenaars' lawsuit also challenges a rule adopted by the committee for the
Plan deferring the obligation of the Company to repurchase stock in the event
contracts to which the Company is a party, including its debt agreements,
restrict such repurchase. See "Incentive Stock Plan" under Item 11 below.
Mr. Ruijssenaars' lawsuit also challenges EPI's determination of benefits
under the SERP and claims that EPI is obligated to purchase an annuity for his
additional SERP benefit accrued after 2000 based on theories of promissory
estoppel, equitable estoppel, breach of contract and ERISA. Mr. Ruijssenaars has
also asserted claims of fraud, conspiracy, breach of fiduciary duty and
conversion. Mr. Ruijssenaars seeks approximately $2.3 million with respect to
the SERP, as well as punitive damages.
The Company intends to contest this suit vigorously. The Company does not
believe that resolution of this lawsuit will have a material adverse effect on
its financial condition, results of operations or cash flows.
On October 30, 2001, GMAC Business Credit, LLC (GMAC) and Eagle Trim, Inc.
filed a lawsuit in the United States District Court for the Eastern District of
Michigan, Southern Division, against EPI arising out of the sale of EPI's former
automotive interior trim division to Eagle Trim in 1998. In connection with that
sale, EPI guaranteed to GMAC, which funded the acquisition, that approximately
$3.9 million of receivables relating to tooling purchased by EPI on behalf of
customers would be paid by November 2001. Eagle Trim
12
ceased operations during 2001, at which time Eagle Trim and GMAC allege that
approximately $2.7 million of the tooling receivables had not been collected and
did not exist at the time of the sale. GMAC claims $2.7 million plus interest on
the guaranty, and GMAC and Eagle Trim have asserted claims for fraud and
misrepresentation and are seeking $24.5 million in damages. EPI is currently
investigating these allegations, but denies any fraud or misrepresentation. EPI
intends to contest this suit vigorously. EPI does not believe that resolution of
this lawsuit will have a material adverse effect on EPI's financial condition,
results of operations or cash flows.
EPI is also involved in various other proceedings incidental to the
ordinary conduct of its business. EPI believes that none of these other
proceedings will have a material adverse effect on EPI's financial condition,
results of operations or cash flows.
(c) Environmental Matters.
During the pendency of the chapter 11 proceedings, EPI entered into a
settlement agreement (the "Environmental Settlement") with the United States
Environmental Protection Agency (the "EPA"), the United States Department of the
Interior and the states of Arizona, Michigan and Oklahoma (together, the
"Settling Parties"), addressing all known and unknown environmentally-related
claims that were or could have been asserted by those entities against EPI in
the bankruptcy proceeding. In addition to resolving those claims filed in the
chapter 11 proceedings, the Environmental Settlement provided that any
additional claims by the Settling Parties against EPI in connection with
pre-petition activities at any site not owned by EPI (the "Additional Sites"),
shall be resolved as if they had been asserted during the chapter 11
proceedings. Accordingly, if EPI is found liable or settles any Additional Site
claim, such liability is limited to approximately 37% of the liability or
settlement amount.
Since entering into the Environmental Settlement, EPI has received notice
from one or more of the Settling Parties that EPI may have liability in
connection with 23 Additional Sites, one of which could be significant. EPI
entered into an agreement with two potentially responsible parties ("PRPs") and
the EPA in December 2001 to conduct a remedial investigation and feasibility
study at the Eagle Zinc site in Hillsboro, Illinois ("the Site") as an
Additional Site. EPI owned and operated the zinc smelter and zinc oxide chemical
manufacturing plant from the 1920s until 1980. Studies by EPA and the current
owner indicate the potential for soil and groundwater contamination at the Site.
EPI believes that its potential liability at these Additional Sites is not
material to EPI's financial condition, results of operations or cash flows.
EPI is undertaking remedial actions at a number of its current and former
facilities and properties which are not covered under the Environmental
Settlement Agreement. In connection with certain sales of its assets, including
the Construction Equipment Division (the Machinery Segment) sold in December
2001, the Rubber Molding, Fluid Systems and Ross Divisions sold in 2000 and the
Bearings Division sold in 1989, EPI has agreed to undertake remedial actions or,
alternatively, to indemnify the respective purchasers of particular assets for
certain liabilities in connection with those remedial actions under the
Environmental Laws relating to that asset's operations or activities prior to
the sale. EPI believes that neither these remedial actions nor any claims under
these indemnity provisions will have a material adverse effect on EPI's
financial condition, results of operations or cash flows.
EPI is undertaking closure and corrective actions under RCRA at two of its
current permitted hazardous waste facilities. At the Joplin, Missouri, facility,
consistent with the requirements of its RCRA permit, EPI is investigating the
nature and extent of contamination from two closed hazardous waste impoundments
and over 100 solid waste management units formerly in use during the 130-year
operating history of this property. EPI's investigation has identified areas of
soil and groundwater contamination or suspected contamination, certain of which
likely will require EPI to undertake remedial activities. Following completion
of its investigation, EPI, in conjunction with federal and state regulators,
will determine what, if any, corrective actions are appropriate at this
property. At the Colorado Springs, Colorado, facility, EPI entered into a
Compliance Order on Consent with the State of Colorado's Department of Public
Health and Environment effective January 28, 1999 (the "Consent Order").
Pursuant to the Consent Order, EPI will complete the closure of four former
hazardous waste impoundments and evaluate appropriate remedial actions to
address contaminated groundwater and soil
13
at and around the facility. EPI does not believe that it will be assessed any
penalty in connection with the remediation of these sites, although there can be
no assurance that one will not be imposed.
EPI owned and operated a lead and zinc smelting facility, which was
dismantled in 1982, on the Galena property. The Galena property is located
within the Tri-State mining district, formerly one of the largest lead and zinc
fields in the world. The Tri-State mining district was actively worked from the
mid-1800s until the 1960s and, as a result, soil, groundwater and surface waters
have been significantly and adversely impacted. In the 1980s and early 1990s,
the EPA addressed both surface contamination (including residential soil
contamination) and groundwater contamination issues in the Tri-State mining
district in the immediate vicinity of the Galena property. Under the
Environmental Settlement, while EPI resolved all of its other liability under
the Comprehensive Environmental Response, Compensation, and Liability Act
associated with the Tri-State mining district, it specifically retained
liability for the Galena property. Environmental impacts are likely at the
Galena property as a result of the former smelter operation and from historic
materials management practices on the Galena property. The EPA has not required
remediation of the Galena property, and EPI has no current expenses in
connection with remedial activities at this property. EPI, however, anticipates
that certain investigations and remediation may be required at some point in the
future. EPI does not believe that it will be assessed any penalty in connection
with the remediation of this site, although there can be no assurance that one
will not be imposed.
EPI does not believe, based on current information and taking into account
reserves established for environmental matters, that costs associated with
compliance with and remediation under Environmental Laws will have a material
adverse effect on its financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2001, the Company solicited the agreement of
holders of its 9 3/8% Senior Subordinated Notes due 2008 that the transfer of
all or any portion of the accounts receivable of the Company or any of its
subsidiaries, directly or indirectly, to an affiliate in connection with the
securitization of such accounts receivable does not constitute an "Asset Sale"
as defined in the Indenture for the Notes and does not, without limitation,
contravene the "Limitations on Asset Sales" described in Section 4.16 of such
Indenture, and that the deferred purchase price to be paid in consideration of
the transfer of such accounts receivable does not constitute an "Investment" as
defined in the Indenture by the Company or its subsidiaries and does not,
without limitation, contravene the "Limitation on Restricted Payments" described
in Section 4.5 of the Indenture. Holders of 75.4% of the Notes so agreed. The
Bank of New York, as Trustee for the Notes, supplemented the Indenture
consistent with the foregoing.
During the fourth quarter of 2001, the holder of approximately 51.8% of the
outstanding 11 3/4% Series B Cumulative Redeemable Exchangeable Preferred Stock
of EP Holdings agreed that the transfer of all or any portion of the accounts
receivable of the Company or any of its subsidiaries, directly or indirectly, to
an affiliate in connection with the securitization of such accounts receivable
does not constitute an "Asset Sale" as defined in the Certificate of
Designations for the preferred stock and does not, without limitation,
contravene the limitations on "Asset Sales" described in Section 11(g) of the
Certificate, and that the deferred purchase price to be paid in consideration of
the transfer of such accounts receivable does not constitute an "Investment" as
defined in the Certificate by the Company or its subsidiaries and does not,
without limitation, contravene the limitation on "Restricted Payments" described
in Section 11(d) of the Certificate.
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
[NOT APPLICABLE]
ITEM 6. SELECTED FINANCIAL DATA
<Table>
<Caption>
NINE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, FEBRUARY 28,
2001 2000 1999 1998 1998 1997
-------- -------- ---------- ------------ ------------- -------------
PREDECESSOR A PREDECESSOR A
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
STATEMENT OF INCOME (LOSS):
Net sales (A)..................... $692,450 $754,996 $ 822,948 $ 559,518 $ 183,229 $ 809,269
Operating income (B).............. 4,278 62,288 27,915 7,083 9,170 36,278
Interest expense.................. (40,105) (43,989) (45,475) (33,477) (4,104) (26,722)
Income (loss) from continuing
operations before taxes......... (31,914) 18,395 (14,000) (24,551) 3,807 8,877
Net income (loss)................. (53,971) 5,610 (17,587) (14,364) 807 (3,854)
Preferred stock dividends
accreted........................ (13,282) (11,848) (10,569) (7,382) -- --
Basic earnings (loss) per share
for continuing operations....... (35.84) (2.53) (24.03) (24.55) 0.40 0.89
Basic earnings (loss) per share... (68.51) (6.26) (28.16) (14.36) 0.08 0.39
Weighted average number of common
shares outstanding.............. 981,583 997,125 1,000,000 1,000,000 9,600,071 10,000,000
Dividends per common share........ -- -- -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):
Total assets...................... $725,911 $767,699 $ 833,947 $ 807,307 N/A $ 735,910
Total long-term debt and
redeemable preferred stock
(C)............................. 566,212 567,735 642,035 571,743 N/A 273,397
OTHER DATA:
EBITDA (D)........................ 85,746 103,819 113,671 76,194 24,435 91,884
Cash provided by (used in)
operating activities............ 67,470 45,564 35,495 71,910 (1,277) 141,079
Cash provided by (used in)
investing activities............ (36,791) 35,839 (92,946) (14,113) (5,702) (17,915)
Cash provided by (used in)
financing activities............ (17,848) (88,570) 44,933 (64,216) (18,954) (113,042)
SELECTED RATIOS:
Earnings/fixed charges and
preferred stock dividends (E)... .18x 1.11x .57x .24x 1.85x 1.31x
</Table>
- ---------------
All prior year figures have been restated to show the Machinery Segment as
discontinued operations. See Note B in Item 8.
(A) Includes net sales attributed to Divested Divisions of -0- in 2001, $42,764
in 2000, $130,003 in 1999, $112,650 in the nine months ended November 30,
1998, $37,086 in the three months ended February 28, 1998, and, for purposes
of Item 6 only, $229,723 in 1997.
(B) Operating income is not indicative of trends as the results for the nine
months ended November 30, 1998 (subsequent to the Acquisition) and those of
predecessor A (subsequent to the Reorganization, but before the Acquisition)
were derived using different bases.
15
(C) Includes 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock
("Preferred Stock") of $123,086 in 2001, $109,804 in 2000, $97,956 in 1999
and $87,387 in 1998, which was issued in conjunction with the Acquisition.
(D) For purposes hereof, EBITDA is defined as earnings before interest expense,
income taxes, depreciation and amortization, certain items determined by
management to be in the nature on nonrecurring items -- namely, one-time
management compensation expenses, gain (loss) on sale of divisions, gains
from insurance settlement, reorganization items, charge for impairment of
net assets of operations to be sold and non cash items relating and accruals
for the company's stock appreciation rights plan. EBITDA is presented
because management believes it is an indicator of a company's ability to
service and incur debt. 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, as determined by Generally
Accepted Accounting Principles ("GAAP"), as an indicator of the Company's
operating performance, or to cash flows from operating activities, as
determined by GAAP, as a measure of liquidity. Funds depicted by EBITDA are
not available for management's discretionary use to the extent they are
required for debt service and other commitments. Includes EBITDA contributed
by Divested Divisions of -0- in 2001, $1,194 in 2000, $9,178 in 1999,
$10,458 in the nine months ended November 30, 1998, $3,985 in the three
months ended February 28, 1998, and, for purposes of Item 6 only, $15,353 in
1997.
(E) For purposes of determining the ratio of earnings to fixed charges and
preferred stock dividends, "earnings" consist of income from continuing
operations before provision (benefit) for income taxes and fixed charges.
"Fixed charges" consist of interest expense (including amortization of
deferred financing costs) and approximately 30% of rental expense,
representing that portion of rental expense deemed representative of the
interest factor. Earnings were insufficient to cover fixed charges and
preferred stock dividends in 2001 by $45,196 and 1999 by $24,569 and in the
nine months ended November 30, 1998 by $31,933.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Financial information about industry segment data is included in Note P to
the Company's Consolidated Financial Statements for the years ended November 30,
2001, 2000 and 1999 included in Item 8 below. All references herein to years are
to the Company's fiscal year ending November 30 unless otherwise indicated.
Throughout 2001, the Company accounted for the Machinery Segment as a
discontinued operation. See Note B, Acquisitions, Divestitures and Discontinued
Operations in Item 8 below. The figures presented below exclude the Machinery
Segment for 2001, 2000 and 1999.
2001 COMPARED TO 2000
THE AUTOMOTIVE SEGMENT
Sales in the Automotive Segment decreased 6.4% from $456.4 million in 2000
(excluding Divested Divisions) to $427.3 million in 2001. The decline in sales
was principally attributed to reduced demand for Company products. North
American car and light truck build for 2001 was reported at 15.9 million, down
more than 10% from 2000 build, reported at 17.7 million. The decline in volumes
were partially offset by new product launches. In addition, North American
production by the U.S.-based original equipment manufacturers (OEMs -General
Motors, Ford and Chrysler) declined on a percentage basis more than North
American production by non-U.S. based OEMs, and the Automotive Segment has a
higher percentage of sales in North America to non-U.S. based OEMs than North
American production in general.
Pretax profit decreased $18.0 million from $7.4 million in 2000 to a
$(10.6) million loss in 2001. Reduced profitability was primarily a result of
lower volumes, $4.5 million in new program launch costs at the Company's
Hillsdale Division, increase of depreciation of $3.3 million, pricing reductions
of $2.8 million, higher workers compensation expense and higher interest costs
of $1.0 million. Although the Company had
16
projected declining sales, offsetting cost reductions could not be achieved in a
timely manner. In particular, high fixed costs in the Automotive Segment
severely impact profitability in the event of a decrease in sales. Capital
expenditures for the Automotive Segment were $28 million in 2001 compared to
$34.2 million in 2000. These capital expenditures were related to a significant
number of new product launches at the Company's Hillsdale Division and the
acquisition of a new rubber coating line at the Company's Wolverine Gasket
Division.
The Outlook for 2002
Although there are several industry forecasts for North American car and
light truck build for 2002, the Company believes those that project demand in
the 14.5 million to 15.5 million vehicles range are most valid and has
established its 2002 operating plans on a flat to down industry demand for the
year. The Company projects sales for the Automotive Segment to be flat year over
year, with the first nine months to be down slightly, offset with a modest 2% to
3% improvement in the fourth quarter as new platforms incorporating Company
products come on line. Pretax profit is expected to recover to a break even or a
slightly positive position due to avoidance of extraordinary launch costs and
more timely implementation of cost reduction and avoidance programs. The Company
expects continuing strong pressure for further price reductions from automotive
manufacturers throughout 2002 which could negatively impact profitability. The
Company has also imposed rigid controls over capital expenditures, which are
projected to be below $20 million for the Automotive Segment in 2002.
THE TECHNOLOGIES SEGMENT
Sales of the Technologies Segment increased 4.6% from $191.4 million in
2000 to $200.3 million in 2001. Slightly more than half the increase is
attributable to the sales of Eagle-Picher Energy Products Corporation which was
acquired in June 2000. Other increases were attributable to sales of specialty
materials used in fiber-optic applications along with certain aerospace battery
programs. Additionally, volumes of bulk pharmaceutical products increased in
2001 resulting from added capacity from a recent plant expansion. These
increases were offset by lower demands for lead based products sold as chemical
agents and lead-acid batteries. A decline in orders from telecommunications
customers also had a negative impact on the electronics assembly products sold
by the segment. Additionally, the Company experienced a fire at its
Harrisonville, Missouri bulk pharmaceutical chemical processing plant in August,
2001. The company estimates lost sales in 2001 of approximately $1.5 million
from the fire. This plant was restored to full operation in December, 2001.
Pretax loss for the segment increased $13.1 million from a $(0.4) million
loss in 2000 to a $(13.5) million loss in 2001. Reduced profitability was
primarily a result of a $8.7 million restructuring charge taken in the fourth
quarter relating to anticipated plant closures and a workforce reduction, lower
operating margins, increased reserves ($2.0 million) for bad debt and warranty
costs and higher interest costs of $0.2 million. As mentioned above, the Company
experienced a fire at one of its chemical plants which resulted in lost margins
and incremental costs aggregating an estimated $0.9 million which was offset by
an equal amount of benefit from insurance coverage. This claim is expected to be
finalized in the second quarter of 2002.
The Outlook for 2002
Sales for the Technologies Segment in 2002 are expected to decline by
approximately 2% to $195 million. The principal reason for the lower sales is
the curtailment and closing of certain operations related to the restructuring
of the business announced in late 2001. Partially offsetting these lower sales,
the Company anticipates some higher demands for its pharmaceutical chemical
products, coupled with the full recovery of those operations impacted by a fire
in 2001. The Company has also learned that a customer for germanium wafers may
be acquired by a competitor, which places approximately $7 million of revenue at
risk. Pretax profit is expected to remain flat (exclusive of 2001 restructuring
charge) with inefficiencies related to business restructuring offset by cost
improvement and avoidance programs. The Company is also evaluating certain of
its specialty chemical operations providing products that incorporate certain
rare and exotic materials to the electronics and communication industries.
Industry demand has softened significantly and the Company has
17
also been informed of a pending bankruptcy proceeding of one of its major
customers for these products. These circumstances may precipitate further
restructuring actions by the company that are not reflected in the above
forecasts.
THE MINERALS SEGMENT
The Minerals Segment sales increased 1.0% to $65.7 million in 2001 from
$65.1 million in 2000 despite a decrease in the total volume of products sold.
Volume decreases were due to the rationalization of existing business and
general economic weakness. Revenue increased because of volume increases in
higher value-added products, a general price increase, plus an energy surcharge
that was in effect for part of the year to defray a portion of the increase of
natural gas and electricity costs experienced nationwide. At the end of 2001,
the Company also implemented an aggressive price improvement program directed
toward improving margins.
Pretax income for the segment increased $1.1 million from $0.3 million in
2000 to $1.4 million in 2001. This increase was primarily attributable to lower
interest costs ($0.7 million) and reduced Headquarters charges ($0.3 million),
both reflective of better working capital management by the operation. The
Minerals Segment achieved improved profitability in 2001 despite increased
natural gas costs of $2.8 million and power cost increases of $0.4 million. The
increases in energy costs were mitigated through the use of alternative fuels,
energy conservation measures, and energy surcharges to customers. Natural gas
prices have stabilized and the Company expects that trend to continue through
2002. Additionally, penalties of $0.5 million and legal and consultant costs of
$0.4 million were incurred in the settlement of regulatory claims for violating
gaseous emission permits in Nevada and Oregon. Settlements have been reached in
both jurisdictions and the Company is in compliance with current permits or
interim orders.
The Outlook for 2002
Sales for the Minerals Segment in 2002 are expected to increase by
approximately 10% to $72.3 million due to increased demand for the company's
products as well as expansion of the product line into new higher value
applications. Pretax profit is expected to increase by 14% to $1.6 million on
higher sales volume.
SUMMARY OF THE COMPANY
Net Sales. Sales decreased 8.3% from $755.0 million in 2000 to $692.5
million in 2001 or 2.8% excluding $42.8 million of sales in 2000 from Divested
Divisions. The decline in sales was principally attributed to reduced demand for
Company products in the Automotive Segment from the automobile manufactures.
These decreases were partly offset by gains in the Technologies Segment.
Cost of Products Sold. Cost of products sold, excluding that of Divested
Divisions, increased from 78.6% of net sales in 2000 to 80.7% of net sales in
2001, largely as a result of poor overhead absorption due to lower volumes,
particularly in the Automotive Segment, as well as new product launch costs in
the Automotive Segment.
Selling and Administrative. Selling and administrative expenses declined
$8.3 million (14%) from 2000 to 2001. The Divested Divisions accounted for $4.8
million of the reduction. As a percentage of sales, selling and administrative
expenses declined from 7.9% in 2000 to 7.4% in 2001.
Depreciation and Amortization. Depreciation and amortization expense
increased $1.3 million and $0.4 million, respectively. The increase in
depreciation expense is primarily attributable to capital expenditures in the
Automotive Segment.
Management Compensation -- Special. Management Compensation-Special is
severance related to the separation from employment of senior executives.
Insurance Settlement. During 2000, the Company settled claims against a
former insurer regarding environmental remediation costs for $16 million and
received such proceeds in the first quarter of 2000.
Restructuring. During the fourth quarter of 2001 the Company announced a
restructuring of its Technologies Segment and a restructuring and relocation of
its Headquarters to Phoenix, Arizona, recording a
18
charge against income of $14.2 million. Approximately $5.5 million related to
facilities, $5.0 million related to involuntary severance and $3.7 million in
other costs to exit business activities.
Divestitures. During 2001, the Company incurred additional costs of $2.1
million related to divisions divested which were sold in prior years. During
2000, as part of the Company's previously announced program to focus management,
technical and financial resources on core businesses, the Company completed the
sale of its Ross Aluminum Foundries, Fluid Systems, MARCO, Rubber Molding and
Cincinnati Industrial Machinery divisions for aggregate net proceeds of $85.0
million and an aggregate gain on the sale of these divisions of $17.1 million,
which was reduced for provisions made for items relating to divisions sold in
prior years to $3.1 million.
Interest expense. Interest expense was $40.1 million in 2001 (not
including interest allocated to discontinued operations of $3.3 million) and
$44.0 million in 2000 (not including interest allocated to discontinued
operations of $3.4 million), a decrease of $3.9 million. The decrease in
interest expense is due to lower interest rates in 2001 and lower debt balances
in 2001 as a result of the application of proceeds from the sales of divisions
and the insurance settlement in 2000.
Income (Loss) from Continuing Operations Before Taxes. Income (loss) from
Continuing Operations before taxes was $(31.9) million for 2001 and $18.4
million for 2000. The following items are significant differences between income
(loss) from Continuing Operations before taxes for 2001 and 2000:
- A restructuring charge of $14.2 million related principally to the
Technologies Segment and Headquarters in 2001;
- Provisions for Management Compensation -- Special of $3.1 million in 2001
versus $1.6 million in 2000;
- Income of $16 million from an insurance settlement in 2000;
- Gain on sale of the Divested Divisions of $3.1 million in 2000;
- In 2001, recognition of additional costs of $2.1 million related to
environmental and litigation matters associated with divisions sold in
prior years. See Note B in Item 8.
- An increase in Other Income of $3.8 million in 2001 primarily due to
gains in foreign currency transactions of $0.5 million in 2001 versus a
loss of $(1.4) million in 2000 and an increase in royalty income of $0.9
million year over year.
- Loss before tax of Divested Divisions, before the gain on the sale of
such divisions, in 2000 of $4.3 million;
- Decreases of pretax income of $18.0 million and $4.3 million at the
Automotive and Technologies Segments, respectively, and increases in
pretax income of $1.1 million in the Minerals Segment; and
- A decrease in Headquarters operating expenses of $1.7 million, excluding
the insurance settlement proceeds in 2000 and the restructuring charge in
2001.
Income Taxes (Benefit). Income taxes (benefit) were $(10.0) million and
$9.1 million in 2001 and 2000, respectively. The sale of the Divested Divisions
and the income from the insurance settlement in 2000 affect comparability of
income taxes and the effective tax rates. The income taxes (benefit) in 2000 is
largely attributable to taxable gains resulting from divestitures.
Discontinued Operations. Throughout 2001, the Company accounted for the
Machinery Segment as a discontinued operation and prior periods have been
restated to remain consistent with this same treatment. On December 14, 2001,
the Company completed the sale of the assets of this segment. See Note B in Item
8 below.
Net Income (Loss). Net income (loss) for 2001 and 2000 were $(54.0)
million and $5.6 million, respectively. The significant items are discussed in
the Income (Loss) from Continuing Operations Before Taxes and Discontinued
Operations sections above.
19
Preferred stock dividend accretion of $13.3 million in 2001 increased net
loss of $(54.0) million to a net loss applicable to common shareholders of
$(67.3) million. In 2000, preferred stock dividend accretion of $11.8 million in
2000 reduced net income of $5.6 million to a net loss applicable to common
shareholders of $(6.2) million.
Company Outlook for 2002
The Company is expecting sales for 2002 to be flat at approximately $700
million. Increased sales in the Minerals Segment are expected to be offset by
declines in the Technologies Segment. The Automotive Segment is projected flat
year over year. Pretax loss is expected to be reduced by approximately $30
million, to a range of $(2) million to $(5) million, without regard to any
further potential restructuring charges. Profit improvement is expected to
result from improved operations and as well the fact that 2001 pretax income was
unfavorably impacted by $17 million in restructuring and other non-recurring
charges. After foreign taxes, this level of pretax loss would result in a net
loss of approximately $(7) million to $(10) million. After preferred stock
dividend accretion of $14.9 million in 2002, this would result in a net loss
applicable to common shareholders of approximately $(21.9) million to $(24.9)
million.
2000 COMPARED TO 1999
THE AUTOMOTIVE SEGMENT
Sales in the Automotive Segment increased 5.2% from $433.8 million in 1999
to $456.4 million in 2000. Contributing to the increase were an additional three
months of ownership of Carpenter, which was purchased effective March 1, 1999,
and approximately $15.0 million of new business. Price reductions of $4.5
million, matured or lost business of approximately $22.0 million and the effects
of production slowdowns during the fourth quarter of fiscal year 2000 reduced
year 2000 sales.
Production slowdowns during the fourth quarter occurred in part as a result
of the shutdown of production at Ford's sport utility vehicle and light truck
facilities in order to divert tire production to satisfy demand created by the
Firestone tire recall. Higher interests rates and a slowing of the economy also
adversely impacted fourth quarter production volume.
Pretax profit decreased $3.2 million from $10.6 million in 1999 to $7.4
million in 2000. Pricing reductions of $4.5 million, an additional $1.7 million
of interest expense, a $2.0 million increase in depreciation and amortization
expense and approximately $1.3 million of foreign currency exchanges losses
contributed to the decline in profitability. These drags on profit were offset
somewhat by improved operating efficiencies and material cost savings resulting
from the Company wide strategic sourcing initiative commenced in 1999.
THE TECHNOLOGIES SEGMENT
Sales by the Technologies Segment decreased 3.6% from $198.5 million to
$191.4 million. Excluding sales of EPEP, which was acquired during the third
quarter of fiscal year 2000, sales of the Technologies Segment during 2000 were
$186.8 million, a decrease of 5.9%. Special Purpose Batteries lead the decline
in sales due to softness in the aerospace and defense markets and the loss of a
large customer. Sales declines in Specialty Materials due to lower demand for
enriched boron as a result of temporary shutdowns of certain nuclear reactors
were offset somewhat by increased sales of bulk pharmaceutical products and
clean containers. Sales of depleted zinc were less than half of expected levels
due to the loss of the largest customer of that product.
Pretax income decreased $12.1 million from $11.7 million in 1999 to a
pretax loss of ($.4) million in 2000. Substantially all of the decline in pretax
income is attributable to lower volumes resulting in poor absorption of
overhead, a $2.3 million increase in interest expense, a $1 million increase in
depreciation and amortization expense and significantly higher health care costs
during 2000.
20
THE MACHINERY SEGMENT
This Segment has been restated as a discontinued operation. See Note B,
Acquisitions, Divestitures and Discontinued Operations in Item 8 below. Loss
from operations of the discontinued segment was $3.7 million, net of $2 million
tax benefit, in 2000 and $4.1 million, net of $2.2 million tax benefit, in 1999.
THE MINERALS SEGMENT
For the Minerals Segment, results of 2000 were much improved over 1999.
During the year, the Minerals Segment undertook a program to rationalize its
existing business and implement a more uniform pricing scheme, raising prices on
certain low margin business and replacing other low margin business with higher
margin business. The strategy was a success, resulting in a 5.5% increase in
sales by the Minerals Segment from $61.7 million to $65.1 million while total
volume of products sold remained flat. Pretax income at the Minerals Segment
also increased significantly from a loss of ($4.1) million to a gain of $.3
million. The improvement in the Minerals Segment's operating margin is
attributable not only to the business and pricing rationalization program
undertaken during the year, but also significant gains in production efficiency.
Notably, these efficiency gains offset an approximately $1.3 million increase in
natural gas costs associated with processing the diatomaceous earth. Reduced
charges from the Company headquarters as a result of better working capital
management and a reduction in depreciation expense of approximately $.7 million
also contributed to the increase in pretax income. The depreciation expense was
lower in 2000 because certain items on the Minerals Segment's books were fully
depreciated in 1999.
SUMMARY OF THE COMPANY
Net Sales. While the Company's divestiture program resulted in a decrease
in year 2000 Consolidated Net Sales of approximately 8.2%, the Company's
Consolidated Net Sales actually increased approximately 1.2% after excluding
sales of Divested Divisions and EPEP, which was acquired in June 2000. Increased
sales in the Automotive Segment and the Minerals Segment were largely offset by
decreased sales in the Technologies Segment.
Cost of Products Sold. Cost of products sold, excluding that of Divested
Divisions, increased from 78.3% of net sales to 78.6%, largely as a result of
less overhead absorption due to lower volumes.
Selling and Administrative. Selling and administrative expenses, excluding
those of Divested Divisions, remained flat from 1999 to 2000 as a percentage of
net sales.
Depreciation and Amortization. Depreciation and amortization expense
decreased $2.5 million and $.7 million, respectively. The decrease in
depreciation expense is primarily attributable to the sale of the Divested
Divisions. The reduction in amortization expense is attributable to the sale of
the Divested Divisions.
Management Compensation -- Special. Management Compensation-Special is
severance-related to the separation from employment of a senior executive.
Insurance Settlement. The Company settled claims against a former insurer
regarding environmental remediation costs for $16 million and received such
proceeds in the first quarter of 2000.
Divestitures. During 2000, as part of the Company's previously announced
program to focus management, technical and financial resources on core
businesses, the Company completed the sale of its Ross Aluminum Foundries, Fluid
Systems, MARCO, Rubber Molding and Cincinnati Industrial Machinery divisions for
aggregate net proceeds of $85.0 million and an aggregate gain on the sale of
these divisions of $17.1 million, which was reduced for provisions made for
items relating to divisions sold in prior years to $3.1 million.
Interest expense. Interest expense was $43.9 million in 2000 and $45.4
million in 1999, a decrease of $1.5 million. The decrease in interest expense is
due to the application of proceeds from the sales of the Ross Aluminum
Foundries, Marco and Fluid Systems Divisions and the insurance settlement in the
first quarter of 2000 to the outstanding debt balances. In the second and third
quarters of 2000, the proceeds of the sale of Rubber Molding and Cincinnati
Industrial Machinery Divisions were applied to outstanding debt balances.
21
Income (Loss) From Continuing Operations Before Taxes. Income (loss) from
continuing operations before taxes was $18.3 million for 2000 and $(14.0)
million for 1999. The following items affect the comparability between income
(loss) before taxes for 2000 and 1999:
- A provision for impairment of assets held for sale of $21.4 million in
1999;
- Provisions for Management Compensation -- Special of $1.6 million in 2000
versus $0.6 million in 1999;
- Proceeds of $16 million from an insurance settlement in 2000;
- Gains on sales of divisions of $3.1 million in 2000;
- Income (loss) before tax of Divested Divisions, net of the gain on the
sale of such divisions in 2000 and net of the provision for the
impairment of assets in 1999, of $(4.3) million in 2000 and $(6.6)
million in 1999;
- Decreased deprecation, amortization and interest expense as a result of
the sale of the Divested Divisions and the application of the proceeds to
pay down debt;
- Increase of pretax income of $4.4 million at the Minerals Segments, and
decreases in pretax income of $3.5 million and $12.1 million in the
Automotive and Technologies Segments, respectively; and
- A decrease in the net loss at the Headquarters, excluding the insurance
settlement proceeds, of $1.0 million.
Income Taxes (Benefit). Income taxes (benefit) were $9.0 million and $0.5
million in 2000 and 1999, respectively. The acquisition of Carpenter in 1999 and
in the sale of the Divested Divisions in 2000 affect comparability of income
taxes and the effective tax rates. The increase in income taxes (benefit) in
2000 is largely attributable to taxable gains resulting from divestitures.
Net Income (Loss). Net income (loss) for 2000 and 1999 were $5.6 million
and $(17.6) million, respectively. In 1999, net income was significantly
impacted by the effects of the non-cash provision related to the impairment of
net assets of operations to be sold of $21.4 million. In 2000, net income was
significantly impacted by the $16 million proceeds from the insurance settlement
and $3.1 million in divestitures.
Preferred stock dividend accretion of $11.8 million in 2000 reduced net
income of $5.6 million to a net loss applicable to common shareholders of $(6.2)
million. In 1999, preferred stock dividend accretion of $10.6 million increased
the net loss applicable to common shareholders to $(28.2) million.
FINANCIAL CONDITION
EBITDA
The Company's EBITDA is defined for purposes hereof as earnings before
interest expense, income taxes, depreciation and amortization, and certain items
determined by management to be in the nature of nonrecurring items - namely,
management compensation - special, gains from insurance settlement, (gain) loss
on sale of divisions, charge for impairment of net assets of operations to be
sold and non-cash items relating to accruals for the Company's stock
appreciation rights plan. EBITDA, as defined herein, may not be comparable to
similarly titled measures reported by other companies and should not be
construed as an alternative to operating income or cash flows from operating
activities, as determined by generally accepted accounting principles, as a
measure of the Company's operating performance or liquidity, respectively. Funds
depicted by EBITDA are not available for management's discretionary use to the
extent they are required for debt service and other commitments.
EBITDA is $85.7 million for 2001, $103.8 million for 2000 and $113.7
million for 1999. Excluding the Divested Divisions, EBITDA was $102.6 million in
2000 and $104.5 million in 1999. In 2001, EBITDA losses in the Automotive
Segment and the Technologies Segment were the principal reasons for the year
over year deterioration. In 2000, EBITDA gains in the Minerals segment was
largely offset by reduced EBITDA in the Technologies Segment. The Automotive
Segment EBITDA was flat from 1999 to 2000.
22
EBITDA Outlook for 2002
The Company is projecting 2002 EBITDA to be in a range of $93 million to
$97 million, an increase of approximately 9% to 13% from 2001 EBITDA. The
increase is expected as a result of cost reduction initiatives across the
Company and a reduction of new product launch costs in the Automotive Segment on
relatively flat sales due to continued economic weakness.
OPERATING ACTIVITIES
Net cash provided by operating activities for the fiscal year ended
November 30, 2001 was $67.5 million compared to $45.6 million for the comparable
2000 period (when adjusted for the sale of the Company's Machinery Segment,
which is shown as a discontinued operation). The increase in net inflow of cash
from operating activities in the fiscal year 2001 period occurred largely as a
result of changes in the balances of certain current assets and liabilities.
Receivables decreased $0.8 million, inventories decreased $8.2 million, and
accounts payable and accruals increased $28.4 million and $4.5 million
respectively, as the Company continued to emphasize better management of its
working capital position.
During 2001, the Company reported its Machinery Segment as a discontinued
operation as discussed in Note B, Acquisitions, Divestitures and Discontinued
Operations in Item 8 below. The Company recorded a provision for discontinued
operations of $30.4 million, net of tax benefits of $6.1 million. Net cash
provided by the Machinery Segment during 2001 was $4.3 million, compared to $4.6
million in 2000.
INVESTING ACTIVITIES
Investing activities used $36.8 million in cash during 2001, compared to
2000 where $35.8 million was provided, of which $72.7 million was provided from
proceeds from sales of divisions, net of acquisitions. Capital expenditures
amounted to $36.5 million for 2001 as the Company continued to invest in plant
and equipment related to new product launches at the Hillsdale Division, the
addition of a new coating line at the Wolverine Division, improved manufacturing
efficiencies and general maintenance in all segments.
FINANCING ACTIVITIES
The Company used $17.8 million for financing activities in 2001 while $88.6
million was used for these activities in 2000. The Company borrowed $6.2 million
under its revolving credit facilities and permanently repaid $20.8 million under
its long-term debt obligations. The Company also purchased stock from a former
senior officer for $2.1 million. Scheduled debt payments, excluding the
Receivables Agreement which was subsequently replaced with a new securitization
facility, for 2002 and 2003 are $27.7 million and $25.6 million, respectively.
OUTLOOK FOR 2002
Net cash provided by operating activities in 2002 is expected to be
approximately $37 million. Most of the change from 2001 will be attributable to
a modest increase in working capital compared to a significant decrease in
working capital in 2001. This will be partially offset by a reduced net loss
from continuing operations.
Investing activities are expected to use approximately $17 million,
reflecting projected capital expenditures of $22 million and receipt of proceeds
from the sale of the machinery segment..
The Company anticipates required repayment of approximately $28 million of
long term debt in 2002 which will be partially offset by increases in other debt
facilities of approximately $8 million.
EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Earnings to fixed charges and preferred stock dividends ("Ratio") were
0.18x in 2001, 1.11x in 2000 and 0.57x in 1999. In 2001, earnings were not
sufficient to cover fixed charges and accreted preferred stock dividends by
$45.2 million. However, excluding the $14.2 million charge for restructuring,
reduces this
23
shortfall to $31 million and the ratio would be improved to 0.44x. In 2000, if
the insurance proceeds and the gain on the sale of divisions was excluded, the
Ratio would be 0.78x and earnings would not be sufficient to cover fixed charges
and preferred stock dividends by $12.6 million. In 1999, earnings were not
sufficient to cover fixed charges and accreted preferred stock dividends by
$24.5 million. However, excluding the impairment of the net assets of operations
held for sale, this shortfall is reduced to $3.1 million and the Ratio is
improved to 0.95x.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations and available credit facilities are
considered adequate to fund both the short-term and long-term capital needs of
the Company. As of November 30, 2001, the Company had $41.6 million unused under
its senior secured revolving credit facility, $30.8 unused under its accounts
receivable loan agreement (the "Receivables Agreement"), and $4.7 million unused
under its European unsecured lines of credit. However, due to various financial
covenant limitations under the Company's senior secured credit agreement (the
"Credit Agreement") measured at the end of each quarter, on November 30, 2001,
the Company could incur only an additional $14.2 million of indebtedness.
At November 30, 2001, the Company was in compliance with the covenants of
its senior secured credit agreement and senior subordinated notes. Certain of
the Company's European operations did not meet the terms of the European credit
agreements as of November 30, 2001; however, the Company has obtained the
necessary waivers from the lender.
Subsequent to November 30, 2001, the Company entered into an agreement with
a GE Capital sponsored commercial paper conduit to sell substantially all of its
domestic accounts receivable through an unconsolidated special purpose entity,
Eagle-Picher Funding Corporation ("EPFC"). Proceeds from this new facility were
used to payoff amounts outstanding under the Company's existing Receivables
Agreement on the closing date and other corporate purposes. The agreement
involves the sale of receivables of the Company and certain of its Domestic
subsidiaries to EPFC, which in turn sells an undivided interest in a revolving
pool of receivables to the financial institution. EPFC has no recourse to the
Company and its subsidiaries for failure of the debtors to pay when due. The
agreement provides for continuation of the program on a revolving basis for
approximately a three-year period. The Company has adopted Financial Accounting
Standards Board SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." However, under the
definitions contained in the Credit Agreement, the aggregate amount of capital
investment by the conduit at a given point in time is treated as indebtedness
for purposes of various financial covenants in the Credit Agreement.
The Company has entered into various interest rate swap agreements to
manage its variable interest rate exposure. Per the terms of the swap
agreements, the Company exchanges, at specified intervals, the difference
between fixed and variable interest amounts based on a notional amount of $90
million. The swap agreements effectively fix the interest rate on $90 million of
the debt under the Credit Agreement at a weighted average interest rate of
5.678% beginning March 5, 2001 and maturing December 15, 2003.
Based on the projections described above, the Company believes that it will
be in compliance with all of its debt covenants throughout 2002. However, any
adverse changes in actual results from projections, along with the contractual
tightening of the covenants under the Credit Agreement, which begins in the
quarter ending May 31, 2002, would place the Company at risk of not being able
to comply with all of the covenants of the Credit Agreement. In the event the
Company cannot comply with the terms of the Credit Agreement as currently
written, it would be necessary for the Company to obtain a waiver or renegotiate
its loan covenants, and there can be no assurance that such negotiations will be
successful. Any agreements to amend the covenants would likely require a payment
of a fee and increase in the interest rate payable by the Company on its debt
under the Credit Agreement. The amount of such fee and increase in interest rate
would be determined in the negotiations of the amendment.
Commencing March 1, 2003, dividends on the Company's Convertible
Exchangeable Preferred Stock become cash payable at 11 3/4% per annum; the first
semi-annual dividend payment of $8.3 million is due September 1, 2003. If the
Company does not pay cash dividends on the preferred stock, then holders of the
24
preferred stock become entitled to elect a majority of the Board of Directors of
Eagle-Picher Holdings. Dakruiter S.A., a company controlled by Granaria Holdings
B.V., holds approximately 51.8% of the preferred stock and therefore Granaria
Holdings would continue to be able to elect the entire Board of Directors of
Eagle-Picher Holdings.
The Company's $220 million revolving credit facility in its senior Credit
Agreement expires February 28, 2004. The Company will be required to extend or
replace this facility before that date. As of November 30, 2001, the Company had
borrowed approximately $142 million and had approximately $36.5 million of
letters of credit issued under this facility.
The Company's new management team is completing a strategic and operational
review of the Company's businesses, including a review of portfolio mix, within
the limits of the Company's financial resources and credit instruments.
OTHER
NEW ACCOUNTING STANDARDS
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125" ("SFAS 140"). SFAS 140 revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of SFAS 125's provisions without reconsideration. This Statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. This Statement is effective for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The Company adopted this statement for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for the year ended November 30, 2001; however the
Statement was not applicable to the company until EPFC was established in the
first quarter of 2002. See Note F in Item 8.
In June 2001, the FASB issued three additional pronouncements. SFAS No.
141, "Business Combinations," requires that all acquisitions be accounted for
using the purchase method and in certain situations, requires the segregation of
intangible assets from goodwill. SFAS No. 142, "Goodwill and Intangible Assets,"
presumes that goodwill and other intangible assets have infinite lives and, as
such, prescribes that these assets will not be amortized, but rather tested at
least annually for impairment. This pronouncement also provides specific
guidance on testing intangible assets. SFAS No. 143, "Accounting for Asset
Retirement Obligations," requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 141 is effective for all business combinations initiated
after June 30, 2001. The Company will be required to adopt SFAS No. 142 and SFAS
No. 143 no later than the first quarter of the fiscal year ending November 30,
2003.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." The primary difference is that goodwill has been removed from
the scope of SFAS No. 144. It also broadens the presentation of discontinued
operations to include a component of an entity rather than segment of a
business. A component of an entity comprises operations and cash flows that can
clearly be distinguished operationally and for financial accounting purposes
from the reset of the entity. The Company will be required to adopt the
provisions of SFAS No. 144 no later than the first quarter of our fiscal year
ended November 30, 2003.
The Company has not completed the process of evaluating the impact that
will result from adopting these statements. The Company therefore is unable to
disclose the impact, if any, that adopting these statements will have on its
financial position and results of operations when such statements are adopted.
25
FORWARD LOOKING STATEMENTS
This report contains statements which, to the extent that they are not
statements of historical fact, constitute "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E
of the Securities Exchange Act of 1934. The words "estimate," "anticipate,"
"project," "intend," "believe," "expect," and similar expressions are intended
to identify forward-looking statements. Forward looking statements in this
report include, but are not limited to, any statements under the heading
"Outlook for 2002." Such forward-looking information involves risks and
uncertainties that could cause actual results to differ materially from those
expressed in any such forward-looking statements. These risks and uncertainties
include, but are not limited to, the ability of the Company to maintain existing
relationships with customers, demand for the Company's products, the ability of
the Company to successfully implement productivity improvements and/or cost
reduction initiatives, the ability of the Company to develop, market and sell
new products, the ability of the Company to obtain raw materials, increased
government regulation or changing regulatory policies resulting in conditions,
acquisitions and divestitures, technological developments and changes in the
competitive environment in which the Company operates. Persons reading this
report are cautioned that such forward-looking statements are only predictions
and that actual events or results may differ materially.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT ACTIVITIES
The Company is exposed to market risk including changes in interest rates,
currency exchange rates and commodity prices. The Company uses derivative
instruments to manage its interest rate and foreign currency exposures. The
Company does not use derivative instruments for speculative or trading purposes.
Generally, the Company enters into hedging relationships such that changes in
the fair values or cash flows of items and transactions being hedged are
expected to be offset by corresponding changes in the values of the derivatives.
Interest Rate Management
The Company enters into interest rate swap agreements to manage interest
rate costs and risks associated with changing interest rates. The differential
to be paid or received under these agreements is accrued and recognized as
adjustments to interest expense. The fair value of the swap agreements and
changes in the fair value as a result of changes in market interest rates are
recognized in Accumulated Other Comprehensive Income (loss) in the Company's
consolidated balance sheets. At November 30, 2001, the Company had interest rate
swap agreements outstanding with a commercial bank having a notional principal
amount of $90 million. These agreements effectively changed the interest rate
exposure on $90 million of the Company's floating debt to a weighted fixed rate
of 5.678% plus the applicable spread. The Company anticipates entering into
additional interest rate swap agreements through the maturity date of the Credit
Agreement. The remaining amount of loans outstanding under the Credit Agreement
bear interest at the floating rates as described in Note F to the Consolidated
Financial Statements contained in Item 8. In addition, the Company has loans
outstanding under the Receivables Agreement which bear interest at variable
rates equal to market rates on commercial paper having a term similar to
applicable interest periods. Accordingly, the combined effect of a 1% increase
in an applicable index rates would result in additional interest expense of
approximately $1.2 million annually, assuming no change in the level of
borrowings. At November 30, 2001, the Company had unrealized net losses under
interest rate swap agreements of $(4.8) million which has been recorded in
Accumulated Other Comprehensive Income (loss) in the consolidated balance sheet.
The Company does not hold collateral for these instruments and therefore is
exposed to credit loss in the event of nonperformance by the other party to the
interest rate swap agreement. However, the Company does not anticipate any such
nonperformance.
The following table presents information for all dollar-denominated
interest rate instruments. In addition, the Company has several working capital
facilities denominated in multiple currencies (see Note F to the
26
Consolidated Financial Statement in Item 8). The fair value presented below
approximates the cost to settle the outstanding contract.
<Table>
<Caption>
EXPECTED MATURITY DATE
-------------------------------------------------------------------
(IN MILLIONS OF DOLLARS) 2002 2003 2004 2005 2006 THEREAFTER TOTAL FAIR VALUE
- ------------------------ ---- ---- ----- ---- ---- ---------- ----- ----------
LIABILITIES
Long-Term Debt
Variable Rate Debt ($)................ 42.0 25.6 143.8 11.8 0 0 223.2 223.2
Average Interest Rate............... 4.7% 4.8% 4.6% 1.9% 0 0 4.8%
Fixed Rate ($)........................ 220.0 220.0 114.0
Average Interest Rate............... 9.4% 9.4% 9.4% 9.4% 9.4% 9.4% 9.4%
INTEREST RATE DERIVATIVES
Interest Rate Swaps
Variable to Fixed ($)................. 90.0 90.0 (4.8)
Average Pay Rate.................... 5.68% 5.68%
Average Receive Rate................ 2.03% 2.03%
</Table>
Currency Rate Management
The Company has operations and sells its products in a number of countries
and, as a result, is exposed to changes in foreign currency exchange rates. The
Company uses forward contracts to hedge a portion of its forecasted sales,
generally within the next 12 months. The Company manages most of these exposures
on a consolidated basis, which allows netting certain exposures to take
advantage of any natural offsets. To the extent the net exposures are hedged,
forward contracts are used. Foreign exchange forward contracts are legal
agreements between two parties to purchase and sell a foreign currency, for a
price specified at the contract date. The foreign exchange forward contracts
require the Company to exchange foreign currencies for U.S. dollars or vice
versa, and generally mature in twelve months or less. As of November 30, 2001,
the Company had outstanding foreign exchange forward contracts with aggregate
notional amounts of $14.5 million. Unrealized net losses on these contracts,
based on prevailing financial market information as of November 30, 2001, was
$(.1) million and was included in Accumulated Other Comprehensive Income (loss)
in the Consolidated Balance Sheet. During the fiscal year ended November 30,
2000, gains and losses on contracts that became due were included in the
measurement of the related foreign currency transactions. As of November 30,
2001, all forecasted transactions being hedged are expected to occur in fiscal
year 2002. The Company's principal areas of exposure are related to sales
denominated in the currencies of Europe and Canada, with the majority of this
exposure related to European currencies.
Credit Risk
As part of its ongoing control procedures, the Company monitors
concentrations of credit risk associated with financial institutions with which
it conducts business. Credit risk is minimal as credit exposure is limited with
any single high quality financial institution to avoid concentration. The
Company also monitors the creditworthiness of its customers to which it grants
credit terms in the normal course of business. Concentrations of credit risk
associated with these trade receivables are considered minimal due to the
Company's geographically diverse customer base. Bad debts have been minimal. The
Company does not normally require collateral or other security to support credit
sales.
27
ITEM 8. FINANCIAL STATEMENTS
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
NET SALES.............................................. $692,450 $754,966 $822,948
-------- -------- --------
OPERATING COSTS AND EXPENSES
Cost of products sold (exclusive of depreciation shown
separately below).................................... 558,693 593,658 644,502
Selling and administrative............................. 51,077 59,357 67,871
Management compensation -- special..................... 3,125 1,560 556
Insurance settlement................................... -- (16,000) --
Restructuring.......................................... 14,163 -- --
Divestitures........................................... 2,105 (3,149) 21,407
Depreciation........................................... 42,617 41,313 43,842
Amortization of intangibles............................ 16,490 16,113 16,825
Other.................................................. (98) (174) 30
-------- -------- --------
688,172 692,678 795,033
-------- -------- --------
OPERATING INCOME....................................... 4,278 62,288 27,915
Interest expense....................................... (40,105) (43,989) (45,475)
Other income........................................... 3,913 96 3,560
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
TAXES................................................ (31,914) 18,395 (14,000)
INCOME TAXES (BENEFIT)................................. (10,016) 9,061 (546)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS............... (21,898) 9,334 (13,454)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued segment, net
of income tax benefits of $900, $2,061 and
$2,254.......................................... (1,657) (3,724) (4,133)
Loss on disposal of business segment, including
provision of $5,695 for operating losses during
phase-out period, net of income tax benefits of
$6,084.......................................... (30,416) -- --
-------- -------- --------
NET INCOME (LOSS)...................................... (53,971) 5,610 (17,587)
PREFERRED STOCK DIVIDENDS ACCRETED..................... (13,282) (11,848) (10,569)
-------- -------- --------
LOSS APPLICABLE TO COMMON SHAREHOLDERS................. $(67,253) $ (6,238) $(28,156)
======== ======== ========
BASIC LOSS PER SHARE APPLICABLE TO COMMON SHAREHOLDERS:
Loss from Continuing Operations................. $ (35.84) $ (2.53) $ (24.03)
Loss from Discontinued Operations............... (32.67) (3.73) (4.13)
-------- -------- --------
NET LOSS........................................ $ (68.51) $ (6.26) $ (28.16)
======== ======== ========
</Table>
See accompanying notes to consolidated financial statements.
28
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2001 AND 2000
<Table>
<Caption>
2001 2000
----------- -----------
(IN THOUSANDS OF DOLLARS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 24,620 $ 7,467
Receivables, less allowances of $1,000 in 2001 and $1,072 in
2000...................................................... 100,052 98,149
Income tax refund receivable................................ 5,570 6,726
Inventories................................................. 75,344 83,519
Net assets of operations to be sold......................... 3,258 44,080
Prepaid expenses............................................ 9,552 7,141
Deferred income taxes....................................... 24,287 12,860
-------- --------
Total Current Assets................................. 242,683 259,942
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements.................................. 15,665 13,987
Buildings................................................... 68,749 60,822
Machinery and equipment..................................... 243,272 216,996
Construction in progress.................................... 25,197 25,174
-------- --------
352,883 316,979
Less accumulated depreciation............................... 136,128 90,975
-------- --------
Net Property, Plant and Equipment.................... 216,755 226,004
EXCESS OF ACQUIRED NET ASSETS OVER COST,
net of accumulated amortization of $57,624 in 2001 and
$41,799 in 2000........................................... 179,762 195,575
OTHER ASSETS................................................ 86,711 86,178
-------- --------
TOTAL ASSETS......................................... $725,911 $767,699
======== ========
</Table>
See accompanying notes to consolidated financial statements.
29
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2001 AND 2000
<Table>
<Caption>
2001 2000
----------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable............................................ $ 86,297 $ 57,865
Long-term debt -- current portion........................... 41,957 65,358
Compensation and employee benefits.......................... 18,909 20,045
Income taxes................................................ 1,209 2,682
Reorganization items........................................ -- 10,550
Other accrued liabilities................................... 52,907 34,640
--------- --------
Total Current Liabilities............................ 201,279 191,140
LONG-TERM DEBT, less current portion........................ 401,169 392,573
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 17,873 17,489
DEFERRED INCOME TAXES....................................... 6,277 10,278
OTHER LONG-TERM LIABILITIES................................. 9,882 7,218
--------- --------
TOTAL LIABILITIES.................................... 636,480 618,698
--------- --------
11 3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK:
Authorized 50,000 Shares; issued and outstanding 14,191
Shares; mandatorily redeemable @$10,000 per share on March
1, 2008................................................... 123,086 109,804
--------- --------
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock voting -- $.01 par value each: authorized;
issued and outstanding 1,000,000 shares................... 10 --
Class A Common Stock, voting -- $.01 par value each:
authorized 625,001 shares; issued and outstanding 625,001
shares.................................................... -- 6
Class B Common Stock, nonvoting -- $.01 par value each:
authorized 374,999 shares; issued and outstanding 374,999
shares.................................................... -- 4
Additional paid-in capital.................................. 99,991 99,991
Deficit..................................................... (123,393) (56,140)
Accumulated other comprehensive income (loss)............... (5,730) (2,293)
--------- --------
(29,122) 41,568
Treasury stock, at cost: 27,750 shares in 2001 and 11,500
shares in 2000............................................ (4,533) (2,371)
--------- --------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)................. (33,655) 39,197
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)........................................... $ 725,911 $767,699
========= ========
</Table>
See accompanying notes to consolidated financial statements.
30
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $(53,971) $ 5,610 $(17,587)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.................. 62,814 60,672 64,240
Provisions for discontinued operations......... 30,416 -- --
Divestitures................................... 2,105 (3,149) 21,407
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Receivables.................................... (773) 9,460 (466)
Inventories.................................... 8,175 (8,655) (9,799)
Deferred taxes................................. (9,344) 4,897 (9,400)
Accounts payable............................... 28,432 10,959 (1,102)
Accrued liabilities............................ 4,476 (23,384) (8,901)
Other.......................................... (4,860) (10,846) (2,897)
-------- -------- --------
Net cash provided by operating activities...... 67,470 45,564 35,495
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions....................... - 85,048 12,400
Acquisitions........................................... - (12,306) (60,251)
Capital expenditures................................... (36,544) (41,367) (44,485)
Other.................................................. (247) 4,464 (610)
-------- -------- --------
Net cash provided by (used in) investing
activities................................... (36,791) 35,839 (92,946)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt............................ (20,795) (24,374) (140,776)
Borrowings (repayments) under revolving credit
agreements.......................................... 6,229 (61,774) 187,614
Purchase of treasury shares............................ (2,162) (2,371) --
Other.................................................. (1,120) (51) (1,905)
-------- -------- --------
Net cash provided by (used in) financing
activities................................... (17,848) (88,570) 44,933
-------- -------- --------
Net Cash provided by Discontinued Operations............. 4,322 4,563 8,908
-------- -------- --------
Net increase (decrease) in cash and cash equivalents..... 17,153 (2,604) (3,610)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............. 7,467 10,071 13,681
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR................... $ 24,620 $ 7,467 $ 10,071
======== ======== ========
</Table>
See accompanying notes to consolidated financial statements.
31
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
<Table>
<Caption>
ACCUMULATED
CLASS A CLASS B ADDITIONAL OTHER
COMMON COMMON COMMON PAID-IN COMPREHENSIVE TREASURY
STOCK STOCK STOCK CAPITAL DEFICIT INCOME (LOSS) STOCK
------ ------- ------- ---------- --------- ------------- --------
(IN THOUSANDS OF DOLLARS)
BALANCE NOVEMBER 30, 1998......... $ -- $ 6 $ 4 $99,991 $ (21,746) $ 2,357 $ --
Comprehensive Income:
Net income.................... -- -- -- -- (17,587) -- --
Foreign currency translation,
net......................... -- -- -- -- -- (3,145) --
Preferred stock dividend
accretion..................... -- -- -- -- (10,569) -- --
---- --- --- ------- --------- ------- -------
BALANCE NOVEMBER 30, 1999......... -- 6 4 99,991 (49,902) (788) --
Comprehensive Income:
Net income.................... -- -- -- -- 5,610 -- --
Foreign currency translation,
net......................... -- -- -- -- -- (1,505) --
Purchase of treasury stock...... -- -- -- -- -- -- (2,371)
Preferred stock dividend
accretion..................... -- -- -- -- (11,848) -- --
---- --- --- ------- --------- ------- -------
BALANCE NOVEMBER 30, 2000......... -- 6 4 99,991 (56,140) (2,293) (2,371)
Comprehensive Income:
Net loss...................... -- -- -- -- (53,971) -- --
Foreign currency translation,
net......................... -- -- -- -- -- 1,382 --
Gains (losses) on foreign
currency hedging and interest
rate swap
contracts..................... -- -- -- -- -- (4,819) --
Amendment to Capital
structure..................... 10 (6) (4) -- -- -- --
Purchase of treasury stock...... -- -- -- -- -- -- (2,162)
Preferred stock dividend
accretion..................... -- -- -- -- (13,282) -- --
---- --- --- ------- --------- ------- -------
BALANCE NOVEMBER 30, 2001......... $ 10 $-- $-- $99,991 $(123,393) $(5,730) $(4,533)
==== === === ======= ========= ======= =======
<Caption>
TOTAL
SHAREHOLDERS' TOTAL
EQUITY COMPREHENSIVE
(DEFICIT) INCOME (LOSS)
------------- -------------
(IN THOUSANDS OF DOLLARS)
BALANCE NOVEMBER 30, 1998......... $ 80,612 $(12,007)
========
Comprehensive Income:
Net income.................... (17,587) $(17,587)
Foreign currency translation,
net......................... (3,145) (3,145)
Preferred stock dividend
accretion..................... (10,569) --
-------- --------
BALANCE NOVEMBER 30, 1999......... 49,311 $(20,732)
========
Comprehensive Income:
Net income.................... 5,610 $ 5,610
Foreign currency translation,
net......................... (1,505) (1,505)
Purchase of treasury stock...... (2,371) --
Preferred stock dividend
accretion..................... (11,848) --
-------- --------
BALANCE NOVEMBER 30, 2000......... 39,197 $ 4,105
========
Comprehensive Income:
Net loss...................... (53,971) $(53,971)
Foreign currency translation,
net......................... 1,382 1,382
Gains (losses) on foreign
currency hedging and interest
rate swap
contracts..................... (4,819) (4,819)
Amendment to Capital
structure..................... -- --
Purchase of treasury stock...... (2,162) --
Preferred stock dividend
accretion..................... (13,282) --
-------- --------
BALANCE NOVEMBER 30, 2001......... $(33,655) $(57,408)
======== ========
</Table>
See accompanying notes to consolidated financial statements.
32
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
A. SIGNIFICANT ACCOUNTING POLICIES
Eagle-Picher Holdings, Inc. ("EP Holdings") is a majority-owned subsidiary
of Granaria Industries, B.V. ("Granaria Industries"). Granaria Industries
acquired Eagle-Picher Industries, Inc. ("EPI"). EPI, which is the operating
entity, was formed as an acquisition vehicle. EP Holdings results of operations
and cash flows approximate those of EPI. Unless the context indicates otherwise,
the term "Company" as used herein refers to EP Holdings and its subsidiaries.
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of the Company's subsidiaries which are more than 50% owned and controlled.
Significant intercompany accounts and transactions have been eliminated.
Investments in unconsolidated affiliates which are at least 20% owned and over
which the Company exercises significant influence are accounted for using the
equity method.
Revenue Recognition
The Company recognizes revenue when risk and title passes to the customer,
which is generally upon shipment of products except for certain products sold
under cost reimbursable contracts and subcontracts with various United States
Government agencies and aerospace and defense contractors. On cost-reimbursable
contracts, sales are recognized as costs are incurred and include a portion of
the total estimated earnings to be realized in the ratio that costs incurred
relate to total estimated costs. On fixed-price contracts, sales are recognized
using the percentage of completion method, when deliveries are made or upon
completion of specified tasks. Contract losses are provided for in their
entirety in the period they become known, without regard to the
percentage-of-completion.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Marketable securities with original maturities of three months or less are
considered to be cash equivalents.
Financial Instruments
The Company's financial instruments consist primarily of investments in
cash and cash equivalents, receivables and certain other assets as well as
obligations under accounts payable, long-term debt and preferred stock. The
carrying values of these financial instruments, with the exception of long-term
debt and preferred stock, approximate fair value (See Notes F and H).
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents
and trade accounts receivable. The Company conducts periodic credit evaluations
of its customers' financial condition and generally does not require collateral.
The Company's customer base includes all significant automotive manufacturers
and their first tier suppliers in North America
33
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Europe. Although the Company is directly affected by the well-being of the
automotive industry, management does not believe significant credit risk existed
at November 30, 2001.
Effective December 1, 2000, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -- an Amendment of SFAS
133." Under this guidance, all derivative instruments, including foreign
currency exchange contracts and interest rate swaps, are recognized as assets or
liabilities in the consolidated balance sheet at fair value.
On the date the derivative contract is entered into, the Company designates
the derivative as either a hedge of the fair value of a recognized asset or
liability (fair value hedge), a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge) or hedge of a net investment in a foreign
operation (net investment hedge). Changes in the fair value of derivatives are
either recognized periodically in income or shareholders' equity as a component
of Other Comprehensive Income, depending on whether the derivative is being used
to hedge changes in fair value or cash flows. The ineffective portion of
derivatives that are designated as hedges are recorded in the consolidated
statement of income.
Upon initial application of SFAS 133, the Company recorded the fair value
of existing foreign currency exchange contracts and interest rate swaps on the
consolidated balance sheet and a corresponding unrecognized gain as a cumulative
effect adjustment of Accumulated Other Comprehensive Income. The adjustment was
not material to the Company.
From time to time, the Company enters into interest rate swaps and currency
forwards contracts in its management of interest costs and foreign currency
exposures. Interest differentials to be paid or received under interest rate
swaps are recognized over the life of the underlying agreement or indebtedness,
respectively, as adjustments to interest expense. Gains and losses on currency
contracts are included in income as they mature. As of November 30, 2001, the
Company had unrealized net losses under interest rate swap agreements and
foreign currency forward contracts of $4,760 and $149, respectively, of which
$2,434 is expected to be recognized in income over the next twelve months. These
unrealized net losses are recorded in Accumulated Other Comprehensive Income
(loss) in the consolidated balance sheet.
Interest rate swap contracts are used to adjust the proportion of total
debt that is subject to variable and fixed interest rates. Under the Company's
interest rate swap contracts, the Company agrees to pay an amount equal to a
specified fixed-rate interest and receives in return an amount equal to a
variable-rate amount times the same notional principal amount. The notional
amounts of the contract are not exchanged. No other cash payments are made
unless the contract is terminated prior to maturity, in which case the amount
paid or received in settlement is established by agreement at the time of
termination, and usually represents the net present value, at current rates of
interest, of the remaining obligations to exchange payments under the terms of
the contract. Although no collateral is held or exchanged for these contracts,
interest rate swap contracts are entered into with a major financial institution
in order to minimize counterparty credit risk.
For interest rate swap contracts under which the Company agrees to pay
fixed-rates of interest, these contracts are considered to be a hedge against
changes in the amount of future cash flows associated with the Company's
interest payments on variable-rate debt obligations. Accordingly, the interest
rate swap contracts are designated as cash flow hedges and are reflected at fair
value in the consolidated balance sheet and the related gains or losses on these
contracts are deferred in shareholders' equity (as a component of accumulated
other comprehensive income (loss)). These deferred gains and losses are then
amortized as an adjustment to interest expense over the same period in which the
related interest payments being hedged are recognized in income. However, to the
extent that any of these contracts are not considered to be perfectly effective
in offsetting the change in the value of the interest payments being hedged, any
changes in fair value relating to the ineffective portion of these contracts are
immediately recognized in income. The net effect of this
34
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounting on the Company's operating results is that interest expense on the
portion of variable-rate debt being hedged is generally recorded based on fixed
interest rates.
At November 30, 2001, the Company had interest rate swap contracts to pay
fixed-rates of interest (average rate of 5.678%) and receive variable-rates of
interest (average rate of 1.90%) on $90 million notional amount of indebtedness.
This resulted in approximately 20% of the Company's underlying debt being
subject to fixed interest rates under interest rate swap contracts. The $90
million notional amount of outstanding contracts will mature during fiscal year
2004. At November 30, 2000, the Company had interest rate swap contracts on $150
million notional amount of indebtedness.
Forward foreign exchange contracts are designated as cash flow hedges and
are used primarily by the Company to hedge the risk of cash flow fluctuations
due to changes in exchange rates on sales denominated in foreign currencies. As
part of its overall strategy to manage the level of exposure to the risk of
foreign currency exchange rate fluctuations, the Company hedges a portion of its
foreign currency exposures anticipated over the ensuing twelve-month period. At
November 30, 2001 the Company had effectively hedged approximately one-third of
the estimated foreign currency exposures that principally relate to anticipated
cash flows to be remitted to the U.S. over the ensuing twelve-month period. To
hedge this exposure, the Company used foreign exchange contracts that generally
have maturities that approximate the timing of the forecasted transaction.
Foreign exchange contracts are placed with a number of major financial
institutions in order to minimize credit risk.
The Company records these foreign exchange contracts at fair value in its
consolidated balance sheets and the related unrealized gains or losses on these
contracts are deferred in shareholders' equity (as a component of Accumulated
Other Comprehensive Income (loss)). These deferred unrealized gains and losses
are recognized in income in the period in which the related transactions being
hedged are recognized in income. However, to the extent that any of these
contracts are not considered to be perfectly effective in offsetting the change
in the value of the cash flows being hedged, any changes in fair value relating
to the ineffective portion of these contracts are immediately recognized in
income. Unrealized gains and losses on foreign exchange contracts generally are
included as a component of accumulated other income (loss), net, in the
company's consolidated statement of income.
At November 30, 2001, the Company had outstanding foreign exchange
contracts with an aggregate notional amount of $14,500. Net unrealized gains and
losses on these contracts, based on prevailing financial market information as
of November 30, 2001 was ($149) and was included in Accumulated Other
Comprehensive Income (loss) in the consolidated balance sheet.
Inventories
Inventories are valued at the lower of cost or market in accordance with
Accounting Research Bulletin No. 43. A substantial portion of domestic
inventories are valued using the last-in first-out ("LIFO") method while the
balance of the Company's inventories are valued using the first-in first-out
method.
Property, Plant and Equipment
The Company records its investment in property, plant and equipment at
cost. The Company provides for depreciation of plant and equipment using the
straight-line method over the estimated lives of the assets which are generally
20 to 30 years for buildings and 3 to 10 years for machinery and equipment.
Improvements which extend the useful life of property are capitalized, while
repair and maintenance costs are charged to operations as incurred. Property,
plant and equipment acquired in the acquisition of a business, are stated at
fair value, based on independent appraisals, as of the date of the acquisition.
35
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pre-Production Costs Related to Long-Term Supply Arrangements
The Company capitalizes costs incurred to design and develop molds, dies
and other tools used to manufacture products that will be sold under long-term
supply arrangements, primarily in the automotive segment. The costs are
amortized over the life of the related programs. At November 30, 2001 and 2000,
the unamortized balance of these assets was $2,292 and $3,212, respectively.
The Company also capitalizes costs incurred to design and develop molds,
dies and other tools that it will sell to customers under long-term supply
arrangements. The Company is typically reimbursed for these costs. At November
30, 2001 and 2000, the unamortized balances of assets the Company will not own
were $4,287 and $5,601, respectively.
Intangible Assets
The excess of acquired net assets over cost is being amortized on a
straight-line basis over 15 years. The recoverability of the asset is evaluated
periodically as events or circumstances indicate a possible inability to recover
its carrying amount.
Accounting for Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when
impairment indicators are present and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying value of such assets.
Environmental Remediation Costs
The Company accrues for environmental expenses resulting from existing
conditions relating to operations when the costs are probable and can be
reasonably estimated. The estimated liabilities are not discounted or reduced
for possible recoveries from insurance carriers.
Research and Development
Research and development expenditures are expensed as incurred. Research
and development expense was $10,400 in 2001, $11,700 in 2000 and $13,300 in
1999.
Income Taxes
Income taxes are provided based upon income for financial statement
purposes. Deferred tax assets and liabilities are established based on the
difference between the financial statement and income tax bases of assets and
liabilities using existing tax rates. The valuation allowance represents a
provision for uncertainty on the realization on certain deferred tax assets.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates, and income and expenses are translated using weighted average
exchange rates. Adjustments resulting from translation of financial statements
stated in local currencies generally are excluded from the results of operations
and included in Accumulated Other Comprehensive Income (Loss). Gains and losses
from foreign currency transactions are included in the determination of net
income (loss).
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2001
consolidated financial statement presentation.
36
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Accounting Standards
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities -- a
replacement of FASB Statement No. 125". SFAS 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
125's provisions without reconsideration. This Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. The Company adopted
this statement for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for the year
ended November 30, 2001, however the statement was not applicable to the Company
until the Eagle-Picher Funding Corporation, a qualifying special purpose entity,
was established in the first quarter of 2002 (See Note F).
In June 2001, the FASB issued three additional pronouncements. SFAS No.
141, "Business Combinations," requires that all acquisitions be accounted for
using the purchase method and in certain situations, requires the segregation of
intangible assets from goodwill. SFAS No. 142, "Goodwill and Intangible Assets,"
presumes that goodwill and other intangible assets have infinite lives and, as
such, prescribes that these assets will not be amortized, but rather tested at
least annually for impairment. This pronouncement also provides specific
guidance on testing intangible assets. SFAS No. 143, "Accounting for Asset
Retirement Obligations," requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS 141 is effective for all business combinations initiated
after June 30, 2001. The Company will be required to adopt SFAS No. 142 and SFAS
No. 143 no later than the first quarter of the fiscal year ending November 30,
2003.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Asset," which superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." The primary difference is that goodwill has been removed from
the scope of SFAS No. 144. It also broadens the presentation of discontinued
operations to include a component of an entity rather than segment of a
business. A component of an entity comprises operations and cash flows that can
clearly be distinguished operationally and for financial accounting purposes
from the rest of the entity. The Company will be required to adopt the
provisions of SFAS No. 144 no later than the first quarter of the fiscal year
ending November 30, 2003.
The Company has not completed the process of evaluating the impact that
will result from adopting these statements. The Company therefore is unable to
disclose the impact, if any, that adopting these statements will have on its
financial position and results of operations when such statements are adopted.
B. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS
Acquisitions
During the 2000 fiscal year, the Company acquired the assets of the
depleted zinc business of Isonics Corporation and the stock of the Blue Star
Battery Systems Corporation, a manufacturer of special purpose batteries. These
acquisitions were made at an aggregate cost, including expenses, of $13,806,
consisting of $12,306 in cash and contingent cash payments of $500 annually for
three years. These acquisitions were financed from the Company's revolving
credit facility and were accounted for using the purchase method. The excess of
the purchase prices over the assessed values of the net assets of $6,949 was
allocated to Excess of Acquired Net Assets Over Cost and is being amortized over
15 years.
In addition, the Company negotiated a warrant to acquire four million
shares of the common stock of the Isonics Corporation in exchange for materials
that were to be delivered in 2000. The Company elected to
37
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exercise its warrant using a "cashless exercise" feature, whereby the Company
claimed approximately 3.3 million shares of stock and paid for them by
surrendering the remaining warrant shares. The Company did not deliver the
subject materials in 2000 as a result of both mechanical and technical problems
beyond its reasonable control. Isonics has disputed the Company's exercise of
the warrant and the Company's right to retain the warrant shares. (See further
discussion in Note N Other Litigation Claims.) The Company accounted for this
investment using the equity method. The impact of the transaction on the
Company's results of operations in 2000 was not material.
In 1999, the Company acquired the stock of Charterhouse Automotive Group,
Inc., a holding company whose only operating subsidiary was Carpenter
Enterprises, Ltd. ("Carpenter"), a supplier of precision-machined components to
the automotive industry, for approximately $59,600 in cash and $12,700 of
existing indebtedness of Carpenter. The total cash requirements of the
acquisition were $60,251, which included transaction costs. The acquisition was
accounted for as a purchase. The excess of the purchase price over the assessed
values of the net assets of $16,445 was allocated to Excess of Acquired Net
Assets Over Cost and is being amortized over 15 years.
The following proforma information for the year ended November 30, 1999
gives effect to the acquisition of Carpenter as if it had been consummated on
December 1, 1998. 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.
<Table>
<Caption>
1999
-----------
(UNAUDITED)
Net sales................................................... $ 944,800
Net loss.................................................... $ (18,000)
Net loss applicable to common shareholders.................. $ (28,500)
Net loss per common share................................... $ (28.50)
Average number of common shares............................. 1,000,000
</Table>
Divestitures
The Company recognized amounts related to divestitures as follows:
<Table>
<Caption>
2001 2000 1999
------------------- -------- -------
Impairment of net assets of operations to be sold...... $ -- $ (6,000) $21,407
Gains on sales of divisions sold....................... (2,635) (11,077) --
Net losses recognized related to divisions sold in
prior years.......................................... 4,740 13,928 --
------------------- -------- -------
$ 2,105 $ (3,149) $21,407
=================== ======== =======
</Table>
On September 1, 1999, the Board of Directors approved a plan to explore the
sale of several of the Company's smaller divisions and to focus on core
businesses. In connection with this plan, the Company recorded a non-cash
provision of $21,407 primarily related to the impairment of the recorded asset
values because the expected net realizable value of certain of the divisions for
sale was estimated to be insufficient to recover the related carrying values of
those divisions. In addition, the Company indemnified the buyers for certain
liabilities related to items such as environmental remediation and warranty
issues. Liabilities for certain of these amounts had been previously recorded by
the Company and additional amounts were recorded in 2000 when the divisions were
sold. The divestiture of all divisions included in the plan was completed in
2000 and the aggregate net proceeds from all such transactions was $85,048. The
aggregate net gain resulting from these transactions for the year ended November
30, 2000 was approximately $17,077 representing the reversal of asset impairment
reserves of $6,000 and net gains of $11,077, which includes a gain of $3,737
38
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the fourth quarter of 2000 resulting from a curtailment of the
Company's pension and postretirement plans (see Note M) caused by the
divestitures. In the fourth quarter of 2001, additional amounts totaling $937
were recorded for certain litigation related matters.
An analysis of the asset impairment and other liabilities related to the
1999 divestiture plan, included in Other Accrued Liabilities in the consolidated
balance sheets is as follows:
<Table>
<Caption>
OTHER LIABILITIES
ASSET IMPAIRMENT RELATED TO DIVESTITURES TOTAL
---------------- ----------------------- --------
Original Charges........................ $ 20,530 $ 877 $ 21,407
Amounts offset with asset values...... (10,440) -- (10,440)
Amounts transferred................... (4,090) 4,090 --
Additional amounts recorded for
transaction expenses and other
items.............................. -- 3,459 3,459
Amounts spent......................... -- (5,600) (5,600)
Amounts reversed...................... (6,000) -- (6,000)
-------- ------- --------
Balance at November 30, 2000............ -- 2,826 2,826
Additional amounts recorded........... 180 757 937
Amounts spent......................... -- (403) (403)
-------- ------- --------
Balance at November 30, 2001............ $ 180 $ 3,180 $ 3,360
======== ======= ========
</Table>
In addition to the divestitures occurring in 2000, the Company has sold
several divisions in years prior to 1999. In 2000, certain events occurred that
required the Company to record additional liabilities related to these
transactions, primarily in the fourth quarter of 2000. These liabilities were
recorded primarily for environmental remediation, costs related to certain
litigation issues and losses on guarantees of indebtedness. The effect of these
items was to reduce the gain on the sale of divisions recorded in 2000 in the
amount of $13,928. In the fourth quarter of 2001, additional amounts totaling
$3,803 were recorded for various environmental and litigation related matters.
An analysis of the additional liabilities related to the acquisitions
occurring prior to 1999 included in Other Accrued Liabilities in the
consolidated balance sheet is as follows:
<Table>
<Caption>
OTHER LIABILITIES
ASSET IMPAIRMENT RELATED TO DIVESTITURES TOTAL
---------------- ----------------------- -------
Original Charges......................... $ -- $13,928 $13,928
Amounts spent.......................... -- (1,754) (1,754)
---- ------- -------
Balance at November 30, 2000............. -- 12,174 12,174
Additional amounts recorded............ 800 3,003 3,803
Amounts reversed....................... -- (367) (367)
Amounts spent.......................... -- (1,160) (1,160)
---- ------- -------
Balance at November 30, 2001............. $800 $13,650 $14,450
==== ======= =======
</Table>
In the fourth quarter of 2001, the Company received $2,635 held in an
escrow account for environmental matters related to a division sold in a prior
year. The amount was recorded as a gain on sales of division sold.
In connection with the sale of the Company's Trim Division in November
1998, the Company received a $2,100 note, of which $1,834 was due on November
30, 2000. The note was secured by a first mortgage on the real estate. The
Company also guaranteed approximately $3,900 of the original principal amount of
the buyer's debt related to tooling receivables from both original equipment
manufacturers and their suppliers. The buyer is in default on the mortgage loan
and its financing with its primary lender, and the lender has demanded payment
of the guaranty from the Company. Accordingly, the Company has recorded a
provision related to these items included in the liability recorded in fiscal
year 2000 discussed in the previous paragraph.
39
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company remains a guarantor on the lease of the building in which its
former Transicoil Division is located, and is liable should the buyer not
perform on the lease. The remaining lease payments total approximately $5,400
over the lease term which expires in 2005. The Company believes the likelihood
of being liable for the lease to be remote.
See Note P for information regarding sales and pre-tax income or loss of
the divisions which were divested in the years ended November 30, 2000 and 1999.
Discontinued Operations
In the first quarter of 2001, the Board of Directors authorized management
to sell the assets and business of the Construction Equipment Division (CED),
which comprises the Machinery Segment. The sale to Construction Equipment
Direct, Inc., a Tennessee corporation, was completed subsequent to year end on
December 14, 2001. The proceeds were $6,100 in cash, plus an estimated working
capital adjustment of $1,000 to be finalized in the second quarter of 2002, plus
the buyer's assumption of approximately $6,700 in current liabilities. The
Company retained the land and buildings at CED's main facility in Lubbock, Texas
and leased the facility to the buyer for a five year term. The buyer has the
option to purchase the building for $2,500, increasing $100 per year over the
term of the lease. The Company also retained $2,300 of CED lift truck raw
materials inventory, which the buyer agreed to purchase at book value within one
year, $900 of CED accounts receivable and retained or assumed liabilities,
pursuant to the transaction, of $5,600.
Through November 30, 2001, the Company recorded provisions totaling
$30,416, net of an income tax benefit of $6,084. This provision included
estimated losses and costs to be incurred in connection with the disposition of
the Machinery Segment, including $5,695 in expected losses during the phase out
period from March 1, through December 14, 2001. An operating loss of $1,657, net
of a $900 tax benefit, was incurred in the first quarter of 2001.
The results of the Machinery Segment's operations have been reported
separately as discontinued operations in the consolidated statement of income
(loss). Prior year amounts have been restated to present the operations of the
Machinery Segment as a discontinued operation.
The net assets of the discontinued operations, less accounts receivable and
building subsequently retained as noted above, have been recorded at their
estimated net realizable value under the caption "Net assets of operations to be
sold" in the consolidated balance sheets at November 30, 2001 and 2000. This
balance contains the $2,300 in inventory retained by the Company as it is deemed
held for sale.
Net sales for discontinued operations were $65,082, $82,614 and $90,313 for
the years ended November 30, 2001, 2000 and 1999 respectively. Total assets for
discontinued operations were $39,000, $51,800 and $58,100 at November 30, 2001,
2000 and 1999 respectively.
C. RESTRUCTURING
In the fourth quarter of 2001, the Company recorded asset write-downs and
other charges totaling $14,163 in connection with a restructuring plan (the
Plan) announced in November 2001. The Plan primarily relocates the Company's
corporate headquarters from Cincinnati, Ohio to Phoenix, Arizona and closes
three plants in the Technologies segment as it eliminates certain product lines
in the Special Purpose Battery category. The costs related to the Plan, which
were recognized as a separate component of operating expenses in the fourth
quarter of 2001, included approximately $5,425 related to the facilities, $5,044
related to involuntary severance of approximately 165 employees and $3,694 in
other costs to exit business activities.
The facility costs of $5,425 include an adjustment of $1,250 to write down
the carrying value of the three plants to their estimated fair value in holding
them for sale. $2,325 represents the estimated loss on abandoning the machinery
and equipment and other assets at the plant locations and corporate
headquarters,
40
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and $1,850 represents an estimate of the total future lease commitments less
estimated proceeds received from subleasing the various spaces. The asset
impairment adjustments are recorded against Property Plant and Equipment and the
liability for future lease commitments is included in Other Accrued Liabilities
in the consolidated balance sheets.
Approximately $202 of involuntary severance had been paid out as of
year-end. The remaining $4,842 of severance is included in Other Accrued
Liabilities, along with the $3,694 in other costs.
Subsequent to year-end, the Company began analyzing whether a portion of
the assets in its overfunded pension plan could be made available to pay
severance costs related to the restructuring plan. The Company anticipates an
amendment to the pension plan and has provided new or amended severance plans to
allow for such payments. Up to $4,200 of severance could be paid out of the
pension plan. This could result in a gain to restructuring in 2002 if the
amendment to the pension plan is approved and if severed employees elect the new
or amended severance plans. See Note M, Pension and Other Postretirement Benefit
Plans.
D. INVENTORIES
Inventories consisted of:
<Table>
<Caption>
2001 2000
------- -------
Raw materials and supplies.................................. $22,527 $32,987
Work-in-process............................................. 34,504 37,237
Finished goods.............................................. 19,271 13,880
------- -------
76,302 84,104
Adjustment to state inventory at LIFO value................. (958) (585)
------- -------
$75,344 $83,519
======= =======
</Table>
The percentage of inventories valued using the LIFO method was 84% in 2001
and 86% in 2000. The effects of liquidations of LIFO inventory quantities
carried at lower costs prevailing in prior years were not material.
E. OTHER ASSETS
Other assets consisted of:
<Table>
<Caption>
2001 2000
------- -------
Prepaid pension cost -- Note M.............................. $54,676 $51,391
Debt issuance costs, net of accumulated amortization of
$12,568 in 2001 and $8,861 in 2000........................ 14,887 17,715
Other....................................................... 17,148 17,072
------- -------
$86,711 $86,178
======= =======
</Table>
The debt issuance costs are being amortized on a straight-line basis over
the term of the related debt.
41
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. LONG-TERM DEBT, SHORT TERM BORROWINGS AND LEASE COMMITMENTS
Long-term debt consisted of:
<Table>
<Caption>
2001 2000
-------- --------
Credit Agreement:
Revolving Credit Facility
5.03%, due 2004........................................ $142,000 $105,660
Accounts Receivable Loan Agreement
2.10%, due 2002........................................ 14,250 42,750
Term Loan
5.03%, due 2003........................................ 47,739 66,834
Senior Subordinated Notes
9 3/8%, due 2008.......................................... 220,000 220,000
Industrial Revenue Bonds
1.8% to 2.2%, due 2005.................................... 17,000 18,700
Debt of Foreign Subsidiaries................................ 2,137 3,987
-------- --------
443,126 457,931
Less current portion........................................ 41,957 65,358
-------- --------
Long-term debt, less current portion........................ $401,169 $392,573
======== ========
</Table>
The Company has a syndicated senior secured loan facility ("Credit
Agreement") providing a term loan ("Term Loan") and a $220,000 revolving credit
facility ("Facility"), which is available for issuance of letters of credit. The
Company also has an accounts receivable loan agreement ("Receivables
Agreement"). At November 30, 2001, letters of credit totaling $36,449 were
outstanding, which together with borrowings of $142,000 left the Company with
$41,551 of borrowing capacity on the Facility. In connection with the
Receivables Agreement, the Company sells 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 $50,000. Availability
under the Receivables Agreement is determined based on a formula of total
receivables outstanding as of a certain date. As of November 30, 2001, total
availability under the Receivables Agreement was $45,000, of which $14,250 was
borrowed. The Receivables Agreement has a maturity of May 2002.
Subsequent to fiscal year end 2001, the Company entered into an agreement
with a major U.S. financial institution to sell an undivided interest in certain
receivables of the company and certain of its domestic subsidiaries through an
unconsolidated qualifying special purpose entity, Eagle-Picher Funding
Corporation ("EPFC"). Proceeds from this new facility were used to payoff
amounts outstanding under the Company's existing Receivables Agreement on the
closing date and for other corporate purposes. The agreement involves the sale
of receivables of the Company and certain of its domestic subsidiaries to EPFC,
which in turn sells an undivided beneficial interest in a revolving pool of
receivables to the financial institution. EPFC has no recourse to the Company
and its subsidiaries for failure of the debtors to pay when due. The agreement
provides for continuation of the program on a revolving basis for approximately
a three-year period.
The Facility and the Term Loan bear interest, at the Company's option, of
an adjusted LIBOR rate plus 3% or the bank's prime rate plus 2%. There is a
commitment fee on the Facility equal to 1/2% per annum on the undrawn portion of
the Facility and fees for letters of credit are equal to 3% per annum. If the
Company meets or fails to meet certain financial benchmarks, the interest rate
spreads, commitment fees and fees for letters of credit may be reduced or
increased, respectively. Loans outstanding under the Receivables Agreement are
at
42
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
variable rates equal to market rates on commercial paper with fees of 1 1/4% on
the maximum commitment amount.
In 2001, the Company entered into three year interest rate swap agreements
("Swap Agreements") to manage its variable interest rate exposure. Per the terms
of the Swap Agreements, the Company exchanges, at specified intervals, the
difference between fixed and variable interest amounts based on a notional
principal amount of $90,000. The Swap Agreements effectively fix the interest
rate on $90,000 of the debt under the Credit Agreement at 5.678% plus the
applicable spread for the duration of the interest rate swap. The difference
between the amount of interest to be paid and the amount of interest to be
received under the Swap Agreements due to changing interest rates is charged or
credited to interest expense over the life of the agreements. As of November 30,
2001, the fair value of the Swap Agreements, which was determined using
discounted cash flow analysis based on current rates offered for similar issues
of debt, was a liability of approximately $4,760. As of November 30, 2001,
$189,739 in debt was outstanding under the Credit Agreement, of which interest
on $90,000 is essentially fixed by the Swap Agreements. Loans under the
Receivables Agreement bear interest at a variable rate equal to market rates on
commercial paper having a term similar to applicable interest periods. $113,989
of debt outstanding bears interest at variable rates under either the Credit
Agreement or Receivables Agreement. Accordingly, the effect of a one percent
increase in the applicable index rates would result in additional interest
expense of approximately $1,140 annually, assuming no change in the level of
borrowing. The Swap Agreements expire in December 2003.
In addition to regularly scheduled payments on the Term Loan, the Company
is required to make mandatory prepayments, of 50% of annual excess cash flow as
defined in the Credit Agreement, the net proceeds from the sale of assets
(subject to certain conditions), the net proceeds of certain new debt issued and
50% of the net proceeds of any equity securities issued. No excess cash flow
payment is due for the year ended November 30, 2001.
The Credit Agreement is guaranteed by the Company and the United States
subsidiaries of EPI. It is secured by the capital stock of EPI and the United
States subsidiaries of EPI, up to 65% of the capital stock of certain foreign
subsidiaries and substantially all other property of EPI and its United States
subsidiaries. The Credit Agreement contains covenants which restrict or limit
EPI's ability to declare dividends or redeem capital stock, incur additional
debt or liens, alter existing debt agreements, make loans or investments, form
joint ventures, undergo a change in control or engage in mergers, acquisitions
or asset sales. These covenants also limit the annual amount of capital
expenditures and require the Company to meet certain minimum financial
coverages. The Company was in compliance with all covenants at November 30,
2001.
The Subordinated Notes, which are unsecured, are redeemable at the option
of the Company, in whole or in part, any time after February 28, 2003 at set
redemption prices. The Company had the option to redeem up to 35% of the
aggregate principal amount of the Subordinated Notes prior to March 1, 2001 at a
set redemption price provided certain conditions were met. The Company is also
required to offer to purchase the Subordinated Notes at a set redemption price
should there be a change in control. The Indenture for the Subordinated Notes
contains covenants which restrict or limit EPI's ability to declare or pay
dividends, incur additional debt or liens, issue stock, engage in affiliate
transactions, undergo a change in control or sell assets. The Company is in
compliance with these covenants at November 30, 2001. The Subordinated Notes are
also guaranteed by the Company and the United States subsidiaries of EPI. Due to
various financial covenant limitations under the Credit Agreement measured at
the end of each quarter, on November 30, 2001, the Company could incur only an
additional $14,200 of indebtedness as defined under the Credit Agreement.
The Company believes that it will be in compliance with all of its debt
covenants throughout 2002. However, any adverse changes in actual results from
projections, along with the contractual tightening of the covenants under the
Credit Agreement, which begins in the quarter ending May 31, 2002, would place
the Company at risk of not being able to comply with all of the covenants of the
Credit Agreement. In the event the Company cannot comply with the terms of the
Credit Agreement as currently written, it would be
43
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
necessary for the Company to obtain a waiver or renegotiate its loan covenants,
and there can be no assurance that such negotiations will be successful. Any
agreements to amend the covenants would likely require a payment of a fee and
increase in the interest rate payable by the Company on its debt under the
Credit Agreement. The amount of such fee and increase in interest rate would be
determined in the negotiations of the amendment.
The Company's industrial revenue bonds bear interest at variable rates
based on the market for similar issues and are secured by letters of credit.
Several of the Company's foreign subsidiaries have entered into agreements
with various banks which provide lines of credit totaling approximately $6,900
at November 30, 2001. At November 30, 2001, $2,137 of borrowings were
outstanding leaving $4,751 in borrowing capacity. These agreements, which are
unsecured, are either committed lines of credit expiring in 2002 or short-term
money market or overdraft facilities, generally due on demand or within a year.
The annual rates of interest on these lines of credit generally range from .75%
to 1.5% over the banks' base rates. The commitment fees range from .35% to .5%
per annum on the unused portion of the committed facilities. These agreements
also contain covenants which include minimum financial requirements. Certain of
the Company's foreign subsidiaries did not meet the minimum financial
requirement covenant of one of these credit facilities as of November 30, 2001;
however, the Company has received the necessary waiver from the lender.
Long term debt had an estimated fair value of approximately $337,200 and
$338,000 at November 30, 2001 and 2000, respectively. The estimated fair value
of long-term debt was calculated based on market prices for publicly traded
issues and was calculated using discounted cash flow analysis based on current
rates offered for similar issues for all other long-term debt.
The Company paid interest, net of amounts capitalized, of $38,419 in 2001,
$43,589 in 2000 and $46,931 in 1999.
Long-term debt is scheduled to mature over the next five years as follows:
$41,957 in 2002, of which $14,250 is outstanding under the Receivables
Agreement; $25,600 in 2003, $143,800 in 2004, and $11,800 in 2005.
Lease Commitments
Future minimum rental commitments over the next five years as of November
30, 2001 under noncancellable operating leases, which expire at various dates,
are as follows: $2,925 in 2002, $2,461 in 2003, $2,087 in 2004, $1,800 in 2005
and $1,106 in 2006. Rental expense was approximately $5,700 in 2001, $4,800 in
2000 and $5,200 in 1999.
G. SUPPLEMENTAL GUARANTOR INFORMATION (UNAUDITED)
Both the Credit Agreement and the Subordinated Notes, which were issued by
EPI, are guaranteed on a full, unconditional, and joint and several basis by the
Company and certain of EPI's wholly-owned domestic subsidiaries ("Subsidiary
Guarantors") including Eagle-Picher Acceptance Corporation and Carpenter
Enterprises, Ltd. Management has determined that full financial statements and
other disclosures concerning EPI or the Subsidiary Guarantors would not be
material to investors and such financial statements are not presented. The
following unaudited supplemental condensed combining financial statements
present information regarding EPI, the Subsidiary Guarantors and the
subsidiaries that did not guarantee the debt.
EPI and the Subsidiary Guarantors are subject to restrictions on the
payment of dividends under the terms of both the Credit Agreement and the
Indenture supporting the subordinated notes.
44
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
YEAR ENDED NOVEMBER 30, 2001
<Table>
<Caption>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
NET SALES
Customers.................. $ 47,892 $ -- $555,614 $ 88,944 $ -- $692,450
Intercompany............... 15,398 -- 15,185 (30,583) --
OPERATING COSTS AND EXPENSES:
Cost of products sold...... 35,492 -- 481,374 72,410 (30,583) 558,693
Selling & administrative... 21,725 5 21,163 8,184 -- 51,077
Intercompany charges....... (6,329) -- 6,537 (208) -- --
Depreciation............... 3,752 -- 35,611 3,254 -- 42,617
Amortization of
intangibles.............. 3,733 -- 11,279 1,478 -- 16,490
Other...................... 12,024 -- 7,375 (93) (11) 19,295
-------- -------- -------- -------- -------- --------
Total............... 70,397 5 563,339 85,025 (30,594) 688,172
-------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)...... (7,107) (5) 7,460 3,919 11 4,278
OTHER INCOME (EXPENSE)
Interest expense........... (11,227) -- (36,006) (586) 7,714 (40,105)
Other income (expense)..... 1,069 -- 8,689 1,869 (7,714) 3,913
Equity in earnings of
consolidated
subsidiaries............. (15,145) (53,966) 2,183 -- 66,928 --
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE TAXES.... (32,410) (53,971) (17,674) 5,202 66,939 (31,914)
INCOME TAXES (BENEFIT)....... (12,689) -- (8) 2,681 -- (10,016)
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations................. (19,721) (53,971) (17,666) 2,521 66,939 (21,898)
Discontinued Operations...... (32,073) -- -- -- -- (32,073)
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............ $(51,794) $(53,971) $(17,666) $ 2,521 $ 66,939 $(53,971)
======== ======== ======== ======== ======== ========
</Table>
45
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2001
<Table>
<Caption>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents.... $ 17,145 $ 1 $ 471 $ 6,936 $ 67 $ 24,620
Receivables, net............. (12,668) -- 103,168 15,122 -- 105,622
Intercompany accounts
receivable................. 46,674 -- 3,559 65 (50,298) --
Inventories.................. 4,129 -- 59,704 12,882 (1,371) 75,344
Net assets of discontinued
operations................. 3,610 -- -- 5,954 (6,306) 3,258
Prepaid expenses............. 1,378 -- 6,152 2,887 (865) 9,552
Deferred income taxes........ 24,287 -- -- -- -- 24,287
-------- -------- -------- -------- --------- --------
Total current assets... 84,555 1 173,054 43,846 (58,773) 242,683
PROPERTY, PLANT & EQUIPMENT,
net........................ 28,733 -- 157,653 30,401 (32) 216,755
Investment in Subsidiaries... 83,571 95,169 16,058 -- (194,798) --
EXCESS OF ACQUIRED NET ASSETS
OVER COST, net............. 41,939 -- 120,969 19,994 (3,140) 179,762
OTHER ASSETS................. 73,049 -- 13,789 10,719 (10,846) 86,711
-------- -------- -------- -------- --------- --------
TOTAL ASSETS............... $311,847 $ 95,170 $481,523 $104,960 $(267,589) $725,911
======== ======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Accounts payable............. $ 16,156 $ -- $ 62,171 $ 7,970 $ -- $ 86,297
Intercompany accounts
payable.................... 76 -- 48 7,404 (7,528) --
Long-term debt -- current
portion.................... 25,569 -- 14,250 9,430 (7,292) 41,957
Income taxes................. (283) -- -- 1,491 1 1,209
Other current liabilities.... 42,342 -- 26,363 3,111 -- 71,816
-------- -------- -------- -------- --------- --------
Total current
liabilities......... 83,860 -- 102,832 29,406 (14,819) 201,279
LONG-TERM DEBT -- less
current portion............ 401,169 -- 42,452 -- (42,452) 401,169
DEFERRED INCOME TAXES........ 9,362 -- -- -- (3,085) 6,277
OTHER LONG-TERM
LIABILITIES................ 25,911 19 1,000 825 -- 27,755
-------- -------- -------- -------- --------- --------
TOTAL LIABILITIES...... 520,302 19 146,284 30,231 (60,356) 636,480
Intercompany Accounts........ (288,578) -- 262,878 35,782 (10,082) --
11 3/4% CUMULATIVE REDEEMABLE
EXCHANGEABLE PREFERRED
STOCK...................... -- 123,086 -- -- -- 123,086
SHAREHOLDERS' EQUITY
(DEFICIT).................. 80,123 (27,935) 72,361 38,947 (197,151) (33,655)
-------- -------- -------- -------- --------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT).............. $311,847 $ 95,170 $481,523 $104,960 $(267,589) $725,911
======== ======== ======== ======== ========= ========
</Table>
46
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 2001
<Table>
<Caption>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss)......... $(51,794) $(53,971) $(17,666) $ 2,521 $66,939 $(53,971)
Equity in earnings of
consolidated
subsidiaries............ 15,145 53,966 (2,183) -- (66,928) --
Depreciation and
amortization............ 11,192 -- 46,890 4,732 -- 62,814
Provision for discontinued
operations.............. 30,416 -- -- -- -- 30,416
Divestitures.............. 2,105 2,105
Adjustments to reconcile
net income (loss) to
cash provided by (used
in) operating
activities:
Working capital and
other................. 3,506 5 (3,737) (1,797) 28,129 26,106
-------- -------- -------- -------- ------- --------
Net cash provided by
operating
activities............ 10,570 -- 23,304 5,456 28,140 67,470
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures...... (7,208) -- (16,469) (12,867) -- (36,544)
Other..................... 26 -- 3,753 (4,026) -- (247)
-------- -------- -------- -------- ------- --------
Net cash provided by
(used in) investing
activities............ (7,182) -- (12,716) (16,893) -- (36,791)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Reduction of long-term
debt.................... (20,795) -- 20,186 -- (20,186) (20,795)
Borrowings (repayments) on
revolving credit
agreement............... 36,340 -- (28,500) (1,611) -- 6,229
Other..................... (3,043) -- -- (239) -- (3,282)
-------- -------- -------- -------- ------- --------
Net cash provided by
(used in) financing
activities............ 12,502 -- (8,314) (1,850) (20,186) (17,848)
-------- -------- -------- -------- ------- --------
Net cash provided by
discontinued
operations............ 4,322 -- -- -- -- 4,322
-------- -------- -------- -------- ------- --------
Increase (decrease) in cash
& cash equivalents........ 20,212 -- 2,274 (13,287) 7,954 17,153
Intercompany accounts....... (4,364) -- (2,342) 15,910 (9,204) --
CASH & CASH EQUIVALENTS,
BEGINNING OF PERIOD....... 1,297 1 539 4,313 1,317 7,467
-------- -------- -------- -------- ------- --------
CASH & CASH EQUIVALENTS,
END OF PERIOD............. $ 17,145 $ 1 $ 471 $ 6,936 $ 67 $ 24,620
======== ======== ======== ======== ======= ========
</Table>
47
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
YEAR ENDED NOVEMBER 30, 2000
<Table>
<Caption>
GUARANTORS NON-GUARANTORS
--------------------------- FOREIGN
EAGLE-PICHER SUBSIDIARY GUARANTORS
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
NET SALES
Customers.................. $ 74,650 $ -- $577,908 $102,408 $ -- $754,966
Intercompany............... 16,470 -- 12,856 9,997 (39,323) --
OPERATING COSTS AND EXPENSES:
Cost of products sold
(exclusive of
depreciation)............ 55,066 -- 481,662 96,168 (39,238) 593,658
Selling and
administrative........... 25,628 9 24,144 9,874 (298) 59,357
Intercompany charges....... (11,370) -- 11,370 (298) 298 --
Management compensation --
special.................. 1,560 1,560
Depreciation............... 4,155 -- 32,998 4,160 -- 41,313
Insurance settlement....... (16,000) (16,000)
Amortization of
intangibles.............. 4,073 -- 10,642 1,398 -- 16,113
Divestitures............... 14,965 -- (3,870) (14,244) -- (3,149)
Other...................... (36) -- (187) 6 43 (174)
-------- -------- -------- -------- -------- --------
Total............... 78,041 9 556,759 97,064 (39,195) 692,678
-------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)...... 13,079 (9) 34,005 15,341 (128) 62,288
OTHER INCOME (EXPENSE)
Interest expense........... (16,311) -- (31,969) (4,027) 8,318 (43,989)
Other income (expense)..... 1,247 -- 7,790 (623) (8,318) 96
Equity in earnings of
consolidated
subsidiaries............. 13,538 5,619 1,920 -- (21,077) --
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES... 11,553 5,610 11,746 10,691 (21,205) 18,395
INCOME TAXES (BENEFIT)....... 2,082 -- 6,099 880 -- 9,061
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations................. 9,471 5,610 5,647 9,811 (21,205) 9,334
Discontinued Operations...... (3,724) -- -- -- -- (3,724)
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............ $ 5,747 $ 5,610 $ 5,647 $ 9,811 $(21,205) $ 5,610
======== ======== ======== ======== ======== ========
</Table>
48
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 2000
<Table>
<Caption>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents..... $ 1,297 $ 1 $ 539 $ 4,313 $ 1,317 $ 7,467
Receivables, net.............. 3,139 -- 84,004 17,732 -- 104,875
Intercompany accounts
receivable.................. 22,266 -- 9,768 980 (33,014) --
Inventories................... 4,919 -- 67,299 12,630 (1,329) 83,519
Net assets of operations to be
sold........................ 44,080 -- -- -- -- 44,080
Prepaid expenses.............. 906 -- 4,999 1,503 (267) 7,141
Deferred income taxes......... 12,860 -- -- -- -- 12,860
-------- -------- -------- -------- --------- --------
Total current assets.... 89,467 1 166,609 37,158 (33,293) 259,942
PROPERTY, PLANT & EQUIPMENT,
net......................... 21,838 -- 181,898 22,311 (43) 226,004
Investment in Subsidiaries.... 124,495 151,302 12,377 -- (288,174) --
EXCESS OF ACQUIRED NET ASSETS
OVER COST, net.............. 45,673 -- 131,637 21,404 (3,139) 195,575
OTHER ASSETS.................. 64,119 -- 17,799 14,374 (10,114) 86,178
-------- -------- -------- -------- --------- --------
TOTAL ASSETS............ $345,592 $151,303 $510,320 $ 95,247 $(334,763) $767,699
======== ======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
ACCOUNTS PAYABLE.............. $ 10,987 $ -- $ 42,119 $ 4,759 $ -- $ 57,865
Intercompany accounts
payable..................... 92 -- -- 9,327 (9,419) --
Long-term debt -- current
portion..................... 20,795 -- 42,750 1,813 -- 65,358
Income taxes.................. 2,162 -- -- 520 -- 2,682
Other current liabilities..... 41,092 -- 22,046 2,364 (267) 65,235
-------- -------- -------- -------- --------- --------
Total current
liabilities.......... 75,128 -- 106,915 18,783 (9,686) 191,140
LONG-TERM DEBT -- LESS CURRENT
PORTION..................... 390,398 -- 22,266 2,175 (22,266) 392,573
DEFERRED INCOME TAXES......... 11,512 -- -- -- (1,234) 10,278
OTHER LONG-TERM LIABILITIES... 22,075 14 1,000 1,618 -- 24,707
-------- -------- -------- -------- --------- --------
TOTAL LIABILITIES....... 499,113 14 130,181 22,576 (33,186) 618,698
Intercompany Accounts......... (290,399) -- 290,081 36,777 (36,459) --
11 3/4% CUMULATIVE REDEEMABLE
EXCHANGEABLE PREFERRED
STOCK....................... -- 109,804 -- -- -- 109,804
SHAREHOLDERS' EQUITY.......... 136,878 41,485 90,058 35,894 (265,118) 39,197
-------- -------- -------- -------- --------- --------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY.... $345,592 $151,303 $510,320 $ 95,247 $(334,763) $767,699
======== ======== ======== ======== ========= ========
</Table>
49
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
YEAR ENDED NOVEMBER 30, 2000
<Table>
<Caption>
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).................... $ 5,747 $ 5,610 $ 5,647 $ 9,811 $(21,205) $ 5,610
Adjustments to reconcile net income
(loss) to cash provided by (used
in) operating activities:
Equity in earnings (loss) of
consolidated subsidiaries........ (13,538) (5,619) (1,920) -- 21,077 --
Depreciation and amortization...... 11,474 -- 43,640 5,558 -- 60,672
Divestitures....................... 14,965 -- (3,870) (14,244) -- (3,149)
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures..................... (22,043) 9 11,230 (17,558) 10,793 (17,569)
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities.......... (3,395) -- 54,727 (16,433) 10,665 45,564
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of divisions..... 47,002 -- 10,430 27,616 -- 85,048
Acquisition of divisions............. -- -- (12,306) -- -- (12,306)
Capital expenditures................. (6,183) -- (30,320) (4,864) -- (41,367)
Other................................ 6,871 -- 876 (2,871) (412) 4,464
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities............. 47,690 -- (31,320) 19,881 (412) 35,839
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt.......... (24,374) -- -- -- -- (24,374)
Purchase of Treasury Stock........... (2,371) (2,371)
Net borrowings (repayments) under
revolving credit agreements........ (30,340) -- (21,000) (10,434) -- (61,774)
Other................................ (51) -- -- -- -- (51)
-------- -------- -------- -------- -------- --------
Net cash financing activities...... (57,136) -- (21,000) (10,434) -- (88,570)
-------- -------- -------- -------- -------- --------
Net cash provided by discontinued
operations........................... 4,563 -- -- -- -- 4,563
-------- -------- -------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents.......................... (8,278) -- 2,407 (6,986) 10,253 (2,604)
Intercompany accounts.................. 5,511 -- (2,738) 6,211 (8,984) --
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD............................... 4,064 1 870 5,088 48 10,071
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................... $ 1,297 $ 1 $ 539 $ 4,313 $ 1,317 $ 7,467
======== ======== ======== ======== ======== ========
</Table>
50
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1999
<Table>
<Caption>
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- -------------- ---------- -------------- ------------ --------
(IN THOUSANDS OF DOLLARS)
NET SALES TO CUSTOMERS....... $125,535 $ -- $582,723 $114,690 $ -- $822,948
Intercompany............... 12,619 -- 15,551 11,249 (39,419) --
OPERATING COSTS AND EXPENSES:
Cost of products sold
(exclusive of
depreciation)............ 90,674 -- 482,892 110,331 (39,395) 644,502
Selling and
administrative........... 33,765 5 22,701 11,599 (199) 67,871
Management compensation --
special.................. 556 -- -- -- -- 556
Impairment of net assets of
operations to be sold.... 9,630 -- 1,635 10,142 -- 21,407
Intercompany charges....... (9,816) -- 9,817 (200) 199 --
Depreciation............... 5,897 -- 32,977 4,968 -- 43,842
Amortization of
intangibles.............. 5,434 -- 10,420 971 -- 16,825
(Gain) loss on sale of
assets................... (107) -- 109 28 -- 30
-------- -------- -------- -------- -------- --------
Total............... 136,033 5 560,551 137,839 (39,395) 795,033
-------- -------- -------- -------- -------- --------
OPERATING INCOME (LOSS)...... 2,121 (5) 37,723 (11,900) (24) 27,915
OTHER INCOME (EXPENSE)
Interest expense........... (17,662) -- (24,709) (4,297) 1,193 (45,475)
Other income (expense)..... 1,070 -- 3,596 87 (1,193) 3,560
Equity in earnings (loss)
of consolidated
subsidiaries............. (10,957) (17,587) 416 -- 28,128 --
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE TAXES... (25,428) (17,592) 17,026 (16,110) 28,104 (14,000)
INCOME TAXES (BENEFIT)....... (12,419) -- 9,679 2,194 -- (546)
-------- -------- -------- -------- -------- --------
Income (Loss) from Continuing
Operations................. (13,009) (17,592) 7,347 (18,304) 28,104 (13,454)
Discontinued Operations...... (4,133) -- -- -- -- (4,133)
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............ $(17,142) $(17,592) $ 7,347 $(18,304) $ 28,104 $(17,587)
======== ======== ======== ======== ======== ========
</Table>
51
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1999
<Table>
<Caption>
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)......... $(17,142) $(17,592) $ 7,347 $(18,304) $ 28,104 $(17,587)
Adjustments to reconcile
net income (loss) to
cash provided by (used
in) operating
activities:
Equity in earnings (loss)
of consolidated
subsidiaries............ 10,957 17,587 (416) -- (28,128) --
Depreciation and
amortization............ 14,694 -- 43,607 5,939 -- 64,240
Impairment of net assets
of operations to be
sold.................... 9,630 -- 1,635 10,142 -- 21,407
Changes in assets and
liabilities, net of
effect of acquisitions
and divestitures........ (20,966) 5 (23,676) (993) 13,065 (32,565)
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............ (2,827) -- 28,497 (3,216) 13,041 35,495
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
division................ 12,400 -- -- -- -- 12,400
Acquisition of division... -- -- (60,251) -- -- (60,251)
Capital expenditures...... (2,686) -- (31,986) (9,813) -- (44,485)
Other..................... 2,312 -- 617 (1,589) (1,950) (610)
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) investing
activities............ 12,026 -- (91,620) (11,402) (1,950) (92,946)
-------- -------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Reduction of long-term
debt.................... (140,776) -- -- -- -- (140,776)
Borrowings(repayments)under
revolving credit
agreements.............. 116,175 -- 63,750 7,689 -- 187,614
Other..................... (54) -- (1,851) -- -- (1,905)
-------- -------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ (24,655) -- 61,899 7,689 -- 44,933
-------- -------- -------- -------- -------- --------
Net cash provided by
discontinued
operations............ 8,908 -- -- -- -- 8,908
-------- -------- -------- -------- -------- --------
Increase (decrease) in
cash and cash
equivalents............. (6,548) -- (1,224) (6,929) 11,091 (3,610)
Intercompany accounts..... 3,148 -- 1,382 6,892 (11,422) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD....... 7,464 1 712 5,125 379 13,681
-------- -------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD............. $ 4,064 $ 1 $ 870 $ 5,088 $ 48 $ 10,071
======== ======== ======== ======== ======== ========
</Table>
52
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. 11 3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
The Company has 14,191 shares of 11 3/4% Cumulative Redeemable Exchangeable
Preferred Stock outstanding. The Preferred Stock had an initial liquidation
preference at February 24, 1998 of $5,637.70 per share which accretes during the
first five years after issuance at 11 3/4% per annum, compounded semiannually,
ultimately reaching $10,000 per share on March 1, 2003. No dividends will accrue
prior to March 1, 2003, but will be cumulative at 11 3/4% per annum thereafter.
The Preferred Stock is mandatorily redeemable by the Company on March 1, 2008 or
earlier under certain circumstances, but may be redeemed at the option of the
Company, in whole or in part, at any time after February 28, 2003 at set
redemption prices. At that time, the Company may also exchange all of the
Preferred Stock for 11 3/4% Exchange Debentures with similar terms. The Company
is required to offer to purchase the Preferred Stock should there be a change in
control of the Company. Holders of Preferred Stock have no voting rights except
in certain circumstances. The terms of the Preferred Stock contain covenants
similar to the covenants in the Subordinated Notes. The Company is in compliance
with these covenants as of November 30, 2001. The Preferred Stock had an
estimated fair value of $21,300 at November 30, 2001. The estimated fair value
was based on the market price as this is a publicly traded issue.
I. COMMON STOCK
On August 31, 2001, the Company adopted an amendment to its Amended and
Restated Certificate of Incorporation to change its capital structure. Effective
with this amendment, the total number of shares of common stock which the
Company is authorized to issue is 1,000,000 shares, par value $0.01 per share
(the "Common Stock"). The holders of shares of Common Stock are entitled to one
vote per share on all matters which may be submitted to the holders of Common
Stock of the Company. At the effective time of this amendment, each share of
Class A Common Stock of the Company and each share of the Class B Common Stock
of the Company outstanding immediately prior to the effective time changed into
and was reclassified as one share of Common Stock of the Company.
J. INCOME TAXES
The sources of income (loss) from continuing operations before income taxes
(benefit) are as follows:
<Table>
<Caption>
2001 2000 1999
-------- ------- --------
United States......................................... $(39,337) $11,067 $(12,509)
Foreign............................................... 7,423 7,328 (1,491)
-------- ------- --------
$(31,914) $18,395 $(14,000)
======== ======= ========
</Table>
53
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the components of income taxes (benefit) from
continuing operations:
<Table>
<Caption>
2001 2000 1999
-------- ------ ------
Current:
Federal................................................ $ (5,066) $1,445 $4,300
Foreign................................................ 2,700 900 2,200
State and local........................................ (700) 60 100
-------- ------ ------
(3,066) 2,405 6,600
-------- ------ ------
Deferred:
Federal................................................ (6,950) 6,916 (6,696)
Other.................................................. -- (260) (450)
-------- ------ ------
(6,950) 6,656 (7,146)
-------- ------ ------
$(10,016) $9,061 $ (546)
======== ====== ======
</Table>
The differences between the total income tax expense from operations and
the income tax expense computed using the Federal income tax rate were as
follows:
<Table>
<Caption>
2001 2000 1999
-------- ------- -------
Income tax expense (benefit) at Federal statutory
rate................................................. $(11,170) $ 6,438 $(4,900)
Foreign taxes rate differential........................ -- (2,500) 1,300
State and local taxes, net of Federal benefit.......... (100) -- 100
Non-deductible amortization and other items relating to
excess of acquired net assets over cost.............. 700 5,400 2,300
Other.................................................. 554 (277) 654
-------- ------- -------
Total income tax expense (benefit)..................... $(10,016) $ 9,061 $ (546)
======== ======= =======
</Table>
54
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of deferred tax balances as of November 30 are as follows:
<Table>
<Caption>
2001 2000
------- -------
Current deferred tax assets attributable to:
Accrued liabilities....................................... $15,442 $11,371
Reserve for discontinued operations and restructuring..... 14,210 --
Other..................................................... 1,135 1,489
------- -------
Current deferred tax asset................................ 30,787 12,860
Valuation allowance....................................... (6,500) --
------- -------
Current deferred tax asset, net of valuation allowance.... 24,287 12,860
------- -------
Noncurrent deferred tax assets (liabilities) attributable
to:
Property, plant and equipment............................. (10,857) (10,808)
Prepaid pension........................................... (19,137) (17,987)
Net operating loss carryforwards.......................... 6,564 1,568
Alternative minimum tax credit carryforwards.............. 5,963 10,319
Amortization of intangibles............................... 5,879 2,334
Other..................................................... 5,311 4,296
------- -------
Noncurrent deferred tax liability, net................. (6,277) (10,278)
------- -------
Net deferred tax asset................................. $18,010 $ 2,582
======= =======
</Table>
As of November 30, 2001 the Company has net operating loss carryforwards of
$12,117 in the United States and $7,476 in the United Kingdom available to
offset future taxable income. The United States net operating loss carryforwards
will expire in 2021, however, the United Kingdom net operating loss
carryforwards have no expiration date. The Company has alternative minimum tax
credit carryforwards of $5,963 available to offset future tax liability, which
do not have an expiration date.
A tax election to treat the purchase of stock as a purchase of assets
("Election") was made in connection with the acquisition of EPI on February 24,
1998 establishing tax goodwill for the amount by which the purchase price for
tax purposes exceeded the fair market value of the assets at the date of the
acquisition. The tax goodwill, the net amount of which was $145,590 at November
30, 2001, is being amortized and deducted over fifteen years, the same period
over which the Excess of Acquired Net Assets over Cost is being amortized in the
Consolidated Financial Statements. Certain liabilities assumed by the Company in
the acquisition, which are contingent for tax purposes, will result in
additional tax goodwill as they are paid. This additional goodwill will also be
amortized and deducted over the same period as the Excess of Acquired Net Assets
over Cost. The potential additional tax goodwill, resulting from these
liabilities, totaled $12,370 at November 30, 2001.
SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. At November 30, 2001, a valuation allowance of $6,500 was recorded
against deferred tax assets relating to reversing deductible temporary
differences arising from the loss on disposal of a business segment due to
uncertainty as to the amount of taxable income that the Company would generate
in future years.
The Company received refunds (net of taxes paid) of $4,500 in 2001, and
paid income taxes (net of refunds received) of $6,300 in 2000, $10,000 in 1999.
55
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
K. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding which was 981,583; 997,125 and
1,000,000 for the years ended November 30, 2001, 2000 and 1999, respectively. No
potential common stock was outstanding during the three year period ended
November 30, 2001.
L. MANAGEMENT COMPENSATION -- SPECIAL
Management compensation expense consisted of payments to former officers
upon their separation from the Company. These payments aggregated $3,125 in
2001, $1,560 in 2000 and $556 in 1999.
M. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Substantially all employees of the Company and its subsidiaries are covered
by various pension or profit sharing retirement plans, including a supplemental
executive retirement plan to provide senior management with benefits in excess
of normal pension benefits.
The Company's funding policy for defined benefit plans is to fund amounts
on an actuarial basis to provide for current and future benefits in accordance
with the funding guidelines of ERISA.
Plan benefits for salaried employees are based primarily on employees'
highest five consecutive years' earnings during the last ten years of
employment. Plan benefits for hourly employees typically are based on a dollar
unit multiplied by the number of service years.
In addition to providing pension retirement benefits, the Company makes
health care and life insurance benefits available to certain retired employees
on a limited basis. Generally, the medical plans pay a stated percentage of
medical expenses reduced by deductibles and other coverages. Eligible employees
may elect to be covered by these health and life insurance benefits if they
reach early or normal retirement age while working for the Company. In most
cases, a retiree contribution for health insurance coverage is required. The
Company funds these benefit costs primarily on a pay-as-you-go basis.
Net periodic pension and postretirement benefit cost included the following
components:
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------ ------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- ------ ------ ------
Service cost -- benefits earned
during the period............... $ 4,790 $ 5,006 $ 5,659 $ 546 $ 519 $ 546
Interest cost on projected benefit
obligations..................... 15,314 15,662 14,754 1,271 1,191 1,149
Expected return on plan assets.... (24,152) (23,831) (22,834) -- -- --
Net amortization and deferral..... 210 107 68 -- -- --
-------- -------- -------- ------ ------ ------
Net periodic cost (income)........ (3,838) (3,056) (2,353) $1,817 $1,710 $1,695
====== ====== ======
Supplemental executive retirement
plan............................ 552 (260) 1,298
Other retirement plans............ 1,131 1,228 1,125
-------- -------- --------
Total cost of (income from)
providing retirement
benefits................ $ (2,155) $ (2,088) $ 70
======== ======== ========
</Table>
In addition, in 2000, the Company recognized curtailment gains of $3,168
and $569 due to the reduction in active participants in the Company's pension
plans and eligible employees in the Company's postretirement
56
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
plans, respectively, that resulted primarily from the divestiture of divisions.
See also Note C for potential effects of restructuring on the pension plan.
The pension plans' assets consist primarily of listed equity securities and
publicly traded notes and bonds.
The following tables set forth the plans' changes in benefit obligation,
plan assets and funded status on the measurement dates, November 30, 2001 and
2000, and amounts recognized in the Company's Consolidated Balance Sheets as of
those dates.
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------- -----------------------
2001 2000 2001 2000
-------- -------- ---------- ----------
Change in Benefit Obligations:
Benefit Obligation, beginning of year.............. $222,353 $213,740 $ 17,549 $ 16,444
Service cost....................................... 4,790 5,006 546 519
Interest cost...................................... 15,314 15,662 1,270 1,191
Amendments......................................... 644 1,096 -- --
Actuarial (gain)/loss.............................. (10,166) 3,418 (1,424) 1,549
Divestitures and other............................. 109 (3,444) -- (569)
Plan participant's contributions................... -- -- 700 547
Benefits paid...................................... (13,228) (13,125) (2,132) (2,132)
-------- -------- -------- --------
Benefit obligation, end of year.................... 219,816 222,353 16,509 17,549
-------- -------- -------- --------
Change in Plan Assets:
Fair value of plan assets, beginning of year....... 267,410 270,592 -- --
Actual return on plan assets....................... 9,922 9,943 -- --
Employer contributions............................. -- -- 1,432 1,585
Plan participants' contributions................... -- -- 700 547
Benefits paid...................................... (13,228) (13,125) (2,132) (2,132)
-------- -------- -------- --------
Fair value of plan assets, end of year............. 264,104 267,410 -- --
-------- -------- -------- --------
Funded status...................................... 44,288 45,057 (16,509) (17,549)
Unrecognized actuarial (gain)/loss................. 8,052 4,485 (1,364) 60
Unrecognized prior service cost.................... 2,336 1,849 -- --
-------- -------- -------- --------
Net prepaid benefit cost (accrued benefit liability
recognized)...................................... $ 54,676 $ 51,391 $(17,873) $(17,489)
======== ======== ======== ========
</Table>
Weighted average assumptions as of November 30:
<Table>
<Caption>
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------- ------------------------
2001 2000 2001 2000
------- ------- --------- ---------
Discount rate...................................... 7.25% 7.25% 7.25% 7.25%
Expected rate of return on plan assets............. 9.25% 9.00% N/A N/A
Rate of compensation increase...................... 3.00% 4.20% N/A N/A
</Table>
Postretirement benefit costs were estimated assuming retiree health care
costs would initially increase at a 7% annual rate which decreases to an
ultimate rate of 5.75% for 2004 and remain at that level thereafter. If this
annual trend rate would increase by 1%, the accumulated postretirement
obligation as of November 30, 2001 would increase by $1,443 with a corresponding
increase of $209 in the postretirement benefit expense in
57
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001. A 1% decrease in this annual trend rate would decrease the accumulated
postretirement benefit obligation by $1,202 and the postretirement benefit
expense by $170 in 2001.
Changing the rate of compensation increase from 4.20% in 2000 to 3.00% in
2001 decreased the projected benefit obligation by approximately $4,500.
The effect of the change in the ultimate health care trend rate from 5.75%
to 5% and extending the assumption time to 2007 was to increase the projected
benefit obligation for the other postretirement plans by $469 in 2001.
The Company also offers 401(k) savings plans to its employees in the United
States. In most cases, the participants may contribute up to 15% of their
compensation of which 50% of their contribution up to 6% of their compensation
is matched by the Company. The cost of these plans to the Company was $2,082 in
2001, $2,047 in 2000 and $ 2,250 in 1999.
In May 1998, the Company adopted a Stock Appreciation Rights Plan ("SAR
Plan") to reward those executives and managers whose individual performance and
effort will have a direct impact on achieving the Company's profit and growth
objectives. Shares of stock are not actually awarded, however participants are
awarded units on which appreciation is calculated based on the Company's equity
position. The units vest over five years and are payable any time during the
sixth through tenth year following the date of award. The Company recognized
income of $1,000 related to this plan in the fourth quarter of 2001 because the
calculated value of the units at November 30, 2001 was below the base price.
Expense related to the SAR Plan in 2000 was $635 and in 1999 was not material.
N. ENVIRONMENTAL AND OTHER LITIGATION CLAIMS
In addition to the items discussed below, 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.
Environmental Matters
The Company has policies and procedures in place to ensure that its
operations are conducted in keeping with good corporate citizenship and with a
commitment to the protection of the environment. In addition, the Company is
subject to extensive and evolving federal, state and local environmental laws
and regulations. Compliance with such laws and regulations can be costly.
Governmental authorities may enforce these laws and regulations with a variety
of enforcement measures, including monetary penalties and remediation
requirements.
The Company is involved in various stages of investigation and remediation
related to environmental remediation projects at a number of sites as a result
of past and present operations, including currently-owned and formerly-owned
plants. Also, the Company has received notice that it may have liability under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
as a Potentially Responsible Party at a number of sites ("Superfund Sites").
In June 1996, the Bankruptcy Court approved a settlement agreement among
EPI, the Environmental Protection Agency and the United States Department of
Interior ("EPA Settlement Agreement"). One of the significant features of the
EPA Settlement Agreement is with respect to "Additional Sites." Additional Sites
are those Superfund Sites, not owned by the Company, for which the Company's
liability allegedly arises as a result of pre-petition waste disposal or
recycling. The Company retains all of its defenses, legal or factual, at such
sites. However, if the Company is found liable at any Additional Site, or
settles any claims for any Additional Sites, the Company is required to pay as
if such claims had been resolved in the reorganization
58
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under chapter 11 of the bankruptcy code. Thus, EPI's liability at any Additional
Sites will be paid at approximately 37% of any amount due. All of the Superfund
Sites where the Company is involved as a Potentially Responsible Party are
Additional Sites under the EPA Settlement Agreement.
The ultimate cost of site remediation is difficult to predict given the
uncertainties regarding the extent of the required remediation, the
interpretation of applicable laws and regulations and alternative remediation
methods. Based on the Company's experience with environmental remediation
matters, the Company has accrued an aggregate amount of $14,982 included in
Other Accrued Liabilities. There can be no assurances that environmental laws
and regulations will not become more stringent in the future or that the Company
will not incur significant costs in the future to comply with such laws and
regulations. Accordingly, future information and developments will require the
Company to continually reassess the expected impact of these environmental
matters.
In 2000, EPI received $16,000 from insurance companies in settlement of
certain claims relating primarily to environmental remediation.
Other Litigation Claims
On January 25, 1996, Richard Darrell Peoples, a former employee of EPI,
filed a Qui Tam suit under seal in the United States District Court for the
Western District of Missouri (the "Missouri Court"). A Qui Tam suit is a lawsuit
brought by a private individual pursuant to federal statue, allegedly on beheld
of the U.S. Government. The U.S. Government has declined the opportunity to
intervene or take control of this Qui Tam suit. EPI became aware of the suit on
October 20, 1997, when it was served on EPI, after it had been unsealed. The
suit involves allegations of irregularities in testing procedures in connection
with certain U.S. Government contracts. The allegations are similar to
allegations made by the former employee, and investigated by outside counsel for
EPI, prior to the filing of the Qui Tam suit. Outside counsel's investigation
found no evidence to support any of the employee's allegations except for some
inconsequential expense account matters. EPI, which believes that the U.S.
Government did not incur any expense as a result of those matters, reported to
the U.S. Government the employee's allegations and the results of outside
counsel's investigations. The employee also initiated a different action against
EPI in 1996 for wrongful termination, in which he alleged many of the same acts
complained of in the Qui Tam suit. That action was dismissed with prejudice by
the Missouri Court in October 1996. On June 16, 1998, the Missouri Court granted
EPI's Motion to Dismiss the Qui Tam suit. The Court, however, allowed Mr.
Peoples to amend his complaint. Mr. Peoples filed an amended complaint, and
EPI's Motion to Dismiss the Amended Complains was denied on January 20, 1999.
Since that time the case has been in a discovery phase. EPI filed a motion for
sanctions, including dismissal of the lawsuit, which was denied by the court.
EPI believes that the court erroneously believed that EPI's motion for sanctions
related to an earlier discovery dispute that had been resolved. EPI has filed a
motion for reconsideration of the denial of its motion for sanctions. If the
lawsuit is not dismissed, EPI intends to contest this suit vigorously. EPI does
not believe that resolution of this lawsuit will have a material adverse effect
on EPI's financial condition, results of operations or cash flows.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit
against the Company's wholly owned subsidiary, Eagle-Picher Industries, Inc.
("EPI") in the United States District Court for the Northern District of Georgia
(the "Georgia Court") alleging breach of contract, negligent misrepresentation,
and contributory infringement and seeking contribution and indemnification in an
amount not less than $10 million (the "Caradon suit"). The Caradon suit arose
out of patent infringement litigation between Caradon and Therma-Tru Corporation
extending over the 1989-1996 time period, the result of which was for Caradon to
be held liable for patent infringement in an amount believed to be in excess of
$10 million. In June 1997, EPI filed a Motion with the United States Bankruptcy
Court for the Southern District of Ohio, Western Division, ("Bankruptcy Court")
seeking an order enforcing EPI's plan of reorganization as confirmed by the
Bankruptcy Court in November 1996 (the "Plan") against Caradon, and enjoining
the Caradon suit from going forward. The Bankruptcy Court in a decision entered
on December 24, 1997, held that the Caradon suit
59
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
did violate the Plan and enjoined Caradon from pursuing the Caradon suit.
Caradon appealed the Bankruptcy Court's decision to the United States District
Court for the Southern District of Ohio (the "District Court"), and in a
decision entered on February 3, 1999, the District Court reversed and remanded
the matter back to the Bankruptcy Court. The Bankruptcy Court held a hearing on
this matter on September 24 and 25, 2001 and no decision has been rendered as of
February 14, 2002. EPI intends to contest this suit vigorously. EPI does not
believe that resolution of this suit will have a material adverse effect on
EPI's financial condition, results of operations or cash flows.
On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired the
depleted zinc distribution business (the "DZ Business") of Isonics Corporation
("Isonics") for approximately $8.2 million, payable $6.7 million at closing and
$1.5 million in three installments of $500,000 each payable on the first three
anniversaries of the closing. At the time of the acquisition, a single customer
represented approximately 55% of the DZ Business. Following the completion of
the acquisition, this customer informed EPT that it would no longer be
purchasing depleted zinc from an outside supplier. EPT initiated binding
arbitration against Isonics on March 26, 2001 with the American Arbitration
Association in Dallas, Texas pursuant to contractual dispute resolution
procedures. EPT's arbitration demand is based on breach of representations and
warranties in the purchase and sale agreement for the DZ Business as well as
fraud and negligent misrepresentation, and seeks to recover damages in excess of
$10 million and other remedies. While the Company believes it has a meritorious
claim against Isonics, there can be no assurance that the Company will obtain
any recovery as a result of this claim.
In connection with the purchase of the DZ Business, EPT agreed to sell 200
kg of isotopically purified silicon-28 to Isonics. Due to various factors, EPT
has not yet delivered any silicon-28 to Isonics. Isonics has asserted a
counterclaim against EPT in the DZ Business arbitration described above for
failure to deliver silicon-28, seeking damages in excess of $10 million. EPT
believes that any obligation to deliver silicon-28 has been excused by, among
other things, a force majeure clause in the purchase and sale agreement for the
DZ Business. Contemporaneously with the purchase and sale of the DZ Business,
EPT and Isonics entered into a supply agreement (the "Supply Agreement")
pursuant to which EPT agreed that, commencing upon delivery of 200 kg of
silicon-28, EPT would devote the capacity of a pilot plant used to produce such
material to producing silicon-28 and sell all silicon-28 produced in such pilot
plant and meeting certain specifications, as well as any silicon-29 or
silicon-30 actually produced as a byproduct, to Isonics for a ten year term.
Isonics amended its counterclaim in the DZ Business arbitration to assert a
claim that the Supply Agreement requires EPT to produce a certain amount of
silicon-28, silicon-29 and silicon-30 and alleging damages of not less than $75
million for anticipatory breach of such alleged obligation. EPT believes that
the terms of the Supply Agreement and applicable law clearly establish that the
Supply Agreement does not impose any obligation to produce any quantity of
silicon-28, silicon-29 or silicon-30 and that Isonics' claims are without merit.
Isonics also amended its counterclaim to allege that EPT's parent company,
Eagle-Picher Industries, Inc. ("EPI") is liable for any damages of EPT under an
"alter ego" theory, a claim which EPI and EPT believe is also without merit. EPT
and EPI intend to assert other defenses as well and to defend this counterclaim
vigorously. EPT continues to explore alternative processes that may enable it to
produce silicon-28, but there is no assurance that such efforts will be
successful.
On September 25, 2001, Andries Ruijssenaars, former President and Chief
Executive Officer of the Company, filed a lawsuit against the Company, certain
of its directors and ABN AMRO Bank in the U.S. District Court for the Southern
District of Ohio, Western Division, relating to the purchase of Mr.
Ruijssenaar's common stock in the Company and his benefits under EPI's
Supplemental Executive Retirement Plan (SERP). Mr. Ruijssenaars claims that the
per share price for 2001 under the Company's Incentive Stock Plan, which is
generally applicable to all Plan participants and results in approximately $2.8
million for Mr. Ruijssenaars' 30,000 shares of common stock, was not correctly
determined and claims approximately $4.7 million for his shares. Mr.
Ruijssenaars' lawsuit also challenges a rule adopted by the committee for the
Plan deferring the obligation of the Company to repurchase stock in the event
contracts to
60
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which the Company is a party, including its debt agreements, restrict such
repurchase. See "Incentive Stock Plan" under Item 11 below.
Mr. Ruijssenaars' lawsuit also challenges EPI's determination of benefits
under the SERP and claims that EPI is obligated to purchase an annuity for his
additional SERP benefit accrued after 2000 based on theories of promissory
estoppel, equitable estoppel, breach of contract and ERISA. Mr. Ruijssenaars has
also asserted claims of fraud, conspiracy, breach of fiduciary duty and
conversion. Mr. Ruijssenaars seeks approximately $2.3 million with respect to
the SERP, as well as punitive damages.
The Company intends to contest this suit vigorously. The Company does not
believe that resolution of this lawsuit will have a material adverse effect on
its financial condition, results of operations or cash flows.
On October 30, 2001, GMAC Business Credit, LLC (GMAC) and Eagle Trim, Inc.
filed a lawsuit in the United States District Court for the Eastern District of
Michigan, Southern Division, against EPI arising out of the sale of EPI's former
automotive interior trim division to Eagle Trim. In connection with that sale,
EPI guaranteed to GMAC, which funded the acquisition, that approximately $3.9
million of receivables relating to tooling purchased by EPI on behalf of
customers would be paid by November 2001. Eagle Trim ceased operations during
2001, at which time Eagle Trim and GMAC allege that approximately $2.7 million
of the tooling receivables had not been collected and did not exist at the time
of the sale. GMAC claims $2.7 million plus interest on the guaranty, and GMAC
and Eagle Trim have asserted claims for fraud and misrepresentation and are
seeking $24.5 million in damages. EPI is currently investigating these
allegations, but denies any fraud or misrepresentation. EPI intends to contest
this suit vigorously. EPI does not believe that resolution of this lawsuit will
have a material adverse effect on EPI's financial condition, results of
operations or cash flows. EPI is also involved in various other proceedings
incidental to the ordinary conduct of its business. EPI believes that none of
these other proceedings will have a material adverse effect on EPI's financial
condition, results of operations or cash flows.
Permanent Injunction and Final Bankruptcy Distribution
The court order confirming EPI's plan of reorganization ("Confirmation
Order") became effective on November 29, 1996. The Confirmation Order contains a
permanent injunction which precludes holders of present and future asbestos or
lead-related personal injury claims from pursuing their claims against the
reorganized EPI. Those claims are being channeled to the PI Trust, which is an
independently administered qualified settlement trust which was established to
resolve and satisfy those claims.
The Plan also resulted in the discharge of pre-petition liabilities through
the distribution of cash and securities to the PI Trust and the other creditors.
A final distribution of approximately $10,900 was made to the PI Trust and all
other eligible unsecured claimants in June 2001.
O. RELATED PARTY TRANSACTIONS
The Company has an advisory and consulting agreement with Granaria Holdings
B.V. ("Granaria Holdings") pursuant to which the Company has paid Granaria
Holdings an annual management fee of $1.75 million, plus out-of-pocket expenses.
Fees and expenses relating to these services amounted to approximately $2.1
million in 2001, 2000 and 1999. At November 30, 2001 and 2000, $.6 million and
$.5 million, respectively, relating to these fees and expenses were due Granaria
Holdings. Granaria Holdings waived this fee for the first quarter of fiscal year
2001.
P. INDUSTRY SEGMENT INFORMATION
The Company is a diversified manufacturer serving global markets and many
industries. The Company's reportable segments are strategic business units that
operate in different industries and are managed separately.
61
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Automotive
The operations in the Automotive Segment provide mechanical and structural
parts and raw materials for passenger cars, trucks, vans and sport utility
vehicles for the original equipment manufacturers and replacement markets.
Resources are concentrated in serving the North American, European and Pacific
Rim markets.
Consolidated sales to the Honda Motor Company were $90,966 in 2001 and
$98,200 in 2000. Consolidated sales to Ford Motor Company amounted to $137,800
in 1999. Consolidated sales to Ford Motor Company declined to $71,200 in 2000
due to in part its spin-off of Visteon Corporation and the Company's
divestitures. Sales to Visteon were $47,000 in 2000. No other customer accounted
for 10% or more of consolidated sales.
Technologies
The operations in the Technologies Segment produce special purpose
batteries and components, high-purity specialty material compounds and rare
metals, industrial chemicals, bulk pharmaceuticals and super-clean containers,
which meet strict EPA protocols, for environmental sampling. It serves the
commercial aerospace, nuclear, telecommunication electronics and other
industrial markets globally. Some of these products are also used in defense
applications. A $8,711 restructuring charge was recorded in the fourth quarter
of 2001. See Note C.
Machinery
The operations in the Machinery Segment produce construction equipment for
the construction industry in the United States and material handling equipment.
This segment was sold effective December 14, 2001. See Note B, Acquisitions,
Divestitures and Discontinued Operations.
Minerals
The Minerals Segment mines and refines diatomaceous earth products, which
are used in high purity filtration applications, primarily by the food and
beverage industry globally. These products are also used as industrial
absorbents.
Sales between segments were not material.
United States net sales include export sales to non-affiliated customers of
$50,100 in 2001, $75,300 in 2000 and $86,800 in 1999.
62
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's continuing foreign operations are located primarily in Europe
and in Mexico. Intercompany transactions with foreign operations are made at
established transfer prices. Information regarding the Company's domestic and
foreign sales, operating income and identifiable assets follows:
<Table>
<Caption>
UNITED TRANSFER SALES/
STATES FOREIGN ELIMINATIONS CONSOLIDATED
-------- -------- --------------- ------------
YEAR ENDED NOVEMBER 30, 2001
Sales......................................... $633,189 $ 88,994 $(29,683) $692,450
======== ======== ======== ========
Income (loss) from continuing operations
before taxes................................ (31,925) 5,202 (5,191) (31,914)
======== ======== ======== ========
Identifiable assets........................... $690,161 $104,960 $(69,210) 725,911
======== ======== ======== ========
YEAR ENDED NOVEMBER 30, 2000
Sales......................................... $681,203 $102,411 $(28,648) $754,966
======== ======== ======== ========
Income (loss) from continuing operations
before taxes................................ $ 10,588 $ 7,653 $ 154 $ 18,395
======== ======== ======== ========
Identifiable assets........................... $744,000 $ 90,733 $(67,036) $767,699
======== ======== ======== ========
YEAR ENDED NOVEMBER 30, 1999
Sales......................................... $735,357 $114,690 $(27,099) $822,948
======== ======== ======== ========
Income (loss) from continuing operations
before taxes................................ $(16,732) $(15,573) $ 18,305 $(14,000)
-------- -------- -------- --------
Identifiable assets........................... $780,592 $ 83,307 $(29,952) $833,947
======== ======== ======== ========
</Table>
SEGMENT INFORMATION
(In millions of dollars)
<Table>
<Caption>
2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------
PRE-TAX INCOME (LOSS)
FROM CONTINUING
SALES OPERATIONS
Automotive............. $427.3 $456.4 $433.8 Automotive............... $(10.6) $ 7.4 $ 10.9
Technologies........... 200.3 191.4 198.5 Technologies............. (13.5) (.4) 11.7
Minerals............... 65.7 65.1 61.7 Minerals................. 1.4 .3 (4.1)
Divested Divisions..... -- 42.8 130.0 Divested Divisions....... (2.1) (1.1) (27.1)
Corporate/ Corporate/
Intersegment......... (.8) (.7) (1.1) Intersegment............. (7.1) 12.2 (5.4)
------ ------ ------ ------ ------ ------
$692.5 $755.0 $822.9 $(31.9) $ 18.4 $(14.0)
====== ====== ====== ====== ====== ======
</Table>
63
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000 1999 2001 2000 1999
------ ------ ------ ------ ------ ------
DEPRECIATION AND
AMORTIZATION CAPITAL EXPENDITURES
Automotive............. $ 38.8 $ 34.7 $ 32.7 Automotive............... $ 28.0 $ 34.2 $ 26.7
Technologies........... 14.6 14.4 13.4 Technologies............. 5.5 3.3 6.3
Minerals............... 5.5 5.7 6.4 Minerals................. 2.6 2.1 2.8
Divested Divisions..... -- 2.4 8.0 Divested Divisions....... -- 1.4 8.4
Corporate/ Corporate/
Intersegment......... .2 .2 .2 Intersegment............. .4 .4 .3
------ ------ ------ ------ ------ ------
$ 59.1 $ 57.4 $ 60.7 $ 36.5 $ 41.4 $ 44.5
====== ====== ====== ====== ====== ======
INTEREST EXPENSE IDENTIFIABLE ASSETS
Automotive............. $ 19.8 $ 18.8 $ 17.1 Automotive............... $334.4 $350.6 $350.1
Technologies........... 14.1 13.9 11.6 Technologies............. 206.0 222.7 210.3
Minerals............... 2.7 3.3 3.3 Minerals................. 52.0 54.8 58.4
Divested Divisions..... -- 2.1 5.0 Divested Divisions....... -- -- 64.2
Corporate/ Corporate/Intersegment/
Intersegment......... 3.5 5.9 8.5 Discontinued Operations.. 133.5 139.6 150.9
------ ------ ------ ------ ------ ------
$ 40.1 $ 44.0 $ 45.5 $725.9 $767.7 $833.9
====== ====== ====== ====== ====== ======
</Table>
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position with the Company
of the individuals who serve as directors and executive officers of the Company.
Directors will hold their positions until the annual meeting of the stockholders
at which their term expires or until their respective successors are elected and
qualified. Executive officers will hold their positions until the annual meeting
of the Board of Directors or until their respective successors are elected and
qualified.
<Table>
<Caption>
NAME AGE POSITION
---- --- --------
Joel P. Wyler........................ 52 Director, Chairman of the Board
Daniel C. Wyler...................... 50 Director
Dr. Wendelin Wiedeking............... 49 Director
Dr. Paul G. Kaminski................. 59 Director
Albert Iedema........................ 41 Director, Senior Vice President and Chief
Financial Officer
John H. Weber........................ 45 Director, President and Chief Executive
Officer
David G. Krall....................... 40 Senior Vice President, General Counsel and
Secretary
Jeffrey D. Sisson.................... 45 Senior Vice President of Human Resources
Thomas R. Pilholski.................. 46 Senior Vice President and Chief Financial
Officer (effective February 18, 2002)
John F. Sullivan..................... 59 Vice President and Controller
David N. Evans....................... 48 Vice President and Director of Taxes
Tom B. Scherpenberg.................. 42 Treasurer
</Table>
Mr. Joel P. Wyler has been a Director of the Company and Chairman of its
Board since the Company was formed in December 1997. He also has been a Director
and Chairman of the Board of EPI since the Acquisition. Mr. Wyler has been the
Chairman of the Board of Directors of Granaria Holdings B.V. since 1982.
Mr. Daniel C. Wyler was appointed as a Director in January 1999. He has
been the Chief Executive Officer of Granaria Holdings B.V. since 1989.
Dr. Wiedeking was appointed as a Director in January 1999. He has been the
Chairman of the Board of Porsche AG since 1993 where he is also President and
Chief Executive Officer.
Dr. Kaminski was appointed as a Director in January 2001. He had previously
served as a Director of EPI's wholly-owned subsidiary, Eagle-Picher
Technologies, LLC from 1998 until December 2000. Dr. Kaminski has been Chairman
and Chief Executive Officer of Technovation, Inc. since 1997.
Mr. Iedema was appointed a Director in September 2001. He also has served
as Senior Vice President and Chief Financial Officer of the Company in an
interim capacity since October 2001, and will continue until Mr. Pilholski
becomes the Chief Financial Officer effective February 18, 2002. Mr. Iedema has
been Executive Vice President and Chief Financial Officer of Granaria Holdings
B.V. since September 2000. Mr. Iedema had previously been employed as the Chief
Financial Officer of SSM Coal B.V. in The Netherlands from 1996 until August
2000. Mr. Iedema is also a certified public accountant in The Netherlands.
65
Mr. Weber has been President and Chief Executive Officer and a Director
since July 2001. Prior to coming to the Company, he had been with the Industrial
Controls and Friction Materials Group of Honeywell International serving as
President of that Group from July 2000 until July 2001, and serving as President
of the Friction Materials Group from March 1999 until July 2000. Mr. Weber's
previous business experience included serving as President of KN Energy Inc.
from 1997 to 1998, and as President of Vickers Inc. from 1994 to 1997.
Mr. Krall has been Senior Vice President, General Counsel and Secretary
since November 2000. He had been Vice President, General Counsel and Secretary
since he joined the Company in June 1998. Prior to coming to the Company, he had
been with Taft, Stettinius & Hollister LLP, a legal firm based in Cincinnati,
Ohio since 1986 and had been a partner there since 1995.
Mr. Sisson has been Senior Vice President of Human Resources since October
2001. Prior to coming to the Company, he had been Senior Director, Human
Resources for Snap-On Incorporated from March 2000 until September 2001. Mr.
Sisson's prior business experience included serving as Director of Human
Resources and Director of Global Compensation for Whirlpool Corporation during
the period from February 1998 until February 2000. Mr. Sisson was previously
employed by UtilCorp United of Kansas City as Director of Compensation, and as
Senior Employee Relations Consultant during the period from May 1995 until
January 1998.
Mr. Pilholski has been chosen to become Senior Vice President and Chief
Financial Officer effective February 18, 2002. Prior to coming to the Company,
he was employed by Honeywell Corporation (formerly Allied Signal Inc.) as a
General Auditor from June 1998 until August 2001, and as Vice President-Chief
Financial Officer for Honeywell Consumer Products Group from August 2001 until
January 2002. Mr. Pilholski had previously been employed as Senior Vice
President and Chief Financial Officer of Inamed Corporation from November 1997
until March 1998, and as Vice President and Chief Financial Officer of the
Zimmer Orthopedic Implant Division of Zimmer, Inc., a subsidiary of
Bristol-Myers Squibb Co. Mr. Pilholski is also a certified public accountant.
Mr. Sullivan has been Vice President and Controller since October 2001. He
had been Vice President-Chief Financial Officer for Honeywell Incorporated's
Friction Materials division from 1999 until May 2001. Mr. Sullivan had
previously been employed as Vice President-Operations Controller for KN Energy,
Inc. from 1998 until 1999, and Vice President-Global Business Development and
Control and Industrial Group Controller for Vickers, Incorporated during the
period from 1994 until 1998.
Mr. Evans has been Vice President and Director of Taxes since December
1998. He has been Director of Taxes since 1992. Mr. Evans joined EPI's Tax
Department in 1984 as Manager, State and Local Taxes. Mr. Evans is also an
attorney.
Mr. Scherpenberg has been Treasurer since November 2000. Prior to coming to
the Company, he had been with Provident Financial Group as Vice President of
Credit Administration from February 2000 until November 2000, and as Vice
President of Commercial Lending from September 1993 until May 1999. Mr.
Scherpenberg also had been Chief Financial Officer of AEI Resources, a large
coal producer, from May 1999 until November 1999.
Mr. Joel P. Wyler and Mr. Daniel C. Wyler are brothers.
66
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation for
the fiscal years indicated of (i) those persons who served as the Chief
Executive Officer of the Company during fiscal 2001, (ii) the Company's three
other executive officers at the end of fiscal 2001, and (iii) one additional
individual who was among the Company's three most highly compensated executive
officers but who was not serving as an executive officer of the Company at the
end of fiscal 2001 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION
FISCAL --------------------------------------------
YEAR OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY($) BONUS($)(1) COMPENSATION($)(2) COMPENSATION($)(3)
--------------------------- -------- --------- ----------- ------------------ ------------------
John H. Weber(4).............. 11/30/01 225,000 -- -- 4,182
President and Chief
Executive Officer
Andries Ruijssenaars(5)....... 11/30/01 198,610 -- -- 1,883,974
Former President and 11/30/00 575,000 -- 179,528 465,125
Chief Executive Officer 11/30/99 575,000 -- 448,812 697,814
Philip F. Schultz(6).......... 11/30/01 290,000 125,000 -- 306,644
Former Interim President 11/30/00 265,000 -- -- 903
And Chief Executive Officer 11/30/99 34,144 259,963 192,664 --
David G. Krall................ 11/30/01 221,666 115,000 -- 5,490
Senior Vice President, 11/30/00 200,000 -- -- 5,466
General Counsel and
Secretary 11/30/99 185,000 75,000 -- 3,057
David N. Evans................ 11/30/01 155,000 60,000 -- 4,824
Vice President and 11/30/00 145,000 -- 4,376 69,765
Director of Taxes 11/30/99 135,000 35,000 5,002 22,119
Tom B. Scherpenberg(7)........ 11/30/01 125,000 40,000 -- 240
Treasurer 11/30/00 8,093 20,000 -- 20
Michael E. Aslanian(8)........ 11/30/01 215,346 150,000 -- 335,500
Former Senior Vice 11/30/00 290,000 -- 50,543 152,350
President -- Operations 11/30/99 280,000 130,000 34,108 87,005
</Table>
- ---------------
(1) Includes for Mr. Schultz in fiscal 1999, $220,588 representing the dollar
value of a restricted stock award which was immediately vested.
(2) This column includes nothing for perquisites since in no case did
perquisites exceed the reporting thresholds (the lesser of 10% of salary
plus bonus or $50,000). For each fiscal year, the column is comprised of
amounts for the payment of taxes on purchases of annuities under the
Company's Supplemental Executive Retirement Plan (the "SERP") for
participating Named Executive Officers. For fiscal 1999, the column also
includes amounts for the payment of taxes on shares awarded under the
Company's Incentive Stock Plan to Mr. Schultz.
67
(3) For fiscal 2001 this column includes the following amounts:
<Table>
<Caption>
CONTRIBUTIONS TO VALUE OF
EAGLE-PICHER PAID LIFE SEVERANCE
SALARIED 401(K) INSURANCE PAYMENTS/
NAMED EXECUTIVE OFFICER PLAN($) PREMIUMS($) BENEFITS($) TOTAL($)
----------------------- ---------------- ----------- ----------- ---------
John H. Weber....................... -- 120 -- 120
Andries Ruijssenaars................ 4,191 344 1,879,439 1,883,974
Philip F. Schultz................... 5,250 240 301,154 306,644
David G. Krall...................... 5,250 240 -- 5,490
David N. Evans...................... 4,650 174 -- 4,824
Tom B. Scherpenberg................. -- 240 -- 240
Michael E. Aslanian................. 5,140 360 330,000 335,500
</Table>
Additionally, in fiscal 2001, the Company paid $4,062 in connection with
temporary living expenses for Mr. Weber.
(4) Mr. Weber was named President and Chief Executive Officer of the Company
effective July 12, 2001.
(5) Mr. Ruijssenaars resigned as President and Chief Executive Officer of the
Company on March 28, 2001.
(6) Mr. Schultz's employment with the Company ended on December 31, 2001. In
addition to serving as Senior Vice President and Chief Financial Officer
until October 8, 2001, he also served as Interim President and Chief
Executive Officer from June 14, 2001 to July 12, 2001.
(7) Mr. Scherpenberg was first employed by the Company on November 8, 2000.
(8) Mr. Aslanian's employment with the Company ended on July 6, 2001.
RETIREMENT BENEFITS
The following table shows the estimated total combined annual benefits
payable to the Named Executive Officers upon retirement at age 62 under Social
Security, the Salaried Plan and the SERP, computed on the basis of a
straight-life annuity:
PENSION PLAN TABLE
<Table>
<Caption>
YEARS OF SERVICE
-----------------------------------------
REMUNERATION 10 15 20 25+
- ------------ -------- -------- -------- --------
$ 250,000 ..................................... $ 60,000 $ 90,000 $120,000 $150,000
300,000 ..................................... 72,000 108,000 144,000 180,000
350,000 ..................................... 84,000 126,000 168,000 210,000
400,000 ..................................... 96,000 144,000 192,000 240,000
450,000 ..................................... 108,000 162,000 216,000 270,000
500,000 ..................................... 120,000 180,000 240,000 300,000
550,000 ..................................... 132,000 198,000 264,000 330,000
600,000 ..................................... 144,000 216,000 288,000 360,000
650,000 ..................................... 156,000 234,000 312,000 390,000
700,000 ..................................... 168,000 252,000 336,000 420,000
750,000 ..................................... 180,000 270,000 360,000 450,000
800,000 ..................................... 192,000 288,000 384,000 480,000
850,000 ..................................... 204,000 306,000 408,000 510,000
900,000 ..................................... 216,000 324,000 432,000 540,000
950,000 ..................................... 228,000 342,000 456,000 570,000
1,000,000 ..................................... 240,000 360,000 480,000 600,000
1,050,000 ..................................... 252,000 378,000 504,000 630,000
1,100,000 ..................................... 264,000 396,000 528,000 660,000
1,150,000 ..................................... 276,000 414,000 552,000 690,000
</Table>
The Eagle-Picher Salaried Plan (the "Salaried Plan" and, together with the
SERP, the "Retirement Plans") is a non-contributory defined benefit pension plan
in which the Named Executive Officers are participants. The SERP, in which the
Named Executive Officers are also participants, provides retirement
68
benefits in addition to the benefits available under the Salaried Plan. The
Retirement Plans provide benefits after retirement based on the highest average
monthly compensation during five consecutive years of the last ten years
preceding retirement. For purposes of the Retirement Plans, compensation
includes base salary, bonuses, commissions and severance payments. These
payments are reported in the Summary Compensation Table. "Covered compensation"
for Messrs. Ruijssenaars and Aslanian for 2001 was $586,058 and $496,500
respectively.
The estimated credited years of service for the Named Executive Officers at
age 62 will be:
<Table>
John H. Weber............................................... 16
Andries Ruijssenaars........................................ 23(A)
Philip F. Schultz........................................... --(B)
David G. Krall.............................................. 25
David N. Evans.............................................. 31
Tom B. Scherpenberg......................................... 20
Michael E. Aslanian......................................... 26(A)
</Table>
- ---------------
(A) Represents final credited years of service for purposes of calculating
benefits under the Retirement Plans for Mr. Ruijssenaars and Mr. Aslanian.
(B) Mr. Schultz, at the time of his termination, was not vested in the
Retirement Plans.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive an annual retainer
of $50,000, payable quarterly, with no additional fees for attendance or
committee membership, except for Dr. Wendelin Wiedeking who was issued 2,500
shares of Class A Common Stock in the Company in 1999 in lieu of the retainer,
and except for Mr. Iedema, who was appointed without a retainer. Directors who
are also employees of the Company receive no fees for their services as
Directors.
The Company has an Incentive Stock Plan for Outside Directors. Under the
Plan, nonemployee directors of the Company who also are directors of EPI may be
awarded shares of the Company's Class A Common Stock in lieu of directors' fees.
The right to receive the shares is conditioned on the participant's execution of
a shareholders' agreement which, among other things, governs the transferability
of the shares, and a voting trust agreement under which the shares are held of
record and voted by Granaria Holdings B.V. In connection with his becoming a
director, Dr. Wendelin Wiedeking was awarded 2,500 shares as of April 12, 1999.
All or a portion of the shares will be forfeited, in accordance with a declining
scale of 20% per year, if Dr. Wiedeking leaves either Board prior to April 12,
2004. The forfeiture provisions terminate in the event of Dr. Wiedeking's death
or incapacity or if a change of control occurs or an initial public offering is
made. If Dr. Wiedeking is involuntarily removed from the Boards, other than for
cause, EPI will reimburse him for his tax liability relating to any forfeited
shares.
Joel P. Wyler and Daniel C. Wyler, as named Directors of the Company and
EPI, provide services on behalf of and pursuant to their employment by Granaria
Holdings B.V. All directors' fees due as a result of their services as named
Directors are paid to Granaria Holdings B.V.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2001 the Compensation Committee of the Board of Directors of the
Company was comprised of Joel P. Wyler, Chairman of Granaria Holdings B.V. and
Chairman of the Company and EPI, Daniel C. Wyler, CEO of Granaria Holdings B.V.,
Dr. Wendelin Wiedeking, Chairman, President and CEO of Porsche AG and John
Weber, President and Chief Executive Officer of the Company and EPI.
69
EMPLOYMENT AGREEMENTS; SEVERANCE
Effective November 18, 1996, EPI adopted the Eagle-Picher Industries, Inc.
Officer Severance Plan (the "Severance Plan"). Messrs. Krall, Evans and
Scherpenberg are participants in the Severance Plan.
Under the terms of the Severance Plan, if a participant is terminated by
EPI other than for cause, he is entitled to:
(a) a "supplemental severance" benefit equal to one year's base pay (at the
then-current base salary),
(b) a "base severance" benefit equal to one week's pay for each completed
year of service with EPI, and
(c) continued group medical and group life insurance benefits for the same
period as set forth in (b).
Benefits will not be paid if a participant voluntarily leaves the employ of
EPI or remains employed by EPI following a change of control. If a participant
is employed by another company while receiving benefits under this Plan, the
base severance benefit will be reduced by all wages received from the new
employer. Similarly, continued insurance benefits will be discontinued if
comparable benefits are offered by the new employer.
Mr. Weber has an Employment Agreement with EPI, which became effective on
July 15, 2001, pursuant to which he has served as President and Chief Executive
Officer of EPI since July 12, 2001. Under the agreement, Mr. Weber receives a
base salary of $600,000 per year (which commenced July 15, 2001) and is entitled
to an annual incentive bonus based on the achievement of agreed-upon objectives
for the year. For the fiscal year ending November 30, 2002, Mr. Weber is
guaranteed a bonus of at least 45% of his base salary. The agreement also
entitles Mr. Weber to:
(a) annual grants through September 22, 2004 of long-term cash bonuses
which vest over time and will have exercise values dependent upon EPI's
earnings before interest, taxes, depreciation and amortization
(EBITDA), debt and outstanding preferred stock book value;
(b) participate in all EPI pension, health, welfare and other benefit plans
in effect for executives;
(c) miscellaneous perquisites, including the use of an automobile (and a
tax gross-up for related payments made by EPI), payment of club dues
and payment of apartment rental expenses in Cincinnati, Ohio; and
(d) a cash bonus if certain preferred stock of EPI currently held by an
affiliated entity (the "SPV") is refinanced by a transfer to EPI or a
third party for cash or other liquid assets, with the amount of the
bonus being a percentage of the SPV's profit (as defined) from the
transaction but not less than $2.5 million if the refinancing is
completed at 100% of the face value of the shares;
Mr. Weber's employment is terminable by EPI for "cause," by him for "good
reason" (each as defined in the agreement), and by either party without cause or
good reason on 90 days' written notice. If the Company terminates Mr. Weber's
employment without cause, or he terminates his employment for good reason, Mr.
Weber will be entitled to severance pay equal to 18 months of his then-current
base salary, to 150% of his annual bonus for the preceding year and to a
pro-rata portion of the prior year's annual bonus for the portion of the year in
which employment terminates, as well as to continuation of his benefits and
perquisites for the 18-month severance period. In addition, Mr. Weber will be
entitled to a preferred stock financing bonus if a refinancing is completed
during the severance period and to specified continuing rights to his long-term
cash bonuses.
Mr. Schultz served as an officer of EPI until October 8, 2001 and as an
employee through December 31, 2001. In connection with his termination of
employment, Mr. Schultz entered into a negotiated Separation Agreement with EPI
under which he received severance pay equal to one year's salary ($290,000), one
week's pay for each year of service ($11,154), group medical and life insurance
coverage for up to one year and other miscellaneous benefits. In addition, in
partial consideration for special assistance provided by Mr. Schultz on a
financing transaction completed in January 2002, EPI purchased the 1,250 shares
of Common Stock for a total of $255,575.
70
In connection with his resignation from employment on July 6, 2001, Mr.
Aslanian entered into a Resignation Agreement with EPI under which he continues
to receive his base salary of $330,000 for one year, as well as group medical
and life insurance for up to a year. Mr. Aslanian also received title to his
company car, and EPI purchased the 6,250 shares of Common Stock for a price of
$587,875.
Mr. Ruijssenaars resigned as President and Chief Executive Officer on March
28, 2001. Pursuant to an Executive Employment Agreement dated November 7, 2000,
the Company paid Mr. Ruijssenaars $1,879,439 representing his base salary
through July 3, 2004, when Mr. Ruijssenaars reaches age 62.
INCENTIVE STOCK PLAN
EPI has an Incentive Stock Plan pursuant to which restricted shares of the
Company's Class A Common Stock have been and may be allocated to members of
EPI's senior management. The right to receive the shares is conditioned on the
participant's execution of a shareholders' agreement which, among other things,
governs the transferability of the shares, and a voting trust agreement under
which the shares are held of record and voted by Granaria Holdings B.V. However,
shares awarded are beneficially owned by the recipient and generally are
immediately vested. Under the terms of the Plan, EPI is obligated to reimburse
Plan participants for any tax obligations associated with their receipt of the
shares.
The shareholders' agreement also gives participants the right to require
EPI to purchase such participants' shares on, or for certain senior officers,
within a five-year period following, termination of employment at a formula
price. Such purchase would constitute a "Restricted Payment" as such term is
defined in the Indenture (the "Indenture") for EPI's 9 3/8% Senior Subordinated
Notes (the "Notes") and the terms of the Company's 11 3/4% Series B Cumulative
Redeemable Exchangeable Preferred Stock (the "Preferred Stock"). Among the terms
of the Indenture and the Preferred Stock, Restricted Payments cannot exceed 50%
of the Company's cumulative consolidated net income from March 1, 1998 (plus the
proceeds of certain securities issuances). The Company currently has a
cumulative consolidated net loss since March 1, 1998. There is an exception from
the limitations on Restricted Payments permitting the purchase of up to $5
million of Company common stock held by current or former directors, officers or
employees. As of the date hereof, all of this exception has been used. Following
his resignation, Mr. Ruijssenaars put his 30,000 shares of common stock to the
Company. The Company believes that the formula price for these shares is
approximately $2.8 million. In 2001, the committee for the Incentive Stock Plan
adopted a rule postponing the Company's obligation to purchase stock if the
terms of any agreement to which the Company was a party at that time prohibit
such purchase. Mr. Ruijssenaars has filed a lawsuit against the Company
challenging the price for his shares and the validity of the rule described
above. See Item 3 -- Legal Proceedings above. If Mr. Ruijssenaars were to
prevail, the Company could be required to seek a waiver from holders of the
Notes and the Preferred Stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 15, 2002, by each person
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock, currently the Company's only voting security. In 2001, each of the
Company's 625,001 outstanding shares of Class A Common Stock and 374,999
outstanding shares of
71
Class B (nonvoting) Common Stock were converted into one share of Common Stock
(with full voting rights).
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
-------------------------
NUMBER OF PERCENTAGE OF
NAME SHARES SHARES
---- --------- -------------
Granaria Holdings B.V. ..................................... 709,501 70.95%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(1),(2),(3),(4)
Joel P. Wyler............................................... 715,001 71.50%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(2),(3),(4),(5)
Daniel C. Wyler............................................. 709,501 70.95%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(2),(3),(4)
Lange Voorhout Investments B.V. ............................ 284,999 28.50%
c/o ABN AMRO Participaties B.V.
P.O. Box 283 [AA4140]
Amsterdam 1000 EA
The Netherlands
</Table>
Granaria Holdings informed the Company that Dakruiter S.A., an entity owned by
Granaria Holdings and Lange Voorhout Investments B.V., acquired in the second
quarter of 2001 approximately 51.8% of the outstanding 11 3/4% Cumulative
Redeemable Exchangeable Preferred Stock issued by EP Holdings. Granaria Holdings
has also informed the Company that neither it nor any of its affiliates have
purchased any 9 3/8% Senior Subordinated Notes issued by EPI.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of February 15, 2002,
regarding the ownership of the Company's Common Stock, currently the Company's
only voting security and the only equity security held by the Company's
directors or executive officers. All shares are subject both to a Voting Trust
Agreement that allows all of the shares owned by the Company's management to be
voted by Granaria Holdings B.V. and to a Shareholders Agreement that restricts
their disposition.
<Table>
<Caption>
SHARES BENEFICIALLY OWNED
-------------------------
NUMBER OF PERCENTAGE OF
NAME SHARES SHARES
- ---- --------- -------------
Joel P. Wyler(2),(3),(4),(5)................................ 715,001 71.50%
Daniel C. Wyler(2),(3),(4).................................. 709,501 70.95%
David G. Krall(5)........................................... 5,500 *
David N. Evans.............................................. 1,000 *
All directors and executive officers as a group (seven
persons).................................................. 715,001 71.50%
</Table>
- ---------------
(*) Less than 1.0%
(1) Granaria Holdings B.V. is 100% owned by Wijler Holding B.V., a Dutch
Antilles company, 50.1% of which is owned by Joel P. Wyler and 49.9% of
which is owned by Daniel C. Wyler.
72
(2) Includes 525,001 shares held by Granaria Industries B.V., which is majority
owned by Granaria Holdings B.V.
(3) Includes 83,500 shares held by Granaria Holdings B.V. as voting trustee
either for certain members of management or for the Company.
(4) Includes 101,000 shares held by Dakruiter S.A., which is controlled by
Granaria Holdings B.V.
(5) Includes 5,500 shares held by the E-P Management Trust, of which Messrs.
Joel P. Wyler and David G. Krall are trustees.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company has an advisory and consulting agreement with Granaria Holdings
B.V. ("Granaria Holdings") pursuant to which the Company has paid Granaria
Holdings an annual management fee of $1.75 million plus out-of-pocket expenses.
Fees and expenses relating to these services amounted to $2.1 million in 2001.
At November 30, 2001, $.6 million relating to these fees and expenses is due
Granaria Holdings.
In 1998, the Company paid $10.0 million to the Eagle-Picher Management
Trust ("E-P Management Trust") for the benefit of certain executive officers of
the Company. The $10.0 million payment was effectively used to acquire certain
restricted stock of Granaria Industries B.V. which was later exchanged for
common stock of the Company. Certain of the shares of the Company held by the
E-P Management Trust have been allocated to certain members of senior management
of the Company. The Company also reimbursed the holders of the shares for their
tax obligations associated with receipt of such shares. (See Executive
Compensation -- Incentive Stock Plan.) The Company has recorded compensation
expense of $.0 million in 2001 for the restricted shares and related tax
reimbursements. On December 28, 2001, in a negotiated transaction, EPI purchased
the 1,250 shares of Class A Common Stock previously awarded to Mr. Krall under
the Incentive Stock Plan for a price of $160,000.
73
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<Table>
(a) 1. All Financial Statements:
-- Financial Statements - Included in Item 8 in this Report
-- Independent Auditors' Report - Included in Item 8 in this
Report
2. Financial Statement Schedules
-- None
3. Exhibits (numbers keyed to Item 601, Regulation S-K)
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher
Industries, Inc. ("EPI")()(1)
2.2 -- Exhibits to Third Amended Plan of Reorganization of EPI()(1)
3.1 -- Articles of Incorporation of EPI, as amended()(1)
3.2 -- Regulations of EPI()(1)
3.3 -- Amended and Restated Certificate of Incorporation of
Eagle-Picher Holdings, Inc. (the "Company")()(1)
3.4 -- Bylaws of the Company()(1)
3.5 -- Articles of Incorporation of Daisy Parts, Inc.()(2)
3.6 -- Bylaws of Daisy Parts, Inc.()(2)
3.7 -- Certificate of Incorporation of Eagle-Picher Development
Company, Inc.()(2)
3.8 -- Bylaws of Eagle-Picher Development Company, Inc.()(2)
3.9 -- Certificate of Incorporation of Eagle-Picher Far East,
Inc.()(2)
3.10 -- Bylaws of Eagle-Picher Far East, Inc.()(2)
3.11 -- Articles of Incorporation of Eagle-Picher Fluid Systems,
Inc.()(2)
3.12 -- Bylaws of Eagle-Picher Fluid Systems, Inc.()(2)
3.13 -- Articles of Incorporation of Eagle-Picher Minerals,
Inc.()(2)
3.14 -- Bylaws of Eagle-Picher Minerals, Inc.()(2)
3.15 -- Certificate of Formation of Eagle-Picher Technologies,
LLC()(2)
3.16 -- Operating Agreement of Eagle-Picher Technologies, LLC()(2)
3.16a -- Amended and Restated Limited Liability Company Agreement of
Eagle-Picher Technologies, LLC ()(3)
3.17 -- Articles of Incorporation of Hillsdale Tool & Manufacturing
Co.()(2)
3.18 -- Bylaws of Hillsdale Tool & Manufacturing Co.()(2)
3.19 -- Restated Articles of Incorporation of EPMR Corporation
(f/k/a Michigan Automotive Research Corporation)(8)
3.20 -- Bylaws of EPMR Corporation (f/k/a Michigan Automotive
Research Corporation)(8)
3.21 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of
State of Delaware on August 31, 2001(14)
3.22 -- Amended and Restated Bylaws of Daisy Parts, Inc. as of
November 16, 2001
3.23 -- Amended and Restated Bylaws of Hillsdale Tool &
Manufacturing Co. as of November 16, 2001
3.24 -- Amendment to the Bylaws of Eagle-Picher Minerals, Inc. as of
November 16, 2001
4.1 -- Indenture, dated as of February 24, 1998, between EPI, the
Company as a Guarantor, subsidiary guarantors (Daisy Parts,
Inc. Eagle-Picher Development Company, Inc., Eagle-Picher
Far East, Inc., Eagle-Picher Fluid Systems, Inc., Eagle-
Picher Minerals, Inc., Eagle-Picher Technologies, LLC,
Hillsdale Tool & Manufacturing Co., Michigan Automotive
Research Corporation (together, the "Subsidiary Guarantors"
or the "Domestic Subsidiaries"), and The Bank of New York as
Trustee (the "Trustee")()(1)
4.2 -- Cross Reference Table showing the location in the Indenture
of the provisions of Sections 310 through 318(a), inclusive,
of the Trust Indenture Act of 1939()(1)
4.3 -- First Supplemental Indenture dated as of February 24, 1998,
between EPI and the Trustee(1)
</Table>
74
<Table>
4.4 -- Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1)(1)
4.5 -- Certified Copy of the Certificate of Designations,
Preferences and Rights of 11 3/4% Series A Cumulative
Redeemable Exchangeable Preferred Stock and 11 3/4% Series B
Cumulative Redeemable Exchangeable Preferred Stock of the
Company(1)
4.6 -- Form of Certificate and Global Share of 11 3/4% Series A
Cumulative Redeemable Exchangeable Preferred Stock and
11 3/4% Series B Cumulative Redeemable Exchangeable
Preferred Stock (attached as Exhibit A to the Certificate of
Designations filed as Exhibit 4.5)(1)
4.7 -- Form of Exchange Debentures Indenture relating to 11 3/4%
Exchange Debentures due 2008 of the Company(1)
4.8 -- Cross Reference Table showing the location in the Exchange
Debentures Indenture of the provisions of Sections 310
through 318(a), inclusive, of the Trust Indenture Act of
1939(1)
4.9 -- Form of 11 3/4% Exchange Debenture due 2008 (attached as
Exhibit A to the Exchange Debentures Indenture filed as
Exhibit 4.7)(1)
9.1 -- Voting Trust Agreement dated November 16, 1998 with owners
of Class A (Voting) Common Stock of the Company(4)
10.1 -- Merger Agreement, dated as of December 23, 1997, among EPI,
the Eagle-Picher Industries, Inc. Personal Injury Settlement
Trust, the Company and E-P Acquisition, Inc.(1)
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of
February 23, 1998, among EPI, the Eagle-Picher Industries,
Inc. Personal Injury Settlement Trust, the Company and E-P
Acquisition, Inc.(1)
10.3 -- Supplemental Executive Retirement Plan of EPI(2)
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P
Acquisition, Inc., EPI, The Company, SBC Warburg Dillon Read
and ABN AMRO Incorporated(1)
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated
as of February 24, 1998, between EPI and the Subsidiary
Guarantors(1)
10.6 -- Registration Rights Agreement, dated as of February 24,
1998, between E-P Acquisition, Inc., SBC Warburg Dillon Read
and ABN AMRO Incorporated(1)
10.7 -- Assumption Agreement for the Registration Rights Agreement,
dated as of February 24, 1998, of EPI(1)
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P
Acquisition, Inc. (merged with and into EPI), Various
Lenders from time to time party thereto, ABN AMRO Bank N.V.,
as Agent (the "Agent"), PNC Bank, National Association, as
Documentation Agent and DLJ Capital Funding, Inc., as
Syndication Agent(1)
10.9 -- Assumption Agreement dated as of February 24, 1998, between
EPI and the Agent(1)
10.10 -- Security Agreement, dated as of February 24, 1998, among
EPI, the Agent and the Domestic Subsidiaries(1)
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998,
between the Company and the Agent(1)
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of
February 24, 1998, among EPI, Eagle-Picher Development
Company, Eagle-Picher Minerals, Inc. and the Agent(1)
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998,
by the Company, accepted and agreed by the Agent(1)
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24,
1998, by the Domestic Subsidiaries, accepted and agreed by
the Agent(1)
10.15 -- Trademark Collateral Agreement, dated February 24, 1998,
between EPI and the Agent(1)
10.16 -- Patent Collateral Agreement, dated February 24, 1998,
between EPI and the Agent(1)
10.17 -- Copyright Collateral Agreement, dated February 24, 1998,
between EPI and the Agent(1)
</Table>
75
<Table>
10.18 -- Subordination Agreement, dated as of February 24, 1998,
among E-P Acquisition, Inc., EPI and the Domestic
Subsidiaries(2)
10.19 -- Management Agreement dated as of February 24, 1998, between
EPI and Granaria Holdings B.V.(1)
10.20 -- Eagle-Picher Management Trust made February 17, 1998, among
Granaria Industries B.V. and Thomas E. Petry, Andries
Ruijssenaars and Joel Wyler as trustees (the "E-P Management
Trust")(2)
10.21 -- Incentive Stock Plan of EPI, effective as of February 25,
1998(2)
10.22 -- Employment Agreements dated November 29, 1996, between EPI
and each Named Executive Officer as defined in EPI's Form
S-4 filed in 1998, as amended (Messrs. Petry, Ruijssenaars,
Hall, Wickens, Curless and Ralston)(2)
10.23 -- Amendments dated August 5, 1997, to Employment Agreements
between EPI and each Named Executive Officer as defined in
EPI's Form S-4(2)
10.24 -- Sales Incentive Program of EPI(2)
10.25 -- Letter Agreements dated August 5, 1997, between EPI and each
Named Executive Officer as defined in EPI's Form S-4
regarding Short Term Sale Program(2)
10.26 -- Letter Agreement dated September 12, 1997, between EPI and
Carroll D. Curless regarding Sale Incentive Bonus(2)
10.27 -- Letter Agreements dated February 18, 1998, between EPI and
each Named Executive Officer as defined in EPI's Form S-4
regarding Short Term Sale Program(2)
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments
to the Short Term Sale Program(2)
10.29 -- Preferred Stock Purchase Agreement, dated February 19, 1998,
between the Company and the initial purchasers(1)
10.30 -- Preferred Stock Registration Rights Agreement, dated as of
February 24, 1998, between the Company and the initial
purchasers(1)
10.31 -- Transfer Agency Agreement, dated as of February 24, 1998,
between the Company and The Bank of New York, as Transfer
Agent(2)
10.32 -- The Company Incentive Stock Plan for Outside Directors
effective January 1, 1999(4)
10.33 -- Amended and Restated Incentive Stock Plan of EPI(4)
10.34 -- Second Amended and Restated Incentive Stock Plan of EPI(4)
10.35 -- Shareholders Agreement dated October 15, 1998, among
Granaria Holdings B.V., Granaria Industries B.V., the
Company and EPI(4)
10.36 -- Voting Trust Agreement dated as of November 16, 1998, by and
among certain shareholders of the Company and Granaria
Holdings B.V.(5)
10.37 -- Stock Purchase Agreement dated April 8, 1999, between
Hillsdale Tool & Manufacturing Co., Charterhouse Automotive
Group Inc. and the Shareholders of Charterhouse Automotive
Group, Inc.(6)
10.38 -- Shareholders Agreement dated April 12, 1999, among Granaria
Holdings B.V., the Company, EPI, and certain shareholders of
the Company(5)
10.39 -- Voting Trust Agreement dated April 13, 1999, between certain
shareholders of the Company and Granaria Holdings B.V. as
voting trustee(5)
10.40 -- Amendment to Credit Agreement and Consent, dated as of May
18, 1999, among EPI, the lenders party thereto, ABN AMRO
Bank N.V., as Agent, PNC Bank, National Association, as
Documentation Agent, and NBD Bank, N.A., as Syndication
Agent(5)
10.41 -- Receivables Loan Agreement dated as of May 18, 1999, among
Eagle-Picher Acceptance Corporation, EPI, ABN AMRO Bank
N.V., the Lender Agents, the Related Bank Lenders, Amsterdam
Funding Corporation and the Other Conduit Lenders(5)
10.42 -- Receivables Purchase Agreement dated as of May 18, 1999,
between EPI and Eagle-Picher Acceptance Corporation(5)
</Table>
76
<Table>
10.43 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Carpenter Enterprises Limited and Eagle-Picher
Acceptance Corporation(5)
10.44 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Daisy Parts, Inc. and Eagle-Picher Acceptance
Corporation(5)
10.45 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Development Company and Eagle-Picher
Acceptance Corporation(5)
10.46 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Fluid Systems, Inc. and Eagle-Picher
Acceptance Corporation(5)
10.47 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Minerals, Inc. and Eagle-Picher
Acceptance Corporation(5)
10.48 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Technologies, LLC and Eagle-Picher
Acceptance Corporation(5)
10.49 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Hillsdale Tool & Manufacturing Co. and Eagle-Picher
Acceptance Corporation(5)
10.50 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Michigan Automotive Research Corporation and
Eagle-Picher Acceptance Corporation(5)
10.51 -- Share Appreciation Plan of EPI(7)
10.52 -- Amendment to Credit Agreement and Consent dated as of August
1, 2000, among EPI, the lenders party thereto, ABN AMRO Bank
N.V. as Agent, PNC Bank, National Association as
Documentation Agent, and Bank One, Indiana, N.A. as
Syndication Agent(9)
10.53 -- Resignation, Release and Severance Pay Agreement dated May
31, 2000 between EPI and Wayne R. Wickens(10)
10.54 -- Executive Employment Agreement dated November 7, 2000
between EPI and Andries Ruijssenaars(10)
10.55 -- Supplemental Executive Retirement Plan (as amended and
restated effective March 27, 2001)(11)
10.56 -- Fourth Amendment to Credit Agreement and Consent dated as of
May 31, 2001, among the Company, the lenders party hereto,
ABN AMRO Bank N.V., as Agent, PNC Bank, National
Association, as Documentation Agent and NBD Bank, N.A., as
Syndication Agent(12)
10.57 -- Fifth Amendment to Receivables Loan Agreement dated as of
June 29, 2001 among the Company, EPAC, Amsterdam Funding
Corporation, as a Conduit Lender and as the administrative
agent for the Lenders, ABN AMRO Bank N.V., as the Amsterdam
Lender Agent, Market Street Funding Corporation, as a
Conduit Lender, PNC Bank, National Association, as the
Market Lender Agent and the Related Bank Lenders party
hereto(12)
10.58 -- Resignation Agreement effective July 6, 2001 between EPI and
Michael E. Aslanian(13)
10.59 -- Executive Employment Agreement effective July 15, 2001
between EPI and John H. Weber(14)
10.60 -- Separation Agreement effective November 1, 2001 between EPI
and Philip F. Schultz
10.61 -- Supplemental Indenture among EPI, the Guarantors (Daisy
Parts, Inc., Eagle-Picher Development Company, Inc.,
Eagle-Picher Holdings, Inc., Eagle-Picher Far East, Inc.,
Eagle-Picher Minerals, Inc., Eagle-Picher Technologies, LLC,
Hillsdale Tool & Manufacturing Co., EPMR Corporation and
Carpenter Enterprises Limited) and The Bank of New York, as
Trustee, dated December 14, 2001.
10.62 -- Receivables Sales Agreement dated January 8, 2002 by and
among Eagle-Picher Funding Corporation and each of the
"Originators" defined therein which include EPI, Carpenter
Enterprises Limited, Daisy Parts, Inc., Eagle-Picher
Minerals, Inc., Eagle-Picher Technologies, LLC, and
Hillsdale Tool & Manufacturing Co.
</Table>
77
<Table>
10.63 -- Receivables Sales and Servicing Agreement dated January 8, 2002 by and among Eagle-Picher
Funding Corporation, Redwood Receivables Corporation, Eagle-Picher Industries, Inc. and
General Electric Capital Corporation.
10.64 -- Annex X to Receivables Sales Agreement at Exhibit 10.62 and to Receivables Purchase and
Servicing Agreement at Exhibit 10.63 -- "Definitions and Interpretations"
12.1 -- Ratios of Earnings to Fixed Charges and Preferred Stock Dividends
21.1 -- Subsidiaries of EPI
24(a),(b) -- Powers of Attorney
</Table>
- ---------------
(1) Incorporated by reference to the Company's Form S-4 Registration Statement
No. 333-49957-01 filed on April 11, 1998.
(2) Incorporated by reference to EPI's Amendment No. 1 to Form S-4 Registration
Statement No. 333-49957 filed on May 20, 1998.
(3) Incorporated by reference to EPI's Amendment No. 2 to Form S-4 Registration
Statement No. 333-49957 filed on June 5, 1998.
(4) Incorporated by reference to the Company's Form 10-K filed on March 1,
1999.
(5) Incorporated by reference to the Company's Form 10-Q filed on June 30,
1999.
(6) Incorporated by reference to the Company's Form 8-K filed on April 21,
1999.
(7) Incorporated by reference to EPI's Form 10-Q filed on June 29, 1998.
(8) Incorporated by reference to the Company's Form 10-Q filed on April 12,
2000.
(9) Incorporated by reference to the Company's Form 10-Q filed on October 16,
2000.
(10) Incorporated by reference to the Company's Form 10-K filed on February 28,
2001.
(11) Incorporated by reference to the Company's Form 10-Q filed on April 10,
2001.
(12) Incorporated by reference to the Company's Form 8-K filed on July 9, 2001.
(13) Incorporated by reference to the Company's Form 10-Q filed on July 16,
2001.
(14) Incorporated by reference to the Company's Form 10-Q filed on October 12,
2001.
- ---------------
(b)1. Reports on Form 8-K
-- None filed in the Company's fourth quarter for the period covered by
the report.
78
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER HOLDINGS, INC.
By /s/ JOHN H. WEBER
------------------------------------
John H. Weber
President and Chief Executive
Officer
Date: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<Table>
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, President,
Chief Executive Officer and Director
/s/ ALBERT IEDEMA Date: February 14, 2002
- --------------------------------------------------------
Albert Iedema, Senior Vice President,
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ JOHN F. SULLIVAN Date: February 14, 2002
- --------------------------------------------------------
John F. Sullivan, Vice President and
Controller (Principal Accounting Officer)
/s/ JOEL P. WYLER* Date: February 14, 2002
- --------------------------------------------------------
Joel P. Wyler, Director and
Chairman of the Board
/s/ DANIEL C. WYLER* Date: February 14, 2002
- --------------------------------------------------------
Daniel C. Wyler, Director
*By /s/ DAVID G. KRALL
----------------------------------------------------
David G. Krall
Attorney-in-Fact
</Table>
79
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER INDUSTRIES, INC.
By /s/ JOHN H. WEBER
------------------------------------
John H. Weber
President and Chief Executive
Officer
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER HOLDINGS, INC., AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
<Table>
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, President,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ ALBERT IEDEMA Date: February 14, 2002
- --------------------------------------------------------
Albert Iedema, Senior Vice President,
Chief Financial Officer and Director
(Principal Financial Officer)
/s/ JOHN F. SULLIVAN Date: February 14, 2002
- --------------------------------------------------------
John F. Sullivan, Vice President
and Controller
(Principal Accounting Officer)
/s/ JOEL P. WYLER* Date: February 14, 2002
- --------------------------------------------------------
Joel P. Wyler, Director and
Chairman of the Board
/s/ DANIEL C. WYLER* Date: February 14, 2002
- --------------------------------------------------------
Daniel C. Wyler, Director
*By /s/ DAVID G. KRALL
----------------------------------------------------
David G. Krall
Attorney-in-Fact
</Table>
80
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DAISY PARTS, INC.
By /s/ JOHN H. WEBER
------------------------------------
John H. Weber
President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, DAISY PARTS, INC., AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
<Table>
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, President and Sole Director (Principal
Executive Officer)
/s/ TOM B. SCHERPENBERG Date: February 14, 2002
- --------------------------------------------------------
Tom B. Scherpenberg, Treasurer
(Principal Financial Officer)
/s/ DAVID P. KELLEY Date: February 14, 2002
- --------------------------------------------------------
David P. Kelley, Vice President
(Principal Accounting Officer)
</Table>
81
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER DEVELOPMENT CO., INC.
By /s/ DAVID N. EVANS
------------------------------------
David N. Evans
President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER DEVELOPMENT CO., INC., AND IN THE CAPACITIES
AND ON THE DATES INDICATED.
<Table>
/s/ DAVID N. EVANS Date: February 14, 2002
- --------------------------------------------------------
David N. Evans, President
(Principal Executive Officer)
/s/ TOM B. SCHERPENBERG Date: February 14, 2002
- --------------------------------------------------------
Tom B. Scherpenberg, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, Sole Director
</Table>
82
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EPMR CORPORATION
(f/k/a Michigan Automotive Research
Corporation)
By /s/ DAVID N. EVANS
------------------------------------
David N. Evans
President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EPMR CORPORATION, AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
<Table>
/s/ DAVID N. EVANS Date: February 14, 2002
- --------------------------------------------------------
David N. Evans, President
(Principal Executive Officer)
/s/ TOM B. SCHERPENBERG Date: February 14, 2002
- --------------------------------------------------------
Tom B. Scherpenberg, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber,
Sole Director
</Table>
83
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER FAR EAST, INC.
By /s/ DAVID N. EVANS
------------------------------------
David N. Evans
President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER FAR EAST, INC., AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
<Table>
/s/ DAVID N. EVANS Date: February 14, 2002
- --------------------------------------------------------
David N. Evans, President
(Principal Executive Officer)
/s/ TOM B. SCHERPENBERG Date: February 14, 2002
- --------------------------------------------------------
Tom B. Scherpenberg, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, Sole Director
</Table>
84
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HILLSDALE TOOL & MANUFACTURING CO.
By /s/ JOHN H. WEBER
------------------------------------
John H. Weber
President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, HILLSDALE TOOL & MANUFACTURING CO., AND IN THE CAPACITIES
AND ON THE DATES INDICATED.
<Table>
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, President and
Sole Director
(Principal Executive Officer)
/s/ TOM B. SCHERPENBERG Date: February 14, 2002
- --------------------------------------------------------
Tom B. Scherpenberg, Treasurer
(Principal Financial Officer)
/s/ DAVID P. KELLEY Date: February 14, 2002
- --------------------------------------------------------
David P. Kelley, Vice President
(Principal Accounting Officer)
</Table>
85
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER MINERALS, INC.
By /s/ JAMES L. LAURIA
------------------------------------
James L. Lauria
President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER MINERALS, INC., AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
<Table>
/s/ JAMES L. LAURIA Date: February 14, 2002
- --------------------------------------------------------
James L. Lauria, President
(Principal Executive Officer)
/s/ TOM B. SCHERPENBERG Date: February 14, 2002
- --------------------------------------------------------
Tom B. Scherpenberg, Treasurer
(Principal Financial Officer)
/s/ PAUL R. WONDER Date: February 14, 2002
- --------------------------------------------------------
Paul R. Wonder, Vice President
(Principal Accounting Officer)
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, Sole Director
</Table>
86
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER TECHNOLOGIES, LLC
By /s/ GRANT T. HOLLETT
------------------------------------
Grant T. Hollett, President
(Principal Executive Officer)
Dated: February 14, 2002
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER TECHNOLOGIES, LLC, AND IN THE CAPACITIES AND
ON THE DATES INDICATED.
<Table>
/s/ GRANT T. HOLLETT Date: February 14, 2002
- --------------------------------------------------------
Grant T. Hollett, President and Director
(Principal Executive Officer)
/s/ JOHN V. RUBERTO Date: February 14, 2002
- --------------------------------------------------------
John V. Ruberto, Executive Vice President and Director
/s/ R. DOUGLAS WRIGHT Date: February 14, 2002
- --------------------------------------------------------
R. Douglas Wright, Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JOEL P. WYLER* Date: February 14, 2002
- --------------------------------------------------------
Joel P. Wyler, Director
/s/ JOHN H. WEBER Date: February 14, 2002
- --------------------------------------------------------
John H. Weber, Director
*By /s/ DAVID G. KRALL
----------------------------------------------------
David G. Krall
Attorney-in-Fact
</Table>
87
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER
- -------
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher
Industries, Inc. ("EPI")*
2.2 -- Exhibits to Third Amended Plan of Reorganization of EPI*
3.1 -- Articles of Incorporation of EPI, as amended*
3.2 -- Regulations of EPI*
3.3 -- Amended and Restated Certificate of Incorporation of
Eagle-Picher Holdings, Inc. (the "Company")*
3.4 -- Bylaws of the Company*
3.5 -- Articles of Incorporation of Daisy Parts, Inc.*
3.6 -- Bylaws of Daisy Parts, Inc.*
3.7 -- Certificate of Incorporation of Eagle-Picher Development
Company, Inc.*
3.8 -- Bylaws of Eagle-Picher Development Company, Inc.*
3.9 -- Certificate of Incorporation of Eagle-Picher Far East, Inc.*
3.10 -- Bylaws of Eagle-Picher Far East, Inc.*
3.11 -- Articles of Incorporation of Eagle-Picher Fluid Systems,
Inc.*
3.12 -- Bylaws of Eagle-Picher Fluid Systems, Inc.*
3.13 -- Articles of Incorporation of Eagle-Picher Minerals, Inc.*
3.14 -- Bylaws of Eagle-Picher Minerals, Inc.*
3.15 -- Certificate of Formation of Eagle-Picher Technologies, LLC*
3.16 -- Operating Agreement of Eagle-Picher Technologies, LLC*
3.16a -- Amended and Restated Limited Liability Company Agreement of
Eagle-Picher Technologies, LLC*
3.17 -- Articles of Incorporation of Hillsdale Tool & Manufacturing
Co.*
3.18 -- Bylaws of Hillsdale Tool & Manufacturing Co.*
3.19 -- Restated Articles of Incorporation of EPMR Corporation
(f/k/a Michigan Automotive Research Corporation)*
3.20 -- Bylaws of EPMR Corporation (f/k/a Michigan Automotive
Research Corporation)*
3.21 -- Certificate of Amendment of Amended and Restated Certificate
of Incorporation of the Company filed with the Secretary of
State of Delaware on August 31, 2001*
3.22 -- Amended and Restated Bylaws of Daisy Parts, Inc. as of
November 16, 2001
3.23 -- Amended and Restated Bylaws of Hillsdale Tool &
Manufacturing Co. as of November 16, 2001
3.24 -- Amendment to the Bylaws of Eagle-Picher Minerals, Inc. as of
November 16, 2001
4.1 -- Indenture, dated as of February 24, 1998, between E-P
Acquisition, Inc., the Company as a Guarantor, the
subsidiary guarantors (Daisy Parts, Inc., Eagle-Picher
Development Company, Inc., Eagle-Picher Far East, Inc.,
Eagle-Picher Fluid Systems, Inc., Eagle-Picher Minerals,
Inc., Eagle-Picher Technologies, LLC, Hillsdale Tool &
Manufacturing Co., Michigan Automotive Research Corporation
(together, the "Subsidiary Guarantors" or the "Domestic
Subsidiaries"), and The Bank of New York as Trustee (the
"Trustee")*
4.2 -- Cross Reference Table showing the location in the Indenture
of the provisions of Sections 310 through 318(a), inclusive,
of the Trust Indenture Act of 1939*
4.3 -- First Supplemental Indenture dated as of February 24, 1998,
between EPI and the Trustee*
4.4 -- Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1)*
4.5 -- Certified Copy of the certificate of Designations,
Preferences and Rights of 11 3/4% Series A Cumulative
Redeemable Exchangeable Preferred Stock and 11 3/4% Series B
Cumulative Redeemable Exchangeable Preferred Stock of the
Company*
4.6 -- Form of Certificate and Global Share of 11 3/4% Series A
Cumulative Redeemable Exchangeable Preferred Stock and
11 3/4% Series B Cumulative Redeemable Exchangeable
Preferred Stock (attached as Exhibit A to the Certificate of
Designations filed as Exhibit 4.5)*
</Table>
88
<Table>
<Caption>
EXHIBIT
NUMBER
- -------
4.7 -- Form of Exchange Debentures Indenture relating to 11 3/4%
Exchange Debentures due 2008 of Registrant*
4.8 -- Cross Reference Table showing the location in the Exchange
Debentures Indenture of the provisions of Sections 310
through 318(a), inclusive, of the Trust Indenture Act of
1939*
4.9 -- Form of 11 3/4% Exchange Debenture due 2008 (attached as
Exhibit A to the Exchange Debentures Indenture filed as
Exhibit 4.7)*
9.1 -- Voting Trust Agreement dated November 16, 1998, with owners
of Class A (Voting) Common Stock of the Company*
10.1 -- Merger Agreement, dated as of December 23, 1997, among EPI,
the Eagle-Picher Industries, Inc. Personal Injury Settlement
Trust, the Company and E-P Acquisition, Inc.*
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of
February 23, 1998, among EPI, the Eagle-Picher Industries,
Inc. Personal Injury Settlement Trust, the Company and E-P
Acquisition, Inc.*
10.3 -- Supplemental Executive Retirement Plan of EPI*
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P
Acquisition, Inc., EPI, the Company, SBC Warburg Dillon Read
and ABN AMRO Incorporated*
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated
as of February 24, 1998, between EPI and the Subsidiary
Guarantors*
10.6 -- Registration Rights Agreement, dated as of February 24,
1998, between E-P Acquisition, Inc., SBC Warburg Dillon Read
and ABN AMRO Incorporated*
10.7 -- Assumption Agreement for the Registration Rights Agreement,
dated as of February 24, 1998, of EPI*
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P
Acquisition, Inc. (merged with and into EPI), Various
Lenders from time to time party thereto, ABN AMRO Bank N.V.,
as Agent (the "Agent"), PNC Bank, National Association, as
Documentation Agent and DLJ Capital Funding, Inc., as
Syndication Agent*
10.9 -- Assumption Agreement dated as of February 24, 1998, between
EPI and the Agent*
10.10 -- Security Agreement, dated as of February 24, 1998, among
EPI, the Agent and the Domestic Subsidiaries*
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998,
between the Company and the Agent*
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of
February 24, 1998, among EPI, Eagle-Picher Development
Company, Eagle-Picher Minerals, Inc. and the Agent*
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998,
by the Company, accepted and agreed by the Agent*
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24,
1998, by the Domestic Subsidiaries, accepted and agreed by
the Agent*
10.15 -- Trademark Collateral Agreement, dated February 24, 1998,
between EPI and the Agent*
10.16 -- Patent Collateral Agreement, dated February 24, 1998,
between EPI and the Agent*
10.17 -- Copyright Collateral Agreement, dated February 24, 1998,
between EPI and the Agent*
10.18 -- Subordination Agreement, dated as of February 24, 1998,
among E-P Acquisition, Inc., EPI and the Domestic
Subsidiaries*
10.19 -- Management Agreement dated as of February 24, 1998, between
EPI and Granaria Holdings B.V.*
10.20 -- Eagle-Picher Management Trust made February 17, 1998, among
Granaria Industries B.V. and Thomas E. Petry, Andries
Ruijssenaars and Joel Wyler as trustees (the "E-P Management
Trust")*
10.21 -- Incentive Stock Plan of EPI, effective as of February 25,
1998*
10.22 -- Employment Agreements dated November 29, 1996, between EPI
and each Named Executive Officer as defined in EPI's Form
S-4 filed in 1998, as amended (Messrs. Petry, Ruijssenaars,
Hall, Wickens, Curless and Ralston)*
</Table>
89
<Table>
<Caption>
EXHIBIT
NUMBER
- -------
10.23 -- Amendments dated August 5, 1997 to Employment Agreements
between EPI and each Named Executive Officer as defined in
EPI's Form S-4*
10.24 -- Sales Incentive Program of EPI*
10.25 -- Letter Agreements dated August 5, 1997, between EPI and each
Named Executive Officer as defined in EPI's Form S-4
regarding Short Term Sale Program*
10.26 -- Letter Agreement dated September 12, 1997, between EPI and
Carroll D. Curless regarding Sale Incentive Bonus*
10.27 -- Letter Agreements dated February 18, 1998, between EPI and
each Named Executive Officer as defined in EPI's Form S-4
regarding Short Term Sale Program*
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments
to the Short Term Sale Program*
10.29 -- Preferred Stock Purchase Agreement, dated February 19, 1998,
between the Company and the initial purchasers*
10.30 -- Preferred Stock Registration Rights Agreement, dated as of
February 24, 1998, between the Company and the initial
purchasers*
10.31 -- Transfer Agency Agreement, dated as of February 24, 1998,
between the Company and The Bank of New York, as Transfer
Agent*
10.32 -- The Company Incentive Stock Plan for Outside Directors
effective January 1, 1999*
10.33 -- Amended and Restated Incentive Stock Plan of EPI*
10.34 -- Second Amended and Restated Incentive Stock Plan of EPI*
10.35 -- Shareholders Agreement dated October 15, 1998, among
Granaria Holdings B.V., Granaria Industries B.V., the
Company, EPI*
10.36 -- Voting Trust Agreement dated as of November 16, 1998, by and
among certain shareholders of the Company and Granaria
Holdings B.V.*
10.37 -- Stock Purchase Agreement dated April 8, 1999, between
Hillsdale Tool & Manufacturing Co., Charterhouse Automotive
Group Inc. and the Shareholders of Charterhouse Automotive
Group, Inc.*
10.38 -- Shareholders Agreement dated April 12, 1999, among Granaria
Holdings B.V., the Company, EPI, and certain shareholders of
the Company*
10.39 -- Voting Trust Agreement dated April 13, 1999, between certain
shareholders of the Company and Granaria Holdings B.V. as
voting trustee*
10.40 -- Amendment to Credit Agreement and Consent, dated as of May
18, 1999, among EPI, the lenders party thereto, ABN AMRO
Bank N.V., as Agent, PNC Bank, National Association, as
Documentation Agent, and NBD Bank, N.A., as Syndication
Agent*
10.41 -- Receivables Loan Agreement dated as of May 18, 1999, among
Eagle-Picher Acceptance Corporation, EPI, ABN AMRO Bank
N.V., the Lender Agents, the Related Bank Lenders, Amsterdam
Funding Corporation and the Other Conduit Lenders*
10.42 -- Receivables Purchase Agreement dated as of May 18, 1999,
between EPI and Eagle-Picher Acceptance Corporation*
10.43 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Carpenter Enterprises Limited and Eagle-Picher
Acceptance Corporation*
10.44 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Daisy Parts, Inc. and Eagle-Picher Acceptance
Corporation*
10.45 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Development Company and Eagle-Picher
Acceptance Corporation*
10.46 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Fluid Systems, Inc. and Eagle-Picher
Acceptance Corporation*
10.47 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Minerals, Inc. and Eagle-Picher
Acceptance Corporation*
10.48 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Eagle-Picher Technologies, LLC and Eagle-Picher
Acceptance Corporation*
10.49 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Hillsdale Tool & Manufacturing Co. and Eagle-Picher
Acceptance Corporation*
</Table>
90
<Table>
<Caption>
EXHIBIT
NUMBER
- -------
10.50 -- Receivables Purchase Agreement dated as of May 18, 1999,
between Michigan Automotive Research Corporation and
Eagle-Picher Acceptance Corporation*
10.51 -- Share Appreciation Plan of EPI*
10.52 -- Amendment to Credit Agreement and Consent dated as of August
1, 2000, among EPI, the lenders party thereto, ABN AMRO Bank
N.V. as Agent, PNC Bank, National Association as
Documentation Agent, and Bank One, Indiana, N.A. as
Syndication Agent.*
10.53 -- Resignation, Release and Severance Pay Agreement dated May
31, 2000 between EPI and Wayne R. Wickens*
10.54 -- Executive Employment Agreement dated November 7, 2000
between EPI and Andries Ruijssenaars*
10.55 -- Supplemental Executive Retirement Plan (as amended and
restated effective March 27, 2001).*
10.56 -- Fourth Amendment to Credit Agreement and Consent dated as of
May 31, 2001, among the Company, the lenders party hereto,
ABN AMRO Bank N.V., as Agent, PNC Bank, National
Association, as Documentation Agent and NBD Bank, N.A., as
Syndication Agent.*
10.57 -- Fifth Amendment to Receivables Loan Agreement dated as of
June 29, 2001 among the Company, EPAC, Amsterdam Funding
Corporation, as a Conduit Lender and as the administrative
agent for the Lenders, ABN AMRO Bank N.V., as the Amsterdam
Lender Agent, Market Street Funding Corporation, as a
Conduit Lender, PNC Bank, National Association, as the
Market Lender Agent and the Related Bank Lenders party
hereto.*
10.58 -- Resignation Agreement effective July 6, 2001 between EPI and
Michael E. Aslanian.*
10.59 -- Executive Employment Agreement effective July 15, 2001
between EPI and John H. Weber.*
10.60 -- Separation Agreement effective November 1, 2001 between EPI
and Philip F. Schultz
10.61 -- Supplemental Indenture among EPI, the Guarantors (Daisy
Parts, Inc., Eagle-Picher Development Company, Inc.,
Eagle-Picher Holdings, Inc., Eagle-Picher Far East, Inc.,
Eagle-Picher Minerals, Inc., Eagle-Picher Technologies, LLC,
Hillsdale Tool & Manufacturing Co., EPMR Corporation and
Carpenter Enterprises Limited) and The Bank of New York, as
Trustee, dated December 14, 2001
10.62 -- Receivables Sales Agreement dated January 8, 2002 by and
among Eagle-Picher Funding Corporation and each of the
"Originators" defined therein which include EPI, Carpenter
Enterprises Limited, Daisy Parts, Inc., Eagle-Picher
Minerals, Inc., Eagle-Picher Technologies, LLC, and
Hillsdale Tool & Manufacturing Co.
10.63 -- Receivables Sales and Servicing Agreement dated January 8,
2002 by and among Eagle-Picher Funding Corporation, Redwood
Receivables Corporation, Eagle-Picher Industries, Inc. and
General Electric Capital Corporation
10.64 -- Annex X to Receivables Sales Agreement at Exhibit 10.62 and
to Receivables Purchase and Servicing Agreement at Exhibit
10.63 -- "Definitions and Interpretations"
12.1 -- Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends
21.1 -- Subsidiaries of EPI
24(a),(b) -- Powers of Attorney
</Table>
- ---------------
* Incorporated by reference. See Item 14 above.
91