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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 1999 Commission file number 333-49957-01
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EAGLE-PICHER HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3989553
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
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(Not Applicable)
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the additional registrant, Eagle-Picher
Industries, Inc., has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes X No
--- ---
625,001 shares of Class A common capital stock, $.01 par value each, were
outstanding at September 24, 1999.
374,999 shares of Class B common capital stock, $.01 par value each, were
outstanding at September 24, 1999.
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TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------ ------
Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670
Daisy Parts, Inc. Michigan 333-49957-02 38-1406772
Eagle-Picher Development Co., Inc. Delaware 333-49957-03 31-1215706
Eagle-Picher Far East, Inc. Delaware 333-49957-04 31-1235685
Eagle-Picher Fluid Systems, Inc. Michigan 333-49957-05 31-1452637
Eagle-Picher Minerals, Inc. Nevada 333-49957-06 31-1188662
Eagle-Picher Technologies, LLC Delaware 333-49957-09 31-1587660
Hillsdale Tool & Manufacturing Co. Michigan 333-49957-07 38-0946293
Michigan Automotive Research Corp. Michigan 333-49957-08 38-2185909
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements............................................ 4
Condensed Consolidated Statements of Income (Loss)(Unaudited)....... 4
Condensed Consolidated Balance Sheets (Unaudited)................... 5
Condensed Consolidated Statements of Cash Flows (Unaudited)......... 7
Notes to Condensed Consolidated Financial Statements (Unaudited).... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................23
Item 3. Quantitative and Qualitative Disclosures About Market Risk......31
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................32
Signatures...............................................................33
Exhibit Index............................................................43
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Six Months Three Months
August 31 Ended Ended Ended
------------------------ August 31 August 31 February 28
1999 1998 1999 1998 1998
--------- --------- --------- --------- ---------
Predecessor
Net Sales $ 231,308 $ 206,356 $ 675,569 $ 426,277 $ 205,842
--------- --------- --------- --------- ---------
Operating Costs and Expenses:
Cost of Products sold (exclusive
of depreciation) 185,283 163,518 534,786 333,093 162,796
Selling and administrative 17,874 18,042 55,859 38,329 17,141
Management compensation - special -- 4,395 -- 21,716 2,056
Depreciation 11,836 9,644 33,901 19,417 8,983
Amortization of intangibles 4,413 4,244 12,828 8,741 3,839
Loss (gain) on sales of assets 148 -- 137 -- --
--------- --------- --------- --------- ---------
219,554 199,843 637,511 421,296 194,815
--------- --------- --------- --------- ---------
Operating Income 11,754 6,513 38,058 4,981 11,027
Interest expense (14,137) (12,132) (37,586) (24,686) (6,940)
Other income 659 681 985 1,007 820
--------- --------- --------- --------- ---------
Income (Loss) Before Taxes (1,724) (4,938) 1,457 (18,698) 4,907
Income Taxes (Benefit) 350 (1,135) 2,300 (5,596) 4,100
--------- --------- --------- --------- ---------
Net Income (Loss) $ (2,074) $ (3,803) $ (843) $ (13,102) $ 807
========= ========= ========= ========= =========
Income (Loss) Applicable to
Common Shareholders $ (4,714) $ (6,338) $ (8,617) $ (17,990) $ 807
========= ========= ========= ========= =========
Income (Loss) per Common Share $ (4.71) $ (6.34) $ (8.62) $ (17.99) $ .08
========= ========= ========= ========= =========
Comprehensive Loss $ (1,561) $ (4,329) $ (3,035) $ (12,975) $ (1,002)
========= ========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31 November 30
ASSETS 1999 1998
-------- --------
CURRENT ASSETS
Cash and cash equivalents $ 4,957 $ 13,681
Receivables, less allowances 142,061 144,844
Inventories:
Raw materials and supplies 60,520 52,384
Work in process 29,018 20,641
Finished goods 16,943 15,848
-------- --------
106,481 88,873
Prepaid expenses 9,649 8,338
Deferred income taxes 12,129 10,851
-------- --------
Total current assets 275,277 266,587
-------- --------
PROPERTY, PLANT AND EQUIPMENT 351,775 279,061
Less accumulated depreciation 62,301 30,524
-------- --------
Net property, plant and equipment 289,474 248,537
-------- --------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of
accumulated amortization of $25,128 and
$12,300, respectively 239,230 228,910
-------- --------
OTHER ASSETS 76,855 72,293
-------- --------
Total Assets $880,836 $816,327
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 59,328 $ 50,307
Long-term debt - current portion 22,125 25,173
Income taxes 2,919 6,282
Other current liabilities 77,673 74,260
-------- --------
Total current liabilities 162,045 156,022
LONG-TERM DEBT - less current portion 518,197 459,183
DEFERRED INCOME TAXES 10,404 8,304
OTHER LONG-TERM LIABILITIES 25,244 24,819
-------- --------
Total Liabilities 715,890 648,328
-------- --------
11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE
PREFERRED STOCK; authorized 50,000 shares;
issued and outstanding 14,191 shares 95,161 87,387
-------- --------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
August 31 November 30
1999 1998
--------- ---------
SHAREHOLDERS' EQUITY
Class A Common stock, authorized 625,001 shares,
$.01 par value each; issued and outstanding
625,001 shares 6 6
Class B Common stock, authorized 374,999 shares,
$.01 par value each; issued and outstanding
374,999 shares 4 4
Additional paid-in capital 99,991 99,991
Deficit (30,363) (21,746)
Other comprehensive income 147 2,357
--------- ---------
Total Shareholders' Equity 69,785 80,612
--------- ---------
Total Liabilities and Shareholders' Equity $ 880,836 $ 816,327
========= =========
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Six Months Three Months
Ended Ended Ended
August 31 August 31 February 28
1999 1998 1998
--------- -------- ---------
Predecessor
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (843) $(13,102) $ 807
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 48,851 29,522 12,822
Proceeds from insurance settlement -- 13,659 --
Changes in assets and liabilities,
net of effect of acquisitions and
divestitures:
Receivables 7,701 15,848 (3,681)
Inventories (12,587) 4,435 (2,235)
Accounts payable (5,677) (6,837) (2,787)
Accrued liabilities 1,516 25,205 (5,488)
Other (4,026) (4,784) (8,521)
--------- -------- ---------
Net cash provided by (used in)
operating activities 34,935 63,946 (9,083)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400 -- --
Acquisition (60,209) -- --
Capital expenditures (39,860) (16,053) (5,692)
Other 517 94 (1,042)
--------- -------- ---------
Net cash used in
investing activities (87,152) (15,959) (6,734)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- -- 445,000
Reduction of long-term debt (136,522) (2,580) (250,000)
Net borrowings (repayments) under revolving
credit agreements 180,285 (43,253) 78,740
Redemption of common stock -- -- (446,638)
Issuance of common stock -- -- 100,001
Issuance of preferred stock -- -- 80,005
Debt issuance cost (54) -- (26,062)
Other (216) (23) --
--------- -------- ---------
Net cash provided by (used in)
financing activities 43,493 (45,856) (18,954)
--------- -------- ---------
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EAGLE-PICHER HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Six Months Three Months
Ended Ended Ended
August 31 August 31 February 28
1999 1998 1998
-------- ------- --------
Predecessor
Net increase (decrease) in cash and
cash equivalents (8,724) 2,131 (34,771)
Cash and cash equivalents, beginning of period 13,681 18,968 53,739
-------- ------- --------
Cash and cash equivalents, end of period $ 4,957 $21,099 $ 18,968
======== ======= ========
Supplemental cash flow information: 1999 1998
---- ----
Cash paid during the nine months ended August 31:
Interest paid $29,527 $19,060
Income taxes paid, net $10,122 $ 4,446
Cash paid during the three months ended August 31:
Interest paid $ 7,968 $ 6,250
Income taxes paid, net $ 2,124 $ 4,141
See accompanying notes to the condensed consolidated financial statements.
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EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS
The unaudited financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and notes thereto included for the
fiscal year ended November 30, 1998 presented in the Company's Form 10-K/A filed
with the SEC on June 28, 1999.
The financial statements presented herein reflect all adjustments
(consisting of normal and recurring accruals) which, in the opinion of
management, are necessary to fairly state the results of operations for the nine
months ended August 31, 1999, the six months ended August 31, 1998 and the three
months ended August 31, 1999 and 1998, and February 28, 1998. (See Note B.)
Results of operations for interim periods are not necessarily indicative of
results to be expected for an entire year. Certain prior year amounts have been
reclassified to conform with current year financial statement presentation.
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," which
establishes standards for reporting comprehensive income and its components.
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc.
("Subsidiary") was acquired by a subsidiary of Granaria Industries BV,
Eagle-Picher Holdings, Inc. ("Company"), from the Eagle-Picher Industries, Inc.
Personal Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was
established pursuant to the Subsidiary's Plan of Reorganization upon its
emergence from bankruptcy in November 1996. The Company's results of operations
and cash flows approximate those of the Subsidiary, the operating entity.
References will be to the Company except where it is more appropriate to
specifically refer to the Subsidiary.
The unaudited condensed consolidated financial statements as of and for
the three months ended February 28, 1998 include the effects of the Acquisition
as of February 24, 1998. Accordingly, the condensed consolidated statement of
income (loss) for the three months ended February 28, 1998 includes results of
operations from (1) December 1, 1997 through February 24, 1998 of the Company
prior to the consummation of the Acquisition (for clarity, sometimes referred to
herein as the "Predecessor Company") and (2) February 25 through February 28,
1998 of the Company.
The Acquisition was accounted for using the purchase method of accounting.
The purchase price has been allocated to the assets and liabilities of the
Company based on their respective fair values as determined primarily by
independent appraisals. The excess of the purchase price over the assessed
values of the net assets was allocated to excess of acquired net assets over
cost. As a result, the consolidated financial statements relating to operations
after the Acquisition are not comparable to those prior to the Acquisition.
Accordingly, the period prior to the Acquisition has been labeled "Predecessor."
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C. ACQUISITION
On April 14, 1999, the Company acquired all of the outstanding capital
stock of Charterhouse Automotive Group, Inc. ("Charterhouse"), a holding company
whose only operating subsidiary was Carpenter Enterprises, Ltd. ("Carpenter"), a
manufacturer of precision-machined automotive parts. Immediately following the
acquisition, Charterhouse was merged into Carpenter.
The total consideration paid for Charterhouse was approximately $72.0
million consisting of $37.9 million for the stock of Charterhouse, a $3.1
million payment to the former president of Carpenter under a phantom stock plan
and $31.0 million of existing indebtedness of Carpenter, of which approximately
$18.6 million was refinanced from the Company's Revolving Credit Facility.
The acquisition of Charterhouse was effective as of March 1, 1999 for
accounting purposes and was accounted for as a purchase. The preliminary
allocation of the purchase price has been determined based on estimates of fair
value and is subject to change. Appraisals are currently being completed to
value property, plant and equipment. The excess of the purchase price over the
assessed values of those assets has been allocated to goodwill. The Company
expects to finalize the purchase price allocation by November 30, 1999. Other
than adjustments to record property, plant and equipment at fair value,
adjustments are not expected to be material.
The following pro forma information for the nine months ended August
31, 1999 and 1998 gives effect to the acquisition of Carpenter as if it had been
consummated on December 1, 1998 and 1997, respectively. This information is not
necessarily indicative of either the future results of operations or the results
of operations that would have occurred if those events had been consummated on
the indicated dates.
Nine Months Ended
August 31
---------------------------
1999 1998
---- ----
(Dollars in thousands, except per share amounts)
(unaudited)
Net sales $ 707,100 $ 698,200
Net income (loss) $ (1,100) $ (12,100)
Net income (loss) applicable
to common shareholders $ (8,928) $ (16,988)
Net loss per common share $ (8.93) $ (16.99)
Average number of common shares 1,000,000 1,000,000
D. BASIC EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the
average number of common shares outstanding, which was 1,000,000 in the three
months and nine months ended August 31, 1999 and in the three months and six
months ended August 31, 1998 and 9,600,071 in the three months ended February
28, 1998. Prior to the Acquisition, 10,000,000 shares were
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outstanding. The net loss applicable to common shareholders represents the net
income reduced by, or the net loss increased by, accreted dividends on preferred
stock of $2.6 million and $7.8 million for the three and nine months ended
August 31, 1999, respectively, and $2.5 million and $4.9 million for the three
months and six months ended August 31, 1998, respectively. No potential common
stock was outstanding during the nine months ended August 31, 1999 or 1998.
E. LONG-TERM DEBT
On May 18, 1999, the Company amended its syndicated secured loan
facility ("Credit Agreement") to provide for a) a securitization transaction
("Securitization"); b) an increase in the revolving credit facility ("Revolving
Credit Facility") provided under the Credit Agreement; and c) the repayment and
cancellation of a portion of the term loan facility ("Term Loan Facility")
provided under the Credit Agreement. The transaction was funded on June 4, 1999.
In connection with the Securitization, the Company will sell its
domestic trade receivables on an ongoing basis to a wholly-owned, consolidated
subsidiary, Eagle-Picher Acceptance Corporation. The receivables are then used
as security for loans made under a separate revolving credit facility providing
up to $75.0 million. In addition, the Credit Agreement was amended to increase
the amount available for borrowings under the Revolving Credit Facility from
$160.0 million to $220.0 million and allow the Company to repay two of the term
loans under the Term Loan Facility without requiring that the third term loan be
ratably reduced.
Interest rate spreads under the Credit Agreement increased by .25% and
loans outstanding under the Securitization are at variable rates equal to market
rates on commercial paper with fees of .75% on 102% of the maximum amount
available. Approximately $120.5 million in term loans were repaid upon closing
of this transaction with the proceeds from the Securitization of $65.0 million
and additional borrowings under the revolving Credit Facility.
F. SUPPLEMENTAL GUARANTOR INFORMATION
Upon closing of the Acquisition, the Subsidiary issued $220.0 million in
senior subordinated notes ("Subordinated Notes") in addition to its borrowings
under the Credit Agreement. Both the Credit Agreement and the Subordinated Notes
are guaranteed on a full, unconditional and joint and several basis by the
Company and certain of the Subsidiary's wholly-owned domestic subsidiaries
("Subsidiary Guarantors") including Carpenter and Eagle-Picher Acceptance
Corporation. Management has determined that full financial statements and other
disclosures concerning the Subsidiary or the Subsidiary Guarantors would not be
material to investors and such financial statements are not presented. The
following supplemental condensed combining financial statements present
information regarding the Subsidiary, the Subsidiary Guarantors and the
subsidiaries that did not guarantee the debt.
The Subsidiary and the Subsidiary Guarantors are subject to
restrictions on the payment of dividends under the terms of both the Credit
Agreement and the Indenture supporting the Subordinated Notes, both of which
were filed with the Company's Form S-4 Registration Statement No. 333-49957-01
filed on April 11, 1998 and both of which were incorporated by reference to the
Company's Form 10-K/A filed on June 28, 1999.
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 53,009 $ -- $ 150,027 $ 28,272 $ -- $ 231,308
Intercompany 2,817 -- 3,101 2,099 (8,017) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 41,039 -- 125,464 26,823 (8,043) 185,283
Selling and administrative 9,933 -- 5,164 2,828 (51) 17,874
Intercompany charges (2,883) -- 2,883 (50) 50 --
Depreciation 2,863 -- 7,717 1,256 -- 11,836
Amortization of intangibles 1,778 -- 2,393 242 -- 4,413
(Gain) loss on sale of assets (4) -- 152 -- -- 148
-------- ------- --------- -------- ------- ---------
Total 52,726 -- 143,773 31,099 (8,044) 219,554
-------- ------- --------- -------- ------- ---------
Operating Income (Loss) 3,100 -- 9,355 (728) 27 11,754
Other Income (Expense)
Interest expense (11,903) -- (2,664) (231) 661 (14,137)
Other income (expense) 213 -- 958 149 (661) 659
Equity in earnings of
consolidated subsidiaries 3,969 (2,074) 301 -- (2,196) --
-------- ------- --------- -------- ------- ---------
Income (Loss) Before Taxes (4,621) (2,074) 7,950 (810) (2,169) (1,724)
Income taxes (benefit) (2,821) -- 2,654 517 -- 350
-------- ------- --------- -------- ------- ---------
Net Income (Loss) $ (1,800) $(2,074) $ 5,296 $ (1,327) $(2,169) $ (2,074)
======== ======= ========= ======== ======= =========
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 1999
GUARANTORS
----------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 162,812 $ -- $ 430,948 $ 81,809 $ -- $ 675,569
Intercompany 9,962 -- 7,680 6,070 (23,712) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 127,865 -- 354,464 76,273 (23,816) 534,786
Selling and administrative 31,402 -- 16,650 7,962 (155) 55,859
Intercompany charges (8,079) -- 8,078 (161) 162 --
Depreciation 8,700 -- 21,552 3,649 -- 33,901
Amortization of intangibles 4,922 -- 7,179 727 -- 12,828
(Gain) loss on sale of assets (20) -- 152 5 -- 137
--------- ----- --------- -------- -------- ---------
Total 164,790 -- 408,075 88,455 (23,809) 637,511
--------- ----- --------- -------- -------- ---------
Operating Income (Loss) 7,984 -- 30,553 (576) 97 38,058
Other Income (Expense)
Interest expense (34,885) -- (2,737) (625) 661 (37,586)
Other income (expense) 758 -- 994 (106) (661) 985
Equity in earnings of
consolidated subsidiaries 17,795 (843) 561 -- (17,513) --
--------- ----- --------- -------- -------- ---------
Income (Loss) Before Taxes (8,348) (843) 29,371 (1,307) (17,416) 1,457
Income taxes (benefit) (7,969) -- 8,983 1,286 -- 2,300
--------- ----- --------- -------- -------- ---------
Net Income (Loss) $ (379) $(843) $ 20,388 $ (2,593) $(17,416) $ (843)
========= ===== ========= ======== ======== =========
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF AUGUST 31, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents $ 383 $ 1 $ 1,125 $ 3,247 $ 201 $ 4,957
Receivables, net 14,209 -- 104,271 23,581 -- 142,061
Intercompany accounts receivable 4,037 -- 3,818 448 (8,303) --
Inventories 30,702 -- 57,962 19,192 (1,375) 106,481
Prepaid expenses 3,671 -- 4,803 1,219 (44) 9,649
Deferred income taxes 12,129 -- -- -- -- 12,129
--------- -------- -------- --------- --------- --------
Total current assets 65,131 1 171,979 47,687 (9,521) 275,277
Property, Plant & Equipment, net 61,903 -- 185,682 41,889 -- 289,474
Investment in Subsidiaries 140,523 164,798 6,978 -- (312,299) --
Excess of Acquired Net Assets Over Cost, net 97,064 -- 129,074 13,092 -- 239,230
Other Assets 63,478 -- 21,368 614 (8,605) 76,855
--------- -------- -------- --------- --------- --------
Total Assets $ 428,099 $164,799 $515,081 $ 103,282 $(330,425) $880,836
========= ======== ======== ========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 12,003 $ -- $ 36,259 $ 11,066 $ -- $ 59,328
Intercompany accounts payable 140 -- 442 7,673 (8,255) --
Long-term debt - current portion 14,882 -- -- 7,243 -- 22,125
Income taxes 2,524 -- -- 395 -- 2,919
Other current liabilities 48,653 -- 23,794 5,296 (70) 77,673
--------- -------- -------- --------- --------- --------
Total current liabilities 78,202 -- 60,495 31,673 (8,325) 162,045
Long-term Debt - less current portion 445,814 -- 71,855 9,133 (8,605) 518,197
Deferred Income Taxes 10,934 -- -- (530) -- 10,404
Other Long-Term Liabilities 25,244 -- -- -- -- 25,244
--------- -------- -------- --------- --------- --------
Total liabilities 560,194 -- 132,350 40,276 (16,930) 715,890
Intercompany Accounts (311,674) -- 294,528 31,004 (13,858) --
11-3/4% Cumulative Redeemable
Exchangeable Preferred Stock -- 95,161 -- -- -- 95,161
Shareholders' Equity 179,579 69,638 88,203 32,002 (299,637) 69,785
--------- -------- -------- --------- --------- --------
Total Liabilities and Shareholders'
Equity $ 428,099 $164,799 $515,081 $ 103,282 $(330,425) $880,836
========= ======== ======== ========= ========= ========
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EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED AUGUST 31, 1999
GUARANTORS
-------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $ (379) $(843) $ 20,388 $(2,593) $(17,416) $ (843)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated
subsidiaries (17,795) 843 (561) -- 17,513 --
Depreciation and amortization 15,744 -- 28,731 4,376 -- 48,851
Changes in assets and liabilities,
net of effect of acquisitions
and divestitures 16,264 -- (24,254) (5,325) 242 (13,073)
--------- ----- -------- ------- -------- ---------
Net cash provided by (used in)
operating activities 13,834 -- 24,304 (3,542) 339 34,935
--------- ----- -------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of division 12,400 -- -- -- -- 12,400
Acquisition of division -- -- (60,209) -- -- (60,209)
Capital expenditures (4,055) -- (26,772) (9,033) -- (39,860)
Other (757) -- 749 (183) 708 517
--------- ----- -------- ------- -------- ---------
Net cash provided by (used in)
investing activities 7,588 -- (86,232) (9,216) 708 (87,152)
--------- ----- -------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (136,522) -- -- -- -- (136,522)
Borrowings (repayments) on revolving
credit agreement 107,175 -- 63,250 9,860 -- 180,285
Other (54) -- -- (216) -- (270)
--------- ----- -------- ------- -------- ---------
Net cash provided by (used in)
financing activities (29,401) -- 63,250 9,644 -- 43,493
--------- ----- -------- ------- -------- ---------
Increase (decrease) in cash and
cash equivalents (7,979) -- 1,322 (3,114) 1,047 (8,724)
Intercompany accounts 898 -- (909) 1,236 (1,225) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,464 1 712 5,125 379 13,681
--------- ----- -------- ------- -------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 383 $ 1 $ 1,125 $ 3,247 $ 201 $ 4,957
========= ===== ======== ======= ======== =========
15
16
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 63,628 $ -- $117,887 $ 24,841 $ -- $ 206,356
Intercompany 3,793 -- 2,193 1,012 (6,998) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 51,580 -- 97,338 21,581 (6,981) 163,518
Selling and administrative 11,160 -- 4,487 2,395 -- 18,042
Intercompany charges (2,241) -- 2,241 -- -- --
Depreciation 2,990 -- 5,683 1,046 (75) 9,644
Amortization of intangibles 610 -- 3,634 -- -- 4,244
Management compensation-special 4,395 -- -- -- -- 4,395
-------- ------- -------- -------- ------- ---------
Total 68,494 -- 113,383 25,022 (7,056) 199,843
-------- ------- -------- -------- ------- ---------
Operating Income (Loss) (1,073) -- 6,697 831 58 6,513
Other Income (Expense)
Interest expense (12,005) -- -- (127) -- (12,132)
Other income 434 -- 178 72 (3) 681
Equity in earnings of
consolidated subsidiaries 5,000 (3,803) 80 -- (1,277) --
-------- ------- -------- -------- ------- ---------
Income (Loss) Before Taxes (7,644) (3,803) 6,955 776 (1,222) (4,938)
Income taxes (benefit) (3,866) -- 2,081 650 -- (1,135)
-------- ------- -------- -------- ------- ---------
Net Income (Loss) $ (3,778) $(3,803) $ 4,874 $ 126 $(1,222) $ (3,803)
======== ======= ======== ======== ======= =========
16
17
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
SIX MONTHS ENDED AUGUST 31, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 132,861 $ -- $243,412 $ 50,004 $ -- $ 426,277
Intercompany 7,944 -- 4,824 3,341 (16,109) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation) 105,862 -- 199,185 44,080 (16,034) 333,093
Selling and administrative 23,254 -- 10,283 4,792 -- 38,329
Intercompany charges (4,538) -- 4,538 -- -- --
Depreciation 6,040 -- 11,468 2,045 (136) 19,417
Amortization of intangibles 1,473 -- 7,268 -- -- 8,741
Management compensation-special 21,716 -- -- -- -- 21,716
--------- -------- -------- -------- -------- ---------
Total 153,807 -- 232,742 50,917 (16,170) 421,296
--------- -------- -------- -------- -------- ---------
Operating Income (Loss) (13,002) -- 15,494 2,428 61 4,981
Other Income (Expense)
Interest expense (24,422) -- -- (264) -- (24,686)
Other income 625 -- 264 121 (3) 1,007
Equity in earnings of
consolidated subsidiaries 11,729 (13,102) 123 -- 1,250 --
--------- -------- -------- -------- -------- ---------
Income (Loss) Before Taxes (25,070) (13,102) 15,881 2,285 1,308 (18,698)
Income taxes (benefit) (12,033) -- 4,906 1,531 -- (5,596)
--------- -------- -------- -------- -------- ---------
Net Income (Loss) $ (13,037) $(13,102) $ 10,975 $ 754 $ 1,308 $ (13,102)
========= ======== ======== ======== ======== =========
17
18
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Net Sales
Customers $ 61,071 $ 123,181 $ 21,590 $ -- $ 205,842
Intercompany 3,381 2,421 1,451 (7,253) --
Operating Costs and Expenses:
Cost of products sold (exclusive
of depreciation 48,329 102,771 18,772 (7,076) 162,796
Selling and administrative 9,673 5,167 2,301 -- 17,141
Intercompany charges (2,172) 2,172 -- -- --
Depreciation 2,823 5,220 940 -- 8,983
Amortization of intangibles 765 3,064 10 -- 3,839
Management compensation-special 2,056 -- -- -- 2,056
-------- --------- -------- ------- ---------
Total 61,474 118,394 22,023 (7,076) 194,815
-------- --------- -------- ------- ---------
Operating Income (Loss) 2,978 7,208 1,018 (177) 11,027
Other Income (Expense)
Interest expense (6,844) -- (96) -- (6,940)
Other income (expense) 812 333 (325) -- 820
Equity in earnings of
consolidated subsidiaries 4,785 (270) -- (4,515) --
-------- --------- -------- ------- ---------
Income (Loss) Before Taxes 1,731 7,271 597 (4,692) 4,907
Income taxes 1,083 2,486 531 -- 4,100
-------- --------- -------- ------- ---------
Net Income (Loss) $ 648 $ 4,785 $ 66 $(4,692) $ 807
======== ========= ======== ======= =========
18
19
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash and cash equivalents $ 7,464 $ 1 $ 712 $ 5,125 $ 379 $ 13,681
Receivables, net 52,197 -- 70,418 22,229 -- 144,844
Intercompany accounts receivable 3,414 -- 3,874 154 (7,442) --
Inventories 30,755 -- 43,708 15,785 (1,375) 88,873
Prepaid expenses 4,073 -- 3,614 651 -- 8,338
Deferred income taxes 10,851 -- -- -- -- 10,851
--------- -------- -------- ------- --------- --------
Total current assets 108,754 1 122,326 43,944 (8,438) 266,587
Property, Plant & Equipment, net 66,500 -- 143,872 38,165 -- 248,537
Investment in Subsidiaries 113,265 165,641 6,416 -- (285,322) --
Excess of Assets Acquired Over Cost, net 78,838 -- 136,253 13,819 -- 228,910
Other Assets 54,187 -- 17,675 431 -- 72,293
--------- -------- -------- ------- --------- --------
Total Assets $ 421,544 $165,642 $426,542 $96,359 $(293,760) $816,327
========= ======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 15,064 $ -- $ 24,648 $10,595 $ -- $ 50,307
Intercompany accounts payable 85 -- 16 7,561 (7,662) --
Long-term debt - current portion 18,777 -- -- 6,396 -- 25,173
Income taxes 5,296 -- -- 986 -- 6,282
Other current liabilities 45,744 -- 24,464 4,052 -- 74,260
--------- -------- -------- ------- --------- --------
Current liabilities 84,966 -- 49,128 29,590 (7,662) 156,022
Long-term Debt - less current portion 458,848 -- -- 335 -- 459,183
Deferred income taxes 8,304 -- -- -- -- 8,304
Other Long-term Liabilities 24,819 -- -- -- -- 24,819
--------- -------- -------- ------- --------- --------
Total Liabilities 576,937 -- 49,128 29,925 (7,662) 648,328
Intercompany Accounts (326,706) -- 309,571 29,768 (12,633) --
11-3/4% Cumulative Exchangeable
Preferred Stock -- 87,387 -- -- -- 87,387
Shareholders' Equity 171,313 78,255 67,843 36,666 (273,465) 80,612
--------- -------- -------- ------- --------- --------
Total Liabilities and
Shareholders' Equity $ 421,544 $165,642 $426,542 $96,359 $(293,760) $816,327
========= ======== ======== ======= ========= ========
19
20
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR SIX MONTHS ENDED AUGUST 31, 1998
GUARANTORS
--------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $(13,037) $(13,102) $ 10,975 $ 754 $ 1,308 $(13,102)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated
subsidiaries (11,729) 13,102 (123) -- (1,250) --
Depreciation and amortization 8,877 -- 18,736 2,045 (136) 29,522
Proceeds from insurance settlement 13,659 -- -- -- -- 13,659
Changes in assets and liabilities 22,315 -- 11,724 (43) (129) 33,867
-------- -------- -------- ------- ------- --------
Net cash provided by (used in)
operating activities 20,085 -- 41,312 2,756 (207) 63,946
-------- -------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,985) -- (5,321) (4,747) -- (16,053)
Other (2,276) -- (275) (878) 3,523 94
-------- -------- -------- ------- ------- --------
Net cash provided by (used in)
investing activities (8,261) -- (5,596) (5,625) 3,523 (15,959)
-------- -------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (2,580) -- -- -- -- (2,580)
Borrowings (repayments) on revolving
credit agreement (44,100) -- -- 847 -- (43,253)
Other -- -- -- (23) -- (23)
-------- -------- -------- ------- ------- --------
Net cash provided by (used in)
financing activities (46,680) -- -- 824 -- (45,856)
-------- -------- -------- ------- ------- --------
Increase (decrease) in cash and
cash equivalents (34,856) -- 35,716 (2,045) 3,316 2,131
Intercompany accounts 36,124 -- (36,151) 3,440 (3,413) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12,115 1 1,145 5,513 194 18,968
-------- -------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 13,383 $ 1 $ 710 $ 6,908 $ 97 $ 21,099
======== ======== ======== ======= ======= ========
20
21
EAGLE-PICHER HOLDINGS, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
GUARANTORS
---------------------------- NON-GUARANTORS
EAGLE-PICHER SUBSIDIARY FOREIGN
ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ -------------- ---------- ------------ ------------ -----
(IN THOUSANDS OF DOLLARS)
Cash Flows From Operating Activities:
Net Income (Loss) $ 648 $ -- $ 4,785 $ 66 $ (4,692) $ 807
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Equity in earnings of consolidated
subsidiaries (4,785) -- 270 -- 4,515 --
Depreciation and amortization 3,588 -- 8,284 950 -- 12,822
Changes in assets and liabilities,
net of effect of divestitures (16,059) -- (9,247) 2,019 575 (22,712)
--------- --------- ------- ------- --------- ---------
Net cash provided by (used in)
operating activities (16,608) -- 4,092 3,035 398 (9,083)
--------- --------- ------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Subsidiary -- (180,005) -- -- 180,005 --
Capital expenditures (2,300) -- (1,833) (1,559) -- (5,692)
Other (956) -- 65 (846) 695 (1,042)
--------- --------- ------- ------- --------- ---------
Net cash provided by (used in)
investing activities (3,256) (180,005) (1,768) (2,405) 180,700 (6,734)
--------- --------- ------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 445,000 -- -- -- -- 445,000
Reduction of long-term debt (250,000) -- -- -- -- (250,000)
Borrowings (repayments) on revolving
credit agreement 79,100 -- -- (360) -- 78,740
Redemption of common stock (446,638) -- -- -- -- (446,638)
Issuance of common stock 180,005 100,001 -- -- (180,005) 100,001
Issuance of preferred stock -- 80,005 -- -- -- 80,005
Debt issue cost (26,062) -- -- -- -- (26,062)
--------- --------- ------- ------- --------- ---------
Net cash provided by (used in)
financing activities (18,595) 180,006 -- (360) (180,005) (18,954)
--------- --------- ------- ------- --------- ---------
Increase (decrease) in cash and
cash equivalents (38,459) 1 2,324 270 1,093 (34,771)
Intercompany accounts 1,740 -- (1,740) 899 (899) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 48,834 -- 561 4,344 -- 53,739
--------- --------- ------- ------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 12,115 $ 1 $ 1,145 $ 5,513 $ 194 $ 18,968
========= ========= ======= ======= ========= =========
21
22
G. LEGAL MATTERS
For other information on legal proceedings, see Item 3 of the
Company's Annual Report on Form 10-K/A for the fiscal year ended November 30,
1998.
In addition, the Company is involved in routine litigation,
environmental proceedings and claims pending with respect to matters arising out
of the normal course of business. In management's opinion, the ultimate
liability resulting from all claims, individually or in the aggregate, will not
materially affect the Company's consolidated financial position, results of
operations or cash flows.
H. SUBSEQUENT EVENT
On September 1, 1999, the Board of Directors approved a plan to
explore the sale of several smaller divisions in addition to the Ross Aluminum
Division (which, as previously announced, the Company is in the process of
selling) in order to focus on core businesses. None of the divisions under
consideration had sales in excess of approximately $35.0 million in the nine
months ended August 31, 1999 or $40.0 million in the twelve months ended
November 30, 1998. In the aggregate, the divisions under consideration for sale
(including the Ross Aluminum Division) had sales of approximately $95.0 million
in the nine months ended August 31, 1999 and $125 million in the twelve months
ended November 30, 1998. The Company had previously entered in a letter of
intent for the sale of the Ross Aluminum Division, however, the potential buyer
terminated the letter of intent due to a lack of financing. The Company intends
to continues to pursue the sale of the Ross Aluminum Division. These
divestitures are at an early stage and are subject to acceptable prices being
achieved and there can be no assurances that they will be completed. The
proceeds of such sales will be used to repay debt and finance future growth.
22
23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
As a result of the Acquisition as of February 24, 1998, which was
accounted for as a purchase, the Company's results of operations and financial
position for periods after February 24, 1998 are not comparable to those of
prior periods. The unaudited condensed consolidated statement of income (loss)
as of February 28, 1998 includes results of operations from (1) December 1, 1997
through February 24, 1998 of the Predecessor Company and (2) February 25 through
February 28, 1998 of the Company. In addition to the effects of the Acquisition,
other factors affecting the comparability of operations are the sale of the Trim
Division in the fourth quarter in 1998 and the acquisition of Carpenter in the
second quarter of 1999.
The following table sets forth certain sales and operating data, net of all
inter-segment transactions, for the Company's businesses for the periods
indicated:
Three Months Nine Months Six Months Three Months
Ended August 31 Ended Ended Ended
--------------------- August 31 August 31 February 28
1999 1998 1999 1998 1998
-------- -------- -------- -------- --------
(In millions of dollars)
Predecessor
Net sales by segment:
Automotive $ 135.8 $ 103.3 $ 390.1 $ 218.0 $ 103.8
Machinery 58.2 68.0 174.9 136.8 64.4
Industrial 37.3 35.1 110.6 71.5 37.6
-------- -------- -------- -------- --------
Total $ 231.3 $ 206.4 $ 675.6 $ 426.3 $ 205.8
======== ======== ======== ======== ========
Operating income by segment:
Automotive $ 8.3 $ 6.0 $ 29.8 $ 16.1 $ 8.2
Machinery 3.7 6.9 11.6 15.1 5.4
Industrial 4.2 3.4 11.7 6.7 3.2
Corporate overhead (4.4) (9.8) (15.0) (32.9) (5.8)
-------- -------- -------- -------- --------
Total $ 11.8 $ 6.5 $ 38.1 $ 5.0 $ 11.0
======== ======== ======== ======== ========
Net Sales. The Company's net sales were $231.3 million for the third
quarter ended August 31, 1999, an increase of $24.9 million or 12.1% from the
comparable period of 1998. Included in the results of the third quarter of 1999
are net sales of Carpenter, which was acquired in the second quarter of 1999,
and included in the second quarter of 1998 are net sales of the Trim Division,
which was sold in the fourth quarter of 1998. If the net sales of the Trim
Division and Carpenter are excluded, the Company's quarterly net sales decreased
1.1%. On a year-to-date basis, net sales increased 6.9% in 1999 from the
comparable period in 1998. However if the net sales of the Trim Division and
Carpenter are excluded, net sales decreased 1.0%.
23
24
The Automotive Group's net sales in the third quarter of 1999,
excluding Carpenter and the Trim Division, increased 5.5% over the same period
in 1998. A substantial part of the increase is due to broader market penetration
of precision-machined components in Europe. Sales of precision-machined
components in the United States were relatively flat as the Company added new
business with different customers to replace programs with Ford which were
discontinued throughout 1999. The acquisition of Carpenter is expected to
further expand the Company's product lines and its customer base for
precision-machined components. Demand for rubber-coated metal products has been
stronger throughout 1999 than 1998, but particularly in the third quarter, due
to improvements in certain Asian markets. Since the 1980's, original equipment
manufacturers ("OEM's"), such as Ford and General Motors, have been outsourcing
an increasing percentage of their production requirements. OEM's benefit from
outsourcing because outside suppliers generally have significantly lower cost
structures and can assist in shortening development periods for new products.
The benefits of this trend have been somewhat offset by the effects of intense
pricing pressures by the OEM's on their supplier base. Net sales for the
Machinery Group in the third quarter of 1999 decreased 14.3% from the comparable
period in 1998 due primarily to the declines in sales of heavy-duty forklift
trucks resulting from a decline in demand coupled with increased competition.
Net sales for the Industrial Group increased 6.3% in the third quarter of 1999.
The increase can be attributed in part to an increase in shipments of boron
products.
Cost of Products Sold. Cost of products sold, which excludes depreciation
expense, increased $21.8 million or 13.3% in the third quarter of 1999 from the
comparable period in 1998. As a percentage of sales, cost of products sold was
80.1% for the three months ended August 31, 1999 compared to 79.2% for the same
period in the prior year. Excluding the results of Carpenter and the Trim
Division, cost of sales as a percentage of sales was 78.9% and 78.8% in the
three month periods ended August 31, 1999 and 1998, respectively, and 78.3% and
78.1% for the nine month periods ended August 31, 1999 and 1998, respectively.
Positive trends in the first quarter, such as changes in product mix in certain
operations in the Machinery Group and productivity improvements, continued into
the second and third quarters, but were offset by the effects of the decline in
shipments of heavy-duty forklift trucks, which resulted in higher fixed costs on
a per unit basis, and costs related to inefficiencies in manufacturing new
multi-layer fuel transfer systems programs in Europe.
Since the Company expects strong price pressure to continue across all
product lines, particularly in the Automotive Group, the Company will continue
to pursue productivity improvements and material cost reductions to mitigate
such price pressures.
Selling and Administrative. Selling and administrative expenses
decreased $0.2 million or 1.0% in the third quarter of 1999 from the same period
in 1998. Excluding those of Carpenter and the Trim Division, selling and
administrative expenses increased $0.4 million or 2.6% from the third quarter of
1998 to the third quarter of 1999. On a year to date basis, selling and
administrative expenses, excluding those of Carpenter and the Trim Division,
have increased 3.7%. This increase is due to expenses incurred by the Company as
a result of the Acquisition in February 1998 which were not incurred in the
first quarter of 1998, including management fees to Granaria Holdings B.V. and a
long-term incentive program for managers.
Management Compensation-Special. The management compensation-special of
$21.7 million in the six months ended August 31, 1998 and $2.1 million in the
first quarter of 1998 is a one-time item related to the Acquisition.
Depreciation. Depreciation expense was $11.8 million and $9.6 million
in the third quarters of 1999 and 1998, respectively, and $33.9 million and
$28.4 million in the nine months ended August 31, 1999 and 1998, respectively.
Depreciation is not comparable due to the differences in asset bases as a result
of the Acquisition in February 1998. Purchase accounting allows a company to
take up to a year to allocate the purchase price to its assets and liabilities
based on their fair values. Although the Acquisition took place in February,
final adjustments to the fair values of plant, property and equipment and
depreciation expense in 1998 were not made until November 1998, after appraisals
had been obtained and analyzed. Other factors affecting the comparability of
depreciation expense include the depreciation attributable to Carpenter in 1999
and the Trim Division in 1998.
Amortization. Amortization of intangibles was $4.4 million and $4.2
million in the third quarters of 1999 and 1998, respectively, and $12.8 million
and $12.6 million in the nine months ended August 31, 1999 and 1998,
respectively. Amortization is not comparable
24
25
due to the differences in the asset bases as a result of the Acquisition in 1998
and the acquisition of Carpenter in 1999. In the first quarter of 1998, the
reorganization value in excess of amounts allocable to identifiable assets of
$65.1 million was being amortized over four years. In accordance with purchase
accounting, this asset was not allocated a fair value in the Acquisition. The
excess of acquired net assets over cost of $241.1 million, which resulted from
the Acquisition, is being amortized over 15 years. However, the final adjustment
of the amount of the excess of acquired net assets over cost and amortization
thereof was not made until November 1998.
Operating Income. Operating income was $11.8 million and $6.5 million
for the three months ended August 31, 1999 and 1998, respectively. Many factors
affect the comparability of operating income in 1999 and 1998. Depreciation and
amortization have been computed using different asset bases in 1999 than in
1998. Purchase accounting allows up to one year to allocate the purchase price
to assets and liabilities based on fair value of those assets. The final
adjustments to the fair values of property, plant and equipment were made in the
fourth quarter of 1998. Therefore, depreciation expense in the second and third
quarters of 1998 was computed based on an estimate of those values while 1999
depreciation was computed on fair values based on appraisals. These adjustments
also affected amortization of intangible assets. In addition, there were
management compensation - special expenses of $21.7 million in the six months
ended August 31, 1998 for which there were no comparable expenses in 1999.
Finally, Carpenter was acquired in the second quarter of 1999 and the Trim
Division was sold in the fourth quarter of 1998. After excluding all of these
items, operating income decreased 13.7% in the third quarter of 1999 compared to
the third quarter of 1998.
Operating income of the Automotive Group increased $2.3 million or 39%
in the third quarter of 1999 compared to the same period of the prior year.
Excluding the results of Carpenter and the Trim Division and the effects of the
changes in depreciation and amortization from 1998 to 1999, operating income
decreased 6.4% in the third quarter. Increases in operating income due to
increased volumes of rubber-coated metal products and improved efficiencies at
certain facilities that produce precision machined components have been offset
by operating losses caused by manufacturing inefficiencies related to new
multi-layer fuel transfer systems programs in Europe.
In the Machinery Group, operating income declined $3.2 million or 46.4%
in the third quarter of 1999 from the same quarter in 1998. This decline was
partially the result of a greater portion of the intangible asset associated
with the Acquisition being allocated to the Machinery Group in the final
adjustment of the purchase price allocation with occurred in the fourth quarter
of 1998. Additionally, the majority of the increased depreciation resulting from
the adjustment to asset bases affected the Machinery Group. After considering
these items, the decline in operating income in the Machinery Group was
approximately 35.5% in the third quarter. The majority of this decline is due to
reduced volumes of fork-lift trucks and start-up costs resulting from moving
production of fork-lift trucks to another facility. In addition, on a
year-to-date basis, increases in operating income in 1999 resulting from a more
favorable mix of special-purpose batteries sold was offset by losses resulting
from low volumes of industrial cleaning and finishing machinery.
Operating income of the Industrial Group increased $.8 million or 23.5%
in the third quarter of 1999 from the comparable period in 1998. However, the
majority of this increase is due to the reallocation of the intangible asset
which also impacted the Machinery Group. Operating income increased 9.0% in the
third quarter if the effect of the reallocation of the intangible asset is
excluded. This increase is due to modest operating gains in diatomaceous earth
and specialty materials operations.
For the nine months ended August 31, 1999, operating income was $38.1
million. After excluding the effects of the difference in depreciation and
amortization, the acquisition of Carpenter, the divestiture of Trim Division and
the management compensation - special, operating income decreased 12.7% from the
comparable period in 1998 for the same reasons discussed above.
Interest Expense. Interest expense for the three months ended August
31, 1999 and 1998 was $14.1 million and $12.1 million, respectively. This
increase is due to the acquisition of Carpenter. Interest expense was $37.6
million and $31.6 million for the nine months ended August 31, 1999 and 1998,
respectively. Upon the Acquisition in February of 1998, the Company repaid
$250.0 million of subordinated debentures, and borrowed $524.1 million in new
debt, which, together with the additional debt resulting from the acquisition
of Carpenter, accounts for most of the increase in year-to-date interest expense
in 1999.
Income Taxes. Income taxes were $0.4 million and $(1.1) million in the
three months ended August 31, 1999 and 1998, respectively, and $2.3 million and
$(1.5) million in the nine months ended August 31, 1999 and 1998, respectively.
Effective tax rates vary for a number of reasons including: 1) the amortization
of the reorganization value in excess
25
26
of amounts allocable to identifiable assets in the first quarter of 1998 was not
deductible for tax purposes while a substantial portion of the amortization of
the excess of acquired net assets over costs created during the Acquisition is
deductible; 2) the amortization of the excess of acquired net assets over costs
created upon the acquisition of Carpenter is not deductible for tax purposes;
and 3) the effect of income taxes in countries with higher tax rates, such as
Germany, varies as income in those countries varies in proportion to the
Company's total income.
Net Income. The income (loss) for the three months ended August 31,
1999 and 1998 was $(2.1) million and $(3.8) million, respectively, $(0.8)
million for the nine months ended August 31, 1999, $(13.1) million for the six
months ended August 31, 1998 and $0.8 million for the three months ended
February 28, 1998. However, as discussed above, the comparability of net income
has been significantly affected by the Acquisition and the application of
purchase accounting, the effects of the Trim Division divestiture, which was
sold in the fourth quarter of 1998, and the impact of the Carpenter acquisition
in the second quarter of 1999.
The loss applicable to common shareholders was increased by dividends
accreted on the 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock
("Preferred Stock") of $2.6 million and $7.8 million for the three months and
nine months ended August 31, 1999, respectively, to $4.7 million and $8.6
million, respectively. The net loss applicable to common shareholders was
increased by preferred stock dividends of $2.5 million and $4.9 million in the
three months and six months ended August 31, 1998, respectively, to $6.3 million
and $18.0 million, respectively. Since the Preferred Stock was issued upon the
Acquisition, net income applicable to common shareholders of $0.8 million for
the three months ended February 28, 1998 was not reduced.
LIQUIDITY AND CAPITAL RESOURCES
The following are certain financial data regarding earnings before interest,
taxes, depreciation and amortization ("EBITDA"), cash flows and earnings to
fixed charges and preferred stock dividends:
Nine Months Six Months Three Months
Ended August 31 Ended August 31 Ended February 28
1999 1998 1998
---- ---- ----
(in million of dollars)
Predecessor
EBITDA $ 87.1 $ 56.7 $ 27.0
Cash provided by (used in) operating activities 34.9 63.9 (9.1)
Cash used in investing activities (87.2) (16.0) (6.7)
Cash provided by (used in) financing activities 43.5 (45.9) (19.0)
Preferred stock dividends accreted 7.8 4.9 --
Earnings/fixed charges and preferred stock dividends .86X .22X 1.69x
EBITDA
The Company's EBITDA is defined by the terms of the Preferred Stock and
the Indenture for the 9 3/8% Senior Subordinated Notes as earnings before
interest expense, income taxes, depreciation and amortization, certain one-time
management compensation expenses and other non-cash charges. EBITDA, as defined
herein, may not be comparable to similarly titled measures reported by other
companies and should not be construed as an alternative to operating income or
to cash flows from operating activities, as determined by generally accepted
accounting principles, as a measure of the Company's operating performance or
liquidity, respectively. Funds depicted by EBITDA are not available for
management's discretionary use to the extent they are required for debt service
and other commitments.
The Company's EBITDA for the nine months ended August 31, 1999 was $87.1
million, an increase of 4.1% over the EBITDA of the same period of the
comparable year of $83.7 million. Increases in EBITDA resulting from the
Carpenter Acquisition, improvements in operating efficiencies in certain
facilities manufacturing precision-machined automotive components and better
volumes of rubber-coated metal products in Automotive Group were partially
offset by decreases resulting from low volumes of fork-lift trucks and costs
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incurred as a result of moving production of such trucks to another facility and
inefficiencies related to the production of new multi-layer fuel transfer
systems in Europe.
Operating Activities
Cash provided by operating activities was $34.9 million, and $54.8
million for the nine months ended August 31, 1999, and 1998 and consisted of the
following:
Nine Months Ended August 31,
----------------------------
1999 1998
---- ----
(in millions of dollars)
Operating income $ 38.1 $ 16.0
Depreciation and amortization,
excluding amortization of
deferred financing costs 46.7 41.0
Interest paid (29.5) (19.1)
Income taxes paid, net (10.1) (4.4)
Insurance settlement -- 13.7
Funding of management trust upon acquisition -- (10.0)
Working capital and other (10.3) 17.6
------ ------
$ 34.9 $ 54.8
====== ======
See "Results of Operations" for discussions concerning operating income and
depreciation and amortization. Interest paid has increased in conjunction with
the increase in interest expense described in "Results of Operations." Net
income taxes paid in 1999 have increased in part because: 1) there was a refund
of foreign taxes received early in 1998; 2) the Predecessor Company had net
operating loss carryforwards and as a result, there were no Federal income taxes
payable for income earned prior to the Acquisition (approximately the first
three months of 1998); and 3) a portion of the tax liability associated with the
tax period ended November 30, 1998 was paid in fiscal year 1999. The proceeds
from the insurance settlement in 1998 related to contingent assets at the time
of the Acquisition which were recognized as adjustments to excess of acquired
net assets over cost when realized. In 1998, the Eagle-Picher Management Trust
was funded upon the Acquisition for the benefit of certain senior management of
the Company. See discussion of this item in "Management Compensation" in the
Company's 10-K/A filed with the SEC on June 28, 1999. The decrease in cash in
1999, due to increases in working capital, versus decreases in working capital
in 1998, can be attributed to several items: 1)in 1998, much of the increase was
because the Company elected to use cash in an employee benefits trust to pay for
such benefits rather than the Company's cash; 2) a major customer changed its
payment schedule from the end of the month in 1998 to the beginning of the next
month in 1999; 3) the timing of the Thanksgiving holiday at the end of fiscal
year 1997 resulted in delayed payments from customers which were received in
early 1998; and 4) inventories have increased at various divisions in 1999 due
to preparation for fourth quarter shipments of boron products and other items,
increased mining activities due to favorable weather conditions, rebuilding of
inventory after a fire at one location, changes in certain shipping schedules
and Year 2000 preparedness.
Investing Activities
Cash used in investing activities was $87.2 million and $22.7 million
in the nine months ended August 31, 1999 and 1998, respectively. Early in the
first quarter of 1999, the Company received $12.4 million in cash relating to
the sale of the Trim Division, which was effective as of October 31, 1998.
Capital expenditures for the nine months ended August 31, 1999 were $40.0
million compared to $21.7 million for the same period in 1998. Besides
expenditures to complete a new plant in Mt. Pleasant, Michigan for Carpenter and
a small expansion to a plant manufacturing bulk pharmaceuticals in 1999, these
expenditures generally related to capital needed for new programs and
maintenance. The Company anticipates capital expenditures will not exceed $10.0
million for the remainder of 1999.
On April 14, 1999, the Company completed the acquisition of Carpenter,
a manufacturer of precision-machined automotive parts. This acquisition is
expected to expand both the Company's product lines and its customer base for
precision-machined automotive
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products. The total consideration included approximately $41.0 million in cash,
which was financed from the Revolving Credit Facility, and approximately $31.0
million of existing indebtedness of Carpenter, of which approximately $18.6
million was refinanced from the Company's Revolving Credit Facility. The
remainder of Carpenter's debt was assumed. The acquisition was accounted for as
a purchase and was effective March 1, 1999 for accounting purposes.
On September 1, 1999 the Board of Directors approved a plan to explore
the sale of several smaller divisions in addition to the Ross Aluminum Division
(which, as previously announced, the Company is in the process of selling) in
order to focus on core businesses. None of the divisions under consideration had
sales in excess of approximately $35.0 million in the nine months ended August
31, 1999 or $40.0 million in the twelve months ended November 30, 1998. In the
aggregate, the divisions under consideration for sale (including the Ross
Aluminum Divisions) had sales of approximately $95.0 million in the nine months
ended August 31, 1999 and $125.0 million in the twelve months ended November 30,
1998. The Company had previously entered into a letter of intent for the sale of
the Ross Aluminum Division, however, the potential buyer terminated the letter
of intent due to a lack of financing. The Company intends to continue to pursue
the sale of the Ross Aluminum Division. These divestitures are at an early stage
and are subject to acceptable prices being achieved. There can be no assurances
that they will be completed. The proceeds of such sales will be used to repay
debt and finance future growth.
Financing Activities
Cash provided from financing activities was $43.5 million in the first
nine months of 1999, due primarily to borrowings under the Credit Agreement to
finance the acquisition of Carpenter. Cash used in financing activities was
$64.8 million for the comparable period in 1998 as the Company repaid borrowings
incurred as a result of the Acquisition during the second and third quarters of
1998 and used cash in connection with the Acquisition transaction itself during
the first quarter of 1998.
As of August 31, 1999, letters of credit outstanding against the
Revolving Credit Facility were $53.0 million, which, coupled with the $127.0
million in outstanding borrowings at August 31, 1999, left the Company with
available borrowing capacity of approximately $40.0 million at that date. The
European operations had $10.7 million of borrowing capacity at August 31, 1999;
however, the Company is in the process of renegotiating certain of its credit
agreements in Europe.
Earnings to Fixed Charges and Preferred Stock Dividends
The earnings to fixed charges and preferred stock dividends for the
nine months ended August 31, 1999 were .86X and earnings were insufficient to
cover fixed charges and preferred stock dividends by $6.3 million in that
period.
The earnings to fixed charges and preferred stock dividends for the six
months ended August 31, 1998 is not meaningful. Earnings were insufficient to
cover fixed charges and preferred stock dividends by $23.6 million in this
period. However, one time management compensation expenses of $21.7 million are
included in this period. Excluding this item, earnings to fixed charges and
preferred stock dividends would have been .94X and earnings would have been
insufficient to cover fixed charges and preferred stock dividends by $1.9
million.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20." If not corrected, many
computer programs could fail or cause erroneous results. Failures of this nature
could cause interruptions to manufacturing processes, business and financial
functions and communications with customers and suppliers.
Due to the diverse nature of the Company's operations, each operating
division has its own discrete computer systems. The Company currently has a Year
2000 program in place, which included a comprehensive review to identify the
areas of concern in each of the systems affected by the Year 2000 issue and
followed up with design and implementation of measures to address those issues.
The Company has assessed its information technology systems such as business
computing systems, end user computer systems and technical infrastructure, as
well as embedded systems commonly found in manufacturing and service equipment,
testing equipment and environmental operations. The assessments also included
28
29
the Company's products and evaluation of the readiness of its suppliers and
service providers.
The Company's Year 2000 program involves a five step process applied to
each of eight different application areas within each operation and at the
Corporate level. The Company first inventoried areas of potential risk based on
comparison to guidelines published by the Automotive Industry Action Group. Each
component identified in the inventory was then evaluated for its risk of failure
and the impact of potential failure to the Company's operations and its
customers. Once the risks were assessed, remediation was commenced. Options for
remediation included replacement, modification or continued use depending on
information gathered during the inventory and assessment stages. The remediated
system is then tested and reviewed before the determination is made as to the
readiness of the system. A project committee meets regularly to review the
status of the investigation into and resolution of Year 2000 issues.
The Company's divisions have completed the inventory and assessment
phases and are in the final phases of remediation and testing. The final step of
the program is review by the Company's outside consultant for Year 2000
readiness, a review that is ongoing, to ensure that procedures are properly
documented and that modifications or upgrades will not interfere with the
Company's preparedness. The Company maintains a record of its progress to date,
and publishes reports for each of its divisions on its web site at
www.epcorp.com.
The Company's remaining costs to remediate the Year 2000 problem are
not expected to exceed $1.0 million. Of this amount, approximately $0.3 million
will be spent in the form of capital for systems replacement and approximately
$0.4 million will be incremental costs. The remaining costs relate to the
redeployment of the Company's existing resources to assess and remediate the
Year 2000 problem. Projects being deferred by this issue include items such as
system enhancements that would improve performance or functionality. Through
August 31, 1999, the Company estimates it has spent approximately $4.6 million
in assessing and remediating the Year 2000 problem, of which $1.3 million was
for capital equipment and $2.1 million related to incremental costs.
The Company suspects its greatest risk lies within its financial
computer systems and Electronic Data Interchange ("EDI") capabilities with its
customers and suppliers. The Company relies on customer requirements and outside
services for most of its EDI capabilities and therefore is dependent on such
parties addressing Year 2000 issues. If these systems were to fail, the Company
would encounter difficulty performing functions such as compiling financial
data, invoicing customers, accepting electronic customer orders or informing
customers electronically of shipments. While some of these functions could be
performed manually, the Company presently is not certain what the extent of the
impact on operations would be. Failures in the Company's supply chain,
particularly in locations where the Company operates in a "just-in-time"
environment, pose another risk. The Company's year 2000 program involves a
cooperative effort with its suppliers to exchange information regarding year
2000 preparedness. Additionally, there are special risks associated with certain
suppliers, including utility companies, due to the Company's limited control
over those critical suppliers.
Each Division has completed and is strengthening its contingency plans
which address issues related to potential failures of critical systems due to
Year 2000 problems. The Company will continue to review and strengthen those
plans throughout the balance of this year. The Company believes that the most
likely worst case scenario will be limited to isolated disruptions that will
affect individual business processes, facilities, suppliers or customers for a
relatively short time.
The Company presently believes that through the planned modification to
existing systems and conversion to new systems, as well as ongoing
correspondence with suppliers and customers, the Year 2000 issue will not
materially impair the Company's ability to conduct business.
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the
euro as their common legal currency and established fixed conversion rates
between their existing local currencies and the euro. During the transition
period, which runs from January 1, 1999 through December 31, 2002, transactions
may take place using either the euro or a local currency. However, conversion
rates will no longer be computed directly from one local
29
30
currency to another, but be converted from one local currency into an amount
denominated in euro, then be converted from the euro denominated amount into the
second local currency. On July 1, 2002, the local currencies will no longer be
legal tender for any transactions.
The Company has both operating divisions and domestic export customers
located in Europe. In 1998, combined revenues from these sources were
approximately 15% of total revenues. The Company has operations in Germany, the
Netherlands, France and Spain, which are participating in the euro conversion,
and the United Kingdom, which has elected not to participate at this time. Most
of the affected operations plan to make the euro the functional currency in
fiscal year 2000, although certain of the Company's European operations have
already entered into euro-based transactions.
It is difficult to assess the competitive impact of the euro conversion
on the Company's operations, both in Europe and in the United States. In markets
where sales are made in U.S. dollars or British pounds, there may be pressures
to denominate sales in the euro, however, exchange risks resulting from these
transactions could be mitigated through hedging. Pressures to price products in
euros may be more urgent for operations located in the United Kingdom,
particularly in the automotive industry, as the European automotive industry is
somewhat dominated by German companies. The currency risk to the operations
located in the United Kingdom could also be hedged, however the risk is greater
on a regional level that the hedging could result in additional costs that could
harm the cost competitiveness of those operations. Some customers have initiated
the process to price products in euros, but the process has not been progressing
quickly. It is not anticipated that costs incurred for changes to information
technology and other systems which are necessary for the euro conversion will be
material. The Company is currently assessing the impact the euro conversion may
have on items such as taxation and other issues.
RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Subsidiary and the Subsidiary Guarantors are subject to
restrictions on the payment of dividends and other forms of payment in both the
Credit Agreement and the Indenture for the Subordinated Notes. Those
restrictions generally prohibit the payment of dividends to the Company either
directly by the Subsidiary or indirectly through any Subsidiary Guarantor.
Certain limited exceptions are provided allowing for payments to the Company.
Specifically, the Subsidiary is authorized to make payments to the Company in
amounts not in excess of any amounts the Company is required to pay to meet its
consolidated income tax obligations. Additional payments from the Subsidiary to
the Company are permitted commencing September 1, 2003 in amounts not in excess
of the Company's obligations to make any cash dividend payments required to be
paid under the Company's Preferred Stock and to make any cash interest payments
required to be paid under any debentures issued by the Company in exchange for
the Company's Preferred Stock ("Exchange Debentures").
ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in fair value of a derivative depends on its intended use
and the resulting designation. The provisions of this statement become effective
for the Company beginning December 1, 2000. The Company has not yet determined
the impact this statement will have on its financial position or the results of
its operations. Other pronouncements issued by the FASB since June 1998 are not
applicable to the Company.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are
not recitations of historical fact, constitute "forward looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934. Such
forward-looking information involves important risks and uncertainties that
could materially alter results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and
30
31
uncertainties include, but are not limited to, the ability of the Company to
maintain existing relationships with customers, the ability of the Company to
successfully implement productivity improvements, cost reduction initiatives,
facilities expansion and the ability of the Company to develop, market and sell
new products and to continue to comply with environmental laws, rules and
regulations. Other risks and uncertainties include uncertainties relating to
economic conditions, acquisitions and divestitures, government and regulatory
policies, technological developments and changes in the competitive environment
in which the Company operates. Persons reading this Form 10-Q are cautioned that
such forward-looking statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, readers should
specifically consider the various factors which could cause actual events or
results to differ materially from those indicated by such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Both the Company's Term Loan Facility and Revolving Credit Facility
under the Credit Agreement bear interest at a variable rate equal to either (a)
the average daily rate on overnight U.S. federal funds transactions ("Federal
Funds Rate"), or (b) the London Interbank Offered Rate shown on Telerate Page
3750 for the applicable interest period ("LIBOR"), plus, in either case, an
applicable spread.
On February 26, 1998, the Company entered into a three year interest
rate swap agreement with its lead bank to partially hedge its interest rate risk
on loans under the Credit Agreement. Under this agreement, the Company pays a
fixed rate of 5.805% on a notional amount of $150.0 million and receives LIBOR
on that amount. This swap transaction effectively fixes the interest rate on
$150.0 million of debt outstanding under the Credit Agreement at 5.805% plus the
applicable spread for the duration of the interest rate swap.
The Credit Agreement was amended in May 1999 to increase the Revolving
Credit Facility, reduce the Term Loan Facility and provide for the
Securitization. In June 1999, approximately $120.5 million in term loans were
repaid with the proceeds from the Securitization of $65.0 million and
additional borrowings under the Revolving Credit Facility. The interest rate
swap agreement was not impacted by this transaction; however, it does not cover
debt outstanding under the Securitization.
Loans under the Securitization bear interest at a variable rate equal
to market rates on commercial paper having a term similar to the applicable
interest period. As of August 31, 1999, $210.5 million in debt was outstanding
under the Credit Agreement, of which interest on $150.0 million is essentially
fixed by the interest rate swap agreement. The remaining $123.8 million of debt
outstanding bears interest at the variable rates under either the Revolving
Credit Agreement or Securitization as described above. Accordingly, a 1%
increase in both the applicable index rates would result in additional interest
expense of $1.2 million per year assuming no change in the level of borrowing.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER HOLDINGS, INC.
/s/ Carroll D. Curless
--------------------------------
Carroll D. Curless
Vice President and Controller
(Principal Financial Officer and
Principal Accounting Officer)
DATE September 24, 1999
--------------------------------
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34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER INDUSTRIES, INC.
/s/ Carroll D. Curless
--------------------------------
Carroll D. Curless
Vice President and Controller
(Principal Financial Officer and
Principal Accounting Officer)
DATE September 24, 1999
--------------------------------
34
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAISY PARTS, INC.
/s/ Gary M. Freytag
--------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
35
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER DEVELOPMENT COMPANY, INC.
/s/ Gary M. Freytag
-------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
36
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FAR EAST, INC.
/s/ Gary M. Freytag
-------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
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38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER FLUID SYSTEMS, INC.
/s/ Gary M. Freytag
-------------------------------------
Gary M. Freytag
Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
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39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER MINERALS, INC.
/s/ Gary M. Freytag
-------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
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40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ R. Doug Wright
--------------------------------
R. Doug Wright
Vice President, Controller
and Chief Financial Officer
DATE September 24, 1999
--------------------------------
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ Gary M. Freytag
-------------------------------------
Gary M. Freytag
Vice President and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
--------------------------------
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICHIGAN AUTOMOTIVE RESEARCH CORPORATION
/s/ Terence J. Rhoades
----------------------------------------
Terence J. Rhoades
Secretary and Treasurer
(Principal Financial Officer)
DATE September 24, 1999
-----------------------------------
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule (submitted electronically to
the Securities and Exchange Commission for its
information.)
43