<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to____________________
Commission File No.: 333-64893
EVENFLO COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction 31-1360477
of incorporation or organization) (I.R.S. Employer Identification No.)
Northwoods Business Center II
707 Crossroads Court
Vandalia, Ohio 45377
(Address of principal executive offices, Zip Code)
(937) 415-3300
(Registrant's telephone number, including area code)
(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 by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days.
Yes /x/ No ___
The number of shares of common stock outstanding of the registrant's common
stock, par value $1.00 per share, at June 30, 2000 was 10,000,000.
<PAGE>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGES
-----
Part I. Financial Information
<S> <C>
Condensed Consolidated Balance Sheets -
December 31, 1999 and June 30, 2000 2
Condensed Consolidated Statements of Earnings (Loss) -
Three and Six Months Ended June 30, 1999 and 2000 3
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 2000 4
Notes to Condensed Consolidated Financial Statements 5 - 7
Independent Accountants' Review Report 8
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 9 - 13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND JUNE 30, 2000 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
---------------------------------------------------------------------------------------------------
(Unaudited)
December 31, June 30,
ASSETS 1999 2000
------ ------------ ----------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 3,110 $ 1,463
Receivables, less allowance of $ 1,050 and $997 70,772 79,994
Inventories 63,896 72,625
Deferred income taxes 8,066 10,582
Prepaid expenses 654 834
------------ ----------
TOTAL CURRENT ASSETS 146,498 165,498
Property, plant and equipment 126,246 128,110
Accumulated depreciation (61,823) (69,263)
------------ ----------
Property, plant and equipment, net 64,423 58,847
Intangible assets, net 44,779 44,005
Deferred income taxes 14,429 14,294
Other 6,494 6,073
------------ ----------
TOTAL ASSETS $ 276,623 $ 288,717
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 29,706 $ 30,139
Bankers acceptances and letters of credit 18,431 35,729
Accrued expenses 32,068 27,680
------------ ----------
TOTAL CURRENT LIABILITIES 80,205 93,548
Senior notes 110,000 110,000
Revolving credit loans 20,500 22,000
Pension and post-retirement benefits 5,742 5,667
------------ ----------
TOTAL LIABILITIES 216,447 231,215
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value, 10,000,000 shares authorized,
400,000 shares outstanding (liquidation value, $40,000,000) 40,000 40,000
Common Stock:
Class A, $1 par value, 20,000,000 shares authorized;
10,000,000 shares outstanding 10,000 10,000
Class B, $1 par value, 5,000,000 shares authorized;
none outstanding 0 0
Paid-in capital 61,387 61,387
Retained earnings (deficit) (47,161) (49,577)
Accumulated other comprehensive earnings (loss)-currency
translation adjustments (4,050) (4,308)
------------ ----------
TOTAL SHAREHOLDERS' EQUITY 60,176 57,502
------------ ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 276,623 $ 288,717
============ ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 2000 1999 2000
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
NET SALES $ 70,185 $ 81,073 $ 165,045 $ 175,397
Cost of sales 53,171 62,153 125,977 134,266
---------- ---------- ------------ -----------
GROSS PROFIT 17,014 18,920 39,068 41,131
Selling, general and administrative expenses 15,944 17,257 34,569 35,897
---------- ---------- ------------ -----------
INCOME FROM OPERATIONS 1,070 1,663 4,499 5,234
Interest expense, net 4,211 4,560 7,969 8,957
Currency (gain) loss, net (310) 512 (697) 423
---------- ---------- ------------ -----------
LOSS BEFORE INCOME TAXES (2,831) (3,409) (2,773) (4,146)
Income tax benefit (1,124) (1,193) (866) (1,730)
---------- ---------- ------------ -----------
NET LOSS $ (1,707) $ (2,216) $ (1,907) $ (2,416)
========== ========== ============ ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 (Dollar amounts in thousands)
------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
JUNE 30, JUNE 30,
1999 2000
---------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,907) $ (2,416)
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation 6,925 7,560
Intangibles amortization 775 774
Deferred income taxes (1,338) (2,381)
Deferred financing cost amortization 372 374
Change in working capital components:
Receivables 10,080 (9,222)
Inventories (24,535) (8,729)
Current liabilities 6,373 13,343
Other, including currency translation adjustment 582 (345)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (2,673) (1,042)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES - CAPITAL EXPENDITURES (6,969) (2,105)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES - BORROWINGS FROM
REVOLVING CREDIT FACILITY 10,300 1,500
--------- ---------
CASH - net change 658 (1,647)
beginning of period 4,197 3,110
--------- ---------
end of period $ 4,855 $ 1,463
========= =========
SUPPLEMENTAL CASH FLOW DATA
Interest paid 7,860 8,769
Income taxes paid 472 651
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
For the Three and Six Months ended June 30, 1999 and 2000. (Unaudited)
(Dollars in thousands)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 2000 and
the related statement of earnings (loss) for the three and six months
ended June 30, 1999 and 2000 and the cash flows for the six months ended
June 30, 1999 and 2000 included herein have been prepared by Evenflo
Company, Inc. and its Subsidiaries (the "Company") and are unaudited. The
condensed balance sheet as of December 31, 1999 is derived from the
Company's audited financial statements. In the opinion of the Company's
management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments, which are of a normal recurring
nature, necessary to present fairly, in all material respects, the
Company's financial position as of June 30, 2000, results of operations
for the three and six months ended June 30, 1999 and 2000, and cash flows
for the six months ended June 30, 1999 and 2000. The results of
operations for the three and six months ended June 30, 2000 are not
necessarily indicative of the results to be expected for the full year
2000. Therefore, the accompanying unaudited condensed financial
statements of the Company should be read in conjunction with the
financial statements included in the Company's Form 10-K.
2. ACCOUNTING POLICIES
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS", ("SAB 101"), which provides guidance on applying generally
accepted accounting principles for recognizing revenue. SAB 101, as
amended, is effective for the fourth quarter of 2000. The Company is
reviewing the impact of SAB 101 on its financial statements, and does not
believe that its adoption will have a material impact on the consolidated
financial position, results of operations and cash flows.
3. INVENTORIES
Inventories are valued at the lower of cost or market (net
realizable value). Cost for United States inventories has been determined
by use of the last-in, first-out method. Cost for non-U.S. inventories
has been determined by use of the first-in, first-out method.
<TABLE>
<CAPTION>
December 31, 1999 June 30, 2000
----------------- -------------
<S> <C> <C>
Finished goods $29,892 $30,927
Work in process 13,232 15,590
Raw material 20,772 26,108
------- -------
Total inventories $63,896 $72,625
======= =======
</TABLE>
5
<PAGE>
4. COMPREHENSIVE INCOME
The Company's comprehensive income consists solely of foreign
currency translation adjustments related to its non-U.S. subsidiaries net
earnings (loss). For the comparative three and six months ended June 30,
1999 and 2000, comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
------------------ -----------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(1,707) $(2,216) $(1,907) $(2,416)
Foreign currency translation 86 (515) 164 (258)
-------- -------- --------- ---------
Comprehensive loss $(1,621) $(2,731) $(1,743) $(2,674)
======== ======== ========= =========
</TABLE>
5. SHAREHOLDERS' EQUITY
PREFERRED STOCK. On August 20, 1998, the Company issued Cumulative
Preferred Stock with a liquidation preference of $40,000. The holder of
the Cumulative Preferred Stock is entitled to receive, when, as and if
declared by the Board of Directors, dividends on each outstanding share
of Cumulative Preferred Stock, at a variable rate based on the ten-year
treasury rate, based on the then effective liquidation preference per
share of Cumulative Preferred Stock. Dividends on the Cumulative
Preferred Stock are payable quarterly in arrears on August 15, November
15, February 15 and May 15 of each year. The dividend rate with respect
to the Cumulative Preferred Stock bears a variable rate of interest
indexed to the ten year U. S. Treasury rate. The interest rate used to
calculate the dividends in arrears was 14.2% per annum. The right to
dividends on the Cumulative Preferred Stock is cumulative and dividends
accrue (whether or not declared), without interest, from the date of
issuance of the Cumulative Preferred Stock. Because the Board of
Directors has not declared any preferred dividends through June 30, 2000,
the amount of the Cumulative Preferred Stock dividends in arrears as of
that date is $10,622.
6. CONTINGENCIES
The Company is both plaintiff and defendant in numerous lawsuits
incidental to its operations, some alleging substantial claims. In
addition, the Company's operations are subject to federal, state and
local environmental laws and regulations. The Company has entered into
settlement agreements with the U. S. Environmental Protection Agency and
other parties on several sites and is still negotiating with respect to
other sites. The settlement amounts and estimated liabilities are not
significant.
6
<PAGE>
Management is of the opinion that, after taking into account the
merits of defenses, insurance coverage and established reserves, the
ultimate resolution of these matters will not have a material adverse
effect in relation to the Company's condensed consolidated financial
statements.
Under an indemnification agreement entered into on August 20,
1998, as part of the separation of the Company from Spalding Holdings
Corporation, Spalding Holdings Corporation agreed to indemnify the
Company for all losses and liabilities of any kind relating to any
non-Company matters and the Company agreed to indemnify Spalding for all
losses and liabilities of any kind relating to the Company's business. In
addition, Spalding agreed to indemnify the Company for the expense of
product recalls and corrective actions relating to products manufactured
by the Company prior to August 20, 1998.
The Company has insurance to cover the cost of recalls and
corrective actions. The policy has a deductible of $500 per occurrence
and a limit of $10,000 per year.
7. SEGMENT REPORTING
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ---------------------------
1999 2000 1999 2000
---- ---- ---- ----
GEOGRAPHIC LOCATION
NET SALES
<S> <C> <C> <C> <C>
United States $ 59,254 $ 69,216 $ 144,535 $ 152,600
Other nations 10,931 11,857 20,510 22,797
--------- --------- --------- ---------
Total net sales $ 70,185 $ 81,073 $ 165,045 $ 175,397
========= ========= ========= =========
EARNINGS (LOSS) BEFORE INCOME TAXES
United States $ 335 $ 115 $ 4,040 $ 2,803
Other nations 1,045 1,036 1,156 2,008
Interest expense, net (4,211) (4,560) (7,969) (8,957)
--------- --------- --------- ---------
Earnings (loss) before income taxes $ (2,831) $ (3,409) $ (2,773) $ (4,146)
========= ========= ========= =========
December 31, June 30,
1999 2000
---- ----
IDENTIFIABLE ASSETS
United States $ 254,227 $ 263,992
Other nations 22,396 24,725
--------- ---------
Total assets $ 276,623 $ 288,717
========= =========
</TABLE>
7
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors & Shareholders
Evenflo Company, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Evenflo Company, Inc. and subsidiaries (the "Company") as of June 30, 2000, and
the related condensed consolidated statements of earnings (loss) for the three
and six months ended June 30, 1999 and 2000 and of condensed consolidated cash
flows for the six months ended June 30, 1999 and 2000. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company at December 31, 1999, and the related consolidated statements of
earnings (loss) and comprehensive earnings (loss), cash flows and shareholders'
equity for the year then ended (not presented herein); and in our report dated
February 18, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Dayton, Ohio
August 11, 2000
8
<PAGE>
EVENFLO COMPANY, INC.AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 ("2000 THREE MONTHS") AND SIX MONTHS ENDED JUNE
30, 2000 ("2000 SIX MONTHS") COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1999
("1999 THREE MONTHS") AND SIX MONTHS ENDED JUNE 30, 1999 ("1999 SIX MONTHS").
NET SALES. The Company's net sales of $81,073 in the 2000 three months
compare to $70,185 for the 1999 three months, an increase of $10,888 or 15.5%.
The Company's 2000 six months net sales of $175,397 compare to $165,045 for the
1999 six months, an increase of $10,352 or 6.3%. U.S. net sales, including
export sales, of $69,216 for the 2000 three months increased $9,962, or 16.8%,
from $59,254 for the 1999 three months. U.S. net sales, including export sales,
of $152,600 for the 2000 six months, increased $8,065, or 5.6%, from $144,535
for the 1999 six months. U.S. sales increased due primarily to increased volume
to major retailer customers. International net sales increased by 8.5% to
$11,857 in the 2000 three months from $10,931 for the 1999 three months. In the
2000 six months, international sales increased by $2,287, or 11.2%, to $22,797
from $20,510 for the 1999 six months. International net sales increased
principally due to increased sales volume in Canada and Mexico, partially offset
by lower sales volume in Asia and Europe.
GROSS PROFIT. The Company's gross profit increased to $18,920 in the
2000 three months from $17,014 in the 1999 three months. As a percentage of net
sales, gross profit decreased to 23.3% in the 2000 three months from 24.2% in
the 1999 three months. For the 2000 six months, gross profit increased by $2,063
or 5.3% to $41,131 from $39,068 for the 1999 six months. As a percentage of net
sales, gross profit decreased to 23.5% in the 2000 six months from 23.7% in the
1999 six months. The margin decrease was due to (i) product category mix changes
from the prior year, (ii) strong competitive pricing pressures, and (iii) higher
raw material cost.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. The Company's
SG&A expenses increased to $17,257 in the 2000 three months from $15,944 in the
1999 three months. As a percentage of net sales, SG&A expenses decreased to
21.3% in the 2000 three months from 22.7% in the 1999 three months. For the 2000
six months SG&A expenses were $35,897, a $1,328 or 3.8% increase over the
$34,569 reported for the 1999 six months. As a percentage of net sales, SG&A
decreased to 20.5% in the 2000 six months from 20.9% in the 1999 six months. The
percentage of net sales decreases in 2000 were due to reduced selling, product
liability and safety campaign expenses. Partially offsetting the percentage of
net sales decreases were (i) higher customer marketing and promotional costs and
(ii) increased product development and engineering expenses.
INTEREST EXPENSE. Interest expense increased to $4,560 in the 2000
three months and $8,957 in the 2000 six months from $4,211 in the 1999 three
months and $7,969 in the 1999 six months. The increase for both the 2000 three
and six months over respective periods last year, was due to (i) higher
outstanding balances under the revolving credit facility and (ii) higher
interest rates.
9
<PAGE>
CURRENCY (GAIN) LOSS. The $512 currency loss in the 2000 three months
and a $423 loss for the 2000 six months compares to a $310 gain for the 1999
three months and a $697 gain in the 1999 six months. The unfavorable impact of
currency losses for the 2000 three and six months over the 1999 three and six
months is due primarily to the currency effect of a U.S. dollar denominated note
payable on the books of a non-U.S. subsidiary and the translation of the
Company's Mexican subsidiary's operating results into U.S. dollars.
INCOME TAXES (BENEFIT). The Company recorded a tax benefit in both the
2000 and 1999 three months and the 2000 and 1999 six months associated with loss
from U.S. operations. The tax benefit for both the 2000 three months and six
months is offset in part by tax expense from Mexico and Canadian provincial tax.
The tax benefit for the 1999 six months is offset in part by tax expense
principally from Mexico. No Canadian federal income tax expense was recorded as
the earnings of the Company's Canadian subsidiary were offset by a net operating
loss that was available to this subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. The Company's principal sources of liquidity are from cash
flows generated from operations and from borrowings under the Company's $100,000
revolving credit facility. The Company's principal uses of liquidity are to
provide working capital, meet debt service requirements and finance the
Company's strategic plans. At June 30, 2000 the Company had $1,463 of cash. In
addition, the Company had $33,717 in available borrowing capacity under its
revolving credit facility.
The Company currently believes that cash flow from operating
activities, together with borrowings available under its revolving credit
facility, will be sufficient to fund the Company's currently anticipated working
capital, capital expenditures, interest payments and other liquidity needs for
the Company's 2000 year. Any future acquisitions, joint ventures or other
similar transactions will likely require additional capital and there can be no
assurance that any such capital will be available to the Company on acceptable
terms or at all. There can be no assurance, however, that the Company's business
will continue to generate sufficient cash flow from operations in the future to
service its debt, meet the Company's increasingly restrictive debt covenants,
make necessary capital expenditures or meet its other cash needs. If unable to
do so, the Company may be required to refinance all or a portion of its existing
debt, to sell assets or obtain additional financing. There can be no assurances
that any such refinancings would be possible or that any such sales of assets or
additional financing could be achieved on terms reasonably favorable to the
Company.
The Company is currently discussing with Bank of America, the
administrative agent for the revolving credit facility, an amendment to certain
financial covenants for the period commencing with the third fiscal quarter of
this fiscal year to reduce the restrictiveness of such covenants.
10
<PAGE>
CASH FLOWS
2000 SIX MONTHS COMPARED TO THE 1999 SIX MONTHS. For the 2000 six
months, the Company used $3,147 in cash before financing activities, operating
activities used $1,042 and investments in capital expenditures totaled $2,105.
In the 2000 six months net borrowings under the revolving credit facility
increased $1,500. For the 1999 six months, the Company used $9,642 in cash
before financing activities to fund $2,673 in operating activities, primarily
used cash for inventory, partially offset by lower receivables and increased
current liabilities, and invested $6,969 in capital expenditures. In the 1999
six months the Company borrowed $10,300 under the revolving credit facility.
Net cash used in operating activities for the 2000 six months was
$1,042 compared to $2,673 in the 1999 six months. The $1,631 lower operating use
of cash for the 2000 six months compared to the 1999 six months was primarily
due to changes in working capital components.
Capital expenditures during the 2000 six months relate primarily to new
product development, and projects to improve quality and expansion of the
business. During the 1999 six months capital expenditures were used to upgrade
U.S. and international information systems.
EBITDA AND ADJUSTED EBITDA
EBITDA is defined as earnings before interest expense, income taxes,
depreciation, amortization, extraordinary items and restructuring costs.
Adjusted EBITDA is defined as EBITDA and unusual costs. EBITDA and Adjusted
EBITDA are included because the Company believes it provides useful information
regarding its ability to service its debt and because the Company understands
that such information is considered to be an additional basis for evaluating the
Company's ability to pay interest and repay debt. EBITDA and Adjusted EBITDA do
not, however, represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as a substitute for
net earnings as an indicator of the Company's operating performance or cash flow
as a measure of liquidity. Because EBITDA and Adjusted EBITDA are not calculated
identically by all companies, the presentation herein may not be comparable to
similarly titled measures of other companies.
The Company's Adjusted EBITDA increased from $5,451 and $13,336 in the
1999 three and six months, respectively, to $5,556 and $13,569 in the 2000 three
and six months, respectively, as indicated in the table below:
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) $(1,707) $(2,216) $(1,907) $(2,416)
Income taxes (benefit) (1,124) (1,193) (866) (1,730)
Interest expense, net 4,211 4,560 7,969 8,957
Depreciation and amortization 4,071 4,405 8,140 8,758
-------- -------- -------- --------
EBITDA 5,451 5,556 13,336 13,569
-------- -------- -------- --------
Unusual costs 0 0 0 0
-------- -------- -------- --------
ADJUSTED EBITDA $ 5,451 $ 5,556 $13,336 $13,569
======== ======== ======== ========
</TABLE>
CURRENCY HEDGING
In the 2000 six months, approximately 13% of the total Company net sales
were generated in non-U.S. currencies. Fluctuations in the value of these
currencies relative to the U.S. dollar could have a material effect on the
Company's results of operations. The Company's cost could be adversely affected
if the Chinese Renminbi appreciates significantly relative to the U.S. dollar.
Although the Company generally pays for its products in U.S. dollars, the cost
of such products fluctuates with the value of the Chinese Renminbi. The Company
is exposed to the impact of changes in foreign currency exchange rates on its
results of operations as a result of U.S. dollar-denominated intercompany
balances owed from international subsidiaries, primarily for purchases of
products from the Company's U.S. operations and long-term notes receivable. The
impact of a hypothetical unfavorable change in foreign currency exchange rates
of 10% would result in additional losses before taxes of approximately $1,500
and $1,600 based on intercompany balances as of December 31, 1999 and June 30,
2000, respectively.
INTEREST RATE RISK
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing and cash management activities.
The Company utilizes a mix of debt maturities along with both fixed and
variable-rate debt to manage its exposure to changes in interest rates. Recent
increases in interest rates and higher utilization of the Company's revolving
credit facility are expected to increase interest expense in 2000. There can be
no assurances that interest rates will not materially change from existing
levels.
12
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements made in this Management's Discussion and Analysis of
the Condensed Consolidated Financial Statements and in the Notes to Condensed
Consolidated Financial Statements reflect management's estimates and beliefs and
are intended to be, and are hereby identified as, "forward-looking statements"
for purposes of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking terminology, includes but is not
limited to words such as "may," "intend," "will," "expect," anticipate," "plan,"
"the Company believes," "management believes," "estimate," "continue," or
"position" or the negative thereof or other variations thereon or comparable
terminology. In particular, any statements, express or implied, concerning
future operating results or the ability to generate revenues, income or cash
flow are forward looking statements.
Although the Company believes that the assumptions on which
forward-looking statements contained herein are based are reasonable, any of
those assumptions could be incorrect and the inclusion of a forward-looking
statement herein should not be regarded as a representation by the Company that
its plans and objectives will be achieved. Therefore, the Company cautions
readers that such forward-looking statements involve risks and uncertainties
that could cause actual results to differ materially from those currently
expected by management, including as a consequence of the Company's significant
leverage and dividend requirements; the restrictive covenants included in its
debt arrangements; the highly competitive nature of the juvenile products
industry; the potential inability of the Company to implement its business
strategy; the Company's dependence on a small number of customers and risks
arising as a consequence of continued consolidation in the retail industry;
risks involved in relying on increasing foreign sales and international
suppliers; the intense regulation of juvenile products and the potential for
product recalls, and product liability litigation; the need for product
innovation to remain competitive; the availability of materials used in the
Company's operations; the effect of environmental regulations; dependence on
management and a small unionized workforce.
13
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Part II. Other Information.
Item 1. LEGAL PROCEEDINGS.
There are various claims pending against the Company involving product
liability, patent, employee benefit, environmental, and other matters
arising out of the conduct of the business of the Company as
previously described in the Company's Form 10-K and Form 10-Q. The
following summarizes significant developments in previously reported
matters and any material claims asserted since March 31, 2000.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. The following is an index of the exhibits included in the Form 10-Q:
Exhibit 27 Financial data Schedule
B. The following Reports on Form 8-K were filed by Evenflo Company, Inc.
during the quarter ended June 30, 2000.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed on behalf of the registrant by the following duly authorized
persons.
EVENFLO COMPANY, INC. AND SUBSIDIARIES
(Registrant)
Date August 11, 2000 /s/ Richard W. Frank
---------------- ----------------------------------------
Richard W. Frank
Chairman of the Board of Directors and
Chief Executive Officer
Date August 11, 2000 /s/ Daryle A. Lovett
--------------- -----------------------------------------
Daryle A. Lovett
Executive Vice President Finance and
Chief Financial Officer
15
