<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 September 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 31-1360477
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 September 30, 2000 was 10,000,000.
<PAGE>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
Part I. Financial Information
Condensed Consolidated Balance Sheets -
December 31, 1999 and September 30, 2000 2
Condensed Consolidated Statements of Earnings (Loss) -
Three and Nine Months Ended September 30, 1999 and 2000 3
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1999 and 2000 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Independent Accountants' Review Report 9
Management's Discussion and Analysis of the Condensed
Consolidated Financial Statements 10 - 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
1.
<PAGE>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND SEPT. 30, 2000 (DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
DECEMBER 31, SEPTEMBER 30,
ASSETS 1999 2000
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,110 $ 6,716
Receivables, less allowance of $ 1,050 and $996 70,772 65,526
Inventories 63,896 70,312
Deferred income taxes 8,066 12,403
Prepaid expenses 654 1,577
--------- ---------
TOTAL CURRENT ASSETS 146,498 156,534
Property, plant and equipment 126,246 129,468
Accumulated depreciation (61,823) (72,980)
--------- ---------
Property, plant and equipment, net 64,423 56,488
Intangible assets, net 44,779 43,618
Deferred income taxes 14,429 14,227
Other 6,494 6,056
--------- ---------
TOTAL ASSETS $ 276,623 $ 276,923
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 29,706 $ 35,743
Bankers acceptances and letters of credit 18,431 23,715
Accrued expenses 32,068 22,942
--------- ---------
TOTAL CURRENT LIABILITIES 80,205 82,400
Senior notes 110,000 110,000
Revolving credit loans 20,500 23,000
Pension and post-retirement benefits 5,742 5,667
--------- ---------
TOTAL LIABILITIES 216,447 221,067
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) (51,437)
Accumulated other comprehensive earnings (loss)-currency
translation adjustments (4,050) (4,094)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 60,176 55,856
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 276,623 $ 276,923
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2.
<PAGE>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(DOLLAR AMOUNTS IN THOUSANDS) (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1999 2000 1999 2000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 93,550 $ 83,077 $ 258,595 $ 258,474
Cost of sales 70,178 64,931 196,155 199,197
--------- --------- --------- ---------
GROSS PROFIT 23,372 18,146 62,440 59,277
Selling, general & administrative expenses 18,049 16,935 52,618 52,832
--------- --------- --------- ---------
INCOME FROM OPERATIONS 5,323 1,211 9,822 6,445
Interest expense, net 4,448 4,708 12,417 13,665
Currency (gain) loss, net 156 183 (541) 606
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 719 (3,680) (2,054) (7,826)
Income tax benefit (605) (1,820) (1,471) (3,550)
--------- --------- --------- ---------
NET EARNINGS (LOSS) $ 1,324 $ (1,860) $ (583) $ (4,276)
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3.
<PAGE>
EVENFLO COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
(DOLLAR AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
SEPTEMBER 30, SEPTEMBER 30,
INCREASE (DECREASE) IN CASH 1999 2000
--------------------------- -------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (583) $ (4,276)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation 10,370 11,286
Intangibles amortization 1,163 1,161
Deferred income taxes (2,012) (4,135)
Deferred financing cost amortization 561 370
Other 46 (75)
Change in working capital components:
Receivables 7,968 5,246
Inventories (7,855) (6,416)
Current liabilities 2,366 2,195
Other, including currency translation adjustment 760 (826)
-------- --------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES 12,784 4,530
NET CASH USED IN INVESTING ACTIVITIES - CAPITAL EXPENDITURES (8,794) (3,424)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES - BORROWINGS FROM
REVOLVING CREDIT FACILITY 2,200 2,500
-------- --------
CASH- net change 6,190 3,606
beginning of period 4,197 3,110
-------- --------
end of period $ 10,387 $ 6,716
======== ========
SUPPLEMENTAL CASH FLOW DATA
Interest paid 15,104 16,791
Income taxes paid 541 585
</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 Nine Months ended September 30, 1999 and 2000. (Unaudited)
(Dollars in thousands)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30,
2000 and the related statements of earnings (loss) for the three and
nine months ended September 30, 1999 and 2000 and of cash flows for the
nine months ended September 30, 1999 and 2000 included herein have been
prepared by Evenflo Company, Inc. and its Subsidiaries (the "Company")
and are unaudited. The condensed consolidated 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 September 30, 2000, results of operations for
the three and nine months ended September 30, 1999 and 2000, and cash
flows for the nine months ended September 30, 1999 and 2000. The
results of operations for the three and nine months ended September 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 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.
In 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
and in 1999 amended certain provisions of that Standard with SFAS No.
138. In assessing the impact of the two FASB statements, the Company
formed a team to educate finance and non-finance personnel on a global
basis and identify known and embedded derivatives. The Company will
adopt the provisions of SFAS Nos. 133 and 138 effective January 1,
2001. Based upon the review performed, management believes that the
effect of adoption will not be significant (material) to the Company's
results of operations, financial position or cash flows.
5.
<PAGE>
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 September 30, 2000
----------------- ------------------
<S> <C> <C>
Finished goods $29,892 $25,732
Work in process 13,232 14,090
Raw material 20,772 30,490
------- -------
Total inventories $63,896 $70,312
======= =======
</TABLE>
4. CREDIT FACILITY
On September 8, 2000, the Company amended its secured credit
facility dated August 20, 1998 ("Credit Facility" with a syndicate of
financial institutions. The Credit Facility provides for $100,000 of
commitments for revolving credit loans, which may be used for working
capital needs and general purposes, for special facility obligations
(letters of credit and bankers' acceptances) and for borrowings on same
day notice. The Credit Facility contains customary covenants, events of
default, and restrictions on the Company's ability to engage in certain
activities. The Credit Facility terminates on August 19, 2005.
The amendment modified certain financial covenants relating to
an interest coverage ratio and a leverage ratio, increased bankers'
acceptance limits from $30,000 maximum to $40,000 maximum and increased
the additional minimum margin on the "eurodollar rate" and "base rate"
interest calculation by 0.25%.
5. COMPREHENSIVE EARNINGS (LOSS)
The Company's comprehensive earnings (loss) consist solely of
net income adjusted for foreign currency translation adjustments. For
the comparative three and nine months ended September 30, 1999 and
2000, comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ 1,324 $(1,860) $ (583) $(4,276)
Foreign currency translation (140) 214 24 (44)
------- ------- ------- -------
Comprehensive earnings (loss) $ 1,184 $(1,646) $ (559) $(4,320)
======= ======= ======= =======
</TABLE>
6.
<PAGE>
6. 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, 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,
commencing November 15, 1998. 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 approximately 14.3% 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 September
30, 2000, the amount of the Cumulative Preferred Stock dividends in
arrears as of that date is $12,091.
7. 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 on other sites. The settlement amounts and estimated
liabilities are not significant.
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 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.
<PAGE>
8. SEGMENT REPORTING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
GEOGRAPHIC LOCATION
NET SALES
United States $ 82,093 $ 72,165 $ 226,628 $ 224,765
Other nations 11,457 10,912 31,967 33,709
--------- --------- --------- ---------
Total net sales $ 93,550 $ 83,077 $ 258,595 $ 258,474
========= ========= ========= =========
EARNINGS (LOSS) BEFORE INCOME TAXES
United States $ 4,750 $ 148 $ 8,790 $ 2,951
Other nations 417 880 1,573 2,888
Interest expense, net (4,448) (4,708) (12,417) (13,665)
--------- --------- --------- ---------
Earnings (loss) before
income taxes $ 719 $ (3,680) $ (2,054) $ (7,826)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December September
31, 1999 30, 2000
--------- ---------
<S> <C> <C>
IDENTIFIABLE ASSETS
United States $ 254,227 $ 250,361
Other nations 22,396 26,562
--------- ---------
Total assets $ 276,623 $ 276,923
========= =========
</TABLE>
8.
<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 September 30, 2000,
and the related condensed consolidated statements of earnings (loss) and cash
flows for the three and nine month periods ended September 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) shareholders' equity and cash flows, 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
November 10, 2000
9.
<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 SEPTEMBER 30, 2000 ("2000 THREE MONTHS") AND NINE MONTHS
ENDED SEPTEMBER 30, 2000 ("2000 NINE MONTHS") COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 ("1999 THREE MONTHS") AND NINE MONTHS ENDED SEPTEMBER 30,
1999 ("1999 NINE MONTHS").
NET SALES. The Company's net sales of $83,077 in the 2000 three months
compare to $93,550 for the 1999 three months, a decrease of $10,473 or 11.2%.
The Company's 2000 nine months net sales of $258,474 compare to $258,595 in the
1999 nine months, a decrease of $121, approximately even with prior year. U.S.
net sales, including export sales, of $72,165 for the 2000 three months declined
$9,928 or 12.1% from the 1999 three months of $82,093. U.S. net sales, including
export sales, of $224,765 for the 2000 nine months, decreased $1,863 or 0.8%,
from $225,628 for the 1999 nine months. U.S. sales declined due primarily to a
reduction in sales of feeding products and juvenile car seats due to strong
competitive pressure. In addition, in the 2000 three months, the customer's
pattern of re-ordering changed in anticipation of the Company's fourth quarter
release of several new product introductions. International net sales decreased
4.8% to $10,912 in the 2000 three months from $11,457 for the 1999 three months.
For the 2000 nine months, international net sales increased by $1,742 or 5.4%,
to $33,709 from $31,967 for the 1999 nine months. International net sales
increased principally due to increased sales in Mexico and Canada, partially
offset by lower sales in Asia and Europe.
GROSS PROFIT. The Company's gross profit declined to $18,146 for the
2000 three months from $23,372 in the 1999 three months. As a percentage of
net sales, gross profit decreased to 21.8% in the 2000 three months from
25.0% in the 1999 three months. For the 2000 nine months, gross profit
decreased by $3,163 or 5.1% to $59,277 from $62,440 for the 1999 nine months.
As a percentage of net sales, gross profit decreased to 22.9% in the 2000
nine months from 24.1% in the 1999 nine months. The decrease was due to
unfavorable manufacturing variances, and a lower gross profit mix due to
reductions in feeding products. The unfavorable manufacturing variance is
primarily the result of the Company incurring increased freight charges to
meet unforcasted customer demands for certain products.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. The Company's
SG&A expenses decreased to $16,935 in the 2000 three months from $18,049 in the
1999 three months. As a percentage of net sales, SG&A expenses increased to
20.4% in the 2000 three months from 19.3% in the 1999 three months. For the 2000
nine months SG&A expenses were $52,832, an increase of $214 or 0.4% over the
$52,618 reported for the 1999 nine months. As a percentage of net sales, SG&A
increased slightly to 20.4% in the 2000 nine months from 20.3% in the 1999 nine
months. For the 2000 three months, the SG&A as a percentage of net sales
increased by 1.1% due principally to lower net sales. During the 2000 three
months, SG&A expenses were reduced in the following key areas:(i) outside
services, (ii) customer marketing promotional costs and (iii) recruitment
expenses. In the
10.
<PAGE>
2000 nine months, increased product development and engineering expenses
resulted in total SG&A expenses being approximately the same as the 1999 nine
months.
INTEREST EXPENSE. Interest expense increased to $4,708 in the 2000
three months from $4,448 in the 1999 three months. For the 2000 nine months
interest expense increased to $13,665 from $12,417 in the 1999 nine months. The
increase for both the 2000 three and nine month periods over the respective
periods last year was due to (i) higher outstanding balances under the revolving
credit facility, and (ii) higher interest rates.
CURRENCY (GAIN) LOSS. The $183 currency loss in the 2000 three months
and a $606 loss for the 2000 nine months compare to a $156 loss for the 1999
three months and a $541 gain in the 1999 nine months. The unfavorable impact of
currency losses for the 2000 three and nine months over the 1999 three and nine
months is due primarily to the currency effect of U.S. dollar denominated
transactions with non-U.S. subsidiaries.
INCOME TAXES (BENEFIT). The Company recorded a tax benefit in both the
2000 and 1999 three months and the 2000 and 1999 nine months associated with
losses from U.S. operations. The tax benefit for both the 2000 three months and
nine months is offset in part by tax expense from Mexico and a Canadian
provincial tax. The tax benefit for both the 1999 three months and nine 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 September 30, 2000, the Company had $6,716 of
cash. In addition, the Company had $41,016 in available borrowing capacity under
its revolving credit facility.
During the 2000 three months the syndicate of financial institutions
under the revolving credit facility and the Company agreed to amend certain
financial covenants included in the revolving credit facility for the period
commencing with the third fiscal quarter of this fiscal year. The amendment
modified financial covenants relating to an interest coverage ratio and a
leverage ratio, increased bankers' acceptance limit and increased the additional
minimum margin on the "eurodollar rate" and the "base rate" interest
calculation.
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
11.
<PAGE>
future to service its debt, meet the Company's 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 to 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.
CASH FLOWS
2000 NINE MONTHS COMPARED TO THE 1999 NINE MONTHS. For the 2000 nine
months, the Company generated $1,106 in cash before financing activities, with
operating activities generating $4,530, and investments in capital expenditures
using $3,424. In the 2000 nine months net borrowings under the revolving credit
increased $ 2,500. For the 1999 nine months, the Company generated $3,990 in
cash before financing activities, including $12,784 provided by operating
activities and invested $8,794 in capital expenditures. In the 1999 nine months
net borrowings under the revolving credit facility increased by $2,200.
Net cash provided by operating activities for the 2000 nine months was
$4,530 compared to $12,784 in the 1999 nine months. The $8,254 lower cash
provided from operating activities for 2000 nine months compared to the 1999
nine months was primarily due to decreased earnings and changes in working
capital components.
Capital expenditures during the 2000 nine months relate primarily to
new product development, and projects to improve product quality and expansion
of the business. During the 1999 nine months capital expenditures were made 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 adjusted for unusual costs. EBITDA and
Adjusted EBITDA are included because the Company believes they provide 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 accounting principles generally accepted in the United States of America 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.
12.
<PAGE>
The Company's Adjusted EBITDA decreased from $9,227 and $22,563 in the
1999 three and nine months, respectively, to $5,359 and $18,928 in the 2000
three and nine months, respectively, as indicated in the table below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 2000 1999 2000
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET EARNINGS (LOSS) $ 1,324 $ (1,860) $ (583) $ (4,276)
Income taxes (benefit) (605) (1,820) (1,471) (3,550)
Interest expense, net 4,448 4,708 12,417 13,665
Depreciation and amortization 4,060 4,331 12,200 13,089
-------- -------- -------- --------
EBITDA 9,227 5,359 22,563 18,928
-------- -------- -------- --------
Unusual costs 0 0 0 0
-------- -------- -------- --------
ADJUSTED EBITDA $ 9,227 $ 5,359 $ 22,563 $ 18,928
======== ======== ======== ========
</TABLE>
CURRENCY HEDGING
In the 2000 nine 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. In addition,
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 September 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 general interest rates, higher utilization of the Company's
revolving credit facility and increases in interest cost due to the amendment of
the revolving credit agreement are expected to increase interest expense in
2000. It is not expected that this increase will be significant. However, there
can be no assurances that interest rates will not materially change from
existing levels.
13.
<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.
14.
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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 10-Q's. The following summarizes significant
developments in previously reported matters and any material
claims asserted since June 30, 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.
Exhibit 10.1 Amendment No. 1 to Credit Facility, dated
August 20, 1998.
B. The following Reports on Form 8-K were filed by Evenflo
Company, Inc. during the quarter ended September 30, 2000.
None.
15.
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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 November 13, 2000 /s/ Richard W. Frank
----------------- -----------------------------------------
Richard W. Frank
Chairman of the Board of Directors and
Chief Executive Officer
Date November 13, 2000 /s/ Daryle A. Lovett
----------------- -----------------------------------------
Daryle A. Lovett
Executive Vice President and
Chief Financial Officer
16.
