<PAGE> 1
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, 1998 Commission file number 333-49957
----------
EAGLE-PICHER INDUSTRIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
SEE TABLE OF ADDITIONAL REGISTRANTS
OHIO 31-0268670
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202
- -------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code 513-721-7010
-----------------------------
(Not Applicable)
- -------------------------------------------------------------------------------
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 No X
---- ----
100 shares of common capital stock, no par value, were outstanding at September
28, 1998.
1
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
Jurisdiction of IRS Employer
Incorporation or Commission File Identification
Name Organization Number Number
---- ------------ ------ -------
<S> <C> <C> <C>
Eagle-Picher Holdings, Inc. Delaware 333-49957-01 13-3989553
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
</TABLE>
2
<PAGE> 3
TABLE OF CONTENTS
Page
Number
------
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.............................22
Item 3. Quantitative and Qualitative Disclosures About Market Risk..27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................28
Signatures...........................................................29
Exhibit Index........................................................39
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Three Months Nine Months
Three Months Ended Ended Ended Ended
August 31 August 31 February 28 August 31
------------------
1998 1997 1998 1998 1997
---- ---- ---- ---- ----
Predecessor Predecessor Predecessor
<S> <C> <C> <C> <C> <C>
Net Sales $206,356 $216,756 $426,277 $205,842 $682,546
-------- -------- -------- -------- --------
Operating Costs and Expenses:
Cost of products sold 163,518 174,103 333,093 162,796 549,082
Selling and administrative 18,042 17,503 38,329 17,141 56,846
Management compensation expense 4,395 - 21,716 2,056 -
Depreciation 9,644 9,688 19,417 8,983 30,697
Amortization of intangibles 4,244 4,084 8,741 3,839 12,239
Loss on division sales - 1,803 - - 1,803
-------- -------- -------- ------- -------
199,843 207,181 421,296 194,815 650,667
-------- -------- -------- ------- -------
Operating Income 6,513 9,575 4,981 11,027 31,879
Interest expense (12,132) (7,540) (24,686) (6,940) (24,391)
Other income (expense) 681 (817) 1,007 820 539
-------- -------- -------- ------- -------
Income (Loss) Before Taxes (4,938) 1,218 (18,698) 4,907 8,027
Income Taxes (1,135) 2,337 (5,596) 4,100 9,821
-------- -------- -------- ------- -------
Net Income (Loss) $ (3,803) $ (1,119) $(13,102) $ 807 $ (1,794)
======== ======== ======== ======== ========
Income (Loss) per Share $(38,030.00) $ (.11) $(131,020.00) $.08 $ (.18)
=========== ======== ============ ==== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
August 31 November 30
1998 1997
---- ----
ASSETS
Predecessor
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 21,098 $ 53,739
Receivables, less allowances 120,444 130,927
Income tax refunds receivable 1,341 3,025
Inventories:
Raw materials and supplies 55,354 51,592
Work in process 17,547 25,801
Finished goods 17,712 14,803
------- -------
90,613 92,196
Prepaid expenses 8,440 8,290
Deferred income taxes 18,935 13,793
------- -------
Total current assets 260,871 301,970
------- -------
PROPERTY, PLANT AND EQUIPMENT 255,653 279,847
Less accumulated depreciation 19,505 36,309
------- -------
Net property, plant and equipment 236,148 243,538
DEFERRED INCOME TAXES 1,144 98,991
EXCESS OF ACQUIRED NET ASSETS OVER COST NET OF
ACCUMULATED AMORTIZATION OF $8,729 233,106 -
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS NET OF ACCUMULATED AMORTIZATION
OF $16,284 - 48,837
OTHER ASSETS 85,162 53,545
------- -------
Total Assets $816,431 $746,881
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 44,062 $ 52,886
Long-term debt - current portion 14,072 3,403
Income taxes 3,246 2,294
Other current liabilities 75,136 55,419
------- -------
Total current liabilities 136,516 114,002
------- -------
LONG-TERM DEBT - less current portion 487,209 269,994
OTHER LONG TERM LIABILITIES 25,676 26,768
------- -------
Total Liabilities 649,401 410,764
------- -------
</TABLE>
5
<PAGE> 6
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
August 31 November 30
1998 1997
---- ----
Predecessor
SHAREHOLDERS' EQUITY
<S> <C> <C>
Common shares -- authorized 20,000,000 shares;
issued and outstanding 100 and 10,000,000 shares, respectively 180,005 341,807
Foreign currency translation 127 (1,836)
Accumulated deficit (13,102) (3,854)
------- -------
Total Shareholders' Equity 167,030 336,117
------- -------
Total Liabilities and Shareholders' Equity $816,431 $746,881
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE> 7
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Three Months Nine Months
Ended Ended Ended
August 31 February 28 August 31
1998 1998 1997
---- ---- ----
Predecessor Predecessor
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(13,102) $ 807 $(1,794)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 29,522 12,822 42,936
Proceeds from insurance settlement 13,659 - -
Loss on division sales - - 1,803
Changes in assets and liabilities:
Receivables 15,188 (4,705) 4,072
Income tax refunds receivable 660 1,024 69,771
Inventories 4,435 (2,235) 985
Accounts payable (6,837) (2,787) 7,063
Accrued liabilities 25,205 (5,488) 8,334
Other (4,784) (8,521) 7,561
------- ------- -------
Net cash provided by (used in)
operating activities 63,946 (9,083) 140,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from division sales - - 38,417
Capital expenditures (16,053) (5,692) (41,476)
Other 94 (1,042) (2,407)
------- ------- -------
Net cash used in
investing activities (15,959) (6,734) (5,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - 445,000 8,000
Reduction of long-term debt (2,580) (250,000) (127,411)
Borrowings under revolving credit agreement 47,825 79,100 -
Repayments under revolving credit agreement (91,925) - -
Redemption of common stock - (446,638) -
Issuance of common stock - 180,005 -
Debt issuance cost - (26,062) -
Other 824 (360) 4,876
------- -------- -------
Net cash used in
financing activities (45,856) (18,955) (114,535)
------- -------- -------
</TABLE>
7
<PAGE> 8
EAGLE-PICHER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Three Months Nine Months
Ended Ended Ended
August 31 February 28 August 31
1998 1998 1997
---- ---- ----
Predecessor Predecessor
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents 2,131 (34,772) 20,730
Cash and cash equivalents, beginning of period 18,967 53,739 32,725
------ ------- ------
Cash and cash equivalents, end of period $21,098 $ 18,967 $53,455
====== ======= ======
</TABLE>
Supplemental cash flow information: 1998 1997
Cash paid during the nine months ended August 31: ---- ----
Interest paid $19,060 $ 18,052
Income taxes paid (refunded), net $ 4,446 $(66,016)
Cash paid during the three months ended August 31:
Interest paid $ 6,250 $ 1,551
Income taxes paid (refunded), net $ 4,141 $ 1,213
See accompanying notes to the consolidated financial statements.
8
<PAGE> 9
EAGLE-PICHER INDUSTRIES, 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, 1997 and for the three months ended February 28,
1998, presented in the Company's Form S-4/A filed with the SEC on June 5, 1998.
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
three and nine month periods ended August 31, 1998 and 1997. (See Note B.)
Results of operations for interim periods are not necessarily indicative of
results to be expected for an entire year.
The six and three month periods ended August 31, 1998 and February 28,
1998 (Predecessor), respectively, included in the Condensed Consolidated
Statements of Income (Loss) and of Cash Flows are presented for comparison to
the nine months ended August 31, 1997 of the Predecessor Company. (See Note B.)
B. ACQUISITION OF THE COMPANY
On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc.
("Company") was acquired by a subsidiary of Granaria Industries BV, Eagle-Picher
Holdings, Inc. ("Parent"), from the Eagle-Picher Industries, Inc. Personal
Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was established
pursuant to the Company's Plan of Reorganization upon its emergence from
bankruptcy.
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 Company, which is the operating entity, is a
wholly-owned subsidiary of the Parent. The Parent's results of operations and
cash flow approximate those of the Company.
The Acquisition was accounted for using the purchase method of accounting.
The preliminary allocation of the purchase price of the Company has been
determined based on estimates of fair value and are subject to change.
Appraisals are currently being completed
9
<PAGE> 10
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
to value property, plant, equipment and identifiable intangible assets. The
excess of purchase price over the assessed values of those assets will be
allocated to goodwill. The Company expects to finalize the purchase price
allocation by November 30, 1998. Adjustments are not expected to be material.
The following pro forma information for the nine months ended August 31,
1998 and 1997 gives effect to the Acquisition as if it had been consummated on
December 1, 1997 and 1996, 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
-------------------
1998 1997
---- ----
(In thousands of
dollars, except
per share amounts)
Net Sales $632,119 $682,546
Net income (loss) $(16,500) $(21,100)
Net income (loss) per share $(165,000.00) $(211,000.00)
Average number of shares outstanding 100 100
Upon closing of the acquisition, the Parent received $100 million equity
investment from Granaria Industries BV and an equity partner. The Parent also
received proceeds approximating $80 million from its offering of preferred
stock. These proceeds were invested in the Company, which issued approximately
$180 million of common stock to the Parent. The Company also borrowed $225
million in term loans and $79.1 million in revolving credit loans under a
syndicated senior secured loan facility ("Credit Agreement"), and issued $220
million in senior subordinated notes ("Subordinated Notes"), the proceeds of
which were used to redeem the Company's 10% Senior Unsecured Sinking Fund
Debentures ("Debentures") and common stock, both held by the Trust.
Both the Credit Agreement and the Subordinated Notes are guaranteed on a
full, unconditional and joint and several basis by certain of the Company's
wholly-owned domestic subsidiaries ("Guarantors"). Management has determined
that full financial statements of the 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 Guarantors, the issuer of the debt and the subsidiaries that did
not guarantee the debt.
10
<PAGE> 11
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------------- -------------- ---------------- --------------- --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
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 51,580 97,338 21,581 (6,981) 163,518
Selling and administrative 11,160 4,487 2,395 - 18,042
Management compensation expense 4,395 - - - 4,395
Intercompany charges (2,241) 2,241 - - -
Depreciation 2,990 5,683 1,046 (75) 9,644
Amortization of intangibles 610 3,634 - - 4,244
-------- --------- -------- ------- ---------
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 (expense) 434 178 72 (3) 681
-------- --------- -------- ------- ---------
Income (Loss) Before Taxes (12,644) 6,875 776 55 (4,938)
Income taxes (3,866) 2,081 650 - (1,135)
--------- --------- -------- ------- ---------
Net Income (Loss) $ (8,778) $ 4,794 $ 126 $ 55 $ (3,803)
======== ========= ======== ======= ==========
</TABLE>
11
<PAGE> 12
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF INCOME (LOSS) (UNAUDITED)
FOR SIX MONTHS ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- --------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
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 105,862 199,185 44,080 (16,034) 333,093
Selling and administrative 23,254 10,283 4,792 - 38,329
Management expenses 21,716 - - - 21,716
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
--------- --------- -------- -------- -------
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 (expense) 625 264 121 (3) 1,007
--------- --------- -------- -------- -------
Income (Loss) Before Taxes (36,799) 15,758 2,285 58 (18,698)
Income taxes (12,033) 4,906 1,531 - (5,596)
--------- --------- -------- -------- -------
Net Income (Loss) $ (24,766) $ 10,852 $ 754 $ 58 $ (13,102)
========= ========= ======== ======== =========
</TABLE>
12
<PAGE> 13
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- --------------- -------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
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 48,329 102,771 18,772 (7,076) 162,796
Selling and administrative 9,673 5,167 2,301 - 17,141
Management compensation expense 2,056 - - - 2,056
Intercompany charges (2,172) 2,172 - - -
Depreciation 2,823 5,220 940 - 8,983
Amortization of intangibles 765 3,064 10 - 3,839
-------- --------- -------- ------- ---------
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
-------- --------- -------- ------- ---------
Income (Loss) Before Taxes (3,054) 7,541 597 (177) 4,907
Income taxes 1,083 2,486 531 - 4,100
-------- --------- -------- ------- ---------
Net Income (Loss) $ (4,137) $ 5,055 $ 66 $ (177) $ 807
======== ========= ======== ======= =========
</TABLE>
13
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EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------------- ------------- --------------- ------------ ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 13,383 $ 710 $ 6,908 $ 97 $ 21,098
Receivables 39,082 70,218 11,144 - 120,444
Intercompany accounts receivable 179 165 8,230 (8,574) -
Income tax refunds receivable 1,341 - - - 1,341
Inventories 33,231 43,363 15,394 (1,375) 90,613
Prepaid expenses 3,973 3,524 973 (30) 8,440
Deferred income taxes 18,935 - - - 18,935
-------- -------- ------- --------- --------
Total current assets 110,124 117,980 42,649 (9,882) 260,871
Property, plant and equipment 71,930 126,177 38,041 - 236,148
Deferred income taxes 1,144 - - - 1,144
Investment in subsidiaries 86,543 6,252 - (92,795) -
Excess of acquired net assets over
cost 47,809 185,297 - - 233,106
Other Assets 66,782 18,026 354 - 85,162
-------- -------- ------- --------- --------
Total Assets $384,332 $453,732 $81,044 $(102,677) $816,431
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 14,275 $ 20,500 $ 9,287 $ - $ 44,062
Intercompany accounts payable 183 166 7,917 (8,266) -
Long-term debt - current portion 10,280 - 3,792 - 14,072
Income taxes 2,264 - 982 - 3,246
Other current liabilities 49,828 22,235 3,073 - 75,136
-------- -------- ------- --------- --------
Current liabilities 76,830 42,901 25,051 (8,266) 136,516
Long-term debt - less current portion 485,540 - 1,669 - 487,209
Deferred income taxes - - - - -
Other liabilities 25,676 - - - 25,676
-------- -------- ------- --------- --------
Total liabilities 588,046 42,901 26,720 (8,266) 649,401
Intercompany accounts (358,953) 353,204 24,514 (18,765) -
Shareholders' Equity 155,239 57,627 29,810 (75,646) 167,030
-------- -------- ------- --------- --------
Total Liabilities and
Shareholders' Equity $384,332 $453,732 $81,044 $(102,677) $ 816,431
======== ======== ======= ========= ==========
</TABLE>
14
<PAGE> 15
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR SIX MONTHS ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- ----------- -------------- -------------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (24,766) $ 10,852 $ 754 $ 58 $ (13,102)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 8,877 18,736 2,045 (136) 29,522
Proceeds from insurance settlement 13,659 - - - 13,659
Working capital and other 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 under revolving credit agreement 47,825 - - - 47,825
Repayments under revolving credit agreement (91,925) - - - (91,925)
Other - - 824 - 824
--------- -------- ------- ------- ---------
Net cash 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 1,145 5,513 194 18,967
--------- -------- ------- ------- ---------
Cash and cash equivalents,
end of period $ 13,383 $ 710 $ 6,908 $ 97 $ 21,098
========= ======== ======= ======= =========
</TABLE>
15
<PAGE> 16
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- ----------- ------------- ------------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (4,137) $ 5,055 $ 66 $ (177) $ 807
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 3,588 8,284 950 - 12,822
Changes in assets and liabilities (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:
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) (1,768) (2,405) 695 (6,734)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 445,000 - - - 445,000
Reduction of long-term debt (250,000) - - - (250,000)
Borrowings under revolving credit agreement 79,100 - - - 79,100
Redemption of common stock (446,638) - - - (446,638)
Issuance of common stock 180,005 - - - 180,005
Debt issue cost (26,062) - - - (26,062)
Other - - (360) - (360)
-------- ------- ------- ------ --------
Net cash provided by (used in)
financing activities (18,595) - (360) - (18,955)
-------- ------- ------- ------ --------
Increase (decrease) in cash and
cash equivalents (38,459) 2,324 270 1,093 (34,772)
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 $ 1,145 $ 5,513 $ 194 $ 18,967
======== ======= ======= ====== ========
</TABLE>
16
<PAGE> 17
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1997
PREDECESSOR
<TABLE>
<CAPTION>
FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ -------------- -------------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 48,834 $ 561 $ 4,344 $ - $ 53,739
Receivables 36,541 72,992 21,394 - 130,927
Intercompany accounts receivable 2,982 3,295 - (6,277) -
Income tax refunds receivable 3,025 - - - 3,025
Inventories 32,309 48,830 12,432 (1,375) 92,196
Prepaid expenses 5,618 2,401 271 - 8,290
Deferred income taxes 13,793 - - - 13,793
--------- --------- -------- --------- ---------
Total current assets 143,102 128,079 38,441 (7,652) 301,970
Property, plant and equipment 72,630 135,560 35,348 - 243,538
Investment in subsidiaries 59,981 5,186 - (65,167) -
Deferred income taxes 98,991 98,991
Reorganization value in excess of
amounts allocable to identifiable assets 9,746 39,091 - - 48,837
Other assets 36,395 16,462 688 - 53,545
--------- --------- -------- --------- ---------
Total Assets $ 420,845 $ 324,378 $ 74,477 $ (72,819) $ 746,881
========= ========= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 16,974 $ 28,257 $ 7,655 $ - $ 52,886
Intercompany accounts payable - - 6,247 (6,247) -
Long-term debt - current portion 80 - 3,323 - 3,403
Income taxes 2,284 - 10 - 2,294
Other current liabilities 29,404 22,440 3,713 (138) 55,419
--------- --------- -------- --------- ---------
Current liabilities 48,742 50,697 20,948 (6,385) 114,002
Long-term debt - less current portion 268,320 - 1,674 - 269,994
Other liabilities 26,768 - - - 26,768
--------- --------- -------- --------- ---------
Total liabilities 343,830 50,697 22,622 (6,385) 410,764
Intercompany accounts (240,324) 210,930 16,895 12,499 -
Shareholders' Equity 317,339 62,751 34,960 (78,933) 336,117
--------- --------- -------- --------- ---------
Total Liabilities and Shareholders'
Equity $ 420,845 $ 324,378 $ 74,477 $ (72,819) $ 746,881
========= ========= ======== ========= =========
</TABLE>
17
<PAGE> 18
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR THREE MONTHS ENDED AUGUST 31, 1997
PREDECESSOR
<TABLE>
<CAPTION>
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
---------- ------------ ------------- ---------- ------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Customers $ 60,421 $ 121,793 $ 20,815 $ 13,727 $ - $ 216,756
Intercompany 3,478 2,375 1,456 - (7,309) -
Operating Costs and Expenses
Cost of products sold 47,814 103,117 18,061 12,370 (7,259) 174,103
Selling and administrative 9,608 5,062 2,055 778 - 17,503
Intercompany charges (2,305) 1,965 - 340 - -
Depreciation 2,920 5,342 873 553 - 9,688
Amortization of intangibles 813 3,258 13 - - 4,084
Loss on Division sales 1,803 - - - - 1,803
-------- --------- -------- -------- ------- ---------
Total 60,653 118,744 21,002 14,041 (7,259) 207,181
Operating Income (Loss) 3,246 5,424 1,269 (314) (50) 9,575
Other Income (Expense)
Interest expense (7,463) - (77) - - (7,540)
Other income (expense) 2,013 (2,986) 125 31 - (817)
-------- --------- -------- -------- ------- ---------
Income (Loss) Before Taxes (2,204) 2,438 1,317 (283) (50) 1,218
Income taxes (431) 1,827 916 25 - 2,337
-------- --------- -------- -------- ------- ---------
Net Income (Loss) $ (1,773) $ 611 $ 401 $ (308) $ (50) $ (1,119)
======== ========= ======== ======== ======= =========
</TABLE>
18
<PAGE> 19
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
FOR NINE MONTHS ENDED AUGUST 31, 1997
PREDECESSOR
<TABLE>
<CAPTION>
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
----------- --------------- ------------ ------------ ------------ -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Customers $ 184,072 $ 361,880 $ 61,006 $ 75,588 $ - $ 682,546
Intercompany 9,574 7,385 3,875 29 (20,863) -
Operating Costs and Expenses
Cost of products sold 144,748 304,199 51,972 68,842 (20,679) 549,082
Selling and administrative 31,991 14,748 5,633 4,474 - 56,846
Intercompany charges (9,100) 7,193 - 1,907 - -
Depreciation 8,708 15,843 2,663 3,483 - 30,697
Amortization of intangibles 2,439 9,774 26 - - 12,239
Loss on Division sales 1,803 - - - - 1,803
--------- --------- -------- -------- -------- ---------
Total 180,589 351,757 60,294 78,706 (20,679) 650,667
Operating Income (Loss) 13,057 17,508 4,587 (3,089) (184) 31,879
Other Income (Expense)
Interest expense (24,207) (1) (183) - - (24,391)
Other income (expense) 3,384 (2,821) (137) 113 - 539
--------- --------- -------- -------- -------- ---------
Income (Loss) Before Taxes (7,766) 14,686 4,267 (2,976) (184) 8,027
Income taxes 422 6,130 3,111 158 - 9,821
--------- --------- -------- -------- -------- ---------
Net Income (Loss) $ (8,188) $ 8,556 $ 1,156 $ (3,134) $ (184) $ (1,794)
========= ========= ======== ======== ======== =========
</TABLE>
19
<PAGE> 20
EAGLE-PICHER INDUSTRIES, INC.
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR NINE MONTHS ENDED AUGUST 31, 1997
PREDECESSOR
<TABLE>
<CAPTION>
FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
------------- ------------ -------------- ------------ ------------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (8,188) $ 8,556 $ 1,156 $ (3,134) $ (184) $ (1,794)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization 11,147 25,617 2,689 3,483 - 42,936
(Gain) loss on sale of divisions 1,803 - - - - 1,803
Income tax refunds 69,771 - - - - 69,771
Working capital and other 14,090 11,475 1,724 560 166 28,015
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
operating activities 88,623 45,648 5,569 909 (18) 140,731
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of divisions 38,417 - - - - 38,417
Capital expenditures (6,444) (25,282) (8,974) (776) - (41,476)
Other (536) (1,640) (578) (9) 356 (2,407)
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
investing activities 31,437 (26,922) (9,552) (785) 356 (5,466)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt (126,039) - (1,372) - - (127,411)
Issuance of long-term debt 8,000 - - - - 8,000
Other - - 4,876 - - 4,876
-------- ------- ------- -------- ------ --------
Net cash provided by (used in)
financing activities (118,039) - 3,504 - - (114,535)
-------- ------- ------- -------- ------ --------
Increase (decrease) in cash and
cash equivalents 2,021 18,726 (479) 124 338 20,730
Intercompany accounts 18,618 (18,622) 461 (119) (338) -
Cash and cash equivalents,
beginning of period 26,089 553 5,985 98 - 32,725
-------- ------- ------- -------- ------ --------
Cash and cash equivalents
end of period $ 46,728 $ 657 $ 5,967 $ 103 $ - $ 53,455
======== ======= ======= ======== ====== =========
</TABLE>
20
<PAGE> 21
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
C. BASIC AND DILUTED EARNINGS PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding, which was 9,555,560 in the three months
ended February 28, 1998, 10,000,000 in the three months and nine months ended
August 31, 1997, and 100 in the three months and six months ended August 31,
1998. In 1998, 100 shares were outstanding after the acquisition. Prior to the
acquisition, 10,000,000 shares were outstanding. No potential common stock was
outstanding during the nine months ended August 31, 1998 and 1997.
D. INTANGIBLE ASSETS
Excess of acquired net assets over cost is being amortized on a
straight-line basis over fifteen years. The recoverability of these assets is
evaluated periodically based on current and estimated future cash flows of each
of the related business units over the remaining amortization period.
Reorganization value in excess of amounts allocable to identifiable assets was
being amortized on a straight-line basis over four years.
E. LEGAL MATTERS
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.
F. SUBSEQUENT EVENT
On September 28, 1998, the Committee of the Incentive Stock Plan of
Eagle-Picher Industries, Inc. ("Stock Plan") voted to amend the Stock Plan to
accelerate the vesting of all participants, which was to take place in various
increments through 2001, so that all participants will be fully vested as of
November 1, 1998. This action will result in additional management expense of
approximately $3.3 million in the fourth quarter over what would have been
recognized if the Stock Plan had not been amended.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
As a result of the Acquisition of the Company by Granaria Industries B.V.
from the Trust 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 prior periods. The unaudited condensed
consolidated statement of income (loss) as of February 28, 1998 includes results
of operations from (1) December 1, 1997 through February 24, 1998 of the
Predecessor Company and (2) February 25 through February 28, 1998 of the
Company.
In addition to the effects of the Acquisition, another factor affecting
comparability of operations is the sale of the Plastics, Transicoil and Fabricon
Products divisions in 1997. The Company also contributed the assets of its
former Suspension Systems division to Eagle-Picher-Boge, L.L.C., a joint venture
formed in 1997 in which the Company has a 45% interest. These divisions are
collectively referred to as the "Divested Divisions."
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:
Six months Three months Nine months
Three months ended ended ended ended
August 31 August 31 February 28 August 31
------------------
1998 1997 1998 1998 1997
---- ---- ---- ---- ----
(In millions of dollars)
Predecessor Predecessor Predecessor
Net sales by segment:
Industrial $ 35.1 $ 52.4 $ 71.5 $ 37.6 $157.3
Machinery 68.0 65.8 136.8 64.4 199.4
Automotive 103.3 98.6 218.0 103.8 325.8
----- ----- ----- ----- -----
Total $206.4 $216.8 $426.3 $205.8 $682.5
===== ===== ===== ===== =====
EBITDA by segment:
Industrial $ 7.0 $ 8.1 $ 14.1 $ 6.6 $ 23.8
Machinery 9.6 6.6 20.5 7.8 22.9
Automotive 13.5 13.1 31.3 15.2 43.1
Corporate overhead (5.3) (2.7) (11.0) (3.7) (13.2)
----- ----- ----- ----- -----
$ 24.8 $ 25.1 $ 54.9 $ 25.9 $ 76.6
===== ===== ===== ===== =====
Total
Net Sales. The Company's net sales were $206.4 million for the third
quarter ended August 31, 1998, a decrease of $10.4 million or 4.8% from the
comparable period of 1997. Included in the results of the third quarter of 1997
are $13.7 million of sales of the Divested Divisions, which, if excluded, would
result in an increase in the Company's quarterly net sales of approximately
1.6%.
22
<PAGE> 23
Net sales of Industrial products, excluding net sales of the Divested
Divisions, decreased 22.4% in the third quarter of 1998 from the comparable
period in 1997, due primarily to decreased prices of germanium products.
Germanium sales have been affected by lower market prices which have resulted
from increased supplies, the completion of a major satellite project and the
increased use of recycled germanium by the Company's customers in response to
sharp increases in germanium prices which took place in 1996. Since the
customers now supply a larger portion of the Company's raw materials, its sales
volume is less as a toll refiner than as a buyer and seller of germanium.
Operating margins, however, have been maintained.
Net sales for the Machinery Group in the third quarter of 1998, excluding
the Divested Divisions, increased 8.2% due in part to increases in demand for
heavy-duty fork lift trucks and wheel tractor scrapers. Sales of special purpose
batteries are comparable to those of the same period in 1997.
The Automotive Group's net sales, excluding the Divested Divisions,
increased 8.7% primarily due to increased market penetration of precision
machined components, many of which are used in light trucks, vans and sport
utility vehicles which have recently grown in popularity. Volumes of fuel
systems have also increased as new programs are implemented.
The Ford Motor Company ("Ford") has recently notified the Company that it
will no longer purchase certain products from the Automotive Group. Sales
contributed by those products in 1997 were $19.4 million. The Company
anticipates that these programs will be discontinued gradually through 1999 and
that this revenue will be replaced by new programs currently being implemented.
The Company expects strong price pressure to continue across all product
lines, particularly in the Automotive Group. The Company will continue to pursue
productivity improvements and material cost reductions to mitigate such price
pressure.
Historically, the third quarter results of the Automotive Group are
depressed as most of the automobile companies shut their plants for two weeks in
July to retool for new model years. In 1998, these results were further
depressed by the strike by the United Auto Workers at certain General Motors
Corporation ("GM") plants and the resulting closure of other GM plants. Some of
the Automotive Group operations experienced lay-offs as a result of the strike
at GM. It is estimated that the Company lost approximately $7.0 million in
revenue and $2.5 million in operating income during the strike.
Since the 1980's, original equipment manufacturers ("OEM's") such as Ford,
GM and the Chrysler Corporation have been outsourcing an increasing percentage
of their production requirements. OEM's benefit from outsourcing because outside
suppliers generally have significantly lower cost structures and can assist in
shortening development periods for new products. The Company expects to continue
to benefit from the trend toward outsourcing.
Historically, sales to certain Asian markets have been insignificant to
the Company's total net sales; therefore, the current economic conditions in
Asia have not had, nor are they expected to have, a material adverse effect on
the Company's operations. The Company believes that despite these conditions,
the Asian region has solid long-term growth opportunities and will continue to
explore these opportunities.
Cost of Products Sold. Cost of products sold, excluding depreciation
expense, decreased by $10.6 million or 6.1% from the third quarter of 1997
compared to the comparable period in 1998. Excluding the results of Divested
Divisions, as a percentage of sales, cost of products sold declined from 79.7%
in the third quarter of 1997 to 79.2% in the third quarter of 1998. Reasons for
this decline include improved performance at certain start-up operations,
increased operating efficiencies and changes in product mix in certain
operations in the Machinery Group.
23
<PAGE> 24
Selling and Administrative. Selling and administrative expenses increased
by $.6 million or 3.1% in the quarter ended August 31, 1998 from the quarter
ended August 31, 1997. Excluding results of Divested Divisions, these expenses
increased $1.3 million or 7.9% over the same time frame. Besides a general
increase due to activity relating to increased sales volumes, items contributing
to this increase include management fees now payable to Granaria Industries B.V.
and a retention program for mid-level management.
Depreciation and Amortization. Depreciation and amortization are not
comparable for the three months ended August 31, 1998 and 1997 due to the
differences in asset bases as a result of the Acquisition on February 24, 1998.
EBITDA. The Company defines EBITDA as earnings before interest, taxes,
depreciation, amortization and management expenses. Due to the differences in
the asset bases, it is preferable to compare EBITDA rather than operating
income. EBITDA decreased from $25.1 million in the three months ended August 31,
1997 to $24.8 million for the same period in 1998 or 1.2%. After excluding the
results of Divested Divisions, EBITDA increased .8%.
In the third quarter of 1998, EBITDA for the Industrial Group declined to
$7.0 million from $8.1 million in the comparable period of 1997. Excluding the
results of Divested Divisions, this decline was $.5 million or 6.7% on a 22.4%
decrease in sales. As previously mentioned, although lower germanium prices have
contributed to reduced sales, EBITDA has remained relatively consistent for
these operations as did results at other Industrial Group operations.
In the Machinery Group, EBITDA increased from $6.6 million in the third
quarter of 1997 to $9.6 million in the same period of 1998. Excluding results of
the Divested Divisions, the increase was $3.2 million. Reasons for this increase
include improved efficiencies at operations manufacturing special-purpose
batteries and at the aluminum foundry, and a shift in product mix at operations
manufacturing construction and other industrial equipment.
EBITDA for the Automotive Group increased to $13.5 million in the third
quarter of 1998 from $13.1 million in the same period in the prior year.
Excluding the results of Divested Divisions, the increase was .7%. Any increases
in EBITDA resulting from the increased volumes previously discussed have been
offset by losses related to the GM strike situation.
Interest Expense. Interest expense for the three months ended August 31,
1998 and 1997 was $12.1 million and $7.5 million, respectively. In 1997,
interest expense included interest on the $250 million Subordinated Debentures
held by the Trust which were retired upon the Acquisition and the $50 million
Divestiture Notes retired in August 1997. In 1998, the increase in interest was
attributable to the borrowings against the new credit facility totaling $304.1
million, the issuance of $220 million in Subordinated Notes and the issuance of
an additional $8 million industrial revenue bond in June 1997.
FINANCIAL CONDITION
Since the Acquisition, the Company has generated cash from operations of
$63.9 million which has enabled it to repay a net amount of $46.7 million in
debt and expend $16.1 million for capital. Significant factors contributing to
cash provided by operations include:
1) the receipt of $13.7 million from an insurance company in settlement
of certain claims relating primarily to environmental remediation
expenses;
2) a $15.2 million reduction of accounts receivable from what were
considered high levels at February 28, 1998 to more normal levels at
August 31, 1998;
3) the funding of approximately $8.0 million of employee health care
expenses from a trust that had been earmarked for this purpose rather
than from Company funds; and
4) the accrual of $10.3 million in interest (which was paid September 1,
1998) relating to the Senior Subordinated Notes.
24
<PAGE> 25
The Company's liquidity needs are primarily for capital maintenance and
debt service. With the exception of an expansion at a plant manufacturing
industrial machinery, capital expenditures in the six months ended August 31,
1998 have been primarily for capital maintenance. The Company anticipates that
capital spending will be approximately $9.0 to $11.0 million in the fourth
quarter of 1998. The Company has scheduled debt payments of $2.7 million in the
fourth quarter of 1998 and $10.4 million in 1999.
The Company has entered into a letter of intent for the sale of its Trim
Division for $14.5 million in cash. The transaction is conditioned on, among
other things, the buyer's due diligence investigation and the buyer obtaining
financing. There is not assurance that this transaction will be completed on
these terms. If consummated, the transaction is not expected to result in a
material gain or loss.
The Company believes that its cash flows from operations and available
borrowings under its bank credit facilities will be sufficient to fund its
anticipated liquidity requirements for the next twelve months. In the event that
the foregoing sources are not sufficient to fund the Company's expenditures and
service its indebtedness, the Company would be required to raise additional
funds.
YEAR 2000
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 is performing a
comprehensive review to identify the systems affected by the Year 2000 issue.
The Company is assessing 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 include the
Company's products and evaluation of the readiness of its suppliers and service
providers.
The review of each of the systems involves a five step process. The
Company first inventories areas of potential risk based on comparison to
published industry guidelines. Each component identified in the inventory is
then evaluated for its risk of failure and the impact of potential failure to
the Company's operations and its customers. Once the risks are assessed,
remediation is commenced. Options for remediation may include 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. Most of the Company's divisions have
completed the inventory and assessment phases and are working on remediation and
testing. The remaining divisions have the inventory and assessment phases
underway. The Company expects that all divisions will have completed the
inventory and assessment phases by February 28, 1999 and will have implemented
initial remediation attempts and testing by June 30, 1999.
The Company's remaining costs to remediate the Year 2000 problem are not
expected to exceed $4.0 million. Of this amount, approximately $1.5 million will
be spent in the form of capital for systems replacement and approximately $1.0
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. The impact
on net income (loss) to date has not been material.
25
<PAGE> 26
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
of shipment electronically. While some of these functions could be performed
manually, the Company presently is not certain what the extent of the impact on
operations would be. There is also risk associated with certain suppliers,
including utility companies, over which the Company has little control. The
Company is presently working on contingency plans to address issues related to
potential failures of critical systems due to Year 2000 problems, and it expects
to have those plans in place by May 31, 1999.
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
The Company has both operating divisions and domestic export customers
located in Europe. In 1997, combined revenues from these sources was
approximately 13% of total revenues. Revenues involving countries participating
in the Euro conversion were somewhat lower. The Company is currently assessing
the impact of the Euro conversion on its operations.
The Company's European operations are taking steps to ensure their
capability of entering Euro transactions as of January 1, 1999. It is not
anticipated that changes to information technology and other systems which are
necessary to enter these transaction will be material. The affected operations
plan to make the Euro the functional currency sometime during the transition
period.
It is difficult to assess the competitive impact of the Euro conversion on
the Company's operations. In some markets, where customers already appear to be
considering the exchange rates when considering prices, this process may be
accelerated. In other markets, where sales are made in U.S. dollars, there may
be pressures to denominate sales in the Euro, however, exchange risks resulting
from these transactions would be hedged.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934. The words
"estimate," "anticipate," "project," "intend," "believe," "expect," and similar
expressions are intended to identify forward looking statements. Such
forward-looking information involves important risks and uncertainties that
could materially alter results in the future from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and 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.
26
<PAGE> 27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's $225 million term loan facility (the "Term Loan Facility")
bears 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
the Term Loan Facility. Under this agreement the Company pays a fixed rate of
5.805% on a notional amount of $150 million and receives LIBOR on that amount.
This swap transaction effectively fixes the interest rate on $150 million of the
Term Loan Facility at 5.805% plus the applicable spread for the duration of the
interest rate swap.
The remaining $75 million of the Term Loan Facility bears interest at the
variable rates described above. In addition, the Company has a revolving loan
facility that had a balance of $35 million at August 31, 1998, which also bears
interest at the variable rates described above. Accordingly, a 1% increase in an
applicable index rate would result in additional interest expense of $1.1
million per year assuming no change in the level of borrowing under the
revolving loan facility.
27
<PAGE> 28
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
28
<PAGE> 29
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
DATE October 1, 1998
---------------------
29
<PAGE> 30
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
DATE October 1, 1998
-------------------
30
<PAGE> 31
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/ DAVID G. KRALL
-------------------------------
David G. Krall
Secretary
DATE October 1, 1998
--------------------
31
<PAGE> 32
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/ DAVID G. KRALL
-------------------------------
David G. Krall
Secretary
DATE October 1, 1998
-----------------------
32
<PAGE> 33
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/ DAVID G. KRALL
-----------------------------------
David G. Krall
Secretary
DATE October 1, 1998
---------------------
33
<PAGE> 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 FLUID SYSTEMS, INC.
/S/ DAVID G. KRALL
----------------------------
David G. Krall
Secretary
DATE October 1, 1998
----------------------
34
<PAGE> 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.
EAGLE-PICHER MINERALS, INC.
/S/ DAVID G. KRALL
------------------------------
David G. Krall
Secretary
DATE October 1, 1998
----------------------
35
<PAGE> 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 TECHNOLOGIES, LLC
/S/ WILLIAM E. LONG
---------------------------------
William E. Long
President
DATE October 1, 1998
--------------------
36
<PAGE> 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.
HILLSDALE TOOL & MANUFACTURING CO.
/S/ DAVID G. KRALL
-----------------------------
David G. Krall
Secretary
DATE October 1, 1998
---------------------
37
<PAGE> 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.
MICHIGAN AUTOMOTIVE RESEARCH CORPORATION
/S/ DAVID G. KRALL
------------------------------
David G. Krall
Assistant Secretary
DATE October 1, 1998
--------------------
38
<PAGE> 39
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule (submitted
electronically to the Securities
and Exchange Commission for its
information)
39
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND THE CONDENSED
CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000030927
<NAME> EAGLE-PICHER INDUSTRIES, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> AUG-31-1998
<EXCHANGE-RATE> 1
<CASH> 21,098
<SECURITIES> 0
<RECEIVABLES> 122,167
<ALLOWANCES> 1,723
<INVENTORY> 90,613
<CURRENT-ASSETS> 260,871
<PP&E> 255,653
<DEPRECIATION> 19,505
<TOTAL-ASSETS> 816,431
<CURRENT-LIABILITIES> 136,516
<BONDS> 487,209
0
0
<COMMON> 180,005
<OTHER-SE> 12,975
<TOTAL-LIABILITY-AND-EQUITY> 816,431
<SALES> 206,356
<TOTAL-REVENUES> 206,356
<CGS> 163,518
<TOTAL-COSTS> 163,518
<OTHER-EXPENSES> 36,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,132
<INCOME-PRETAX> (4,938)
<INCOME-TAX> (1,135)
<INCOME-CONTINUING> (3,803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,803)
<EPS-PRIMARY> (38,030.00)
<EPS-DILUTED> (38,030.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND THE CONDENSED CONSOLIDATED
BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000030927
<NAME> EAGLE-PICHER INDUSTRIES, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 682,546
<TOTAL-REVENUES> 682,546
<CGS> 549,082
<TOTAL-COSTS> 549,082
<OTHER-EXPENSES> 101,585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,391
<INCOME-PRETAX> 8,027
<INCOME-TAX> 9,821
<INCOME-CONTINUING> (1,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,794)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
