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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K/A
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended November 30, 1998
Commission file number 333-49957
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EAGLE-PICHER INDUSTRIES, INC.
An Ohio Corporation
I.R.S. Employer Identification
NO. 31-0268670
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250 EAST FIFTH STREET, SUITE 500, P. O. BOX 779, CINCINNATI, OHIO 45201
Registrant's telephone number, including area code:
513-721-7010
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
No voting stock is held by non-affiliates of the registrant.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
100 shares of common capital stock, no par value, were outstanding at
February 24, 1999.
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TABLE OF ADDITIONAL REGISTRANTS
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JURISDICTION COMMISSION IRS EMPLOYER
OF INCORPORATION FILE IDENTIFICATION
NAME OR ORGANIZATION NUMBER NUMBER
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<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>
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business.................................................... 3
2. Properties.................................................. 8
3. Legal Proceedings........................................... 9
4. Submission of Matters to a Vote of Security Holders......... 14
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 14
6. Selected Financial Data..................................... 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24
8. Financial Statements and Supplementary Data................. 26
9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 67
PART III
10. Directors and Executive Officers of the Registrant.......... 67
11. Executive Compensation...................................... 69
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 76
13. Certain Relationships and Related Transactions.............. 77
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 79
Signatures..................................................
Exhibit Index...............................................
</TABLE>
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PART I
ITEM 1. BUSINESS.
General Development of Business
Eagle-Picher Industries, Inc. ("Company"), a diversified manufacturing,
mining and technology company, was incorporated in 1867 under the laws of the
State of Ohio as an outgrowth of a business enterprise founded in Cincinnati,
Ohio in 1843. The Company was acquired by Eagle-Picher Holdings, Inc.
("Parent"), a majority-owned subsidiary of Granaria Industries B.V., on February
24, 1998 from the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust
("PI Trust") for $702.5 million ("Acquisition").
On November 18, 1996, the U.S. Bankruptcy Court together with the U.S.
District Court for the Southern District of Ohio issued an order confirming the
Third Amended Plan of Reorganization ("Plan") of the Company and seven of its
domestic subsidiaries, which became effective November 29, 1996. The Company had
filed for protection under chapter 11 of the U.S. Bankruptcy Code in 1991 as a
consequence of a cash shortfall resulting from the Company's inability to
satisfy certain immediate asbestos litigation liabilities. The order confirming
the Plan contains a permanent injunction which precludes holders of present and
future asbestos or lead-related personal injury claims from pursuing their
claims against the reorganized Company and the Company has no further liability
in connection with such claims. Those claims will be channeled to the PI Trust,
which is an independently administered qualified settlement trust which was
established to resolve and satisfy those claims. Under the terms of the Plan,
all of the then outstanding common stock of the Company was canceled and all of
the newly issued common stock of the reorganized Company was contributed to the
PI Trust, together with certain notes and cash.
The Company conducts its business through both unincorporated divisions and
separately incorporated subsidiaries, both of which are referred to herein as
divisions.
Financial Information About Industry Segments.
The Company's major industry segments are:
1. Automotive;
2. Machinery; and
3. Industrial.
Industry Segment Data is included in Item 8 below, the Company's
Consolidated Financial Statements for the nine months ended November 30, 1998,
the three months ended February 28, 1998 and the years ended November 20, 1997
and 1996. (See Note Q.)
Narrative Description of Business
THE AUTOMOTIVE GROUP
The Automotive Group is primarily engaged in the production and sale of
mechanical parts for passenger cars, trucks, vans and sport utility vehicles
primarily to the major automotive manufacturers and their suppliers in North
America, Europe and Asia. The Automotive Group is composed of the following
product groups: Precision Machined Components, Rubber Coated Metal Products and
Other Automotive Products and Services which consists of Fluid Systems Products,
Molded Rubber Products, Aluminum Casting Products and Automotive Services.
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The following table sets forth the percentage of the Company's revenue
contributed by each product line:
<TABLE>
<CAPTION>
1998 1997 1996
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Precision Machined Components............................... 28.2% 22.7% 20.4%
Rubber Coated Metal Products................................ 9.2 8.9 9.4
Other Automotive Products and Services...................... 10.6 8.9 8.0
Divested Automotive Products................................ 3.0 7.6 11.5
---- ---- ----
Total............................................. 51.0% 48.1% 49.3%
==== ==== ====
</TABLE>
Precision Machined Components. The Hillsdale Tool Division specializes in
the design, manufacture and distribution of precision-machined aluminum and
steel parts. Typical machined parts would include transmission pump assemblies,
vibration dampening devices and a variety of other precision machined castings
and forgings which are designed and engineered for engine, transmission and
driveline applications. These parts are also produced in Mexico and the United
Kingdom. The market for precision machined components tends to have a few strong
and well-positioned competitors, including the original equipment manufacturers
("OEM's") themselves. The Automotive Group competes in this market primarily on
the basis of price, delivery, quality and service.
Rubber Coated Metal Products. The Wolverine Gasket Division coats steel and
aluminum with elastomeric compounds and produces materials that are particularly
suitable for high compression and high temperature applications. These materials
are typically used in sealing and insulating products such as compressor gaskets
for air conditioning units, brake noise insulators and powertrain applications
such as head gaskets. Many of these parts are also manufactured in Germany. The
market for rubber coated metal products is highly fragmented. While the
Automotive Group competes against a variety of different companies in the
geographical areas it supplies, it has no primary competitor in this market.
Other Automotive Products and Services. The Fluid Systems Divisions,
located both in the United States and the United Kingdom, employ the elastomeric
extrusion process to produce multi-layered tubing and hose assemblies for fuel,
emission, brake, clutch and suspension systems. The Company is developing new
products to meet new environmental fuel, fluid and emission requirements.
Customers include some of the world's major OEM's and Tier I suppliers.
The Rubber Molding Division manufactures small precision injection molded
rubber parts used in sealing shock absorbing and noise reduction applications.
Similar parts are manufactured at a plant in Spain. Although the Company is one
of the top three suppliers for many of the seals it produces, the market for
these products is highly fragmented. In niche markets in which the Company
competes, it competes primarily on the basis of quality and cost.
The Ross Aluminum Foundries Division produces aluminum turbocharger
components, primarily for diesel engines, and other engine and specialty
automotive components. The Company believes it is a relatively small participant
in the market for automotive castings in aluminum.
The Michigan Automotive Research Corporation offers vehicle and vehicle
system manufacturers a comprehensive range of testing programs for engines,
power trains and power train components. Its customers include the OEM's, their
suppliers and manufacturers of other types of vehicles.
The Automotive Group distributes its products primarily through internal
sales personnel. The Group also has sales and engineering offices in Japan and
Europe to serve those markets. Generally, competitive conditions for this Group
are characterized by a decreasing amount of competitors, an increasing amount of
foreign competition, an increased emphasis on quality and intense pricing
pressures from major customers.
Consolidated sales to the Ford Motor Company amounted to $121.0 million in
the nine months ended November 30, 1998, $39.8 million in the three months ended
February 28, 1998, $170.5 million in 1997 and $167.7 million in 1996. No other
customer in the Automotive Group or any other Group accounted for 10% or more of
consolidated net sales.
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THE MACHINERY GROUP
The Machinery Group is involved in manufacturing products for various
industrial markets. Its products can be segregated into three product lines:
Special Purpose Batteries, Construction Equipment and Other Machinery Products.
The following table sets forth the percentage of the Company's total net sales
contributed by each product line:
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1998 1997 1996
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Special Purpose Batteries................................... 15.0% 14.4% 12.2%
Construction Equipment...................................... 12.8 10.7 10.7
Other Machinery Products.................................... 3.4 3.3 4.0
Divested Machinery Products................................. -- 1.4 2.0
---- ---- ----
Total............................................. 31.2% 29.8% 28.9%
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</TABLE>
Special Purpose Batteries. The Machinery Group designs, manufactures and
tests special purpose batteries for advanced value-added products for
telecommunications, aerospace and defense applications, such as satellites,
launch vehicles and missiles. Major customers for these batteries include the
U.S. Government, satellite builders and aircraft manufacturers. The Company is a
recognized leader in this business. It bids competitively for numerous fixed
price government contracts for special purpose batteries and competes primarily
on the basis of quality, performance and cost. It has a few competitors for some
highly technological products, but many large and small competitors for its
other products such as lead-acid batteries, which are used in toys and emergency
lighting systems.
Construction Equipment. The Construction Equipment Division manufactures
primarily three construction equipment products: wheel tractor scrapers,
heavy-duty industrial forklift trucks and component parts for construction
machinery. The Company is the exclusive source of certain models of wheel
tractor scrapers to Caterpillar, Inc. The Company sells its own branded line of
heavy-duty industrial forklift trucks, which are primarily sold to independent
rental fleets and also to paper and automotive manufacturers. The industrial
forklift market is highly fragmented, however, the Company participates in niche
markets, such as the rough terrain market, where it enjoys significant market
share.
Other Machinery Products. The Cincinnati Industrial Machinery Division
produces high-volume metal cleaning and finishing systems for industrial
applications, including specialized high-volume can washing and coating
machinery for the manufacturers of two-piece cans for the food and beverage
industry. Other products produced by this Group include complex aluminum
castings.
THE INDUSTRIAL GROUP
The Industrial Group produces a variety of products for industrial markets,
principally manufacturers of consumer products. It is composed of Specialty
Materials and Other Industrial Products. The following table sets forth the
percentage of the Company's total net sales contributed by each product line:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Specialty Materials......................................... 9.5% 11.3% 9.9%
Other Industrial Products................................... 8.3 7.5 7.5
Divested Industrial Products................................ -- 3.3 4.4
---- ---- ----
Total............................................. 17.8% 22.1% 21.8%
==== ==== ====
</TABLE>
Specialty Materials. The Company manufactures and tests high-purity
specialty material compounds for a wide range of services and products. The
Company is a major source for high purity isotopically enriched boron compounds
used in nuclear applications. The boron isotope produced by the Company is a
material that absorbs neutrons and is used as a moderator in nuclear reactors.
There are few competitors in this market, but there is competition from products
made from alternate materials. This Division also refines rare metals, such as
high purity germanium compounds. Germanium is used in satellite applications
such as substrates for solar cells which are used to power satellites. The major
customers for germanium products include satellite builders and other
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aerospace companies. The Industrial Group also manufactures bulk pharmaceutical
products and industrial chemicals, and produces a wide range of super-clean
containers, which meet strict EPA protocols, for environmental sampling.
Other Industrial Products. The Minerals Division mines and refines
diatomaceous earth products and perlite filter aid products, which are used in
high purity filtration applications primarily by the food and beverage industry
and as industrial absorbents. The Minerals Division is second to the Allegheny
Corporation in the sale of certain filter aid products that are sold both
directly and through distributors to many large and small customers. In the
North American market for industrial absorbents, the Company has a variety of
competitors due to a number of other materials, such as clay, which are also
being used for this purpose. The Industrial Group also manufactures injection
molded rubber parts used in plumbing and packaging applications.
DIVESTED DIVISIONS
During the fiscal year ended November 30, 1997, the Company sold a number
of divisions to fund repayment of notes issued during the reorganization
process. These divisions were the Plastics Division, the Fabricon Products
Division and the Transicoil Division. The Company received net cash proceeds of
$39.0 million and the aggregate loss on these transactions was $2.4 million. In
June 1997, the assets of the former Suspension Systems Division were contributed
to a joint venture ("E-P-Boge") with Fichtel & Sachs Industries, Inc. ("F & S").
The Company maintained a 45% interest in E-P-Boge, however F & S exercised its
option to purchase the Company's interest in E-P-Boge in November 1998 for $5.0
million. At the same time, the Company's $2.8 million note from E-P-Boge was
repaid. The Company sold its Trim Division as of October 31, 1998 for $14.5
million, however the transaction was held in escrow until certain conditions
were met in December 1998.
OTHER INFORMATION
Raw Materials. The prices of raw materials are subject to volatility. The
Company's principal raw materials are rubber, steel, zinc, nickel, germanium,
boron and aluminum. These raw materials are commodities that are widely
available. Although the Company has alternate sources for most of its raw
materials, the Company's policy is to establish arrangements with select
vendors, based upon price, quality and delivery terms. By limiting the number of
its suppliers, the Company believes that it obtains materials of consistently
high quality at favorable prices.
Intellectual Property. The Company holds more than 50 patents, primarily in
the United States. Many of the Company's products incorporate a wide variety of
technological innovations, some of which are protected by individual patents.
Many of these innovations are treated as trade secrets with programs in place to
protect these trade secrets. Accordingly, no one patent or group of related
patents is material to the Company's business. The Company also has numerous
trademarks, including the Eagle-Picher name, and considers the Eagle-Picher name
to be material to its business.
Backlog. At November 30, 1998 and 1997, the Company's order backlog was
approximately $200.0 million and $250.0 million, respectively. The decline in
backlog is due primarily to a decline in demand for special purpose batteries
and semiconductor materials due to the completion of a major satellite project.
The Company expects the order backlog outstanding at November 30, 1998 to be
filled within the 1999 fiscal year. As is customary in the automotive industry,
the Company enters into blanket purchase orders with its customers with respect
to specific product orders. From time to time, the customer, depending on its
needs, will provide the Company with releases on a blanket purchase order for a
specified amount of products. As a result, the backlog for the Automotive Group
is not significant.
Government Contracts. The Company's Industrial and Machinery Groups have
contracts with the U.S. Government that have standard termination provisions.
The U.S. Government retains the right to terminate the contracts at its
convenience. However, if contracts are terminated, the Company is entitled to be
reimbursed for allowable costs and profits to the date of the termination
relating to authorized work performed to such date. U.S. Government contracts
are also subject to reduction or modification in the event of changes in
Government requirements or budgetary constraints.
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Research and Development. The Company spent approximately $14.1 million on
research and development activities, primarily for the development of new
products or the improvement of existing products in 1998. Comparable costs were
$14.8 million in 1997 and $18.0 million in 1996. Amounts have declined due to
the divestiture of divisions in 1997.
Environmental Regulatory Compliance. The Company had capital expenditures
of $.8 million and operating expenses (excluding depreciation) of approximately
$9.8 million in the year ended November 30, 1998 for environmental matters. The
Company estimates that its capital expenditures and operating expenses,
including expenses for remedial activities, will be approximately $1.5 million
and $13.3 million, respectively, in 1999. As of November 30, 1998, the Company
has reserved $9.5 million in connection with environmental matters, and believes
such reserves to be adequate under the circumstances. See Item 3.(c) for
information with respect to various other environmental proceedings.
Employees. As of November 30, 1998, the Company employed approximately
6,600 persons in its operations, of whom approximately 1,650 were salaried
employees and 4,950 were hourly employees. Approximately 18% of the Company's
hourly employees are represented by one of six labor organizations. The Company
believes that its relations with its employees are generally good.
Financial Information about Foreign and Domestic Operations and Export
Sales
Financial information about Foreign and Domestic Operations and Export
Sales is included in Item 8 below, the Company's Consolidated Financial
Statements for the nine months ended November 30, 1998, the three months ended
February 28, 1998 and the years ended November 30, 1997 and 1996. (See Note Q.)
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ITEM 2. PROPERTIES.
The principal fixed assets of the Company consist of its manufacturing,
processing and storage facilities and its transportation and plant vehicles.
Substantially all of the Company's owned properties and assets are pledged as
collateral under its syndicated senior loan facility. The following sets forth
selected information regarding the Company's active manufacturing and processing
facilities:
<TABLE>
<CAPTION>
DESCRIPTION OF
BUSINESS GROUP LOCATION PROPERTY INTEREST
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<S> <C> <C>
AUTOMOTIVE
Domestic Ann Arbor, Michigan owned
Blacksburg, Virginia (2 plant locations) owned
Brighton, Michigan leased
Hillsdale, Michigan (4 plant locations) owned
Hamilton, Indiana owned
Inkster, Michigan owned
Jonesville, Michigan owned
Leesburg, Florida owned
Manchester, Tennessee leased(1)
Norwich, Connecticut owned
Pine Bluff, Arkansas leased
Sidney, Ohio (2 plant locations) owned
Stratford, Connecticut owned
Vassar, Michigan leased
International Market Harborough, England owned
Ohringen, Germany owned
San Luis Potosi, Mexico owned
Soria, Spain owned
Tamworth, England owned
MACHINERY
Domestic Colorado Springs, Colorado (2 plant locations) owned & leased
Grove, Oklahoma owned
Joplin, Missouri (5 plant locations) owned & leased
Lubbock, Texas owned
Seneca, Missouri owned
Sharonville, Ohio owned
Stella, Missouri owned
International Acuna, Coahuila, Mexico owned
INDUSTRIAL(2)
Domestic Clark Station, Nevada owned
Galena, Kansas owned
Harrisonville, Missouri owned
Joplin, Missouri owned
Lenexa, Kansas owned
Lovelock, Nevada owned
Miami, Oklahoma (3 plant locations) owned & leased
Quawpaw, Oklahoma (2 plant locations) owned
Vale, Oregon leased(1)
</TABLE>
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(1) The Company will become owner of each property upon payment in full of all
existing industrial revenue bond obligations in connection with such
property.
(2) In addition to the facilities listed, the Company's Minerals Division has
mining locations and numerous claims in Nevada, Oregon and California.
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The Company owns or leases additional office space, including its corporate
headquarters in Cincinnati, Ohio and sales offices in Europe and Asia, and
warehouse space for certain of its operations. The Company's properties are
adequate and suitable for its business and generally have capacity for expansion
of existing buildings on owned real estate. Substantially all of its buildings
have been well maintained and are in sound operating condition and regular use.
Mining. The Industrial Group's Minerals Division owns and leases
diatomaceous earth and perlite mining locations as well as numerous claims in
Nevada, Oregon and California ("mining properties"). Not all of the mining
properties are currently being mined. The Company continually evaluates
potential mining properties, and additional mining properties may be acquired in
the future. The Minerals Division extracts diatomaceous earth and perlite
through open-pit mining using bulldozers and wheel tractor scrapers. The
extracted materials are transported by truck to separate processing facilities.
As ore deposits are depleted, the Company reclaims the land in accordance with
reclamation plans approved by the relevant federal, state and local regulators.
A total of approximately 321,000 tons of materials were extracted from the
Company's active mining properties in fiscal year 1998. The Company believes its
diatomaceous earth reserves to range from 15 to 75 years and its perlite
reserves to be in excess of 50 years at the current levels of extraction based
on estimates prepared by its mining and exploration personnel.
ITEM 3. LEGAL PROCEEDINGS.
(A) Chapter 11 Proceedings.
On January 7, 1991 ("Petition Date"), the Company and seven of its domestic
subsidiaries each filed a voluntary petition for relief under chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of Ohio, Western Division, in Cincinnati, Ohio ("Bankruptcy
Court"). The subsidiaries that filed chapter 11 petitions are Daisy Parts, Inc.,
Transicoil Inc., Michigan Automotive Research Corporation ("MARCO"), EDI, Inc.,
Eagle-Picher Minerals, Inc., Eagle-Picher Europe, Inc., and Hillsdale Tool &
Manufacturing Co. On November 30, 1991, substantially all of the assets of EDI,
Inc. were sold pursuant to authority granted by the Bankruptcy Court. In August
1997, all of the Company's shares of Transicoil Inc. were sold. All of the
chapter 11 cases were consolidated for procedural purposes only under the
caption: "In re Eagle-Picher Industries, Inc., et al.," Consolidated Case No.
1-91-00100, before the Honorable Burton Perlman, United States Bankruptcy Judge.
In August 1996, the Company, together with the Injury Claimants' Committee
and the Representative for Future Claimants who was appointed by the Bankruptcy
Court, proposed the Plan. The Bankruptcy Court and the United States District
Court for the Southern District of Ohio (the "Ohio District Court") jointly
issued an order (the "Order") confirming the Plan on November 18, 1996 (the
"Confirmation Date"). The Plan became effective and was consummated on November
29, 1996 (the "Consummation Date"). The major component of the Plan was a
settlement of the Company's liability for present and future asbestos-related
and lead-related personal injury claims arising out of business operations prior
to the Petition Date. Under the Plan, it was agreed that these claims had a
total value of $2 billion. Pursuant to the Plan, (i) the PI Trust was
established and the Company contributed assets to the PI Trust valued at
approximately $730 million in the aggregate (representing an approximately 37%
distribution upon the $2 billion allowed claim of the asbestos and lead
claimants, as unsecured creditors), consisting of $51.3 million in cash, $250
million in the 10% Debentures, $69.1 million in Tax Refund Notes, $18.1 million
in Divestiture Notes and 10,000,000 shares of Common Stock (representing all
outstanding shares of Common Stock), and (ii) a trust for the benefit of
property damage claimants ("PD Trust") is to be established with $3 million in
cash, an obligation of the Company which has been fully funded and is set aside
pending establishment of the PD Trust.
Pursuant to the Plan, the asbestos-related and lead-related claims were
discharged and the Company has no further liability in connection with such
claims. As a result, the Company was relieved of the burden of defending more
than 150,000 asbestos-related, as well as any lead-related, claims that had
been, as well as any such claims that may in the future be, filed against the
Company. In addition, the Order includes an injunction (the "Injunction"), which
prohibits claimants with asbestos-related or lead-related claims from bringing
actions against the Company, and instead requires these claimants to assert such
claims only against the PI Trust or, as to
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asbestos-related property damage claims, against the PD Trust, each of which
was, or in the case of the PD Trust, will be, funded by the Company pursuant to
the Plan. Under the Plan, the PI Trust assumed all liability and responsibility
for asbestos-related and lead-related personal injury claims against the
Company, and the PD Trust will assume all liability and responsibility for
asbestos-related property damage claims. The Company believes that the Plan, the
Injunction and the Bankruptcy Code together will enjoin any claims against the
Company with respect to any past, present, or future asbestos-related or
lead-related liabilities arising from or based upon business operations prior to
the petition date.
Following confirmation of the Plan, notices of appeal of the Order were
filed by one general unsecured creditor (the "Creditor Appellant") and the
Unofficial Committee of Co-Defendants (the "Co-Defendants"), a group of former
manufacturers and distributors of asbestos-containing products that have been
named as co-defendants with the Company in asbestos personal injury lawsuits and
have asserted claims against the Company for contribution, indemnity and
subrogation. The allowance of contribution claims against the Company is subject
to Section 502(e) of the Bankruptcy Code which states that a claim for
contribution asserted by an entity that is liable with a chapter 11 debtor shall
be disallowed to the extent such contribution claim is contingent as of the time
of allowance or disallowance of such claim. Neither the Creditor Appellant nor
the Co-Defendants requested that the Order be stayed pending appeal. The
Creditor Appellant withdrew its notice of appeal by a stipulation dated January
24, 1997.
The Co-Defendants appealed the Order directly to the United States Circuit
Court of Appeals for the Sixth Circuit (the "Sixth Circuit") (the "Confirmation
Order Appeal"), raising a variety of objections to the Plan and to the Trust's
procedures for processing, allowing and paying the Co-Defendants' claims. The
Co-Defendants also asserted, among other things, that Section 524(g) of the
Bankruptcy Code, which authorizes courts to issue injunctions to channel
asbestos claims away from a reorganized company to a personal injury trust
established by such company, is unconstitutional. The Sixth Circuit, in a
decision and order issued December 21, 1998, affirmed the Order and dismissed
the subject appeal as moot. Although the Co-Defendants could seek a review of
the Sixth Circuit decision by the United States Supreme Court, the Company
believes the likelihood of such an appeal is remote. As a result, the Order is
expected to be final and nonappealable as of March 23, 1999.
The Bankruptcy Court and the Ohio District Court entered the Injunction
pursuant to Section 524(g) of the Bankruptcy Code. Section 524(g) of the
Bankruptcy Code was enacted by Congress in 1994 to provide a statutory
safe-harbor for asbestos manufacturing companies faced with numerous
asbestos-related personal injury claims. Section 524(g) grants bankruptcy courts
express statutory authority to issue injunctions that prohibit present and
future asbestos claimants from suing a reorganized debtor; provided that a trust
is established and funded to pay asbestos-related claims through procedures that
reasonably assure that claimants with similar injuries will receive similar
payments and other specific statutory requirements are satisfied.
Under Section 524(g), if the injunction is issued or affirmed by a district
court with jurisdiction over the reorganization, the injunction will be
permanent and not subject to modification by any court once the injunction
becomes final and nonappealable. In confirming the Plan and issuing the
Injunction, the Bankruptcy Court and the Ohio District Court determined that the
PI Trust and the PD Trust each satisfied the requirements of Section 524(g) and
that they had jurisdiction to issue the Injunction under both Section 524(g) of
the Bankruptcy Code and their more general powers under the Bankruptcy Code to
issue orders that are necessary or appropriate in bankruptcy cases.
While Section 524(g) specifically addresses trusts created to resolve
asbestos-related litigation and injunctions issued in connection therewith, it
does not specifically address whether an injunction directing claims to a trust
that will pay both asbestos-related and non-asbestos-related claims, as in this
case, is protected under Section 524(g). While there is a theoretical
possibility that the Injunction would not apply to future lead-related claimants
because lead-related claims are not addressed in Section 524(g), the Company
believes that the Injunction would be upheld and enforced against lead-related
claimants if challenged. That belief is based on the fact that the Bankruptcy
Court and Ohio District Court, in confirming the Plan and entering the
Injunction, specifically ruled that Section 524(g) does not prohibit channeling
of non-asbestos related claims along with asbestos-related claims. In the event
that Section 524(g) does not operate to protect the Injunction's channeling of
lead-related claims, such channeling could be upheld as a necessary or
appropriate order under Section 105(a) of
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the Bankruptcy Code. Although the filing of future lead-related lawsuits cannot
be predicted, the Company believes that this risk is limited because to date,
only approximately 125 lead-related claims have been asserted against the
Company (as compared to the tens of thousands of asbestos-related claims
asserted against the Company).
On and shortly after the Consummation Date, the Company made distributions
(the "Initial Distribution") under the Plan totaling approximately $800 million
in cash, common stock and debt securities (including the approximately $730
million contributed to the PI Trust, $3.0 million set aside for the PD Trust and
the remainder in connection with various other allowed claims including the
environmental claims described below). Final distributions under the Plan will
not be made until all remaining unresolved claims (other than asbestos-related
and lead-related claims) are resolved (the "Final Distribution"). Two claims
asserted during the chapter 11 proceeding remain unresolved, an environmental
claim and a product liability claim. As of November 30, 1998, the Company
recorded a reserve on the Company's balance sheet in the amount of approximately
$11.1 million for the Final Distribution (the "Final Distribution Reserve").
Although there can be no assurance as to the amount required to resolve the
remaining claims, the Company expects those claims, together with any other
claims not paid in the Initial Distribution, to be resolved, exclusive of
administrative expenses, for an amount not in excess of the Final Distribution
Reserve.
Although a bankruptcy plan of reorganization generally serves to resolve
all claims that arose prior to the chapter 11 proceedings, courts in a number of
cases have limited the types of environmental obligations that can be discharged
by bankruptcy (concluding, for example, that an order to conduct an
environmental clean-up of a site may not be a "claim" or that an environmental
claim did not "arise" before the bankruptcy). The Company has entered into the
Environmental Settlement, discussed below, which is intended to relieve the
Company of the burden of defending against certain claims asserted under
Environmental Laws relating to conditions occurring prior to the date of the
bankruptcy petition. The Environmental Settlement also governs certain
environmentally related claims that have been or may yet be asserted against the
Company after the Consummation Date relating to conditions occurring prior to
the date of the bankruptcy petition. See " -- Environmental Matters."
Nevertheless, due to the limitations on the types of environmental obligations
that can be discharged by bankruptcy, the Company may have obligations relating
to historical noncompliance with environmental laws with respect to sites owned
by the Company as of the Confirmation Date that were not asserted in the chapter
11 proceedings. See " -- Environmental Matters."
(B) Other.
On January 25, 1996, Richard Darrell Peoples, a former employee of the
Company, filed a Qui Tam suit under seal in the United States District Court for
the Western District of Missouri (the "Missouri Court"). A Qui Tam suit is a
lawsuit brought by a private individual pursuant to federal statute, allegedly
on behalf of the U.S. Government. The U.S. Government, which has the ability to
intervene in, and take control of, a Qui Tam suit, has declined the opportunity
to intervene or take control of this Qui Tam suit. The Company became aware of
the suit on October 20, 1997, when it was served on the Company, after it had
been unsealed. The suit involves allegations of irregularities in accounting,
manufacturing and testing procedures in connection with certain U.S. Government
contracts. The allegations are similar to allegations made by the former
employee, and investigated by outside counsel for the Company, prior to the
filing of the Qui Tam suit. Outside counsel's investigation found no evidence to
support any of the employee's allegations, except for some inconsequential
expense account matters. The Company, which believes that the U.S. Government
did not incur any expense as a result of these matters, reported to the U.S.
government the employee's allegations and the results of outside counsel's
investigation. The employee also initiated a different action against the
Company in 1996 for wrongful termination, in which he alleged many of the same
acts complained of in the Qui Tam suit. That action was dismissed with prejudice
by the Missouri Court in October 1996. On June 16, 1998, the Missouri Court
granted the Company's Motion to Dismiss the Qui Tam suit. The Court, however,
allowed Mr. Peoples to amend his complaint. Mr. Peoples filed an amended
complaint, and Company's Motion to Dismiss the Amended Complaint was denied on
January 20, 1999. The Company intends to contest this suit vigorously. The
Company does not believe that resolution of this suit will have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
11
<PAGE> 12
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit
against the Company in the United States District Court for the Northern
District of Georgia (the "Georgia Court") alleging breach of contract, negligent
misrepresentation, and contributory infringement and seeking contribution and
indemnification in an amount not less than $10 million (the "Caradon suit"). The
Caradon suit arose out of patent infringement litigation between Caradon and
Therma-Tru Corporation extending over the 1989-1996 time period, the result of
which was for Caradon to be held liable for patent infringement in amount
believed to be almost $10 million. In June 1997, the Company filed a Motion with
the Bankruptcy Court seeking an order enforcing the Plan and the Confirmation
Order against Caradon, and enjoining the Caradon suit from going forward. The
Bankruptcy Court in a decision entered on December 24, 1997, held that the
Caradon suit did violate the Plan and the Confirmation Order and enjoined
Caradon from pursuing the Caradon suit. Caradon appealed the Bankruptcy Court's
decision to the United States District Court for the Southern District of Ohio
(the "District Court"), and in a decision entered on February 3, 1999, the
District Court reversed and remanded the matter back to the Bankruptcy Court.
The Company intends to contest this suit vigorously. The Company does not
believe that resolution of this suit will have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
On May 29, 1997, Therma-Tru Corporation ("Therma-Tru") sought leave to file
an amended complaint (the "Amended Complaint") adding the Company as a defendant
in a suit filed by Therma-Tru in January 1997 (the "Therma-Tru suit") against
Pease Industries, Inc. ("Pease") in the United States District Court for the
Eastern District of Michigan (the "Michigan Court"). The Therma-Tru suit
involves allegations of infringement by Pease for doors manufactured by Pease
using fiber-reinforced plastic exterior skins supplied by the Company or its
successor. In June 1997, the Company filed a Motion with the Bankruptcy Court
seeking an order enforcing the Plan and the Confirmation Order against
Therma-Tru, and enjoining the Therma-Tru suit from going forward as against the
Company. The Bankruptcy Court in a decision entered on December 24, 1997, held
that the Amended Complaint would violate the Confirmation Order only insofar as
the Amended Complaint seeks relief for acts of the Company preceding the
Confirmation Date. The Bankruptcy Court did not enjoin the prosecution of the
Amended Complaint insofar as it related to acts of the Company after the
Confirmation Date. Therma-Tru has appealed the Bankruptcy Court's decision with
regard to the Company's acts prior to the Confirmation Date. That appeal remains
pending. On September 15, 1997, Therma-Tru filed a separate amended complaint in
the Therma-Tru suit adding Cambridge Industries, Inc. ("Cambridge") as an
additional defendant. Cambridge was the purchaser of the Company's former
Plastics Division and the Company is obligated to defend the Therma-Tru suit as
it relates to Cambridge pursuant to an indemnity the Company gave to Cambridge
when the Company sold its Plastics Division. That indemnity was for any door
skins sold through October 31, 1997, that were later found to infringe on the
Therma-Tru patent. The Company is vigorously defending the Therma-Tru suit as it
proceeds against both the Company and Cambridge for sales of door skins after
the Confirmation Date. The Company does not believe that resolution of this suit
will have a material adverse effect on the Company's financial condition results
of operations or cash flows.
The Company is also involved in various other proceedings incidental to the
ordinary conduct of its business. The Company believes that none of these other
proceedings will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
(C) Environmental Matters.
During the pendency of the chapter 11 proceedings, the Company entered into
a settlement agreement (the "Environmental Settlement") with the United States
Environmental Protection Agency (the "EPA"), the United States Department of the
Interior and the states of Arizona, Michigan and Oklahoma (together, the
"Settling Parties"), addressing all known and unknown environmentally-related
claims that were or could have been asserted by those entities against the
Company in the bankruptcy proceeding. The Environmental Settlement resolved the
majority of the approximately 1,100 environmental liability-related claims filed
against the Company in the chapter 11 proceedings. In addition to resolving
those claims filed in the chapter 11 proceedings, the Environmental Settlement
provided that any additional claims by the Settling Parties against the Company
in connection with pre-petition activities at any site not owned by the Company
(the "Additional Sites"), shall be resolved as if they had been asserted during
the chapter 11 proceedings. Accordingly, if the Company is found
12
<PAGE> 13
liable or settles any Additional Site claim, payment is limited to approximately
37% of the liability or settlement amount.
Since entering into the Environmental Settlement, the Company has received
notice from one or more of the Settling Parties that the Company may have
liability in connection with 21 Additional Sites. The Company may be insured for
a portion of these claims. The Company believes that its potential liability at
19 of these Additional Sites is not material to the Company's financial
condition, results of operations or cash flows. The remaining two Additional
Sites may require significant expenditures by the Company: the Henryetta Smelter
Site at Henryetta, Oklahoma, and the RSR Smelter Site at Dallas, Texas.
Henryetta Smelter Site. The Company received a notice from the EPA in
1997, alleging liability for remediation expenses at the site of a former
zinc smelting facility owned and operated by the Company at Henryetta,
Oklahoma, and for the removal and disposal from surrounding residential
locations of contaminated soil and gravel that originated from the facility
and from other companies operating in the area. The Company operated the
facility for approximately 50 years, until it was shut down in 1968. The
EPA performed remedial activities at the site at a cost of approximately
$6.3 million. The Company expects to settle this claim with the EPA for
some portion of that amount, and has offered to settle this claim for
approximately $3.8 million.
RSR Smelter Site. The Company received a notice from the EPA in 1996,
alleging that it may be a Potentially Responsible Party ("PRP") regarding
liability for remediation expenses at a secondary lead smelting facility in
Dallas, Texas. The Company allegedly leased the facility, which was in
operation until a date in or about 1984, for a period of at least one year
in the early 1950s. The EPA has conducted and continues to conduct
extensive remedial activities at this site, and the EPA's total expenses
may amount to $60 million or more. The Company is one of more than 1,000
PRPs identified by the EPA in connection with this site and is not
identified by the EPA as one of the 14 significant PRPs. The Company and
the EPA have agreed in principle to settle this claim for $2.1 million.
The Company does not expect that its total costs associated with these
sites will have a material adverse effect on the Company's financial
condition, results of operations or cash flows. Because each site is an
Additional Site under the Environmental Settlement, the Company will be
required to pay only approximately 37% of any amount for which it may be
found liable or settle the claim. The Company expects that, pursuant to the
terms of the Plan, such payments will be credited against the Final
Distribution.
The Company is undertaking remedial actions at a number of its current and
former facilities and properties which are not covered under the Environmental
Settlement Agreement. In connection with certain sales of its assets, including
the Plastics and Transicoil Divisions sold in 1997 and the Bearings Division
sold in 1989, the Company has agreed to undertake remedial actions or to
indemnify the respective purchasers of particular assets for certain liabilities
under the Environmental Laws relating to that asset's operations or activities
prior to the sale. The Company believes that neither these remedial actions nor
any claims under these indemnity provisions will have a material adverse effect
on the Company's financial condition, results of operations or cash flows.
The Company is undertaking closure and corrective actions under the
Resource Conservation Recovery Act ("RCRA") at two of its current permitted
hazardous waste facilities. At the Joplin, Missouri, facility, consistent with
the requirements of its RCRA permit, the Company is investigating the nature and
extent of contamination from two closed hazardous waste impoundments and over
100 former solid waste management units formerly in use during the 130-year
operating history of this property. The Company's investigation has identified
areas of soil and groundwater contamination or suspected contamination, certain
of which likely will require the Company to undertake remedial activities.
Following completion of its investigation, the Company, in conjunction with
federal and state regulators, will determine what, if any, corrective actions
are appropriate at this property. At the Colorado Springs, Colorado, facility,
the Company has entered into a Compliance Order on Consent with the State of
Colorado's Department of Public Health and Environment effective January 28,
1999 (the "Consent Order"). Pursuant to the Consent Order, the Company will
complete the closure of four former hazardous waste impoundments and evaluate
appropriate remedial actions to address contaminated groundwater and soil at and
around the facility. The Company does not believe that it will be assessed any
penalty in connection with the remediation of these sites, although there can be
no assurance that one will not be imposed.
13
<PAGE> 14
The Company owned and operated a lead and zinc smelting facility, which was
dismantled in 1982, on the Galena property. The Galena property is located
within the Tri-State mining district, formerly one of the largest lead and zinc
fields in the world. The Tri-State mining district was actively worked from the
mid-1800's until the 1960s and, as a result, soil groundwater and surface waters
have been significantly and adversely impacted. In the 1980s and early 1990s,
the EPA addressed both surface contamination (including residential soil
contamination) and groundwater contamination issues in the Tri-State mining
district in the immediate vicinity of the Galena property. Under the
Environmental Settlement, while the Company resolved all of its other liability
under the Comprehensive Environmental Response, Compensation, and Liability Act
associated with the Tri-State mining district, it specifically retained
liability for the Galena property. Environmental impacts are likely at the
Galena property as a result of the former smelter operation and from historic
materials management practices on the Galena property. The EPA has not required
remediation of the Galena property and the Company has no current expenses in
connection with remedial activities at this property. However, the Company
anticipates that certain investigations and remediation may be required at some
point in the future. The Company does not believe that it will be assessed any
penalty in connection with the remediation of this site, although there can be
no assurance that one will not be imposed.
The Company does not believe, based on current information and taking into
account reserves established for environmental matters, that costs associated
with compliance with and remediation under Environmental Laws will have a
material adverse effect on its financial condition, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
[NOT APPLICABLE]
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30 FEBRUARY 28
1998 1998 1997 1996 1995 1994
------------ ------------- ------------- ------------- ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B PREDECESSOR B PREDECESSOR B
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME (LOSS):
Net sales(A)................ $ 645,984 $ 205,842 $ 906,077 $ 891,287 $ 848,548 $ 756,741
Operating income(B)......... 15,470 11,027 45,558 62,106 63,087 58,281
Adjustment for asbestos
litigation................ -- -- -- 502,197 (1,005,511) --
Fresh-start
revaluation(C)............ -- -- -- 118,684 -- --
Interest expense............ (36,313) (6,940) (31,261) (3,083)(J) (1,926)(J) (1,809)(J)
Income (loss) before taxes,
extraordinary items and
accounting changes........ (19,064) 4,907 14,046 674,656 (934,871) 53,749
Income (loss) before
extraordinary items and
accounting changes........ (14,364) 807 (3,854) 622,086 (944,171) 48,749
Extraordinary items and
accounting changes(D)..... -- -- -- 1,524,305 -- --
Net income (loss)........... (14,364) 807 (3,854) 2,146,391 (944,171) 48,749
Basic earnings (loss) per
common share:
Income (loss) before
extraordinary items and
accounting change....... (143,640.00) 0.08 (0.39) 56.34 (85.51) 4.42
Extraordinary items and
accounting changes...... -- -- -- 138.06 -- --
Basic earnings (loss) per
common share............ (143,640.00) 0.08 (0.39) 194.40 (85.51) 4.42
Weighted average number of
common shares
outstanding............... 100 9,555,560 10,000,000 11,040,932 11,040,932 11,040,932
Dividends per share......... -- -- -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................ 816,327 N/A 746,881 848,880 580,073 521,107
Total long-term debt(F)..... 484,356 N/A 273,397 386,439 20,628 21,622
OTHER DATA:
EBITDA(E)................... 87,436 26,969 104,080 94,931 94,193 85,676
Cash provided by (used in)
operating activities...... 75,547 (9,083) 147,883 72,861 30,456 45,093
Cash used in investing
activities................ (16,618) (6,734) (13,827) (41,770) (28,713) (34,087)
Cash used in financing
activities................ (64,216) (18,955) (113,042) (3,198) (1,019) (2,974)
SELECTED RATIOS:
Earnings/fixed charges(G)... .49x(H) 1.69x 1.43x 173.50x(I) --(I) 24.28x
</TABLE>
- ---------------
(A) Includes net sales attributed to Divested Divisions of $18,600 in the nine
months ended November 30, 1998, $7,076 in the three months ended February
28, 1998, $111,294 in 1997, $159,777 in 1996, $166,082 in 1995, and $157,009
in 1994.
(B) Operating income is not indicative of trends as the results for the nine
months ended November 30, 1998 (subsequent to the Acquisition) and those of
both Predecessor A and Predecessor B were derived using
15
<PAGE> 16
different bases. (See Management's Discussion and Analysis -- Effects of the
Acquisition and Reorganization on Operations and Financial Condition.)
(C) Fresh-start revaluation gain of $118,684 reflects transactions related to
emergence from bankruptcy and reorganization in accordance with Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" (SOP 90-7").
(D) Reflects a gain of $1,525,540 in 1996 related to emergence from bankruptcy
and reorganization in accordance with SOP 90-7 and a loss of $1,235 in 1996
due to an accounting change of the method used for computing LIFO
inventories of boron, germanium and other rare metals.
(E) EBITDA is defined by the Indenture for the 9 3/8% Senior Subordinated Notes
("Indenture") as earnings before interest expense, income taxes,
depreciation and amortization, certain one-time management compensation
expenses and other non-cash charges which include gain (loss) on sale of
divisions and reorganization items. EBITDA is presented because management
believes it is an indicator of both a company's operating performance and
its ability to service and incur debt. EBITDA, as defined herein, may not be
comparable to similarly titled measures reported by other companies and
should not be construed as an alternative to operating income, as determined
by Generally Accepted Accounting Principles ("GAAP"), as an indicator of the
Company's operating performance, or to cash flows from operating activities,
as determined by GAAP, as a measure of liquidity. Funds depicted by EBITDA
are not available for management's discretionary use to the extent they are
required for debt service and other commitments. Includes EBITDA
attributable to Divested Divisions of $446 in the nine months ended November
30, 1998, $(185) in the three months ended February 28, 1998, $4,302 in
1997, $5,543 in 1996, $11,252 in 1995 and $12,898 in 1994.
(F) Long-term debt of $62,000 in 1995 and 1994 was included in liabilities
subject to compromise.
(G) For purposes of determining rates of earnings to fixed charges, "earnings"
consist of income before provision (benefit) for income taxes extraordinary
items and accounting changes and fixed charges. "Fixed charges" consist of
interest expense (including amortization of deferred financing costs) and
approximately 30% of rental expense, representing that portion of rental
expense deemed representative of the interest factor.
(H) Earnings were insufficient to cover fixed charges for the nine months ended
November 30, 1998 by $19,064.
(I) Such ratio of earnings to fixed charges is not meaningful for 1996 because
of significant reversals of asbestos litigation reserves and fresh start
revaluation and is not meaningful for 1995 because of significant charges
for asbestos litigation. Earnings were insufficient to cover fixed charges
by $934,871 for the year ended November 30, 1995.
(J) Interest was not accrued on debt that was either unsecured or undersecured
during the period the Company was in bankruptcy. Contractual interest was
$9,889, $8,897 and $8,940 in 1996, 1995 and 1994, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
EFFECTS OF THE ACQUISITION AND REORGANIZATION ON OPERATIONS AND FINANCIAL
CONDITION
The Acquisition of Eagle-Picher Industries, Inc. ("Company") by
Eagle-Picher Holdings, Inc. ("Parent") was accounted for as a purchase. The
purchase price has been allocated to the assets and liabilities of the Company
based on their respective fair values as determined primarily by independent
appraisals. The excess of the purchase price over the assessed values of the net
assets acquired was allocated to excess of acquired net assets over cost, which
is being amortized over 15 years. The reorganization value in excess of amounts
allocable to identifiable assets, which was the intangible asset created during
the Company's emergence from bankruptcy (described below), was assigned no
value. Consequently, the results of operations after the Acquisition are not
comparable to those in the three months ended February 28, 1998 and in 1997
("Predecessor A") primarily due to depreciation being calculated on an increased
asset base and the difference in amortization of the intangible assets.
Upon emergence from bankruptcy on November 29, 1996 ("Reorganization"), the
Company applied the "fresh-start" provisions of the American Institute of
Certified Public Accountants Statement of Position No. 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7").
In accordance with SOP 90-7, the assets and liabilities of the Company were
restated at their fair
16
<PAGE> 17
value and a valuation of equity was made based on the appraised reorganization
value of the business. The reorganization value in excess of amounts allocable
to identifiable assets was capitalized and amortized using a four year life.
Consequently, results of operations in 1996 ("Predecessor B") and 1997 are not
comparable, primarily due to the increased depreciation on the property plant
and equipment and amortization of the reorganization value in excess of amounts
allocable to identifiable assets resulting from the fresh-start adjustments.
Interest expense was minimal in 1996 because interest expense was not
recorded on unsecured debt or undersecured debt during the duration of the
bankruptcy proceedings. Interest expense increased by $28.2 million in 1997,
primarily due to the debt issued to the PI Trust and unsecured creditors upon
the Company's emergence from bankruptcy. Any of the debt that had been issued
when the Company emerged from bankruptcy that was still outstanding was repaid
at the time of the Acquisition. Interest expense increased substantially in
1998, after the Acquisition, due to the issuance of debt totaling $524.1 million
related to the Acquisition.
Adjusting the assets and liabilities to fair value in the Reorganization
resulted in the fresh-start revaluation gain of $118.7 million in 1996. Other
reorganization items in 1996 were the costs of the reorganization process, net
of the interest income earned on accumulated cash balances.
The plan of reorganization which was approved by the Bankruptcy Court,
included a settlement of $2.0 billion for the Company's aggregate liability on
account of present and future asbestos-related personal injury claims. An
adjustment of $502.2 million was made to the consolidated financial statements
in 1996 to reflect this settlement. The order confirming the Plan contains a
permanent injunction which precludes holders of present or future asbestos or
lead-related personal injury claims from pursuing their claims against the
reorganized Company. Those claims will be channeled to the PI Trust, which is an
independently administered qualified settlement trust established to resolve and
satisfy those claims.
The Company's Reorganization resulted in an extraordinary gain of $1.5
billion on the discharge of pre-petition liabilities, including the asbestos
liability. The value of consideration distributed and expected to be distributed
to the PI Trust and other unsecured creditors is approximately 37% of the amount
of the allowed claims.
In 1997, the Company received Federal tax refunds totaling $69.1 million
resulting from net operating losses ("NOL's") carried back to recover taxes paid
in prior years. The majority of the NOL's were created when the Company
contributed cash and securities to the PI Trust in the Reorganization. Losses
remaining after the carryback were carried forward to reduce taxable income in
future years and were capitalized at the statutory rates as deferred tax assets.
Other items that were deductible in the future, such as the debt issued in
conjunction with the Company's Reorganization which was deductible when it was
repaid, were also included in deferred tax assets which totaled $128.5 million
at November 30, 1996. These deferred tax benefits were used to reduce taxable
income (and, as a result, income taxes paid) in 1997 and the period in 1998
prior to the Acquisition. They were also used to absorb the tax gain resulting
from the sale of the Company. Any of the deferred tax benefits that were not
absorbed by Predecessor A in 1997, the period in 1998 prior to the Acquisition
or by the tax gain on the transaction itself were lost and are not available to
reduce taxable income of the Company going forward.
In addition to the effects of the Acquisition and the Reorganization,
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 in which the Company had a 45%
interest, in 1997. In 1998, the majority partner exercised its option to
purchase the Company's interest in the joint venture. The Company also sold its
Trim Division effective October 31, 1998, although the transaction was held in
escrow until certain conditions were met in December 1998. The effects of these
transactions on the results of operations were not material.
RESULTS OF OPERATIONS
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. However, operating income amounts are not comparable, primarily due
to the effects of the Acquisition and the Reorganization on the asset bases and
depreciation and amortization. In addition, the results of the Divested
Divisions and certain one-time management compensation expenses totaling $28.9
million in 1998 related to the Acquisition also affect comparability.
17
<PAGE> 18
<TABLE>
<CAPTION>
THREE
NINE MONTHS MONTHS YEAR ENDED
ENDED ENDED NOVEMBER 30,
NOVEMBER 30, FEBRUARY 28, ----------------
1998 1998 1997 1996
DOLLARS IN MILLIONS ------------ ------------ ------ ------
<S> <C> <C> <C> <C>
Net Sales:
Automotive................................... $330.6 $103.7 $435.2 $439.6
Machinery.................................... 201.8 64.4 270.8 257.6
Industrial................................... 113.6 37.7 200.1 194.1
------ ------ ------ ------
Total........................................ $646.0 $205.8 $906.1 $891.3
====== ====== ====== ======
Operating Income:
Automotive................................... $ 26.5 $ 8.2 $ 29.7 $ 38.5
Machinery.................................... 19.5 5.4 20.0 22.5
Industrial................................... 12.9 3.2 15.0 20.6
Corporate.................................... (43.4) (5.8) (19.1) (19.5)
------ ------ ------ ------
Total........................................ $ 15.5 $ 11.0 $ 45.6 $ 62.1
====== ====== ====== ======
</TABLE>
1998 COMPARED TO 1997
Net Sales. Sales for the nine months ended November 30, 1998 and the three
months ended February 28, 1998 were $646.0 million and $205.8 million,
respectively, (a total of $851.8 million) compared to $906.1 million for the
year ended November 30, 1997, a decrease of 6.0% for the year. However, sales
for the years ended November 30, 1998 and 1997 were $826.1 million and $794.8
million, respectively, or an increase of 3.9%, after excluding the Divested
Divisions (Plastics, Transicoil, Fabricon Products, Trim, Suspension Systems and
the Orthane Divisions). Net sales for the Automotive Group, excluding those of
Divested Divisions, increased 11.6%. The increase in sales is due to a strong
automotive build in North America and increased market penetration of
precision-machined transmission and drive train components and multi-layer fuel
transfer systems, many of which are used in light trucks, vans and sport utility
vehicles, the popularity of which remains strong. Since the 1980's, original
equipment manufacturers ("OEM's") such as the Ford Motor Company and the General
Motors Corporation ("GM") 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. In the Machinery Group, net sales
increased 3.2%, excluding net sales of Divested Divisions. Increases in demand
for construction equipment and parts and material handling equipment were
partially offset by declines in demand for special purpose batteries as a major
satellite project neared completion late last year. In the Industrial Group, net
sales, excluding net sales of Divested Divisions, declined 11.3%. The decrease
in sales is due primarily to the decreased sales of the metal germanium. Sales
of germanium products have been affected by lower market prices which resulted
from increased supplies, the completion of a major satellite project and the
increased use of recycled germanium by the Company's customers. Customers have
increased their recycling of germanium in response to sharp increases in
germanium prices which took place in 1996. Revenues have declined since the
Company has shifted more toward being a toll refiner of germanium rather than a
buyer and seller of the material.
Cost of Products Sold. Cost of products sold (excluding depreciation
expense) was $503.0 million for the nine months ended November 30, 1998 and
$162.8 million for the three months ended February 28, 1998 (a total of $665.8
million) compared to $725.0 million in 1997. Excluding the cost of products sold
of Divested Divisions, cost of products sold as a percentage of net sales was
77.8% in 1998 and 78.7% in 1997. Reasons for the decline include improved
performance at certain start-up operations, increased efficiencies and changes
in product mix involving the special purpose batteries.
Since the Company expects strong price pressure to continue across all
product lines, particularly in the Automotive Group, the Company will continue
to pursue productivity improvements and material cost reductions to mitigate
such price pressure.
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<PAGE> 19
Selling and Administrative. Selling and administrative expenses were $58.5
million and $17.1 million in the nine months ended November 30, 1998 and the
three months ended February 28, 1998, respectively (a total of $75.6 million),
compared to $77.1 million in 1997. Excluding the Divested Divisions, these
expenses increased 5.1% from $69.4 million in 1997 to $72.9 million in 1998.
Besides a general increase due to activity relating to increased sales volumes,
items contributing to the increase of selling and administrative expenses
include management fees now payable to Granaria Holdings B.V. and a long-term
incentive program for managers.
Management Compensation -- Special. The special management compensation
expense totaling $28.9 million in 1998 is a one-time item related to the
Acquisition. See Executive Compensation.
Depreciation. Depreciation was $29.9 million for the nine months ended
November 30, 1998, $9.0 million for the three months ended February 28,1998 and
$39.7 million for the year ended November 30, 1997. The 1998 and 1997 amounts
are not comparable due to the differences in asset bases as a result of the
Acquisition on February 24, 1998. According to purchase accounting, the basis of
property, plant and equipment was adjusted to the fair value of such assets as
of the date of the Acquisition. This adjustment resulted in depreciation of
approximately $1.2 million greater in the nine months following the Acquisition
than the Company would have incurred if the Acquisition had not taken place, or
$1.4 million greater excluding the effects of the Divested Divisions.
Amortization. Amortization was $12.3 million for the nine months ended
November 30, 1998, $3.8 million for the three months ended February 28, 1998 and
$16.3 million for the year ended November 30, 1997. However, the 1998 and 1997
amounts are not comparable. Prior to the Acquisition, the Company was amortizing
reorganization value in excess of amounts allocable to identifiable assets of
$65.1 million over four years. In accordance with purchase accounting, this
asset was not allocated a fair value in the Acquisition. The excess of acquired
net assets over cost of $241.2 million, which resulted from the Acquisition, is
being amortized over 15 years.
Operating Income. Operating income was $15.5 million for the nine months
ended November 30, 1998, $11.0 million for the three months ended February 28,
1998 and $45.6 million for the year ended November 30, 1997. However, these
amounts are not comparable, primarily due to the effects of the Acquisition and
purchase accounting on depreciation and amortization, as discussed previously,
management compensation expenses related to the Acquisition totaling $28.9
million in 1998 and the results of the Divested Divisions in 1997 and 1998.
Operating income net of depreciation and amortization totaled $81.5 million
in 1998 compared to $101.6 million in 1997, for a decrease of 19.8%. However,
after excluding the effects of the Management Compensation - Special, the
results of the Divested Divisions and the gain (loss) on the sale of such
divisions, operating income net of depreciation and amortization increased
10.2%.
Operating income. Operating income was $15.5 million for the nine months
ended November 30, 1998 and $11.0 million for the three months ended February
28, 1998, a total of $26.5 million, and $45.6 million for the year ended
November 30, 1997. This represents a decrease of 41.9%. However, as discussed
previously, several items affect the comparability of results before and after
the Acquisition including Management Compensation -- Special totaling $28.9
million in 1998 and the difference in depreciation and amortization resulting
from the difference in the bases of the assets. The results of the Divested
Divisions and the aggregate loss on the sales of such divisions of $2.4 million
in 1997 also affect comparability. If the items affecting comparability are
excluded, operating income increased 18.4%.
The majority of the increase in depreciation of $1.4 million resulting from
the difference in asset bases affected the Machinery Group. While the amount of
amortization of intangibles did not change substantially from year to year, a
greater portion of the intangible asset associated with the Acquisition, the
excess of net assets acquired over cost, was allocated to the Machinery Group
than was the intangible asset associated with the Reorganization, which resulted
in higher amortization for this group. The Industrial Group experienced less
amortization due to the reallocation of the intangible assets. The Automotive
Group was not significantly impacted by the reallocation.
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<PAGE> 20
Operating income for the Automotive Group, after excluding the results of
Divested Divisions, the gain (loss) on the sale of those divisions and the
effects of the changes in depreciation and amortization, increased 10.6%. The
increased sales volumes described above resulted in better absorption of fixed
costs and operating income increased accordingly. These increases were slightly
offset by the impact on divisions in the Automotive Group of the strike against
GM in 1998. The Trim Division, which is one of the Divested Divisions, was
impacted the most significantly by the strike. Operating income for the
Machinery Group, excluding the results of Divested Divisions, the gain (loss) on
the sale of those divisions and the effects of the changes in depreciation and
amortization, increased 30.6%. Although volumes of special purpose batteries
declined in 1998 as a large satellite project neared completion, a shift in
product mix contributed to the increase in operating income. Other contributing
factors include the increase in volumes at operations manufacturing construction
and material handling equipment. Excluding the results of the Divested
Divisions, the gain (loss) on those divisions and the effects of the changes in
depreciation and amortization discussed above, the results of the Industrial
Group were flat, despite a decline in the net sales of germanium products.
Corporate items totaled $49.2 million, however, of that amount, $28.9 million
related to special one-time management compensation. Excluding these items,
corporate expenses were $20.3 million, a 6.3% increase over the year before.
This increase is due in part to the management fees to Granaria Holdings B.V.
and a long-term incentive program for managers which was implemented after the
Acquisition.
Interest Expense. Interest expense was $36.3 million in the nine months
ended November 30, 1998 and $6.9 million in the three months ended February 28,
1998 (a total of $43.2 million) as compared to $31.3 million in 1997. The
increase is due to the increased debt related to the Acquisition as discussed
above.
Income Taxes (Benefit). Income taxes (benefit) for the nine months ended
November 30, 1998, the three months ended February 28, 1998 and the year ended
November 30, 1997 were $(4.7) million, $4.1 million and $17.9 million,
respectively. However, these amounts and the effective tax rates are not
comparable due to the impact of the Acquisition. The amortization of the
reorganization value in excess of amounts allocable to identifiable assets was
not deductible for tax purposes, however, a substantial portion of the
amortization of the excess of acquired net assets over cost is deductible for
tax purposes.
Net Income (Loss). Net income (loss) for the nine months ended November 30,
1998, the three months ended February 28, 1998 and the year ended November 30,
1997 was $(14.4) million, $0.8 million and $(3.9) million, respectively.
However, net income has been significantly impacted by the effect of the
Acquisition in 1998. Items affecting the comparability of net income (loss) in
1998 and 1997 include depreciation and amortization, interest expense, income
taxes (benefit) and the management compensation - special in 1998. Net income
before depreciation and amortization, interest expense and income taxes and
management compensation - special was $113.0 million and $101.3 million for the
years ended November 30, 1998 and 1997, respectively.
1997 COMPARED TO 1996
Net Sales. The Company's net sales increased $14.8 million, or 1.7%, from
$891.3 million in 1996 to $906.1 million in 1997. Included are sales of the
Divested Divisions which, if excluded for both periods, would reflect an
increase of 8.6%. In 1996 and 1997, the Divested Divisions contributed net sales
of approximately $159.8 million and $111.3 million, respectively.
Net sales for the Automotive Group, excluding Divested Divisions, increased
8.6% in 1997. The sales volume increases were primarily in precision machining
and trim operations. The precision machining operations produce a variety of
parts used on light trucks, vans and sport utility vehicles which have grown in
popularity. Several new programs at the Trim Division, which had been delayed by
customers, began to reach satisfactory volumes. The Company was notified by a
major customer of the Automotive Group that such customer was discontinuing
certain lines of business with one of the operations. The first program was
discontinued in December 1997, and other programs are being discontinued at
various times through March 1999. The total amount of annual revenue these
programs have contributed is $19.4 million. This revenue has been replaced by
new programs currently being implemented. In the Machinery Group, sales
increased 7.7%, excluding net sales by Divested Divisions. These increases were
due primarily to increased demand for batteries used in satellite
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<PAGE> 21
applications. Net sales for the Industrial Group, excluding those of Divested
Divisions, increased 10.2% primarily due to increased demand for germanium
products used in aerospace applications, such as solar cell substrates for
satellites.
Cost of Products Sold. Cost of products sold (excluding depreciation
expense) increased by $8.1 million, or 1.1%, from $716.9 million in 1996 to
$725.0 million in 1997. Excluding the cost of products sold of the Divested
Divisions, cost of products sold as a percentage of net sales remained
consistent at 78.7% in 1997 and 78.6% in 1996.
Selling and Administrative. Selling and administrative expenses decreased
$4.4 million, or 5.4%, from $81.5 million in 1996 to $77.1 million in 1997.
Excluding the expenses of the Divested Divisions, selling and administrative
expenses remained constant from 1996 to 1997.
Depreciation. Depreciation was $39.7 million in 1997 and $30.4 million
1996. The 1997 and 1996 amounts are not comparable due to the differences in
asset bases as a result of the implementation of fresh-start accounting upon the
Reorganization on November 29, 1996. According to fresh-start accounting, the
basis of property, plant and equipment was adjusted to the fair value of such
assets as of the date of the Reorganization. This adjustment resulted in greater
depreciation in 1997 of approximately $9.8 million.
Amortization. Amortization was $16.3 million in 1997 and $0.4 million in
1996. The 1997 and 1996 amounts are not comparable due to the Reorganization. In
accordance with fresh-start accounting, the Company had an intangible asset
representing the reorganization value in excess of amounts allocable to
identifiable assets of $65.1 million. This amount was being amortized over four
years. All existing goodwill at the date of the Reorganization was not assigned
a fair value.
Loss on Sale of Divisions. In 1997, the Company sold the Plastics,
Transicoil and Fabricon Products Divisions to fund the repayment of certain
notes issued in the reorganization process. The aggregate net cash proceeds from
and loss on the transactions were $39.0 million and $2.4 million, respectively.
The injection molding operations of the Orthane Division were sold in 1996 for
$4.2 million. The effect of this transaction on the results of operations was
not material.
Operating Income. Operating income was $45.6 million for the year ended
November 30, 1997 and $62.1 million for the year ended November 30, 1996. This
represents a decrease of 26.6%. However, as discussed previously, the difference
in depreciation and amortization resulting from the difference in the bases of
the assets due to the Reorganization, the results of the Divested Divisions and
the aggregate loss on the sales of such divisions of $2.4 million in 1997 affect
comparability. If the items affecting comparability are excluded, operating
income increased 18.2%.
Operating income for the Automotive Group, after excluding the results of
Divested Divisions, the gain (loss) on the sale of those divisions and the
increase in depreciation and amortization, increased 6.8%. The increased sales
volumes described above resulted in better absorption of fixed costs and
operating income increased accordingly. Currency exchange differences offset
volume gains in the European operations, therefore, the results of these
operations appeared relatively flat. Operating income for the Machinery Group,
excluding the results of Divested Divisions, the gain (loss) on the sale of
those divisions and the increase in depreciation and amortization, increased
21.3%. The increased sales volumes of batteries accounted for the majority of
this increase. Although sales of heavy-duty forklift trucks and construction
machinery were flat, operations manufacturing these items posted operating gains
due to increased efficiencies. Excluding the results of the Divested Divisions,
the gain (loss) on those divisions and the effects of the changes in
depreciation and amortization discussed above, the results of the Industrial
Group increased 18.9%, due primarily to the strength of demand for germanium
products. The price of germanium itself stabilized in 1997 after increasing
sharply in 1996. In addition, the operation that processes diatomaceous earth
products had increased operating income due to non-recurring charges taken in
1996.
Interest Expense. Interest expense increased by $28.2 million from $3.1
million in fiscal year 1996 to $31.3 million in 1997 for reasons discussed above
related to the effects of the Reorganization on the Company's results.
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<PAGE> 22
Income Taxes (Benefit). Income taxes (benefit) for the years ended November
30, 1997 and 1996 were $17.9 million and $52.6 million, respectively. However,
these amounts are not comparable due to the impact of the Reorganization and the
adjustment for asbestos litigation in 1996. The income tax expense in 1996
included a provision for income taxes on the effects of the fresh start
revaluation, which was $118.7 million.
Net Income (Loss). Net income (loss) for the years ended November 30, 1997
and 1996 was $(3.9) million and $2,146.4 million. Asbestos related claims and
items related to bankruptcy and emergence therefrom ("Reorganization Items")
increased the Company's net income by $2,139.8 million in 1996. Other items
affecting the comparability of net income (loss) include the cumulative effect
of the change in accounting for inventories in 1996, depreciation and
amortization, interest expense and income taxes (benefit) as previously
discussed. In 1997, depreciation and amortization resulting from the
Reorganization were approximately $26.1 million, interest expense was $31.3
million and income taxes were $17.9 million. Net income excluding these items
was $71.4 million. In 1996, in addition to the Reorganization Items of $2,139.8
million, the cumulative effect of the change in accounting was $(1.2) million,
amortization relating to previous goodwill was $0.4 million, interest expense
was $3.1 million and income taxes were $52.6 million. Net income before these
items was $63.9 million.
Financial Condition
EBITDA
The Company's EBITDA is defined by the terms of the Preferred Stock and the
Indenture as earnings before interest expense, income taxes, depreciation and
amortization, certain one-time management compensation items and other non-cash
charges, such as reorganization items and the loss on the sale of divisions.
EBITDA, as defined herein, may not be comparable to similarly titled measures
reported by other companies and should not be construed as an alternative to
operating income or to cash flows from operating activities, as determined by
generally accepted accounting principles, as a measure of the Company's
operating performance or liquidity, respectively. Funds depicted by EBITDA are
not available for management's discretionary use to the extent they are required
for debt service and other commitments.
EBITDA was $114.4 million, $104.1 million and $94.9 million in 1998, 1997
and 1996, respectively. Excluding the Divested Divisions, EBITDA was $114.1
million, $99.9 million and $89.4 million in 1998, 1997 and 1996. The increase in
EBITDA of 14.2% (excluding the Divested Divisions) from 1997 to 1998 was due
primarily to better sales volumes of certain automotive products and
construction and material handling equipment and a better product mix in the
operation manufacturing special-purpose batteries. The increase in EBITDA of
11.7% (excluding Divested Divisions) from 1996 to 1997 resulted primarily from
increased volumes of certain automotive products and batteries, strong demand
for germanium products and increased operating efficiencies at operations making
construction and material handling equipment.
OPERATING ACTIVITIES
Cash flows provided by operations in the nine months ended November 30,
1998 were $75.5 million and cash flows used in operations in the three months
ended February 28, 1998 were $9.1 million, for a net total of cash provided from
operations of $66.4 million in 1998. Comparable amounts in 1997 and 1996 were
$147.9 million and $72.9 million, respectively. In 1997, $69.1 million of the
$147.9 million resulted from the tax refund due to NOL carrybacks previously
discussed. Cash flows provided by operations in 1997, excluding the tax refund,
were $78.8 million.
Operating income was $15.5 million in the nine months November 30, 1998,
$11.0 million in the three months ended February 28, 1998 (totaling $26.5
million in 1998), $45.6 million in 1997 and $62.1 million in
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<PAGE> 23
1996. The following table sets forth a reconciliation of operating income to
cash provided by (used in) operations for the years ended November 30:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1998 1997 1996
--------------------- ------ ------ -----
<S> <C> <C> <C>
Operating income......................................... $ 26.5 $ 45.6 $62.1
Depreciation and amortization, excluding amortization of
deferred financing costs............................... 55.0 56.0 30.7
Other income............................................. 2.6 (.3) 1.3
Loss on sales of divisions............................... -- 2.4 --
Interest paid............................................ (35.3) (31.0) (2.8)
Income taxes paid -- net................................. (3.1) (4.3) (17.3)
Proceeds from insurance settlements...................... 14.8 -- --
Working capital and other................................ 5.9 10.4 (1.1)
------ ------ -----
Cash provided by operating activities (net of tax refund
in 1997)............................................... $ 66.4 $ 78.8 $72.9
====== ====== =====
</TABLE>
Interest paid increased in 1997 due to the Reorganization and in 1998 due
to the Acquisition as previously discussed. Income taxes paid declined in 1997
due to the NOL's resulting from the Reorganization that were available to reduce
taxable income as previously discussed. These NOL's were available only through
the Acquisition date in 1998 and are not available to the Company on a going
forward basis. The proceeds from insurance settlements in 1998 related to
contingent assets at the time of the Acquisition which were recognized as
adjustments to Excess of Acquired Net Assets Over Cost when realized. In 1998,
the increase in cash provided by operating activities attributable to working
capital was due primarily to the use of cash in an employee benefits trust to
pay for such benefits, rather than using the Company's cash. This resulted in a
decrease in the use of cash to the Company of approximately $8.0 million. The
difference is attributable to increases in working capital due to growth of the
business. In 1997, the increase in cash provided by operating activities
attributable to working capital was due to certain divisions being able to
negotiate better terms on their accounts payable after emerging from bankruptcy.
INVESTING ACTIVITIES
Capital expenditures totaled $32.0 million in year ended November 30, 1998.
These expenditures included small expansions to plants that manufacture
construction machinery and bulk pharmaceuticals, equipment needed for new
programs in the Automotive Group and maintenance capital. Capital expenditures
were $51.3 million in 1997. Major additions included two new plants to
manufacture precision-machined parts, one in Manchester, Tennessee and the other
in Tamworth, England. Construction on the new diatomaceous earth processing unit
in Vale, Oregon, which commenced in 1996, was completed in 1997. Capital
expenditures were $45.0 million in 1996. In addition to amounts spent on
construction of the facility in Vale, Oregon in 1996 and the addition of a new
coating line for the manufacture of gasket materials in 1995, significant
expenditures have been made in recent years to increase machine capacity at
existing facilities or improve processes, particularly in the Automotive Group.
The Company does not have any plans for major expansions to existing facilities
in the short-term.
The Company has signed a letter of intent to acquire the stock of
Charterhouse Automotive Group, Inc., a holding company whose only operating
subsidiary is Carpenter Enterprises, Ltd. ("Carpenter"), a manufacturer of
precision-machined automotive parts, for approximately $41.0 million in cash. It
is expected that Carpenter will have approximately $32.0 million of debt at the
closing, of which $20.0 million will be refinanced from the Company's revolving
credit facility and the remainder will be assumed. The Acquisition will be
accounted for as a purchase. The transaction is expected to be consummated at
the end of the first quarter of 1999, subject to the results of a due diligence
investigation and various conditions including negotiation of a mutually
acceptable stock purchase agreement.
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<PAGE> 24
The Company sold its Trim Division as of October 31, 1998, however the
transaction remained in escrow until certain conditions were met in December
1998. At that time, the Company received $12.4 million cash and a $2.1 million
note due in 2000 which is secured by a first mortgage on the real estate. In
1997, The Company contributed the assets of its former Suspension Systems
Division to Eagle-Picher-Boge, L.L.C., a joint venture in which the Company had
a 45% interest, and received a note from the joint venture in the amount of $2.8
million. In 1998, the majority partner exercised its option to purchase the
Company's interest in the joint venture. At that time, the note was also repaid
resulting in proceeds totaling $7.9 million. The Company sold the Plastics,
Fabricon Products and the Transicoil Divisions in 1997. The net cash proceeds of
these transactions, totaled $39.0 million. The injection molding operations of
the Orthane Division were sold in 1996 for $4.2 million.
The Company intends to sell its Ross Aluminum Division. The Company
anticipates the transaction would close late in the second quarter of 1999. The
Company does not anticipate a loss on this transaction. No other divestitures
have been announced or committed to at this time.
FINANCING ACTIVITIES
To finance the Acquisition, the Company issued $180.0 million in common
stock to the Parent. The Company also issued $220.0 million of publicly traded
senior subordinated notes and borrowed $225.0 million in term loans and $79.1
million in revolving loans under a syndicated senior bank loan facility ("Credit
Agreement"). At the time of the Acquisition, the Company repaid the $250.0
million Senior Sinking Fund Debentures that had been issued to the PI Trust at
the time of the Reorganization.
As of November 30, 1998, $5.2 million of the term loans had been repaid. In
1999, scheduled payments of the term loans are $10.3 million, however, the
Credit Agreement requires the Company to make mandatory prepayments of 60% of
annual excess cash flow as defined by the Credit Agreement, the net proceeds
from sales of assets (subject to certain conditions), the net proceeds of new
debt issued and 50% of the net proceeds of any equity securities issued.
Pursuant to these terms, the Company will make additional payments on the term
loans of $8.5 million in the first quarter of 1999. Scheduled payments under the
Credit Agreement for 2000 and 2001 are $15.3 million and $20.3 million,
respectively.
The Company's revolving credit facility ("Facility") under the Credit
Agreement is $160.0 million and is available for both borrowings and the
issuance of letters of credit. At November 30, 1998, the Company had outstanding
borrowings and letters of credit under the Facility of $19.8 million and $26.3
million, respectively, leaving the Company with available borrowing capacity of
$113.9 million. Subsequent to November 30, 1998, all borrowings under the
Facility have been repaid. However, it is anticipated that more than $60.0
million would be drawn to finance the Carpenter acquisition. In addition, in the
first quarter of 1999, it is anticipated the Company will issue approximately
$14.0 million in additional letters of credit associated with existing
environmental remediation that are necessitated by financial assurance
requirements set forth by the United States Environmental Protection Agency.
While these transactions will significantly reduce the available liquidity of
the Company, the Company does not expect to need more borrowing capacity than
will be available to it to fund normal operations.
The Company's European operations also have several lines of credit
totaling $28.7 million at November 30, 1998, of which $6.7 million was borrowed,
leaving $22.0 million in borrowing capacity at that date. These lines of credit
contain financial covenants, with which the Company is in compliance. The
Company believes that the European operations should generate enough cash
through operations and borrowings on lines of credit to finance growth in the
near-term.
The Company used the proceeds of the tax refunds totaling $69.1 million
received in 1997 to redeem the $69.1 million Tax Refund Notes which were issued
to the PI Trust in connection with the Reorganization. The $50.0 million of
Divestiture Notes, which were issued to the PI Trust and other unsecured
creditors in connection with the bankruptcy, were also repaid in 1997, primarily
with the proceeds from the divestiture of divisions. In addition, secured notes
totaling $6.8 million at November 30, 1996 were repaid in full in 1997 due, in
certain cases, to the sale of the assets which secured the notes. The Company
issued an $8.0 million Industrial Revenue Bond to finance the new facility in
Manchester, Tennessee and incurred $5.0 million debt in Europe to finance
expansion activities.
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<PAGE> 25
EARNINGS TO FIXED CHARGES
Earnings to fixed charges were .68x and 1.43x for the years ended November
30, 1998 and 1997, respectively, and the earnings were insufficient to cover
fixed charges by $14.2 million for the year ended November 30, 1998. However,
the management compensation -- special of $28.9 million in 1998 is a one-time
item relating to the Acquisition. If this item were excluded, earnings to fixed
charges would have been 1.33x in 1998.
Earnings to fixed charges were 1.43x and 173.50x for the years ended
November 30, 1997 and 1996, respectively, however such ratio is not meaningful
for 1996 because of significant reversals of asbestos litigation reserves and
the fresh start revaluation. In addition, interest expense was not accrued in
1996 on debt that was either unsecured or undersecured in accordance with SOP
90-7.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $13.7 million at November 30, 1998 compared
to $53.7 million and $32.7 million at November 30, 1997 and 1996, respectively.
The Company estimates that it needs approximately $10.0 million to $12.0 million
in cash for operations. The Company's liquidity needs are primarily for debt
service and capital maintenance. 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.
Other
YEAR 2000 READINESS DISCLOSURE
The Year 2000 problem arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20." If not corrected, many
computer programs could fail or cause erroneous results. Failures of this nature
could cause interruptions to manufacturing processes, business and financial
functions and communications with customers and suppliers.
Due to the diverse nature of the Company's operations, each operating
division has its own discrete computer systems. The Company currently has a Year
2000 program in place which includes a comprehensive review to identify areas of
concern in each of the systems affected by the Year 2000 issue and follows up
with design and implementation of measures to address those issues. 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 evaluations of the readiness of its suppliers and service
providers.
The Company's Year 2000 program involves a five step process applied to
each of eight different application areas within each operation, and at the
corporate level. The Company first inventories areas of potential risk based on
a comparison to guidelines published by the Automotive Industry Action Group
("AIAG"). 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 March 31,
1999 and will have implemented initial remediation attempts and testing thereof
by June 30, 1999. The final step of the program is review by the Company's
outside consultant for Year 2000 readiness, a review that is ongoing. The
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<PAGE> 26
Company maintains a record of its progress to date for each of its domestic
divisions, and publishes those reports on its web site at www.epcorp.com.
The Company's remaining costs to remediate the Year 2000 problem are not
expected to exceed $3.5 million. Of this amount, approximately $1.0 million will
be spent in the form of capital for systems replacement and approximately $1.5
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. To date,
the Company estimates it has spent approximately $2.5 million in assessing and
remediating the Year 2000 problem, of which $1.0 million was for capital
equipment, $.8 million related to incremental costs and $.7 million related to
the redeployment of the Company's resources.
The Company believes 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 on a case by case
basis to address issues related to potential failures of critical systems due to
Year 2000 problems identified in the risk assessment phase, and it expects to
have those plans in place by May 31, 1999. The Company believes that the most
likely worst case scenario will be limited to isolated disruptions that will
affect individual business processes, facilities, suppliers or customers for a
relatively short time.
The Company presently believes that through the planned modification to
existing systems and conversion to new systems, as well as ongoing
correspondence with suppliers and customers, the Year 2000 issue will not
materially impair the Company's ability to conduct business.
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the euro
as their common legal currency and established fixed conversion rates between
their existing local currencies and the euro. During the transition period,
which runs from January 1, 1999 through December 31, 2002, transactions may take
place using either the euro or a local currency. However, conversion rates will
no longer be computed directly from one local currency to another, but be
converted from one local currency into an amount denominated in euro, then be
converted from the euro denominated amount into the second local currency. On
July 1, 2002, the local currencies will no longer be legal tender for any
transactions.
The Company has both operating divisions and domestic export customers
located in Europe. In 1998, combined revenues from these sources were
approximately 15% of total revenues. The Company has operations in Germany, the
Netherlands, France and Spain, which are participating in the euro conversion,
and the United Kingdom, which has elected not to participate at this time. The
affected operations plan to make the euro the functional currency sometime
during the transition period, although certain of the Company's European
operations have already entered into euro-based transactions, such as bank
borrowing and collection of accounts receivable.
It is difficult to assess the competitive impact of the euro conversion on
the Company's operations, both in Europe and in the United States. In markets
where sales are made in U.S. dollars, there may be pressures to denominate sales
in the euro, however, exchange risks resulting from these transactions could be
mitigated through hedging. Pressures to price products in euro may be more
urgent for operations located in the United Kingdom, particularly in the
automotive industry, as the European automotive industry is somewhat dominated
by German companies. The currency risk to the operations located in the United
Kingdom could also be hedged, however the risk is greater on a regional level
that the hedging could result in additional costs that could harm the
26
<PAGE> 27
cost competitiveness of those operations. It is not anticipated that changes to
information technology and other systems which are necessary for the euro
conversion will be material. The Company is currently assessing the impact the
euro conversion may have on items such as taxation and other issues.
RECENTLY ISSUED ACCOUNTING STANDARDS
The following three new accounting standards will be effective for the
fiscal year ended November 30, 1999:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components. This statement requires the Company to
report the components of comprehensive income, a measure of performance that
includes all non-owner sources of changes in equity, such as unrealized gains
and losses on securities available for sale and foreign currency translation
adjustments.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The standard requires that
companies disclose "operating segments" based on the way management
disaggregates the company for making internal operating decisions, regardless of
how a company defines its operating segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard does not change
the measurement or recognition of those plans, but standardizes disclosure
requirements for such plans.
The Company believes that although these standards may require expanded
disclosure for the Company's consolidated financial statements, the impact of
these standards is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for gains and losses
resulting from changes in the fair value of a derivative depends on the its
intended use and the resulting designation. The provisions of this statement are
effective for the first quarter of the fiscal year ending November 30, 2000. The
Company has not yet determined the impact this statement will have on its
financial position or the results of its operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K 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 and 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 and
facilities expansion; the ability of the Company to develop, market and sell new
products and the ability of the Company 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-K 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.
27
<PAGE> 28
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk, including changes in interest rates,
currency exchange rates, and commodity prices. To manage the volatility relating
to these exposures, the Company enters into hedging instruments pursuant to the
Company's policies. The financial impacts of these instruments are offset by
corresponding changes in the underlying exposures being hedged. The Company does
not hold or issue derivative financial instruments for trading purposes.
Interest Rate Management
The Company's policy is to manage interest cost using a mix of fixed and
variable rate debt. To manage this mix in a cost-efficient manner, the Company
has entered into an interest rate swap, in which the Company agrees to exchange,
at specified intervals, the difference between fixed and variable interest
amounts calculated by reference to a notional principal amount of $150.0
million. This swap is designed to hedge a majority of the underlying Term Loan
Facility ($219.8 million balance at November 30, 1998). For all interest rate
hedges, the rate differential is reflected in current interest expense over the
life of the swaps.
The remaining $69.8 million of the Term Loan Facility bears interest at the
variable rates described in Note F to the Consolidated Financial Statements. In
addition, the Company has a Revolving Loan Facility with a balance at November
30, 1998 of $19.8 million which also bears interest at the variable rates
described in Note F to the Consolidated Financial Statements. Accordingly, the
combined effect of a 1% increase in an applicable index rate would result in
additional interest expense of approximately $.9 million per year.
The following table presents information for all dollar-denominated
interest rate instruments. In addition, the Company has several working capital
facilities denominated in deutchmark and pound sterling (see Note F to the
Consolidated Financial Statements). The fair value presented below approximates
the cost to settle the outstanding contract.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
---- ---- ----- ---- ---- ---------- ----- ----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long-Term Debt
Variable Rate Debt ($)................. 18.8 15.3 20.3 25.3 21.6 156.3 257.6 257.6
Average Interest Rate................ 6.83% 6.65% 6.50% 6.44% 6.53% 6.99% 6.65%
Fixed Rate ($)......................... -- -- -- -- -- 220.0 220.0 206.6
Average Interest Rate................ 9.38% 9.38% 9.38% 9.38% 9.38% 9.38% 9.38%
INTEREST RATE DERIVATIVES
Interest Rate Swaps
Variable to Fixed ($).................. -- -- 150.0 -- -- -- 150.0 (2.5)
Average Pay Rate..................... 5.81% 5.81% 5.81% 5.81%
Average Receive Rate................. 5.03% 5.03% 5.03% 5.03%
</TABLE>
Currency Rate Management
The Company manufactures and sells its products in a number of countries
throughout the world and, as a result, is exposed to movements in foreign
currency exchange rates. The major foreign currency exposures involve the
markets in Western Europe. The primary purpose of the Company's foreign currency
hedging activities is to protect against the volatility associated with: (1)
foreign currency purchases of materials and other assets; (2) foreign currency
sales of goods; and (3) intercompany purchase transactions. The Company utilizes
forward exchange contracts with duration of generally less than 12 months.
Gains and losses related to hedges of foreign currency firm commitments or
anticipated transactions are included in the basis of the underlying
transactions. To the extent an anticipated transaction is no longer likely to
occur, the related hedge is closed with gains or losses charged to earnings on a
current basis.
In the cases of (1) and (2) above, the Company places contracts on a
transaction-by-transaction basis matching foreign currency supply with
requirements. As such, the Company believes these contracts to be
28
<PAGE> 29
perfected hedges. In the case of (3) above, the Company has several foreign
operations that purchase material from domestic divisions. The Company will
place foreign exchange contracts to cover a portion of anticipated yearly
purchase requirements for these foreign operations. At year end the Company had
foreign currency instruments of this type in notional amounts totaling $9.2
million. Gains or losses on these instruments were not material.
Credit Risk
Credit risk arising from the inability of a counterparty to meet the terms
of the Company's financial instrument contracts is generally limited to the
amounts, if any, by which the counterparty's obligations exceed the obligations
of the Company. It is the Company's policy to enter into financial instruments
with a diversity of creditworthy counterparties. Therefore, the Company does not
expect to incur material credit losses on its risk management or other financial
instruments.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED YEAR ENDED NOVEMBER 30,
ENDED FEBRUARY 28, ------------------------------
NOVEMBER 30, 1998 1997 1996
1998 PREDECESSOR A PREDECESSOR A PREDECESSOR B
------------ ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales............................. $ 645,984 $205,842 $906,077 $ 891,287
------------ -------- -------- ----------
OPERATING COSTS AND EXPENSES
Cost of products sold (exclusive of
depreciation shown separately
below).............................. 502,973 162,796 725,010 716,926
Selling and administrative............ 58,460 17,141 77,109 81,505
Management compensation -- special.... 26,808 2,056 -- --
Depreciation.......................... 29,926 8,983 39,671 30,338
Amortization of intangibles........... 12,317 3,839 16,318 412
Loss on sale of divisions or assets... 30 -- 2,411 --
------------ -------- -------- ----------
630,514 194,815 860,519 829,181
------------ -------- -------- ----------
OPERATING INCOME...................... 15,470 11,027 45,558 62,106
Adjustment for asbestos litigation.... -- -- -- 502,197
Provision for other claims............ -- -- -- (4,244)
Interest expense (contractual interest
of $9,889 in 1996).................. (36,313) (6,940) (31,261) (3,083)
Other income (expense)................ 1,779 820 (251) 1,345
------------ -------- -------- ----------
INCOME (LOSS) BEFORE REORGANIZATION
ITEMS, TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE.............................. (19,064) 4,907 14,046 558,321
Fresh start revaluation............... -- -- -- 118,684
Reorganization items.................. -- -- -- (2,349)
------------ -------- -------- ----------
INCOME (LOSS) BEFORE TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE......... (19,064) 4,907 14,046 674,656
INCOME TAXES (BENEFIT)................ (4,700) 4,100 17,900 52,570
------------ -------- -------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE................... (14,364) 807 (3,854) 622,086
EXTRAORDINARY ITEM -- GAIN ON
DISCHARGE OF PRE-PETITION
LIABILITIES......................... -- -- -- 1,525,540
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INVENTORIES.......... -- -- -- (1,235)
------------ -------- -------- ----------
NET INCOME (LOSS)................... $ (14,364) $ 807 $ (3,854) $2,146,391
============ ======== ======== ==========
BASIC EARNINGS (LOSS) PER COMMON
SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE................ $(143,640.00) $ .08 $ (.39) $ 56.34
EXTRAORDINARY ITEM -- GAIN ON
DISCHARGE OF PRE-PETITION
LIABILITIES...................... -- -- -- 138.17
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INVENTORIES....... -- -- -- (.11)
------------ -------- -------- ----------
BASIC EARNINGS (LOSS) PER COMMON
SHARE............................... $(143,640.00) $ .08 $ (.39) $ 194.40
============ ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30
<TABLE>
<CAPTION>
1997
1998 PREDECESSOR A
-------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 13,680 $ 53,739
Receivables, less allowances of $1,529 in 1998 and $1,614 in
1997...................................................... 144,844 133,952
Inventories................................................. 88,873 92,196
Prepaid expenses............................................ 8,338 8,290
Deferred income taxes....................................... 10,851 13,793
-------- --------
Total Current Assets.............................. 266,586 301,970
-------- --------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements.................................. 18,288 19,832
Buildings................................................... 62,868 65,289
Machinery and equipment..................................... 182,003 173,909
Construction in progress.................................... 15,902 20,817
-------- --------
279,061 279,847
Less accumulated depreciation............................... 30,524 36,309
-------- --------
Net Property, Plant and Equipment................. 248,537 243,538
-------- --------
DEFERRED INCOME TAXES....................................... -- 98,991
-------- --------
EXCESS OF ACQUIRED NET ASSETS OVER COST, net of accumulated
amortization of $12,300................................... 228,910 --
-------- --------
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS, net of accumulated amortization of
$16,284 in 1997........................................... -- 48,837
-------- --------
OTHER ASSETS................................................ 72,293 53,545
-------- --------
TOTAL ASSETS...................................... $816,326 $746,881
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30
<TABLE>
<CAPTION>
1997
1998 PREDECESSOR A
--------- --------------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................ $ 50,307 $ 52,886
Compensation and employee benefits.......................... 32,761 22,630
Long-term debt - current portion............................ 25,173 3,403
Income taxes................................................ 6,282 2,294
Reorganization items........................................ 12,480 13,128
Other accrued liabilities................................... 29,019 19,661
-------- --------
Total Current Liabilities......................... 156,022 114,002
-------- --------
LONG-TERM DEBT, less current portion........................ 459,183 269,994
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS................. 17,590 21,681
DEFERRED INCOME TAXES....................................... 8,304 --
OTHER LONG-TERM LIABILITIES................................. 7,229 5,087
-------- --------
TOTAL LIABILITIES................................. 648,328 410,764
-------- --------
SHAREHOLDER'S EQUITY
Common stock - no par value: authorized 20,000,000 shares;
issued and outstanding 100 and 10,000,000 shares.......... 180,005 341,807
Deficit..................................................... (14,364) (3,854)
Foreign currency translation gain (loss).................... 2,357 (1,836)
-------- --------
TOTAL SHAREHOLDER'S EQUITY........................ 167,998 336,117
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY........ $816,326 $746,881
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED YEAR ENDED NOVEMBER 30,
ENDED FEBRUARY 28, -----------------------------
NOVEMBER 30, 1998 1997 1996
1998 PREDECESSOR A PREDECESSOR A PREDECESSOR B
------------ ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $(14,364) $ 807 $ (3,854) $2,146,391
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Changes due to reorganization activities:
Extraordinary gain on discharge of
pre-petition liabilities............. -- -- -- (1,525,540)
Fresh start revaluation................ -- -- -- (118,684)
Adjustment for asbestos litigation........ -- -- -- (502,197)
Provision for other claims................ -- -- -- 4,244
Cumulative effect of accounting change.... -- -- -- 1,235
Depreciation and amortization............. 44,309 12,822 55,989 30,750
Proceeds from insurance settlements....... 14,784 -- -- --
Loss on sale of divisions................. -- -- 2,411 --
Changes in assets and liabilities, net of
effects of divestitures:
Receivables.......................... 2,690 (4,705) (14,562) (7,664)
Income tax refunds receivable........ 736 1,024 70,695 3,535
Inventories.......................... 4,378 (2,235) (3,393) (6,283)
Deferred income taxes................ (11,900) 2,600 15,700 29,170
Accounts payable..................... 1,522 (2,787) 16,351 657
Accrued liabilities.................. 25,983 (5,488) 7,698 3,167
Other................................ 7,409 (11,121) 848 14,080
-------- -------- -------- ----------
Net cash provided by (used in)
operating activities.............. 75,547 (9,083) 147,883 72,861
-------- -------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of divisions................ 7,872 -- 39,007 4,248
Capital expenditures........................... (26,260) (5,692) (51,324) (44,957)
Other.......................................... 1,770 (1,042) (1,510) (1,061)
-------- -------- -------- ----------
Net cash used in investing
activities........................ (16,618) (6,734) (13,827) (41,770)
-------- -------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt..................... 2,094 445,000 12,997 --
Reduction of long-term debt.................... (5,600) (250,360) (126,039) (3,198)
Borrowings (repayments) under revolving credit
agreement................................... (59,275) 79,100 -- --
Redemption of common stock..................... -- (446,638) -- --
Issuance of common stock....................... -- 180,005 -- --
Debt issuance costs............................ (1,435) (26,062) -- --
-------- -------- -------- ----------
Net cash used in financing
activities........................ (64,216) (18,955) (113,042) (3,198)
-------- -------- -------- ----------
CASH PAYMENTS ON EFFECTIVE DATE OF PLAN OF
REORGANIZATION................................. -- -- -- (88,498)
-------- -------- -------- ----------
Net increase (decrease) in cash and cash
equivalents.................................... (5,287) (34,772) 21,014 (60,605)
-------- -------- -------- ----------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 18,967 53,739 32,725 93,330
-------- -------- -------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 13,680 $ 18,967 $ 53,739 $ 32,725
======== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
EAGLE-PICHER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED NOVEMBER 30, 1998, THREE MONTHS ENDED FEBRUARY 28, 1998
AND YEARS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
UNREALIZED FOREIGN TOTAL
ADDITIONAL GAIN (LOSS) CURRENCY SHAREHOLDERS'
COMMON PAID-IN ON TRANSLATIONS TREASURY EQUITY
STOCK CAPITAL DEFICIT INVESTMENTS GAIN (LOSS) STOCK (DEFICIT)
(IN THOUSANDS OF DOLLARS) --------- ---------- ----------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE NOVEMBER 30, 1995.... $ 13,906 $36,378 $(2,261,289) $333 $1,277 $(1,913) $(2,211,308)
Net income................. -- -- 2,146,391 -- -- -- 2,146,391
Foreign currency
translation.............. -- -- -- -- 129 -- 129
Unrealized loss on
investment............... -- -- -- (141) -- -- (141)
Cancellation of the former
common shares per the
Plan of Reorganization... (13,906) (36,378) 48,371 -- -- 1,913 --
Issuance of the new common
shares per the Plan of
Reorganization........... 341,807 -- -- -- -- -- 341,807
Fresh-start revaluation.... -- -- 66,527 (192) (1,406) -- 64,929
--------- ------- ----------- ---- ------ ------- -----------
BALANCE NOVEMBER 30, 1996.... 341,807 -- -- -- -- -- 341,807
Net loss................... -- -- (3,854) -- -- -- (3,854)
Foreign currency
translation.............. -- -- -- -- (1,836) -- (1,836)
--------- ------- ----------- ---- ------ ------- -----------
BALANCE NOVEMBER 30, 1997.... 341,807 -- (3,854) -- (1,836) -- 336,117
Net income................. -- -- 807 -- -- -- 807
Foreign currency
translation.............. -- -- -- -- (1,809) -- (1,809)
Redemption of common
stock.................... (341,807) -- (104,831) -- -- -- (446,638)
Issuance of common stock... 180,005 -- -- -- -- -- 180,005
Revaluation of net assets
due to effects of the
Acquisition.............. -- -- 107,878 -- 3,645 -- 111,523
--------- ------- ----------- ---- ------ ------- -----------
BALANCE FEBRUARY 28, 1998.... 180,005 -- -- -- -- -- 180,005
Net loss................... -- -- (14,364) -- -- -- (14,364)
Foreign currency
translation.............. -- -- -- -- 2,357 -- 2,357
BALANCE NOVEMBER 30, 1998.... $ 180,005 -- $ (14,364) $ -- $2,357 $ -- $ 167,998
========= ======= =========== ==== ====== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 1998, THREE MONTHS ENDED FEBRUARY 28, 1998 AND
YEARS ENDED NOVEMBER 30, 1997 AND 1996
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
A. SIGNIFICANT ACCOUNTING POLICIES
Purchase Accounting
Eagle-Picher Holdings, Inc. ("Parent") acquired Eagle-Picher Industries,
Inc. ("Company") on February 24, 1998 ("Acquisition") (See Note B). The Company,
which is the operating entity, is a wholly-owned subsidiary of the Parent, which
was formed as an acquisition vehicle.
The Acquisition was accounted for as a purchase. The purchase price has
been allocated to the assets and liabilities of the Company based on their
respective fair values as determined primarily by independent appraisals. The
excess of the purchase price over the assessed values of the net assets was
allocated to Excess of Acquired Net Assets Over Cost and is being amortized over
15 years. If it becomes apparent that additional purchase price allocations are
necessary, such adjustments would be made before February 24, 1999. It is not
expected that additional adjustments would be material. Due to the Acquisition
and purchase accounting, consolidated financial statements relating to
operations after the Acquisition are not comparable to those relating to periods
prior to the Acquisition. Accordingly, periods prior to the Acquisition are
labeled with certain "Predecessor" designations, as described below.
Reporting for Reorganization
The Company accounted for all transactions related to its chapter 11
proceedings and reorganization in accordance with Statement of Position 90-7
("SOP 90-7"), "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" (See Note C). The Company emerged from reorganization November
29, 1996 ("Effective Date") and, in accordance with SOP 90-7, adopted
fresh-start reporting. Fresh-start reporting requires valuation of assets and
liabilities at fair value and valuation of equity based on the appraised
reorganization value of the ongoing business, which resulted in a fresh-start
revaluation gain of $118,684 in 1996. The adjustments to reflect the Company's
emergence from bankruptcy and fresh-start reporting have been reflected in the
accompanying consolidated financial statements. As a result, the consolidated
financial statements relating to post-emergence operations are not comparable to
those prior to November 29, 1996. Accordingly, the consolidated financial
statements for the periods prior to the Acquisition but subsequent to the
Effective Date are labeled "Predecessor A" to indicate they were prepared after
adopting fresh-start reporting. The consolidated financial statements for the
year ended November 30, 1996 are labeled "Predecessor B."
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of the Company's subsidiaries which are more than 50% owned and controlled.
Intercompany accounts and transactions have been eliminated. Investments in
unconsolidated affiliates which are at least 20% owned and over which the
Company exercises significant influence are accounted for using the equity
method.
Revenue Recognition
Sales are recognized primarily upon shipment of products except for a
division of the Company that sells products under contracts and subcontracts
with various United States Government agencies and aerospace and defense
contractors. On cost-reimbursable contracts, sales are recognized as costs are
incurred and include a portion of the total estimated earnings to be realized in
the ratio that costs incurred relate to total estimated costs. On fixed-price
contracts, sales are recognized using the percentage of completion method, when
deliveries are made or upon completion of specified tasks. Contract losses are
provided for in their entirety in the period they become known, without regard
to the percentage-of-completion.
35
<PAGE> 36
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Marketable securities with original maturities of three months or less are
considered to be cash equivalents.
Financial Instruments
The Company's financial instruments consist primarily of investments in
cash and cash equivalents, receivables and certain other assets as well as
obligations under accounts payable, long-term debt and preferred stock. The
carrying values of these financial instruments, with the exception of long-term
debt and preferred stock, approximate fair value (See Notes F and G).
Financial instruments, which potentially expose the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents
and trade accounts receivable. The Company's customer base includes all
significant automotive manufacturers and their first tier suppliers in North
America and Europe. Although the Company is directly affected by the well-being
of the automotive industry, management does not believe significant credit risk
existed at November 30, 1998.
Inventories
Inventories are valued at the lower of cost or market, which approximates
current replacement cost. A substantial portion of domestic inventories are
valued using the last-in first-out ("LIFO") method while the balance of the
Company's inventories are valued using the first-in first-out method.
Property, Plant and Equipment
The Company records its investment in property, plant and equipment at
cost. The Company provides for depreciation of plant and equipment using the
straight-line method over the estimated lives of the assets which are generally
20 to 40 years for buildings and 3 to 10 years for machinery and equipment.
Improvements which extend the useful life of property are capitalized, while
repair and maintenance costs are charged to operations as incurred. In
accordance with purchase accounting, property, plant and equipment in service at
February 24, 1998 were stated at fair value, based on independent appraisals, as
of that date.
Intangible Assets
The excess of acquired net assets over cost is being amortized on a
straight-line basis over 15 years. The recoverability of the asset is evaluated
periodically as events or circumstances indicate a possible inability to recover
its carrying amount. The reorganization value in excess of amounts allocable to
identifiable assets was being amortized using the straight-line method over four
years.
Accounting for Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when
impairment indicators are present and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying value of such assets.
36
<PAGE> 37
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental Remediation Costs
The Company accrues for environmental expenses resulting from existing
conditions relating to past operations when the costs are probable and
reasonably estimable. The estimated liabilities are not discounted or reduced
for possible recoveries from insurance carriers.
Income Taxes
Income taxes are provided based upon income for financial statement
purposes. Deferred tax assets and liabilities are established based on the
difference between the financial statement and income tax bases of assets and
liabilities using existing tax rates.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at current
exchange rates, and income and expenses are translated using weighted average
exchange rates. Adjustments resulting from translation of financial statements
stated in local currencies generally are excluded from the results of operations
and accumulated in a separate component of Shareholders' Equity. Gains and
losses from foreign currency transactions are included in the determination of
net income (loss) and were not material.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1998
consolidated financial statement presentation.
New Accounting Standards
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share." Adoption of SFAS No. 128, which revised
the manner in which earnings per share is calculated, did not impact the
Company's previously reported earnings per share.
The following three new accounting standards will be effective for the
fiscal year ended November 30, 1999:
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which established standards for
reporting and display of comprehensive income and its components. This statement
requires the Company to report, for each period presented, the components of
comprehensive income, a measure of performance that includes all non-owner
sources of changes in equity. In addition to net income, comprehensive income
would include unrealized gains and losses on securities available for sale and
foreign currency translation adjustments.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The standard requires that
companies disclose "operating segments" based on the way management
disaggregates the company for making internal operating decisions, regardless of
how a company defines its operating segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard does not change
the measurement or recognition of those plans, but standardizes disclosure
requirements for such plans.
The Company believes that although these standards may require expanded
disclosure for the Company's consolidated financial statements, the impact of
these standards is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The accounting for changes
37
<PAGE> 38
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the fair value of a derivative (that is gains and losses) depends on the
intended use of the derivative and the resulting designation. The provisions of
this statement are effective for the first quarter of the fiscal year ending
November 30, 2000. The Company has not yet determined the effects this standard
will have on its financial position or the results of its operations.
B. ACQUISITION OF EAGLE-PICHER INDUSTRIES, INC.
On February 24, 1998 ("Closing Date"), the Parent, which is a
majority-owned subsidiary of Granaria Industries B.V. ("Granaria Industries"),
acquired the Company from the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust ("PI Trust"). The PI Trust was established pursuant to the
Company's Plan of Reorganization upon its emergence from bankruptcy (See Note
C).
The PI Trust was paid $702,500 in consideration, of which $255,900 was for
repayment of the Senior Sinking Fund Debentures ("Debentures"), held by the PI
Trust, with interest. The Company issued 100 shares of common stock to the
Parent, the total proceeds of which were $180,005. The Company issued $220,000
of 9 3/8% Senior Subordinated Notes ("Subordinated Notes") and borrowed $225,000
in term loans and $79,100 in revolving loans under a syndicated senior loan
facility (See Note F).
Fees and expenses related to the Acquisition and the related financing
transactions were approximately $27,500, including fees paid to Granaria
Holdings B.V. ("Granaria Holdings"), which owns a majority of the outstanding
common stock of Granaria Industries (See Note P). Shortly after the Acquisition,
the Company also funded a trust established for the benefit of certain members
of Senior Management (See Note J).
The 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 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 A") and (2) the four days ended February 28, 1998 of the Company, which
have been reflected as Predecessor Company A due to their immaterial impact of
the results of operations and cash flows.
The following pro forma information for the years ended November 30, 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.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net Sales........................................ $ 851,826 $ 906,077
Net income (loss)................................ $ (16,637) $ (26,931)
Net income (loss) per share...................... $(166,370.00) $(269,310.00)
Average number of shares outstanding............. 100 100
</TABLE>
C. REORGANIZATION AND EMERGENCE FROM CHAPTER 11
On November 18, 1996, the U.S. Bankruptcy Court for the Southern District
of Ohio, Western Division ("Bankruptcy Court"), together with the U.S. District
Court for the Southern District of Ohio, Western Division issued an order
("Confirmation Order") confirming the Third Amended Consolidated Plan of
Reorganization ("Plan") of the Company and seven of its domestic subsidiaries,
which became effective on November 29, 1996 ("Effective Date"). The order
confirming the Plan contains a permanent injunction which precludes holders of
present and future asbestos or lead-related personal injury claims from pursuing
their claims against the
38
<PAGE> 39
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reorganized Company. Those claims will be channeled to the PI Trust, which is an
independently administered qualified settlement trust which was established to
resolve and satisfy those claims.
The Plan was based on a settlement of $2,000,000 for the Company's
liability for present and future asbestos-related personal injury claims. As a
result of the settlement, which was reached in the third quarter of 1996, an
adjustment was made to the consolidated financial statements to reduce the
asbestos liability subject to compromise from $2,502,197, the amount the
Bankruptcy Court had previously estimated as the Company's liability for
asbestos-related personal injury claims.
The Plan resulted in the discharge of pre-petition liabilities through the
distribution of cash and securities to the PI Trust and the other creditors. The
Company's then-existing shareholders received no distribution and their shares
were canceled. The value of the consideration distributed and expected to be
distributed to the PI Trust and other unsecured creditors was less than the
amount of the allowed claims resulting in an extraordinary gain of $1,525,540.
It is anticipated that a final distribution will be made to the PI Trust
and all unsecured claimants, other than those holding convenience claims ("Final
Distribution"), when all claims asserted in the chapter 11 cases prior to the
Confirmation Order (other than those channeled to the PI Trust and a separate
trust to be established to resolve property damage claims) are resolved. Based
on certain assumptions, the Company anticipates that holders of general
unsecured claims will ultimately receive consideration having a value equal to
approximately 37% of their allowed claims.
The Unofficial Asbestos Co-Defendants' Committee filed an appeal with
respect to the Confirmation Order. On December 22, 1998, the United States Court
of Appeals for the Sixth Circuit affirmed the Confirmation Order.
D. INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
1998 1997
------- -------------
PREDECESSOR A
<S> <C> <C>
Raw materials and supplies............................. $52,657 $51,797
Work-in-process........................................ 20,839 25,932
Finished goods......................................... 15,873 14,840
------- -------
89,369 92,569
Adjustment to state inventory at LIFO value............ (496) (373)
------- -------
$88,873 $92,196
======= =======
</TABLE>
The percentage of inventories valued using the LIFO method was 81% in 1998
and 1997. In conjunction with purchase accounting and fresh-start reporting, new
LIFO base layers were established based on inventory levels at both March 1,
1998 and December 1, 1996, respectively. The effects of liquidations of LIFO
inventory quantities carried at lower costs prevailing in prior years were not
material.
Effective December 1, 1995, the Company changed its method of computing
LIFO inventories of boron, germanium and other rare metals from a
double-extension method to an index method. The Company believes that the index
method results in better matching of revenues and expenses. The cumulative
effect of the change on prior years was $1,200 on an after tax basis. The effect
of this change was to increase net income $8,100 in fiscal year 1996.
39
<PAGE> 40
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
E. OTHER ASSETS
Other assets consisted of:
<TABLE>
<CAPTION>
1998 1997
------- -------------
PREDECESSOR A
<S> <C> <C>
Prepaid pension cost -- Note K......................... $42,813 $36,621
Debt issuance costs, net of accumulated amortization of
$2,066............................................... 22,430 --
Investments in and receivables from unconsolidated
affiliates........................................... 461 8,732
Notes receivable -- Note O............................. 3,601 3,920
Other.................................................. 2,988 4,272
------- -------
$72,293 $53,545
======= =======
</TABLE>
The debt issuance costs are being amortized on a straight-line basis over
the term of the related debt.
On June 1, 1997, the Company contributed certain of the assets of the
former Suspension Systems Division totaling $5,100 to a joint venture,
Eagle-Picher-Boge, L.L.C. ("E-P-Boge"). The Company retained a 45% interest in
E-P-Boge and recorded no gain or loss on this transaction. The Company accounted
for this investment in accordance with the equity method. The Company also
received a note from E-P-Boge in the amount of $2,827. On November 30, 1998, the
note was repaid and the majority partner exercised its option to purchase the
Company's interest in E-P-Boge. The impact of this transaction on the
consolidated net loss was not material. Included in the Consolidated Statements
of Income (Loss) are the following results of the former Suspension Systems
Division:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
PREDECESSOR A PREDECESSOR B
<S> <C> <C>
Net Sales........................................... $10,577 $19,606
======= =======
Operating Income (Loss)............................. $ 96 $ (998)
======= =======
</TABLE>
F. LONG-TERM DEBT, SHORT TERM BORROWINGS AND LEASE COMMITMENTS
On the Closing Date, the Company's existing $60,000 unsecured committed
revolving credit facility was terminated. It was replaced by a syndicated senior
secured loan facility ("Credit Agreement") which provided $225,000 in term loans
("Term Loans") and a $160,000 revolving credit facility ("Facility"), of which
$79,100 was drawn at the time of closing. The Facility is also available for
issuance of letters of credit. At November 30, 1998, letters of credit totaling
$26,300 were outstanding, which together with borrowings of $19,800, left the
Company with $113,900 of borrowing capacity.
The Credit Agreement is guaranteed by the Parent and the United States
subsidiaries of the Company. It is secured by the capital stock of the Company
and its United States subsidiaries, up to 65% of the capital stock of foreign
subsidiaries and substantially all other property of the Company and its United
States subsidiaries. The Credit Agreement contains covenants which restrict or
limit the Company's ability to declare dividends or redeem capital stock, incur
additional debt or liens, alter existing debt agreements, make loans or
investments, form joint ventures, undergo a change in control or engage in
mergers, acquisitions or asset sales. These covenants also limit the annual
amount of capital expenditures and require the Company to meet certain minimum
financial coverages. The Company was in compliance with all covenants at
November 30, 1998.
40
<PAGE> 41
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt consisted of:
<TABLE>
<CAPTION>
1998 1997
-------- -------------
PREDECESSOR A
<S> <C> <C>
New Credit Agreement:
Revolving Credit Facility................................. $ 19,825 $ --
7.28%, due 2004
Term Loans:
Traunche A............................................. 95,000 --
7.28%, due 2003
Traunche B............................................. 49,900 --
7.66%, due 2005
Traunche C............................................. 74,900 --
7.91%, due 2006
Senior Subordinated Notes................................... 220,000 --
9 3/8%, due 2008
Senior Unsecured Sinking Fund Debentures.................... -- 250,000
10%, due 2006
Industrial Revenue Bonds.................................... 18,000 18,400
3.6 % to 5.0 %, due 2005 and 2012
Debt of Foreign Subsidiaries................................ 6,731 4,997
-------- --------
484,356 273,397
Less current portion........................................ 25,173 3,403
-------- --------
Long-term debt, less current portion........................ $459,183 $269,994
======== ========
</TABLE>
The Facility bears interest, at the Company's option, of an adjusted LIBOR
rate plus 2 1/4% or the bank's prime rate plus 1 1/4%. There is a commitment fee
equal to 1/2% per annum on the undrawn portion of the Facility and fees for
letters of credit are equal to 2 1/4% per annum. If the Company meets certain
financial benchmarks, the interest rate spreads and commitment fees may be
reduced.
The Term Loans bear interest, at the Company's option, of an adjusted LIBOR
rate plus spreads varying from 2 1/4% to 2 7/8% or the bank's prime rate plus
spreads varying from 1 1/4% to 1 7/8%. If the Company meets certain financial
benchmarks, the interest rate spreads may be reduced. In addition to regularly
scheduled payments, the Company is required to make mandatory prepayments, which
are applied on a pro rata basis to the Term Loans, of 60% of annual excess cash
flow as defined in the Credit Agreement, the net proceeds from the sale of
assets (subject to certain conditions), the net proceeds of new debt issued and
50% of the net proceeds of any equity securities issued. For the year ended
November 30, 1998, the excess cash flow payment, which will be applied in the
first quarter of 1999, was calculated to be $8,477.
To manage its variable interest rate exposure on the Term Loans, the
Company entered into a three year interest rate swap agreement ("Swap
Agreement"), in which the Company agreed to exchange, at specified intervals,
the difference between fixed and variable interest amounts based on a notional
principal amount of $150,000. The Swap Agreement effectively fixes the interest
rate on $150,000 of the Terms Loans at a weighted rate of 8.35%. The difference
between the amount of interest to be paid and the amount of interest to be
received under the Swap Agreement due to changing interest rates is charged or
credited to interest expense over the life of the agreement. The fair value of
the Swap Agreement, which was determined using discounted cash flow analysis
based on current rates offered for similar issues of debt, is approximately
$(2,550). As interest rates on the remaining Term Loans and the outstanding
amounts under the Facility are not fixed, the effect of a one percent
41
<PAGE> 42
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
increase in the applicable index rate would result in approximately $900 in
additional interest expense annually, based on balances outstanding at November
30, 1998.
The Subordinated Notes, which are unsecured, are redeemable at the option
of the Company, in whole or in part, any time after February 28, 2003 at set
redemption prices. The Company may also redeem up to 35% of the aggregate
principal amount of the Subordinated Notes prior to March 1, 2001 at a set
redemption price provided certain conditions are met. The Company is also
required to offer to purchase the Subordinated Notes at a set redemption price
should there be a change in control of the Company. The Indenture for the
Subordinated Notes contains covenants which restrict or limit the Subsidiary's
ability to declare or pay dividends, incur additional debt or liens, issue
stock, engage in affiliate transactions, undergo a change in control or sell
assets. The Subordinated Notes are also guaranteed by the Parent and the United
States Subsidiaries of the Company.
The Company issued the Debentures to the PI Trust on the Effective Date in
the amount of $250,000. The Debentures were repaid in conjunction with the
Acquisition.
The Company's industrial revenue bonds bear interest at variable rates
based on the market for similar issues and are secured by letters of credit.
Several of the Company's foreign subsidiaries have entered into agreements
with various banks which provide lines of credit totaling approximately $28,700
at November 30, 1998. At November 30, 1998, $6,700 of borrowings were
outstanding leaving $22,000 in borrowing capacity. These agreements, of which
the substantial majority is unsecured, are either committed lines of credit
expiring in 2001 and 2002 or short-term money market or overdraft facilities,
generally due on demand or within a year. The annual rates of interest on these
lines of credit generally range from .75% to 1.5% over the banks' base rates.
The commitment fees range from .25% to .35% per annum on the unused portion of
the committed facilities. These agreements also contain covenants which include
minimum financial requirements. The Company is in compliance with these
covenants at November 30, 1998.
Long term debt had an estimated fair value of approximately $471,000 and
$287,000 at November 30, 1998 and 1997, respectively. The estimated fair value
of long-term debt was calculated based on market prices for publicly traded
issues and was calculated using discounted cash flow analysis based on current
rates offered for similar issues for all other long-term debt.
The Company paid interest of $28,886 in the nine months ended November 30,
1998 and $6,390, which included the interest paid on the Debentures at the time
of the Acquisition, during the three months ended February 28, 1998, $31,044 in
1997 and $2,767 in 1996.
Long-term debt is scheduled to mature over the next five years as follows:
$25,173 in 1999, $15,300 in 2000, $20,635 in 2001, $25,300 in 2002 and $21,600
in 2003.
SUBSEQUENT EVENT
In the first quarter of 1999, the Company will require an additional
$14,100 in letters of credit over and above the $26,300 that existed at November
30, 1998. The new letters of credit are associated with existing environmental
remediation and are necessitated by financial assurance requirements set forth
by the United States Environmental Protection Agency. These additional letters
of credit will reduce available borrowing capacity.
LEASE COMMITMENTS
Future minimum rental commitments over the next five years as of November
30, 1998 under noncancellable operating leases, which expire at various dates,
are as follows: $3,100 in 1999, $2,500 in 2000, $1,300 in 2001, $600 in 2002 and
$400 in 2003. Rental expense was approximately $3,700 in the nine months ended
November 30, 1998, $1,200 in the three months ended February 28, 1998, and
$4,900 and $5,000 in 1997 and 1996, respectively.
42
<PAGE> 43
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. SUPPLEMENTAL GUARANTOR INFORMATION (UNAUDITED)
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 and the Parent ("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 unaudited supplemental condensed combining financial statements
present information regarding the Company ("Issuer"), subsidiary Guarantors and
the subsidiaries that did not guarantee the debt.
43
<PAGE> 44
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---------- -------------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales
Customers......................... $195,851 $374,337 $75,796 $ -- $645,984
Intercompany...................... 11,183 6,491 5,157 (22,831) --
Operating Costs and Expenses
Cost of products sold............. 154,001 303,620 68,074 (22,722) 502,973
Selling and administrative........ 33,481 17,439 7,672 (132) 58,460
Management compensation........... 26,808 -- -- -- 26,808
Intercompany charges.............. (5,919) 5,919 (132) 132 --
Depreciation...................... 8,810 18,196 3,142 (222) 29,926
Amortization of intangibles....... 4,259 7,317 741 -- 12,317
Loss on sale of assets............ (25) 18 37 -- 30
-------- -------- ------- -------- --------
Total........................ 221,415 352,509 79,534 (22,944) 630,514
-------- -------- ------- -------- --------
Operating Income (Loss)................ (14,381) 28,319 1,419 113 15,470
Other Income (Expense)
Interest expense.................. (35,888) -- (425) -- (36,313)
Other income (expense)............ 978 313 490 (2) 1,779
-------- -------- ------- -------- --------
Income (Loss) Before Taxes............. (49,291) 28,632 1,484 111 (19,064)
Income Taxes........................... (14,353) 7,803 1,850 -- (4,700)
-------- -------- ------- -------- --------
Net Income (Loss)...................... $(34,938) $ 20,829 $ (366) $ 111 $(14,364)
======== ======== ======= ======== ========
</TABLE>
44
<PAGE> 45
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------- ---------- -------------- ------------ --------
(UNAUDITED)
<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............... 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>
45
<PAGE> 46
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS
AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---------- -------------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 7,464 $ 712 $ 5,125 $ 379 $ 13,680
Receivables............................. 55,611 74,292 14,941 -- 144,844
Intercompany accounts receivable........ -- -- 7,442 (7,442) --
Inventories............................. 30,755 43,708 15,785 (1,375) 88,873
Prepaid expenses........................ 4,073 3,614 651 -- 8,338
Deferred income taxes................... 10,851 -- -- -- 10,851
-------- -------- ------- --------- --------
Total current assets............... 108,754 122,326 43,944 (8,438) 266,586
Property, Plant and Equipment........... 66,500 143,872 38,165 -- 248,537
Investment in Subsidiaries.............. 87,019 6,252 -- (93,271) --
Excess of Assets Acquired Over Cost..... 78,838 136,253 13,819 -- 228,910
Other Assets............................ 54,187 17,675 431 -- 72,293
-------- -------- ------- --------- --------
Total Assets....................... $395,298 $426,378 $96,359 $(101,709) $816,326
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable........................ $ 15,149 $ 24,664 $10,494 $ -- $ 50,307
Intercompany accounts payable........... -- -- 7,662 (7,662) --
Long-term debt -- current portion....... 18,777 -- 6,396 -- 25,173
Income taxes............................ 5,296 -- 986 -- 6,282
Other current liabilities............... 45,744 24,464 4,052 -- 74,260
-------- -------- ------- --------- --------
Total current liabilities.......... 84,966 49,128 29,590 (7,662) 156,022
Long-term Debt -- less current
portion............................... 458,848 -- 335 -- 459,183
Deferred Income Taxes................... 8,304 -- -- -- 8,304
Other Liabilities....................... 24,819 -- -- -- 24,819
-------- -------- ------- --------- --------
Total liabilities.................. 576,937 49,128 29,925 (7,662) 648,328
Intercompany Accounts................... (326,706) 309,571 29,768 (12,633) --
Shareholder's Equity.................... 145,067 67,679 36,666 (81,414) 167,998
-------- -------- ------- --------- --------
Total Liabilities and Shareholder's
Equity........................... $395,298 $426,378 $96,359 $(101,709) $816,326
======== ======== ======= ========= ========
</TABLE>
46
<PAGE> 47
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
-------- ---------- -------------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $(34,938) $ 20,829 $ (366) $ 111 $(14,364)
Adjustments to reconcile net income
(loss) to cash provided by (used in)
operating activities:
Depreciation and amortization......... 15,135 25,513 3,883 (222) 44,309
Proceeds from insurance settlement.... 14,784 -- -- -- 14,784
Change in assets and liabilities, net
of effect of divestitures.......... 18,960 13,808 (1,263) (687) 30,818
-------- -------- ------- ------- --------
Net cash provided by (used in)
operating activities.......... 13,941 60,150 2,254 (798) 75,547
-------- -------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of divisions......... 7,872 -- -- -- 7,872
Capital expenditures.................... (7,793) (10,062) (8,405) -- (26,260)
Other................................... (2,793) (53) 2,188 2,428 1,770
-------- -------- ------- ------- --------
Net cash provided by (used in)
investing activities.......... (2,714) (10,115) (6,217) 2,428 (16,618)
-------- -------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt.............. -- -- 2,094 -- 2,094
Reduction of long-term debt............. (5,600) -- -- -- (5,600)
Borrowings (repayments) on revolving
credit agreement...................... (59,275) -- -- -- (59,275)
Debt issue cost......................... (1,435) -- -- -- (1,435)
-------- -------- ------- ------- --------
Net cash provided by (used in)
financing activities.......... (66,310) -- 2,094 -- (64,216)
-------- -------- ------- ------- --------
Increase (decrease) in cash and cash
equivalents........................... (55,083) 50,035 (1,869) 1,630 (5,287)
Intercompany accounts................... 50,432 (50,468) 1,481 (1,445) --
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 12,115 1,145 5,513 194 18,967
-------- -------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 7,464 $ 712 $ 5,125 $ 379 $ 13,680
======== ======== ======= ======= ========
</TABLE>
47
<PAGE> 48
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
--------- ---------- -------------- ------------ ---------
(UNAUDITED)
<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,
net of divestitures.............. (16,059) (9,247) 2,019 575 (22,712)
--------- ------- ------- ------ ---------
Net cash provided by (used in)
operating activities........ (16,608) 4,092 3,035 398 (9,083)
--------- ------- ------- ------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
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) -- -- -- (250,360)
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)
--------- ------- ------- ------ ---------
Net cash provided by (used in)
financing activities........ (18,595) -- -- -- (18,955)
--------- ------- ------- ------ ---------
Increase (decrease) in cash and cash
equivalents......................... (38,459) 2,324 630 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 $ 5,873 $ 194 $ 18,967
========= ======= ======= ====== =========
</TABLE>
48
<PAGE> 49
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
YEAR ENDED NOVEMBER 30, 1997
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
-------- ---------- ------------ --------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Customers...................... $255,330 $489,304 $82,839 $78,604 $ -- $906,077
Intercompany................... 12,345 9,512 5,775 29 (27,661)
Operating Costs and Expenses
Cost of products sold.......... 202,259 407,006 71,144 71,688 (27,087) 725,010
Selling and administrative..... 42,766 22,280 7,756 4,624 (317) 77,109
Intercompany charges........... (11,015) 9,055 -- 1,960 -- --
Depreciation................... 11,523 21,001 3,609 3,538 -- 39,671
Amortization of intangibles.... 3,254 13,030 34 -- -- 16,318
Loss on sale of divisions...... 699 1,712 -- -- -- 2,411
-------- -------- ------- ------- -------- --------
Total.................. 249,486 474,084 82,543 81,810 (27,404) 860,519
-------- -------- ------- ------- -------- --------
Operating Income (Loss).......... 18,189 24,732 6,071 (3,177) (257) 45,558
Other Income (Expense)
Interest expense............... (30,932) (131) (202) -- 4 (31,261)
Other income (expense)......... 1,105 147 (231) 113 (1,385) (251)
-------- -------- ------- ------- -------- --------
Income (Loss) Before Taxes....... (11,638) 24,748 5,638 (3,064) (1,638) 14,046
Income taxes..................... 9,659 8,719 (636) 158 -- 17,900
-------- -------- ------- ------- -------- --------
Net Income (Loss)................ $(21,297) $ 16,029 $ 6,274 $(3,222) $ (1,638) $ (3,854)
======== ======== ======= ======= ======== ========
</TABLE>
49
<PAGE> 50
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS
AS OF NOVEMBER 30, 1997
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
SUBSIDIARY FOREIGN
ISSUER GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL
------ ---------- -------------- ------------ -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 48,834 $ 561 $ 4,344 $ -- $ 53,739
Receivables............................. 39,566 72,992 21,394 -- 133,952
Intercompany accounts receivable........ 2,982 3,295 -- (6,277) --
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 SHAREHOLDER'S 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
-------- -------- ------- -------- --------
Total 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 --
Shareholder's Equity.................... 317,339 62,751 34,960 (78,933) 336,117
-------- -------- ------- -------- --------
Total Liabilities and Shareholder's
Equity........................... $420,845 $324,378 $74,477 $(72,819) $746,881
======== ======== ======= ======== ========
</TABLE>
50
<PAGE> 51
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1997
PREDECESSOR A
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
--------- ---------- ------------ --------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss)............. $ (21,297) $ 16,029 $ 6,274 $(3,222) $(1,638) $ (3,854)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............. 14,777 34,031 3,643 3,538 -- 55,989
Loss on sale of divisions... 699 1,712 -- -- -- 2,411
Changes in assets and
liabilities, net of
effect of divestitures:
Income tax refunds
receivable............. 70,695 -- -- -- -- 70,695
Working capital and
other.................. 14,016 9,991 (5,655) 3,051 1,239 22,642
--------- -------- -------- ------- ------- ---------
Net cash provided by
(used in) operating
activities.......... 78,890 61,763 4,262 3,367 (399) 147,883
--------- -------- -------- ------- ------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
divisions................... 30,735 8,272 -- -- 39,007
Capital expenditures.......... (8,454) (31,396) (10,694) (780) -- (51,324)
Other......................... (1,670) 50 (1,271) (4) 1,385 (1,510)
--------- -------- -------- ------- ------- ---------
Net cash provided by
(used in) investing
activities.......... 20,611 (23,074) (11,965) (784) 1,385 (13,827)
--------- -------- -------- ------- ------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of long-term debt.... 8,000 -- 4,997 -- -- 12,997
Reduction of long-term debt... (126,039) -- -- -- -- (126,039)
--------- -------- -------- ------- ------- ---------
Net cash provided by
(used in) financing
activities.......... (118,039) -- 4,997 -- -- (113,042)
--------- -------- -------- ------- ------- ---------
Increase (decrease) in cash
and cash equivalents........ (18,538) 38,689 (2,706) 2,583 986 21,014
Intercompany accounts......... 41,283 (38,681) 1,065 (2,681) (986) --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD......... 26,089 553 5,985 98 -- 32,725
--------- -------- -------- ------- ------- ---------
CASH AND CASH EQUIVALENTS, END
OF PERIOD................... $ 48,834 $ 561 $ 4,344 $ -- $ -- $ 53,739
========= ======== ======== ======= ======= =========
</TABLE>
51
<PAGE> 52
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS)
YEAR ENDED NOVEMBER 30, 1996
PREDECESSOR B
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
---------- ---------- ------------ --------- ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Customers............... $ 242,537 $432,194 $78,440 $138,116 $ -- $ 891,287
Intercompany............ 11,944 6,990 5,551 80 (24,565) --
Operating Costs and Expenses
Cost of products sold... 196,102 357,062 64,314 122,367 (22,919) 716,926
Selling and
administrative........ 42,262 22,616 8,834 9,166 (1,373) 81,505
Intercompany charges.... (10,010) 7,281 -- 2,729 -- --
Depreciation............ 7,534 14,432 2,603 5,769 -- 30,338
Amortization of
intangibles........... 325 74 -- 13 -- 412
---------- -------- ------- -------- -------- ----------
Total.............. 236,213 401,465 75,751 140,044 (24,292) 829,181
---------- -------- ------- -------- -------- ----------
Operating Income (Loss)...... 18,268 37,719 8,240 (1,848) (273) 62,106
Other Income (Expense)
Interest expense........ (2,914) -- (157) -- (12) (3,083)
Other income
(expense)............. 574 (206) 939 26 12 1,345
Asbestos litigation and
other claims.......... 497,953 -- -- -- -- 497,953
---------- -------- ------- -------- -------- ----------
Income (Loss) Before
Reorganization Items,
Taxes, Extraordinary Item
and Cumulative Effect of
Accounting Change.......... 513,881 37,513 9,022 (1,822) (273) 558,321
Reorganization items......... 116,335 -- -- -- -- 116,335
Income taxes................. (46,090) (1,999) (4,326) (155) -- (52,570)
---------- -------- ------- -------- -------- ----------
Income (Loss) Before
Extraordinary Item and
Cumulative Effect of
Accounting Change.......... 584,126 35,514 4,696 (1,977) (273) 622,086
Extraordinary Item --Gain on
Discharge of Pre-petition
Liabilities................ 1,525,540 -- -- -- -- 1,525,540
Cumulative Effect of Change
in Accounting for
Inventories................ (1,235) -- -- -- -- (1,235)
---------- -------- ------- -------- -------- ----------
Net Income (Loss)............ $2,108,431 $ 35,514 $ 4,696 $ (1,977) $ (273) $2,146,391
========== ======== ======= ======== ======== ==========
</TABLE>
52
<PAGE> 53
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS
YEAR ENDED NOVEMBER 30, 1996
PREDECESSOR B
<TABLE>
<CAPTION>
NON-GUARANTORS
------------------------
SUBSIDIARY FOREIGN DIVESTED
ISSUER GUARANTORS SUBSIDIARIES DIVISIONS ELIMINATIONS TOTAL
----------- ---------- ------------ --------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income (Loss)............. $ 2,108,431 $ 35,514 $ 4,696 $(1,977) $ (273) $ 2,146,391
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Non-cash adjustments
relating to non-operating
income items............. (2,140,942) -- -- -- -- (2,140,942)
Depreciation and
amortization............. 7,859 14,506 2,603 5,782 -- 30,750
Change in assets and
liabilities, net of
effect of divestitures... 46,214 (15,532) 636 6,505 (1,161) 36,662
----------- -------- ------- ------- ------- -----------
Net cash provided by
(used in) operating
activities.......... 21,562 34,488 7,935 10,310 (1,434) 72,861
----------- -------- ------- ------- ------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
divisions................... 4,248 -- -- -- -- 4,248
Capital expenditures.......... (9,417) (25,074) (5,602) (4,864) -- (44,957)
Other......................... (661) (1,246) 108 44 694 (1,061)
----------- -------- ------- ------- ------- -----------
Net cash provided by
(used in) investing
activities.......... (5,830) (26,320) (5,494) (4,820) 694 (41,770)
----------- -------- ------- ------- ------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Reduction of long-term debt... (1,520) -- (1,678) -- -- (3,198)
----------- -------- ------- ------- ------- -----------
CASH PAYMENTS ON EFFECTIVE
DATE OF PLAN OF
REORGANIZATION.............. (88,498) -- -- -- -- (88,498)
----------- -------- ------- ------- ------- -----------
Increase (decrease) in cash
and cash equivalents........ (74,286) 8,168 763 5,490 (740) (60,605)
Intercompany accounts......... 13,409 (8,676) 196 (5,669) 740 --
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD......... 86,966 1,061 5,026 277 -- 93,330
----------- -------- ------- ------- ------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD................... $ 26,089 $ 553 $ 5,985 $ 98 $ -- $ 32,725
=========== ======== ======= ======= ======= ===========
</TABLE>
53
<PAGE> 54
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. INCOME TAXES
The following is a summary of the components of income taxes (benefit) from
operations and, in 1996, fresh start revaluation:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
----------------- ------------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
Current:
Federal.................... $ 4,600 $ 500 $ 1,000 $17,200
Foreign.................... 1,900 550 (600) 4,350
State and local............ 700 450 1,800 1,850
-------- ------ ------- -------
7,200 1,500 2,200 23,400
-------- ------ ------- -------
Deferred:
Federal.................... (11,900) 2,300 11,300 29,170
State and local............ -- 300 4,400 --
-------- ------ ------- -------
(11,900) 2,600 15,700 29,170
-------- ------ ------- -------
$ (4,700) $4,100 $17,900 $52,570
======== ====== ======= =======
</TABLE>
Total net income tax benefit for the year ended November 30, 1996 of
$117,880 consisted of $52,570 tax expense from operations and the fresh-start
revaluation, $169,785 tax benefit from the extraordinary gain on the discharge
of pre-petition liabilities, and $665 tax benefit from the cumulative effect of
the change in accounting for inventories.
The sources of income (loss) before income tax expense (benefit),
extraordinary gain on discharge of pre-petition liabilities and cumulative
effect of accounting change are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
----------------- ------------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
United States................ $(21,822) $4,328 $ 7,873 $665,907
Foreign...................... 2,758 579 6,173 8,749
-------- ------ ------- --------
$(19,064) $4,907 $14,046 $674,656
======== ====== ======= ========
</TABLE>
54
<PAGE> 55
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the total income tax expense from operations and
fresh start revaluation in 1996 and the income tax expense computed using the
Federal income tax rate were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
----------------- ------------------ ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
Income tax expense (benefit) at
Federal statutory rate........... $(6,700) $1,700 $ 4,900 $ 236,130
Change in valuation allowance...... -- -- 1,200 (187,950)
Foreign taxes rate differential.... (200) 300 (3,800) 900
State and local taxes, net of
Federal benefit.................. 500 600 3,600 1,200
Non-deductible amortization of
reorganization value in excess of
amounts allocable to identifiable
assets........................... -- 1,300 5,700 --
Non-deductible amortization and
other items relating to excess of
acquired net assets over cost.... 600 -- -- --
Non-deductible management
compensation..................... 1,300 -- -- --
Non-deductible fresh start items... -- -- -- 4,100
Expired tax credits................ -- -- 5,900 --
Other.............................. (200) 200 400 (1,810)
------- ------ ------- ---------
Total income tax expense
(benefit)........................ $(4,700) $4,100 $17,900 $ 52,570
======= ====== ======= =========
</TABLE>
Components of deferred tax balances as of November 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------------
PREDECESSOR A
<S> <C> <C>
Current deferred tax assets attributable to:
Accrued liabilities................................. $ 8,042 $ 12,576
Net operating less carryforwards.................... -- 2,000
Other............................................... 2,809 1,948
Valuation allowance................................. -- (2,731)
-------- ---------
Current deferred tax asset....................... 10,851 13,793
-------- ---------
Noncurrent deferred tax assets (liabilities)
attributable to:
Property, plant and equipment....................... 2,207 (46,331)
Notes to former creditors........................... -- 87,500
Net operating loss carryforwards.................... -- 72,142
Credit carryforwards................................ -- 14,686
Prepaid pension..................................... (14,985) (12,817)
Postretirement benefit liability.................... 497 7,588
Amortization of intangibles......................... 1,001 --
Other............................................... 2,976 1,734
Valuation allowance................................. -- (25,511)
-------- ---------
Net noncurrent deferred tax asset (liability).... (8,304) 98,991
-------- ---------
Net deferred tax assets.......................... $ 2,547 $ 112,784
======== =========
</TABLE>
55
<PAGE> 56
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A tax election to treat the purchase of stock as a purchase of assets
("Election") was made in connection with the acquisition of the Company on
February 24, 1998. Accordingly, a deemed final tax return of the Predecessor
Company was filed for the tax period ended on the date of the Acquisition. On
this tax return, the total purchase price, for tax purposes, was allocated to
the assets of the Company to the extent of each asset's fair market value, and
gain was recognized on each asset as if sold at that price. As a result, going
forward, the assets were assigned the same value for book and tax purposes as of
the date of the Acquisition. The net operating loss carryforward of $178,147
from Predecessor Company's tax year ended November 30, 1997 and the deduction
resulting from the redemption of the Subordinated Notes were available to be
utilized against the resulting transaction gain.
Any net operating loss carryforwards not absorbed by the gain were lost and
are not available to the Company. Additionally, tax credits which had been
carried forward totaling $9,708 at November 30, 1997 were lost as a result of
the transaction and are not available to the Company. The Company has no net
operating loss or tax credit carryforwards available to offset future taxable
income or tax liability, respectively, at November 30, 1998.
The net operating loss carryforward at November 30, 1997 resulted from the
distribution of cash and stock to the PI Trust and other creditors on the
Effective Date and the redemption of notes, which were also distributed to the
PI Trust and other creditors on the Effective Date, in 1997. A portion of the
net operating loss generated on the Effective Date had been applied to prior
years taxable income to generate a Federal tax refund of $69,146 which was
received in 1997.
As a result of the Acquisition, tax goodwill was established for the amount
by which the purchase price for tax purposes exceeded the fair market value of
the assets at the date of the Acquisition. The tax goodwill, the net amount of
which was $141,100 at November 30, 1998, is being amortized and deducted over
fifteen years, the same period over which the Excess of Acquired Net Assets over
Cost is being amortized in the Consolidated Financial Statements. Certain
liabilities assumed by the Company in the Acquisition, which are contingent for
tax purposes, will result in additional tax goodwill as they are paid. This
additional goodwill will also be amortized and deducted over the same period as
the Excess of Acquired Net Assets over Cost. The potential additional tax
goodwill, resulting from these liabilities, totaled $56,100 at November 30,
1998.
In 1997, the Company's valuation allowance resulted from uncertainties
related to the reorganization process and tax credits that were expected to
expire unutilized. These items were related to the Predecessor Company and have
no bearing on deferred tax benefits in 1998. Based on its history of prior
years' operations and its expectations for the future, the Company has
determined that it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the deferred tax benefits
recorded. Although the Automotive Segment is susceptible to economic cycles and
recessions, the Industrial and Machinery Segments of the Company consist of
certain businesses which are not impacted as significantly by economic
downturns.
The Company paid income taxes (net of refunds received) of $5,400 in the
nine months ended November 30, 1998, $4,300 in 1997 (with the exception of the
Federal tax refund received of $69,146), and $17,300 in 1996. The Company
received refunds (net of taxes paid) of $2,300 in the three months ended
February 28, 1998.
I. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The calculation of net income (loss) per share is based upon the average
number of common shares outstanding which was 100 for the nine months ended
November 30, 1998, 9,555,560 for the three months ended February 28, 1998,
10,000,000 in 1997 and 11,040,932 in 1996. No potential common stock was
outstanding during the three year period ended November 30, 1998.
56
<PAGE> 57
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. MANAGEMENT COMPENSATION -- SPECIAL
Management compensation expense consisted of the following items:
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998
------------ -------------
PREDECESSOR A
<S> <C> <C>
Short Term Sale Program.................................. $ 8,110 $2,020
Management Trust -- Restricted Stock Award............... 12,580 --
Severance................................................ 5,989 --
Other.................................................... 129 36
------- ------
Total.......................................... $26,808 $2,056
======= ======
</TABLE>
The Company adopted a Short Term Sale Program ("STSP") pursuant to the
terms of which it would make payments to certain members of senior management
("Eligible Individuals"), in connection with a change in control of the Company.
The consummation of the Acquisition constituted such a change in control. The
STSP provided for a "stay-put" bonus equal to an eligible individual's fiscal
1997 base salary and a sales incentive bonus based on a multiple (ranging from
50% to 200%) of an eligible individual's fiscal 1997 base salary. The "stay-put"
bonus was payable in two equal parts, the first portion was paid in March 1998,
after the Acquisition, and the second is payable on the second anniversary of
such change in control, provided that the individual has remained an employee of
the Company or, if the individual was terminated by the Company other than for
cause, payable upon such termination. The Company has provided a total of $4,066
for the twelve months ended November 30, 1998 in connection with the "stay put"
bonus of which $1,611 remains unpaid. The sales incentive bonus is payable if
the present value of the after-tax proceeds to the PI Trust in connection with
the Acquisition meets a threshold amount set forth in the STSP. In the event
that the after-tax proceeds to the PI Trust exceed a specified target amount,
the multiple will increase on a straight-line basis. A final determination of
the after-tax proceeds to the PI Trust, and the consequent payment of the
balance of the sales incentive bonuses, will be made upon the final approval by
the Congressional Joint Committee on Taxation of an examination conducted by the
Internal Revenue Service of the tax return of the Company for the fiscal year
ended November 30, 1996. The Company has provided a total of $6,064 for the
twelve months ended November 30, 1998 in 1998 in connection with the sales
incentive bonus of which $981 remains unpaid.
In 1998, the Company paid $10,000 to the Eagle-Picher Management Trust
("E-P Management Trust") for the benefit of certain senior management of the
Company. The $10,000 payment was effectively used by the E-P Management Trust to
acquire certain restricted stock of Granaria Industries. Subsequently, the stock
of Granaria Industries was later exchanged for the common stock of the Parent.
The shares of the Parent held by the E-P Management Trust were allocated to
certain members of senior management of the Company. The receipt of such shares
was taxable to the holders as income in an amount equal to the value of the
shares at the time of vesting. The Company also reimbursed the holders of the
shares for their tax obligations associated with the receipt of such shares. The
Company has recorded as compensation expense $12,580 for the restricted shares
and related tax reimbursements.
The Company entered into employment agreements with six executive officers
("Employment Agreements") which became effective on November 29, 1996. Each was
amended in August 1997. The purpose of the Employment Agreements was to provide
the Company with continuity of management following its emergence from
bankruptcy. The Employment Agreements terminate on the later of the second
anniversary of any change of control occurring prior to December 31, 1998 or May
18, 1999. The consummation of the Acquisition did constitute a change of control
under the Employment Agreements. Three of the six executive officers of the
57
<PAGE> 58
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company have received severance benefits pursuant to the Employment Agreements.
These payments, as well as severance payments to another former officer,
aggregated $5,989.
K. RETIREMENT BENEFIT PLANS
Substantially all employees of the Company and its subsidiaries are covered
by various pension or profit sharing retirement plans. The cost of providing
retirement benefits, including the net periodic pension cost (income), was $900
for the twelve months ended November 30, 1998, $1,900 in 1997 and $2,300 in
1996. Amounts for a supplemental executive retirement plan to provide senior
management with benefits in excess of normal pension benefits are included in
the cost of providing retirement benefits. Under the plan, annuities are
purchased by the Company and distributed to participants on an annual basis. The
cost of these annuities was $1,314 for the twelve months ended November 30,
1998, $1,058 in 1997 and $1,279 in 1996.
The Company's funding policy for defined benefit plans is to fund amounts
on an actuarial basis to provide for current and future benefits in accordance
with the funding guidelines of ERISA.
Plan benefits for salaried employees are based primarily on employees'
highest five consecutive years' earnings during the last ten years of
employment. Plan benefits for hourly employees typically are based on a dollar
unit multiplied by the number of service years.
Net periodic pension expense for the Company's defined benefit plans
included the following components:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
NOVEMBER 30,
1998 1997 1996
------------- ------------- -------------
PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C>
Service cost -- benefits earned during the
period.................................. $ 5,459 $ 4,848 $ 5,497
Interest cost on projected benefit
obligations............................. 14,618 14,276 13,701
Actual gain on plan assets................ (21,959) (36,544) (29,296)
Net amortization and deferral............. (28) 16,669 10,000
-------- -------- --------
Net Periodic pension cost (income)........ $ (1,910) $ (751) $ (98)
======== ======== ========
</TABLE>
In addition, in 1997, the Company recognized a curtailment gain of $1,662
due to the reduction in active participants in the Company's retirement plans
that resulted primarily from the divestiture of divisions.
The plans' assets consist primarily of listed equity securities and
publicly traded notes and bonds. The actual net return on plan assets was 8.6%
for the twelve months November 30, 1998, 15.3% in 1997 and 13.5% in 1996, and
generally reflects the performance of the equity and bond markets.
58
<PAGE> 59
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the plans' funded status on the measurement
dates, November 30, 1998 and 1997, and amounts recognized in the Company's
Consolidated Balance Sheets as of those dates.
<TABLE>
<CAPTION>
1998 1997
--------- -------------
PREDECESSOR A
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation............................... $(196,668) $(184,123)
========= =========
Accumulated benefit obligation.......................... $(203,391) $(191,148)
========= =========
Projected benefit obligation............................ $(223,920) $(209,701)
Plan assets at fair value................................. 259,522 250,036
--------- ---------
Projected benefit obligation less than plan assets........ 35,602 40,335
Unrecognized net (gain) loss.............................. 7,211 (3,761)
Unrecognized prior service cost........................... -- 47
--------- ---------
Prepaid pension cost recognized........................... $ 42,813 $ 36,621
========= =========
</TABLE>
The discount rate and weighted average rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 6.75% and 4.2%, and 7.0% and 4.2%,
respectively at November 30, 1998 and 1997, respectively. The assumption used
for the long-term rate of return on assets was 9.0% in 1998 and 1997. The effect
of the change in the discount rate was to increase the projected benefit
obligation by $7,183 at November 30, 1998.
Upon the Acquisition, all unrecognized reconciling items as of February 24,
1998 were recognized and recorded on the Company's Consolidated Balance Sheet in
accordance with purchase accounting. The effect of the Acquisition was to
increase the prepaid pension cost recognized by $3,714 at February 24, 1998.
The Company also offers 401(k) savings plans to its employees in the United
States. In most cases, the participants may contribute up to 15% of their
compensation of which 50% of their contribution up to 6% of their compensation
is matched by the Company. The cost of these plans to the Company was $1,641 in
the nine months ended November 30, 1998, $540 in the three months ended February
28, 1998, $2,344 in 1997 and $2,235 in 1996.
L. EMPLOYEE BENEFITS OTHER THAN PENSIONS
In addition to providing pension retirement benefits, the Company makes
health care and life insurance benefits available to certain retired employees
on a limited basis. Generally, the medical plans pay a stated percentage of
medical expenses reduced by deductibles and other coverages. Eligible employees
may elect to be covered by these health and life insurance benefits if they
reach early or normal retirement age while working for the Company. In most
cases, a retiree contribution for health insurance coverage is required. The
Company funds these benefit costs primarily on a pay-as-you-go basis. The net
amounts funded approximate $1,000 on an annual basis.
59
<PAGE> 60
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net periodic postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
NOVEMBER 30,
1998 1997 1996
------------- ------------- -------------
PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C>
Service cost -- benefits earned during the
period.................................. $ 534 $ 554 $ 710
Interest cost on accumulated
postretirement benefit obligation....... 1,101 1,241 1,424
Amortization of unrecognized net gain..... -- (93) --
-------- ------ ------
Net periodic postretirement benefit
cost.................................... $ 1,635 $1,702 $2,134
======== ====== ======
</TABLE>
In addition, in 1997, the Company recognized a curtailment gain of $564 due
to the reduction in eligible employees that resulted primarily from the
divestiture of divisions.
A reconciliation of the accumulated postretirement benefit obligation
measured as of November 30, 1998 and 1997 to amounts recognized in the
Consolidated Balance Sheets at those dates is as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------------
PREDECESSOR A
<S> <C> <C>
Retirees and dependents..................................... $ 8,908 $10,670
Eligible active participants................................ 1,609 2,074
Other active participants................................... 6,442 6,993
------- -------
Accumulated postretirement benefit obligation............... 16,959 19,737
Unrecognized net gain....................................... 631 1,944
------- -------
Accrued postretirement benefit costs........................ $17,590 $21,681
======= =======
</TABLE>
Upon the Acquisition, all unrecognized reconciling items as of February 24,
1998 were recognized and recorded on the Company's Consolidated Balance Sheet in
accordance with purchase accounting. The effect of the Acquisition was to
decrease the accrued postretirement benefit costs by $4,718.
Benefit costs were estimated assuming retiree health care costs would
initially increase at a 9% annual rate which decreases to an ultimate rate of 6%
in 4 years. If this annual trend rate would increase by 1%, the accumulated
postretirement obligation as of November 30, 1998 would increase by $1,888 with
a corresponding increase of $247 in the postretirement benefit expense in 1998.
The discount rates used in determining the accumulated postretirement obligation
at November 30, 1998 and 1997 were 6.75% and 6.5%, respectively. The effect of
the change in the discount rate was not material to the accumulated
postretirement benefit obligation at November 30, 1998.
In May 1998, the Company adopted a Stock Appreciation Rights Plan ("SAR
Plan") to reward those executives and managers whose individual performance and
effort will have a direct impact on achieving the Company's profit and growth
objectives. Shares of stock are not actually awarded, however participants are
awarded units on which appreciation is calculated based on the Company's equity
position. The units vest over five years and are payable any time during the
sixth through tenth year following the date of award. The expense related to the
SAR Plan was $640 in the nine months ended November 30,1998.
60
<PAGE> 61
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
M. ASBESTOS LITIGATION CLAIMS
As discussed in Note C, above, the Plan provides that all present and
future asbestos-related personal injury claims will be channeled to and resolved
by the PI Trust. Such claims result from exposure to asbestos-containing
industrial insulation products that the Subsidiary manufactured from 1934 to
1971. The Company expects that the claims that were filed pursuant to the bar
date for such claims, and such claims that will arise for several decades into
the future, will be administered and resolved by the PI Trust. In fact, the
Company has learned that the PI Trust began resolving and paying such claims in
fiscal 1997.
Further, the Company expects that the channeling injunction provided by
section 524 of the Bankruptcy Code will prevent any such claimants from
prosecuting such claims against the reorganized Company. The Company is not
aware of any attempt by any asbestos-related personal injury claimant to nullify
the channeling injunction provided by section 524 of the Bankruptcy Code
subsequent to the entry of that injunction by the Bankruptcy Court and the
District Court in November 1996.
In addition, the Plan also resolved and discharged all asbestos property
damage claims ("property claims") against the Company. The class of holders of
property claims voted to accept a settlement for such claims that was contained
in the Plan. Pursuant to the settlement, the Company has set aside $3,000 in
cash to fund a trust to resolve property claims. Certain of the holders of
property claims will appoint trustees to establish and administer such trust.
The Company expects that such trust will be established in due course. Further,
the Company expects that an injunction provided by the Plan, which orders all
holders of property claims to pursue those property claims solely against such
trust, will prevent any such claimants from prosecuting property claims against
the reorganized Company.
N. ENVIRONMENTAL AND OTHER LITIGATION CLAIMS
Most of the pre-petition claims against the Company alleging a right to
payment due to environmental and litigation matters were resolved prior to the
Effective Date. The holders of those claims which were allowed have received a
proportionate distribution of the assets of the estate based on the amount of
their claims to the total liabilities of the Company.
In addition to the items discussed below, the Company is involved in
routine litigation, environmental proceedings and claims pending with respect to
matters arising out of the normal course of business. As of November 30, 1998,
the Company has reserved $9,500 associated with environmental remediation
activities at some of its current and former sites. In management's opinion, the
ultimate liability resulting from all claims, individually or in the aggregate,
will not materially affect the Company's consolidated financial position,
results of operations or cash flows.
ENVIRONMENTAL
The settlement agreement among the Company, the United States Environmental
Protection Agency ("US EPA") and the United States Department of Interior ("EPA
Settlement Agreement") which resolved the majority of the 1,102 proofs of claim
timely filed alleging a right to payment because of environmental matters, was
approved by the Bankruptcy Court in June 1996. Certain parties that may be
liable at certain of the sites resolved by the settlement appealed such
approval. In August 1997, the District Court affirmed the Bankruptcy Court's
approval of the settlement. The time within which such affirmance may be
appealed has expired without any further appeal having been taken. Thus, the
settlement has become final and binding on all parties.
One of the significant features of the EPA Settlement Agreement is with
respect to "Additional Sites." Additional Sites are those superfund sites, not
owned by the Company, for which the Company's liability allegedly arises as a
result of pre-petition waste disposal or recycling. The Company retains all of
its defenses, legal or factual, at such sites. However, if the Company is found
liable at any Additional Sites or settles any claims for any Additional Sites,
the Company is required to pay as if such claims had been resolved in the
61
<PAGE> 62
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reorganization under chapter 11 of the bankruptcy code. Thus, the Company's
liability at Additional Sites will be paid at approximately 37% of any amount
due.
As of November 30, 1998, the Company had received notice that it may have
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 at a number of Additional Sites. The Company believes,
after an investigation of these claims, that it has only de minimis liability at
all but two of these sites described in the following two paragraphs.
The Company received notice from the US EPA in 1997 alleging liability for
remediation expenses at the site of a former zinc smelting facility owned and
operated by the Company at Henryetta, Oklahoma, and for the removal and disposal
from surrounding residential locations of contaminated soil and gravel that
originated from the facility and from other companies operating in the area. The
Company operated the facility for approximately 50 years until it was shut down
in 1968. The US EPA performed remedial activities at the site at a cost of
approximately $5,000 to $6,000. The Company has offered to settle this claim for
$2,800 (payable at approximately 37%).
The Company received a notice from the US EPA in 1996 alleging that it may
be a Potentially Responsible Party ("PRP") regarding liability for remediation
expenses at a secondary lead smelting facility in Dallas, Texas ("RSR"). The
Company allegedly leased the facility, which was in operation until about 1984,
for a period of at least one year in the early 1950s. The US EPA has conducted
and continues to conduct extensive remedial activities at this site, the total
expenses of which are estimated at approximately $55,000. The Company is one of
more that 1,000 PRP's identified by the US EPA in connection with this site and
is not identified by US EPA as one of the 14 significant PRPs. However, the
Company believes that it may be required to make some expenditure to resolve its
potential liability for remediation expenses in connection with this site. The
Company has offered to settle this claim for $1,800 (payable at approximately
37%).
The Company believes that the settlements for the RSR and Henryetta sites
will be a deduction from the Final Distribution.
In addition to the Additional Sites described above, the Company is
involved with the following environmental matters not covered by the EPA
Settlement Agreement.
The Company is undertaking corrective actions under the Resource
Conservation and Recovery Act ("RCRA") at its Joplin, Missouri facility.
Consistent with the terms of its RCRA permit, the Company has been investigating
the nature and extent of contamination present as a result of manufacturing
activities during the 130-year operating history of this property. These
investigations have identified areas of soil and groundwater contamination,
certain of which will likely require the Company to undertake remedial
activities. The US EPA has indicated that these actions will likely be required
to take place over the next two years. Based on available information, the
Company anticipates that these actions will cost between $600 and $2,600.
At the Company's Colorado Springs, Colorado facility the closure of four
former hazardous waste surface impoundments is being completed. Materials
formerly stored in these impoundments have contaminated groundwater and soils at
and around the facility. A groundwater remediation system was placed in service
in 1995 and continues in operation. The Company will enter into an Order on
Consent with the State of Colorado in 1999 to evaluate residual groundwater
contamination and soil contamination associated with the site, and to undertake
additional remedial actions as appropriate to remediate the contamination. Based
on available information, the Company anticipates that these actions will cost
approximately $1,800.
In August, 1998, Fibrex, Inc., ("Fibrex") which purchased the Company's
fibers division in 1982, sent a letter demanding indemnification under the 1982
sale agreement for future environmental remediation costs. The amount of such
costs cannot be reliably estimated at this time. The Company filed a motion in
the Bankruptcy Court to enforce the Plan against Fibrex. The Company believes
that any liability it may have had to Fibrex was
62
<PAGE> 63
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discharged by the Plan and the Bankruptcy Court's Confirmation Order and intends
to contest any claim by Fibrex vigorously.
In 1998, the Company received $14,784 from insurance companies in
settlement of certain claims relating primarily to environmental remediation,
with the offset to the Excess of Acquired Net Assets Over Cost because the claim
represented a pre-acquisition contingency.
LEAD CHEMICALS
The Plan that was consummated on November 29, 1996 provides that all
lead-related personal injury claims that were pending on the Plan's Effective
Date and all future lead-related personal injury claims, will be channeled to
and resolved by the PI Trust discussed in Notes C and M, above. The Company
expects that the channeling injunction provided by section 524 of the Bankruptcy
Code will prevent any such claimants from prosecuting such claims against the
reorganized Company. The Company is not aware of any attempt by any lead-related
personal injury claimant to nullify the channeling injunction provided by
section 524 of the Bankruptcy Code subsequent to the entry of that injunction by
the Bankruptcy Court and the District Court in November 1996. All claims
asserting liability against the Company based on property damage from lead
chemicals allegedly manufactured and sold by the Company were disallowed during
the reorganization.
OTHER LITIGATION CLAIMS
In May 1997, Caradon Doors and Windows, Inc. ("Caradon") filed a suit
against the Company in the U.S. District Court in Atlanta, Georgia alleging
breach of contract and asserting contribution rights against the Company. Prior
to this suit, Caradon had been found liable to Therma-Tru Corporation
("Therma-Tru") in the amount of approximately $8,800 for infringing a Therma-Tru
patent for plastic door components manufactured by the Company's now divested
Plastics Division. Caradon settled the litigation with Therma-Tru and was
seeking to recover some or all of its liability from the Company. In May 1997,
Therma-Tru also attempted to hold the Company liable for patent infringement for
plastic door components that the Plastics Division manufactured and sold to
Pease Industries, Inc. ("Pease"). Further, after the Company divested its
Plastics Division in July 1997, Therma-Tru attempted to hold the purchaser of
the Plastics Division, Cambridge Industries, Inc. ("Cambridge"), liable for
infringement for Cambridge's manufacture of door components for Pease after the
divestiture, but using the prior technology. The Company had agreed to indemnify
Cambridge for those sales. Thus, Therma-Tru's suit against Cambridge might also
be a liability of the Company. The Company estimates that the total damages that
Therma-Tru is seeking to recover, jointly and severally, from the Company and
Pease in these two suits is approximately $11,400. The Company asserted, in
separate motions filed to dismiss these claims, that all of Caradon's and
Therma-Tru's claims had been discharged in the Company's reorganization under
chapter 11. The Company believes that it has valid legal and factual defenses
and intends to contest vigorously all such claims.
O. ACQUISITIONS AND DIVESTITURES
The Company has signed a letter of intent to acquire the stock of
Charterhouse Automotive Group, Inc., a holding company whose only operating
subsidiary is Carpenter Enterprises, Ltd. ("Carpenter"), a manufacturer of
precision-machined automotive parts, for approximately $41,000 in cash. It is
expected that Carpenter will have approximately $32,000 of debt at the closing,
of which approximately $20,000 will be refinanced from the Facility. The
acquisition will be accounted for as a purchase. The transaction is expected to
be consummated during the first quarter of 1999, subject to the results of a due
diligence investigation and various conditions including negotiation of a
mutually acceptable stock purchase agreement.
The Company sold its Trim Division in November, 1998. The transaction was
held in escrow until certain conditions were met in December 1998, resulting in
a receivable on the Consolidated Balance Sheet of $14,500 at November 30, 1998.
In December 1998, the Company received a $2,100 note due in 2000 which is
secured by a
63
<PAGE> 64
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
first mortgage on the real estate and the remainder of the proceeds in cash. The
impact of this transaction on net income (loss) was not material. The Company is
guarantor of tooling receivables due from both original equipment manufacturers
and their suppliers. The Company believes the likelihood of customer default of
these receivables to be remote.
Pursuant to the Plan, in 1997, the Company sold its Plastics, Transicoil
and Fabricon Divisions to fund the repayment of the Divestiture Notes. The
Company received net cash proceeds of $39,007. The aggregate loss on these
transactions was $2,411.
The Company received a note for $3,719 from the buyer of the Fabricon
Division, which is included in Other Assets. The note bears interest of 8% per
annum and is secured by accounts receivable and inventory. Payments of $300 are
required on the first and second anniversaries of the note with the balance due
on October 31, 2000. The first payment was received in accordance with these
terms.
The Company remains as guarantor on the lease of the building in which the
former Transicoil Division is located, and is liable should the buyer not
perform on the lease. The remaining lease payments total approximately $9,000
over the lease term which expires in 2005. The Company believes the likelihood
of being liable for the lease to be remote.
Included in the Consolidated Statements of Income (Loss) are the following
results of these divested divisions (excluding net loss on sale of divisions):
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30, FEBRUARY 28,
1998 1998 1997 1996
------------ ------------- ------------- -------------
PREDECESSOR A PREDECESSOR A PREDECESSOR B
<S> <C> <C> <C> <C>
Net sales.................... $18,600 $ 7,076 $100,717 $140,169
======= ======== ======== ========
Operating Income (Loss)...... $ (744) $ 144 $ (552) $ 326
======= ======== ======== ========
</TABLE>
P. TRANSACTIONS WITH RELATED PARTIES
In connection with the Acquisition, the Company paid Granaria Holdings a
transaction fee of $7,300 (approximately 1% of the transaction value) in
consideration for advisory services related to structuring and financing the
Acquisition. Granaria Holdings was also reimbursed for other costs incurred
related to the Acquisition, issuance of the Subordinated Notes and Preferred
Stock offering.
Q. INDUSTRY SEGMENT INFORMATION
The Company is a diversified manufacturer serving global markets and many
industries.
United States net sales include export sales to non-affiliated customers of
$70,800 in the nine months ended November 30, 1998, $23,600 in the three months
ended February 28, 1998, $113,600 in 1997 and $108,500 in 1996.
A general description of the products manufactured and the markets served
by the Company's three industry segments (listed in order of the magnitude of
net sales) is:
AUTOMOTIVE
The operations in the Automotive Segment provide mechanical, structural,
and trim parts for passenger cars, trucks, vans and sport utility vehicles for
the original equipment manufacturers and replacement markets. Resources are
concentrated in serving the North American, European and Pacific Rim markets.
64
<PAGE> 65
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales and operating income (loss) (excluding net loss on sale of
divisions), respectively, of divested operations and operations contributed to
the E-P-Boge joint venture, which were included in the Automotive Segment were
$18,600 and $(744) in the nine months ended November 30, 1998, $7,706 and $144
in the 3 months ended February 28, 1998, $68,973 and $(2,790) in 1997 and
$102,408 and $(2,614) in 1996.
Consolidated sales to Ford Motor Company amounted to $121,100 in the nine
months ended November 30, 1998, $39,800 in the three months ended February 28,
1998, $170,500 in 1997 and $167,700 in 1996. No other customer accounted for 10%
or more of consolidated sales.
MACHINERY
The Machinery Segment serves the commercial aerospace, food and beverage
and other industrial markets globally and the construction market in the United
States. Its products include earth moving machines, heavy-duty forklift trucks,
aerospace and defense batteries and components, metal cleaning and finishing
systems and other industrial machinery. Divested operations included in this
segment had sales and operating income (excluding net loss on sale of
divisions), respectively, of $12,788 and $834 in 1997 and $18,023 and $934 in
1996.
INDUSTRIAL
Diatomaceous earth products, rubber products, rare metals, fiberglass
reinforced plastic parts and industrial chemicals are produced by the Industrial
Segment operations serving the food and beverage, recreation, nuclear,
telecommunications, electronics and other industrial markets globally. Sales and
operating income (excluding net loss on sale of divisions), respectively, of
divested operations included in this Segment were $29,534 and $1,500 in 1997 and
$39,344 and $1,008 in 1996.
Sales between segments were not material.
65
<PAGE> 66
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's foreign operations are located primarily in Europe and also
in Mexico. Intercompany transactions with foreign operations are made at
established transfer prices. Information regarding the Company's domestic and
foreign sales, operating income and identifiable assets follows:
<TABLE>
<CAPTION>
TRANSFER SALES/
UNITED STATES FOREIGN ELIMINATIONS CONSOLIDATED
------------- ------- --------------- ------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED NOVEMBER 30, 1998
SALES....................................... $585,664 $80,953 $(20,633) $645,984
======== ======= ======== ========
OPERATING INCOME............................ $ 13,939 $ 1,419 $ 112 $ 15,470
======== ======= ======== ========
IDENTIFIABLE ASSETS......................... $773,926 $96,359 $(53,958) $816,327
======== ======= ======== ========
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR A
SALES....................................... $189,305 $23,041 $ (6,504) $205,842
======== ======= ======== ========
OPERATING INCOME............................ $ 10,186 $ 1,018 $ (177) $ 11,027
======== ======= ======== ========
IDENTIFIABLE ASSETS......................... N/A N/A N/A N/A
======== ======= ======== ========
Year Ended November 30, 1997
Predecessor A
Sales....................................... $842,195 $88,614 $(24,732) $906,077
======== ======= ======== ========
Operating income............................ $ 39,744 $ 6,071 $ (257) $ 45,558
======== ======= ======== ========
Identifiable assets......................... $698,444 $74,477 $(26,040) $746,881
======== ======= ======== ========
- --------------------------------------------------------------------------------------------------------
Year Ended November 30, 1996
Predecessor B
Sales....................................... $830,013 $83,991 $(22,717) $891,287
======== ======= ======== ========
Operating income............................ $ 54,139 $ 8,240 $ (273) $ 62,106
======== ======= ======== ========
Identifiable assets......................... $807,508 $63,843 $(22,471) $848,880
======== ======= ======== ========
</TABLE>
66
<PAGE> 67
EAGLE-PICHER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
INDUSTRIAL MACHINERY
----------------------------------------- -----------------------------------------
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
NOV. 30, FEB. 28, NOV. 30, FEB. 28,
1998 1998 1997 1996 1998 1998 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
PRED. A PRED. A PRED. B PRED. A PRED. A PRED. B
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $113.6 $37.7 $200.1 $194.1 $201.8 $64.4 $270.8 $257.6
====== ===== ====== ====== ====== ===== ====== ======
Operating Income..... 12.9 3.2 15.0 20.6 19.5 5.4 20.0 22.5
====== ===== ====== ====== ====== ===== ====== ======
Depreciation and
amortization....... 9.5 3.4 14.4 6.9 9.9 2.3 10.3 5.0
====== ===== ====== ====== ====== ===== ====== ======
Capital
expenditures....... 3.8 0.4 10.6 10.8 8.8 1.3 5.9 4.5
====== ===== ====== ====== ====== ===== ====== ======
Identifiable Assets.. 159.1 N/A 138.1 146.3 210.0 N/A 122.3 136.0
====== ===== ====== ====== ====== ===== ====== ======
<CAPTION>
AUTOMOTIVE
--------------------------------------------
9 MONTHS 3 MONTHS
ENDED ENDED
NOV. 30, FEB. 28,
1998 1998 1997 1996
----------- -------- -------- --------
PRED. A PRED. A PRED. B
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Sales................ $330.6 $103.7 $435.2 $439.6
====== ====== ====== ======
Operating Income..... 26.5 8.2 29.7 38.5
====== ====== ====== ======
Depreciation and
amortization....... 22.7 7.1 30.9 18.7
====== ====== ====== ======
Capital
expenditures....... 13.5 3.8 34.6 29.5
====== ====== ====== ======
Identifiable Assets.. 333.8 N/A 274.0 292.8
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
SEGMENT TOTAL CORPORATE
--------------------------------------- ---------------------------------------------
9 MONTHS 3 MONTHS 9 MONTHS 3 MONTHS
ENDED ENDED ENDED ENDED
NOV. 30, FEB. 28, NOV. 30, FEB. 28,
1998 1998 1997 1996 1998 1998 1997 1996
-------- -------- ------- ------- -------- ----------- ---------- -------
PRED. A PRED. A
PRED. A PRED. A PRED. B (IN MILLIONS OF DOLLARS) PRED. B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................. $646.0 $205.8 $906.1 $891.3 $ - $ -_ $ - $ -
====== ====== ====== ====== ====== ===== ====== =======
Operating Income
(loss).............. 58.9 16.8 64.7 81.6 (43.4) (5.8) (19.1) (19.5)
====== ====== ====== ====== ====== ===== ====== =======
Adjustment for
asbestos
litigation.......... -- -- -- 502.2
Interest expense...... (36.3) (6.9) (31.3) (3.1)
Other income
(expense)........... 1.8 .8 (0.3) (2.9)
Reorganization
items............... -- -- -- 116.3
====== ===== ====== =======
Income (loss) before
taxes...............
Depreciation and
amortization........ 42.1 12.8 55.6 30.6 2.2 -- 0.4 0.2
====== ====== ====== ====== ====== ===== ====== =======
Capital
expenditures........ 26.1 5.5 51.1 44.8 0.2 0.2 0.2 0.2
====== ====== ====== ====== ====== ===== ====== =======
Identifiable assets... 702.9 N/A 534.4 575.1 113.4 N/A 212.5 273.8
====== ====== ====== ====== ====== ===== ====== =======
<CAPTION>
TOTAL
------------------------------------------
9 MONTHS 3 MONTHS
ENDED ENDED
NOV. 30, FEB. 28,
1998 1998 1997 1996
----------- -------- ------- -------
PRED. A PRED. A PRED. B
<S> <C> <C> <C> <C>
Sales................. $646.0 $205.8 $906.1 $891.3
====== ====== ====== ======
Operating Income
(loss).............. 15.5 11.0 45.6 62.1
====== ====== ====== ======
Adjustment for
asbestos
litigation.......... -- -- -- 502.2
Interest expense...... (36.3) (6.9) (31.3) (3.1)
Other income
(expense)........... 1.8 .8 (0.3) (2.9)
Reorganization
items............... -- -- -- 116.3
------ ------ ------ ------
Income (loss) before
taxes............... (19.0) 4.9 14.0 674.6(1)
====== ====== ====== ======
Depreciation and
amortization........ 44.3 12.8 56.0 30.8
====== ====== ====== ======
Capital
expenditures........ 26.3 5.7 51.3 45.0
====== ====== ====== ======
Identifiable assets... 816.3 N/A 746.9 848.9
====== ====== ====== ======
</TABLE>
- ---------------
(1) Before extraordinary gain and cumulative effect of accounting change.
67
<PAGE> 68
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation and
presentation of the consolidated financial statements. The consolidated
financial statements have been prepared in conformity with generally accepted
accounting principles and as such include amounts based on judgements and
estimates made by management.
The Company's system of internal accounting controls is designed to provide
reasonable assurance at reasonable cost that assets are safeguarded from loss or
unauthorized use, and that the financial records may be relied upon for the
preparation of the consolidated financial statements.
The consolidated financial statements have been audited by our independent
auditors, Deloitte and Touche LLP. Their audit is conducted in accordance with
generally accepted auditing standards and provides an independent assessment as
to the fair presentation, in all material respects, of the Company's
consolidated financial statements.
The Audit Committee of the Board of Directors meets periodically with
management and the independent auditors to review internal accounting controls
and the quality of financial reporting. Financial management and the independent
auditors have full and free access to the Audit Committee.
/s/ ANDRIES RUIJSSENAARS
Andries Ruijssenaars
President and Chief Executive Officer
/s/ CARROLL D. CURLESS
Carroll D. Curless
Vice President and Controller
Cincinnati, Ohio
January 18, 1999
68
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle-Picher Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Eagle-Picher
Industries, Inc. (a wholly-owned subsidiary of Eagle-Picher Holdings, Inc.) and
subsidiaries as of November 30, 1998 (Successor Company balance sheet), and the
related consolidated statements of income (loss), shareholders' equity, and cash
flows for the nine month period ended November 30, 1998 (Successor Company
operations). In addition, we have audited the accompanying consolidated balance
sheet of Eagle-Picher Industries, Inc. and subsidiaries as of November 30, 1997
(Predecessor Company balance sheet under fresh-start accounting), and the
related consolidated statements of income (loss), shareholders' equity, and cash
flows for the year ended November 30, 1997 and the three month period ended
February 28, 1998 (Predecessor Company operations under fresh-start accounting).
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The Predecessor Company's consolidated
statements of income (loss), shareholder's equity and cash flows for the year
ended November 30, 1996, were audited by other auditors whose report, dated
February 5, 1997, expressed an unqualified opinion on those statements and
included explanatory paragraphs related to the Company emerging from Chapter 11
of the United States Bankruptcy Code, described in Notes A and C to the
consolidated financial statements, and the Predecessor Company's change in
computing LIFO for certain inventories described in Note D to the consolidated
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Successor Company consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of the Successor Company as of November 30, 1998, and the results of
its operations and its cash flows for the nine month period then ended, in
conformity with generally accepted accounting principles. Further, in our
opinion, the Predecessor Company consolidated financial statements under
fresh-start accounting referred to above present fairly, in all material
respects, the financial position of the Predecessor Company as of November 30,
1997, and the results of its operations and its cash flows for the year ended
November 30, 1997, and the three months ended February 28, 1998, in conformity
with generally accepted accounting principles.
As discussed in Note A and C to the consolidated financial statements,
effective November 29, 1996, the Company emerged from Chapter 11 of the United
States Bankruptcy Code and adopted "fresh-start" reporting principles in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code." As a result, the consolidated financial statements for the
period subsequent to the adoption of fresh-start reporting are presented on a
different cost basis than that for prior periods and, therefore, are not
comparable.
As discussed in Notes A and B to the consolidated financial statements,
Eagle-Picher Industries, Inc. was acquired on February 24, 1998 by Eagle-Picher
Holdings, Inc., a majority-owned subsidiary of Granaria Industries B.V. As a
result, the consolidated financial statements as of and for the three month
period ended February 28, 1998 include the effects of such acquisition as of
February 24, 1998 and, therefore, are not comparable to consolidated financial
statements prepared subsequent to February 28, 1998.
/s/ DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 18, 1999
69
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Eagle-Picher Industries, Inc.:
We have audited the accompanying consolidated statements of income (loss),
shareholders equity (deficit), and cash flows of Eagle-Picher Industries, Inc.
and subsidiaries for the year ended November 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations of
Eagle-Picher Industries, Inc. and subsidiaries and their cash flows for the year
ended November 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note A and C to the consolidated financial statements,
effective November 29, 1996, the Company emerged from chapter 11 of the United
States Bankruptcy Code and adopted "fresh-start" reporting principles in
accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
under the Bankruptcy Code.
As discussed in Note D to the consolidated financial statements, the
Company changed its method of computing LIFO for inventories of boron, germanium
and other rare metals in 1996.
/s/ KPMG LLP
Cincinnati, Ohio
February 5, 1997
70
<PAGE> 71
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name, age and position with the Company
of the individuals who serve as directors and executive officers of the Company.
Directors will hold their positions until the annual meeting of the stockholders
at which their term expires or until their respective successors are elected and
qualified. Executive officers will hold their positions until the annual meeting
of the Board of Directors or until their respective successors are elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joel P. Wyler...................... 49 Director, Chairman of the Board
Daniel C. Wyler.................... 47 Director
Thomas E. Petry.................... 59 Director
Dr. Wendelin Wiedeking............. 46 Director
Andries Ruijssenaars............... 56 Director, President and Chief
Executive Officer
Wayne R. Wickens................... 52 Senior Vice President
Michael E. Aslanian................ 44 Group Vice President
Carroll D. Curless................. 60 Vice President and Controller
David G. Krall..................... 37 Vice President, General Counsel and
Secretary
</TABLE>
Mr. Joel P. Wyler became a Director of the Company and Chairman of its
Board upon consummation of the Acquisition. Mr. Wyler has been the Chairman of
the Board of Directors of Granaria Holdings B.V. since 1982.
Mr. Daniel C. Wyler was appointed as a Director of the Company in January
1999. He has been the Chief Executive Officer of Granaria Holdings B.V. since
1989.
Mr. Petry has been a Director of the Company since 1981. Upon consummation
of the Acquisition, Mr. Petry resigned as Chairman of the Board of Directors, a
position he held since 1989, and as Chief Executive Officer, a position he held
since 1982. Mr. Petry is also a director of Cinergy Corp., Firstar Corp., Union
Central Life Insurance Co. and The Wm. Powell Company.
Dr. Wiedeking was appointed as a Director of the Company in January 1999.
He has been the Chairman of the Board of Porsche AG since 1993 where he is also
President and Chief Executive Officer.
Mr. Ruijssenaars has been President and a Director of the Company since
1994, and upon consummation of the Acquisition, he also became the Company's
Chief Executive Officer. He was Senior Vice President of the Company from 1989
until December 1994. Mr. Ruijssenaars was first employed by the Company in 1980
as General Manager of Eagle-Picher Industries GmbH in Ohringen, Germany, and has
also served as Executive Vice President and then President of the Company's Ohio
Rubber Company Division.
Mr. Wickens has been Senior Vice President of the Company since September
1998. Prior to that time, beginning in December 1994, he was Senior Vice
President-Automotive. From 1990 until December 1994, he was Division President
of the Company's Hillsdale Tool & Manufacturing Co. Mr. Wickens joined the
Company in 1976 as a management trainee with the Company's former Fabricon
Automotive Division, and was promoted to Plant Manager, Vice President and then
President of Fabricon Automotive. Subsequently, Mr. Wickens served as President
of the Wolverine Gasket Division and then as Vice President of the Automotive
Group.
71
<PAGE> 72
Mr. Aslanian has been Group Vice President since September 1998. From 1994
until September 1998, he was Division President of the Company's Hillsdale Tool
& Manufacturing Co. Mr. Aslanian joined the Company in 1974 with the Company's
former Fabricon Automotive Division where he was Production Manager, Plant
Manager, and ultimately in 1989 Division Manager of the then newly-formed Trim
Division. In 1990, he moved to the Hillsdale Tool & Manufacturing Co. as Vice
President of Manufacturing and became President there in 1994.
Mr. Curless was first employed by the Company in 1964. He became Assistant
Controller in 1978 and Controller in 1984. He has been Vice President and
Controller since 1986. Mr. Curless is also currently serving as the Company's
interim Chief Financial Officer.
Mr. Krall joined the Company in June 1998. Prior to coming to the Company,
he had been with Taft, Stettinius & Hollister LLP, a legal firm based in
Cincinnati, Ohio, since 1986 and had been a partner there since 1994.
Mr. Joel P. Wyler and Mr. Daniel C. Wyler are brothers.
72
<PAGE> 73
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation for
the last three fiscal years of those persons who served as (i) the Company's
Chief Executive Officer during fiscal 1998, (ii) the Company's four most highly
compensated executive officers other than the Chief Executive Officer who were
serving as executive officers of the Company at the end of fiscal 1998, and
(iii) one additional individual who was among the Company's four most highly
compensated executive officers other than the Chief Executive Officer, but was
not serving as an executive officer of the Company at the end of fiscal 1998
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- -----------------
OTHER ANNUAL RESTRICTED ALL OTHER
FISCAL YEAR COMPENSATION STOCK AWARDS(S) COMPENSATION
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) ($)(1) ($)(2) ($)(3)
--------------------------- ----------- ---------- --------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Andries Ruijssenaars(4)................. 11/30/98 575,000 380,000 1,818,286 1,705,500 1,411,852
President and Chief Executive Officer 11/30/97 525,000 205,000 179,244 -- 208,006
11/30/96 425,000 160,000 174,171 -- 201,233
Thomas E. Petry(5)...................... 11/30/98 208,333 -- 1,032,134 -- 4,049,790
Former Chairman and Chief Executive 11/30/97 625,000 278,000 232,737 -- 261,903
Officer
11/30/96 625,000 239,000 218,919 -- 246,873
Wayne R. Wickens........................ 11/30/98 360,000 150,000 606,154 568,500 807,044
Senior Vice President 11/30/97 325,000 109,000 77,942 -- 93,311
11/30/96 295,000 72,000 99,564 -- 118,199
Michael E. Aslanian(6).................. 11/30/98 211,750 130,000 312,540 337,500 269,584
Group Vice President 11/30/97 180,000 77,000 8,852 -- 17,049
11/30/96 172,000 61,000 9,228 -- 17,553
Carroll D. Curless...................... 11/30/98 250,000 130,000 321,332 284,250 488,229
Vice President and Controller 11/30/97 240,000 67,000 116,456 -- 134,611
11/30/96 230,000 86,000 78,715 -- 93,870
David G. Krall(7)....................... 11/30/98 85,000 65,000 62,582 67,500 132
Vice President, General 11/30/97 -- -- -- -- --
Counsel and Secretary 11/30/96 -- -- -- -- --
David N. Hall(8)........................ 11/30/98 307,500 -- 932,806 284,250 2,648,334
Former Senior Vice 11/30/97 375,000 126,000 166,629 -- 189,963
President -- Finance
11/30/96 360,000 107,000 146,980 -- 167,786
</TABLE>
- ---------------
(1) This column includes nothing for perquisites since in no case did
perquisites exceed the reporting thresholds (the lesser of 10% of salary
plus bonus or $50,000). For fiscal 1996 and 1997, the column is comprised of
amounts for the payment of taxes on purchases of annuities under the
Company's Supplemental Executive
73
<PAGE> 74
Retirement Plan (the "SERP") for each of the Named Officers. In fiscal 1998,
the column includes the following:
<TABLE>
<CAPTION>
PAYMENT OF TAXES ON PURCHASES OF PAYMENT OF TAXES ON SHARES AWARDED
NAMED EXECUTIVE OFFICER ANNUITIES UNDER THE SERP ($) UNDER THE INCENTIVE STOCK PLAN ($)
----------------------- -------------------------------- ----------------------------------
<S> <C> <C>
Andries Ruijssenaars......... 272,780 1,545,506
Thomas E. Petry.............. 1,032,134 --
Wayne R. Wickens............. 105,228 500,926
Michael E. Aslanian.......... 13,276 299,264
Carroll D. Curless........... 66,128 255,204
David G. Krall............... -- 62,582
David N. Hall................ 675,362 257,444
</TABLE>
(2) The amounts in this column represent the dollar value of restricted stock
awards granted to the Named Executive Officers during fiscal 1998 under the
Company's Incentive Stock Plan (as described below), of shares of Class A
Common Stock of Parent. Such awards were originally subject to periods of
vesting but, pursuant to an amendment to the Incentive Stock Plan, all of
such awards were fully vested on or before November 19, 1998 (see
"-- Incentive Stock Plan," below). The amounts in this column, which
comprise the entire aggregate holdings of each of the Named Executive
Officers, represent the following numbers of shares: Mr. Ruijssenaars,
30,000 shares; Mr. Wickens, 10,000 shares; Mr. Aslanian, 6,250 shares; Mr.
Curless, 5,000 shares; Mr. Krall, 1,250 shares; and Mr. Hall, 5,000 shares.
The total aggregate dollar value of all stock awards under the Incentive
Stock Plan is $4,651,500, which represents a total of 83,500 shares, all of
which were fully vested on or before November 19, 1998. The EP Management
Trust holds as of February 24, 1999, 9,250 unawarded shares of the Parent's
Class A Common Stock. (See Note J to the Company's Consolidated Financial
Statements at Item 8.) Dividends on the restricted stock, if any are
declared, would be payable on the restricted stock. Parent, however, has no
obligation to declare dividends and, pursuant to the terms of Parent's
Preferred Stock, certain restrictions exist on Parent's ability to declare
dividends on the Class A Common Stock.
74
<PAGE> 75
(3) This column includes the following amounts:
<TABLE>
<CAPTION>
AMOUNTS
COMPANY VALUE OF PAID
COST OF CONTRIBUTIONS TO COMPANY PURSUANT TO AMOUNTS PAID IN
FISCAL ANNUITY EAGLE-PICHER PAID LIFE SHORT-TERM CONNECTION WITH
YEAR UNDER SALARIED 401(K) INSURANCE SALE TERMINATION OF
NAMED EXECUTIVE OFFICER ENDED SERP ($) PLAN ($) PREMIUMS ($) PROGRAM ($) EMPLOYMENT ($) TOTAL ($)
----------------------- -------- ---------- ---------------- ------------ ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Andries Ruijssenaars... 11/30/98 302,552 5,000 1,800 1,102,500 -- 1,411,852
11/30/97 201,456 4,750 1,800 -- -- 208,006
11/30/96 195,331 4,750 1,152 -- -- 201,233
Thomas E. Petry....... 11/30/98 1,132,002 4,688 600 1,625,000 1,250,000 4,012,290
11/30/97 255,353 4,750 1,800 -- -- 261,903
11/30/96 240,323 4,750 1,800 -- -- 246,873
Wayne R. Wickens...... 11/30/98 118,152 5,000 1,392 682,500 -- 807,044
11/30/97 87,169 4,750 1,392 -- -- 93,311
11/30/96 111,607 4,750 1,842 -- -- 118,199
Michael E. Aslanian... 11/30/98 16,329 5,000 408 234,000 -- 255,737
11/30/97 11,891 4,750 408 -- -- 17,049
11/30/96 12,395 4,750 408 -- -- 17,553
Carroll D. Curless.... 11/30/98 72,829 5,000 2,400 408,000 -- 488,229
11/30/97 127,461 4,750 2,400 -- -- 134,611
11/30/96 86,720 4,750 2,400 -- -- 93,870
David G. Krall........ 11/30/98 -- -- 132 -- -- 132
11/30/97 -- -- -- -- -- --
11/30/96 -- -- -- -- -- --
David N. Hall......... 11/30/98 745,684 5,000 1,350 1,116,300 780,000 2,648,334
11/30/97 183,413 4,750 1,800 -- -- 189,963
11/30/96 161,236 4,750 1,800 -- -- 167,786
</TABLE>
- ---------------
In addition, for fiscal 1998, this column includes $37,500 paid to Mr.
Petry as a director's fee (see "-- Compensation of Directors" below) and
$13,847 paid to Mr. Aslanian for relocation expenses.
(4) Mr. Ruijssenaars became Chief Executive Officer effective February 24, 1998.
Prior to that time, he was President and Chief Operating Officer of the
Company.
(5) Mr. Petry resigned as Chairman of the Board and Chief Executive Officer
effective February 24, 1998. Since that time, Mr. Petry has served as a
Director of the Company.
(6) Mr. Aslanian assumed his present position on September 1, 1998; prior to
that time, he was President of Hillsdale Tool & Manufacturing Co., a
wholly-owned subsidiary of the Company.
(7) Mr. Krall was first employed by the Company on June 1, 1998, in his present
capacity. The amount shown in the "salary" column for Mr. Krall represents
amounts actually paid to Mr. Krall during fiscal 1998 based upon his annual
salary of $170,000.
(8) Mr. Hall's employment with the Company ended on August 31, 1998.
LONG-TERM INCENTIVE PLAN
The following table sets forth information as to awards to the following
Named Executive Officer during fiscal 1998 under the Company's Share
Appreciation Plan (the "LTIP"), a long-term incentive plan. No other Named
Executive Officer received an award under the LTIP in fiscal 1998.
75
<PAGE> 76
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
NAME NUMBER OF UNITS(#)(1) PERIOD UNTIL MATURATION OR PAYOUT(2) TARGET($)(3)
---- --------------------- ------------------------------------ ------------------------------
<S> <C> <C> <C>
David G. 50,000 6/1/2004 250,000
Krall.......
</TABLE>
- ---------------
(1) The Named Executive Officer has been granted units under the LTIP which
represent the right to receive a cash payment from the Company based on a
share of the increase in the Company's "Capitalized Earnings Value" (as
defined in the LTIP) above a baseline. "Capitalized Earnings Value" is a
formula-derived value considering the Company's EBITDA and cash position,
the debt levels of Parent and Company and the total outstanding obligations
of Parent with respect to its Preferred Stock, each at the end of each
fiscal year.
(2) The units will vest at a rate of 20% on each of the first five anniversaries
of the award date (except that the units of a participant who dies or is
incapacitated while employed by the Company are immediately 100% vested, as
are the units of a participant who is employed by the Company on a date in
which control of the Company effectively changes). They are exercisable, if
the individual remains employed by the Company, after the sixth anniversary
of the award date but no later than the tenth anniversary of the award date.
Upon termination of employment, all unvested units are forfeited and vested
but unexercised units are deemed to have been immediately exercised.
(3) The target amount reported is based on the Company's projection of
"Capitalized Earnings Value" assuming a growth rate consistent with
historical trends (without considering periods of either extraordinary
growth or recession or the effect on earnings of events relating to the
Company's chapter 11 proceedings). The estimated target payment is provided
only for the purposes of this table and is not intended to forecast actual
appreciation, if any, in the "Capitalized Earnings Value" of the Company.
The LTIP does not provide for a minimum (threshold), target or maximum
payout.
RETIREMENT BENEFITS
The following table shows the estimated total combined annual benefits to
the Named Executive Officers upon retirement at age 62 payable under Social
Security, the Salaried Plan (as defined herein), and the SERP:
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 250,000.............................. $ 90,000 $120,000 $150,000 $150,000 $150,000
300,000.............................. 108,000 144,000 180,000 180,000 180,000
350,000.............................. 126,000 168,000 210,000 210,000 210,000
400,000.............................. 144,000 192,000 240,000 240,000 240,000
450,000.............................. 162,000 216,000 270,000 270,000 270,000
500,000.............................. 180,000 240,000 300,000 300,000 300,000
550,000.............................. 198,000 264,000 330,000 330,000 330,000
600,000.............................. 216,000 288,000 360,000 360,000 360,000
650,000.............................. 234,000 312,000 390,000 390,000 390,000
700,000.............................. 252,000 336,000 420,000 420,000 420,000
750,000.............................. 270,000 360,000 450,000 450,000 450,000
800,000.............................. 288,000 384,000 480,000 480,000 480,000
850,000.............................. 306,000 408,000 510,000 510,000 510,000
900,000.............................. 324,000 432,000 540,000 540,000 540,000
950,000.............................. 342,000 456,000 570,000 570,000 570,000
1,000,000............................. 360,000 480,000 600,000 600,000 600,000
1,050,000............................. 378,000 504,000 630,000 630,000 630,000
1,100,000............................. 396,000 528,000 660,000 660,000 660,000
1,150,000............................. 414,000 552,000 690,000 690,000 690,000
</TABLE>
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<PAGE> 77
The Eagle-Picher Salaried Plan (the "Salaried Plan" and, together with the
SERP, the "Retirement Plans") is a non-contributory defined benefit pension plan
in which the Named Executive Officers are participants. The SERP, in which the
Named Executive Officers are also participants, provides retirement benefits in
addition to the benefits available under the Salaried Plan. The Retirement Plans
provide benefits after retirement based on the highest average monthly
compensation during five consecutive years of the last ten years preceding
retirement. For purposes of the Retirement Plans, compensation includes base
salary, bonuses, commissions and severance payments; salary, bonus and severance
payments that would be included in the Retirement Plans are as reported in the
Summary Compensation Table, and commissions, if there had been any, would have
been included in that Table. The payments pursuant to the Short Term Sale
Program (discussed below) are not included in such compensation. The benefits
shown by the Pension Plan Table above include amounts payable under Social
Security as well as those payable under the Salaried Plan and the SERP. Benefits
are computed on the basis of straight-life annuity amounts.
The estimated credited years of service with the Company for the Named
Executive Officers at age 62 will be:
<TABLE>
<S> <C>
Andries Ruijssenaars........................................ 24
Thomas E. Petry............................................. 30(A)
Wayne R. Wickens............................................ 32
Michael E. Aslanian......................................... 41
Carroll D. Curless.......................................... 36
David G. Krall.............................................. 25
David N. Hall............................................... 21(A)
</TABLE>
- ---------------
(A) Represents final credited years of service for purposes of calculating
benefits under the Retirement Plans for Mr. Petry and Mr. Hall.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid an annual retainer
of $50,000, payable in calendar quarters, with no additional fees for attendance
or committee membership. The Company does not pay any director retainers or
attendance fees (including committee membership fees) to directors who are also
employees of the Company.
Effective January 1, 1999, Parent adopted an Incentive Stock Plan for
outside Directors. Pursuant to that plan, directors of the Company that are also
directors of Parent may receive shares of Class A Common Stock of Parent in lieu
of a directors' fee.
Joel P. Wyler, as a named Director of Parent and Company, provides services
on behalf of and pursuant to his employment by Granaria Holdings B.V. All
directors' fees due as a result of Mr. Wyler's services as a named Director are
paid to Granaria Holdings B.V.
Directors who were not also employees of the Company who retired with ten
or more years of service as members of the Board and who were elected or
appointed members of the Board prior to April 14, 1997, are paid an annual
advisory fee for life in the amount equal to the annual retainer paid to active
directors immediately prior to the time of their retirement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1998, until February 24, 1998, Darius W. Gaskins (Committee
Chairman), Robert B. Steinberg and Will M. Storey, directors of the Company
during that time, constituted the Compensation Committee. None of Messrs.
Gaskins, Steinberg and Storey has ever been an employee of the Company or any of
its subsidiaries. Since February 24, 1998, there has been no compensation
committee of the Board of the Directors. Decisions regarding compensation are
passed upon by the Board of Directors as a whole. In fiscal 1998, Joel P. Wyler,
Chairman of Granaria Holdings B.V. and Chairman of Parent and the Company, Mr.
Ruijssenaars, the Chief
77
<PAGE> 78
Executive Officer of Parent and the Company and Mr. Petry, the former Chief
Executive Officer of the Company, constituted the entire Board of Directors
during the period beginning on February 24, 1998.
INDEMNIFICATION PROVISIONS FOR OFFICERS AND DIRECTORS
Pursuant to Article 5 of the Company's Regulations, the Company will
indemnify its officers and directors to the fullest extent permitted by law
against all expenses, liability, loss or costs (including attorneys fees) in
connection with any action, lawsuit or other proceeding brought or threatened
against such officer or director by reason of the fact that he or she is or was
an officer or director of the Company. The Company has purchased directors and
officers liability insurance in favor of the Company and its officers and
directors covering up to $15.0 million in losses, including any indemnity
payment made by the Company to an officer or director, for a wrongful act of an
officer or director. In addition, under the Merger Agreement, Parent and the
Company have agreed, for a period of six years after February 24, 1998, to
indemnify all officers and directors of the Company who served as such prior to
February 24, 1998, and to purchase directors and officers liability insurance in
their favor.
EMPLOYMENT AGREEMENTS; SEVERANCE
The Company entered into employment agreements, which became effective on
November 29, 1996 (the Consummation Date of the Company's Consolidated Plan of
Reorganization), with Messrs. Ruijssenaars, Petry, Wickens, Curless and Hall, as
well as with James A. Ralston, the Company's former Vice President, General
Counsel and Secretary. Each of the employment agreements was amended in August
1997. The purpose of the employment agreements was to provide the Company with
continuity of management following its emergence from bankruptcy. Other than the
description of the duties of each of such officers, the employment agreements
are substantially identical in their terms. The employment agreements terminate
on February 24, 2000.
The employment agreements provide that each officer will maintain his
then-current duties and responsibilities and will not be relocated from his
then-current geographical location. The employment agreements provide for salary
continuation at the officer's then-current rate plus customary annual increases
and bonuses and discretionary bonuses, as determined by the Board of Directors
of the Company (and which are shown in the Summary Compensation Table, above).
In addition, the employment agreements provide that each officer participate in
the Company's employee and executive benefit and short-term and long-term
incentive plans as may be in effect from time to time (including retirement or
pension plans, health plans, death or disability plans, the STSP and the Stock
Incentive Plan).
If the employment of any such officer is terminated by the Company for
Cause (defined as the commission of (i) a felony or (ii) a fraud upon the
Company or willful failure to perform job duties in all material respects) or by
such officer without Good Reason (as defined below), such officer will receive
accrued and unpaid salary, payment in lieu of unused vacation and accrued
benefits, if any (including the right to receive pension or retirement benefits
in accordance with the Company's retirement and pension benefit plans as set
forth in "-- Retirement Benefits") (all such payments, including salary, the
"Accrued Benefits"). If the employment of any such officer is terminated due to
death or long term disability, such officer or his dependents or estate will
receive, in addition to the Accrued Benefits, certain continuing health care
benefits for a period of 30 months. If the employment of any such officer is
terminated by the Company other than for Cause, or by such officer for Good
Reason (defined as material diminution of duties, diminution of salary or
benefits, relocation, substantial increase in travel requirements or material
breach by the Company of such officer's employment agreement) such officer is
entitled to receive, in addition to the Accrued Benefits, a lump-sum severance
benefit equivalent to two years' current base salary.
In fiscal 1998, each of Messrs. Petry, Hall and Ralston received payments
pursuant to their employment agreements in connection with the termination of
their employment with the Company. Mr. Petry, who resigned as Chairman of the
Board and Chief Executive Officer, received in connection with his resignation a
lump-sum severance benefit of $1,250,000. In addition, Mr. Petry received a
payment in cash pursuant to the SERP of $741,874 in lieu of the Company's
purchase of an annuity and the Company paid $676,424 for the benefit of Mr.
Petry for related tax obligations. Mr. Hall received a severance payment in the
amount of $780,000. In
78
<PAGE> 79
addition, the Company purchased an annuity for the benefit of Mr. Hall pursuant
to the SERP, the cost of which was $592,062 and made a payment of $536,227 for
the benefit of Mr. Hall for related tax obligations. Mr. Ralston received a
severance payment in the amount of $480,000. In addition, Mr. Ralston received a
payment in cash pursuant to the SERP of $281,459 in lieu of the Company's
purchase of an annuity and the Company paid $255,358 for the benefit of Mr.
Ralston for related tax obligations.
SHORT TERM SALE PROGRAM
The Company adopted a Short Term Sale Program (the "STSP") pursuant to the
terms of which the Company was obligated to make payments to certain members of
senior management (the "eligible individuals"), in connection with the
consummation of the Acquisition. The STSP provided for (i) a "stay-put" bonus
equal to an eligible individual's fiscal 1997 base salary and (ii) a sales
incentive bonus based on a multiple (ranging from 50% to 200%) of an eligible
individual's fiscal 1997 base salary ("Sales Incentive"). The stay-put bonus is
payable in two equal parts, the first ("First Stay-Put") was payable shortly
after the Acquisition, and the second ("Second Stay-Put") is payable on the
second anniversary of the Acquisition, provided that the individual has remained
employed by the Company or, if the individual was terminated by the Company
other than for cause, is payable upon such termination. The Sales Incentive,
which was payable only if the present value of the after-tax proceeds to the
Trust in connection with the Acquisition met a threshold amount set forth in the
STSP, increased on a straight-line basis in the event that the Trust's after-tax
proceeds exceeded a specified target amount. Based upon estimates of the present
value of after-tax proceeds to the Trust in connection with the Acquisition, the
Company made payments under the STSP in fiscal 1998 in the aggregate amount of
approximately $8.3 million. The Company expects to make an additional payment of
approximately $1.6 million on the second anniversary of the Closing Date for the
Second Stay-Put. The Company expects to make additional payments under the STSP
in connection with the Sales Incentive depending on the final determination of
the present value of the after-tax proceeds to the Trust. The Company does not
expect such payment to exceed $1.0 million. Payments made pursuant to the STSP
are not included in compensation for purposes of the Salaried Plan and the SERP.
In addition, the STSP provides that any severance protection that an eligible
individual may have will continue for two years following a change in control.
Upon adoption of the STSP in August 1997, the Company began to accrue an
expense for the First Stay-Put, which, according to its terms, was earned from
the date of adoption of the STSP until the earlier of (i) 30 days after a change
in control of the Company, or (ii) June 30, 1998. The total expense recorded in
1997 was approximately $.7 million, while $4.1 million was recorded in 1998. The
STSP provides that the Sales Incentive was earned from the date of the
Acquisition through 30 days thereafter. Accordingly, no accrual was made for the
Sales Incentive in 1997 and an expense of approximately $6.1 million was
recorded in 1998.
The following table shows the payments to the Named Executive Officers
under the STSP shortly after consummation of the Acquisition:
<TABLE>
<CAPTION>
NAMED EXECUTIVE OFFICER SALES INCENTIVE FIRST STAY-PUT
----------------------- --------------- --------------
<S> <C> <C>
Andries Ruijssenaars.................................... $ 840,000 $262,500
Thomas E. Petry......................................... 1,000,000 625,000(A)
Wayne R. Wickens........................................ 520,000 162,500
Michael E. Aslanian..................................... 144,000 90,000
Carroll D. Curless...................................... 288,000 120,000
David G. Krall.......................................... -- --
David N. Hall........................................... 741,300(B) 375,000(A)
</TABLE>
- ---------------
(A) This amount represents 100% of the stay-put bonus of each of Messrs.
Petry and Hall.
(B) This amount represents 100% of the estimated Sales Incentive bonus of
Mr. Hall. Each of the other Named Executive Officers (other than Mr.
Krall, who was not a participant in the STSP) is expected to receive an
additional payment in connection with the Sales Incentive upon the
final determination of the present value of the after-tax proceeds to
the Trust.
79
<PAGE> 80
The Company expects to pay the Second Stay-Put to each of the Named
Executive Officers, other than Messrs. Petry, Hall and Krall, on February 24,
2000, in an amount equal to the First Stay-Put indicated in the above table. Mr.
Petry received 100% of his stay-put bonus at the time of his resignation from
the Company and, accordingly, he will not receive any additional payment in
connection with the stay-put bonus. Mr. Hall received his Second Stay-Put
payment at the time his employment with the Company ended. Mr. Krall was not a
participant in the STSP.
INCENTIVE STOCK PLAN
Shortly after the Acquisition, the Company paid approximately $10.0 million
to the E-P Management Trust for the benefit of certain members of senior
management of the Company. The $10.0 million payment was used by the E-P
Management Trust to satisfy a loan from Granaria Holdings B.V., the proceeds of
which were used by the E-P Management Trust to acquire 16% of the Common Stock
of Granaria Industries B.V. The stock of Granaria Industries B.V. was
subsequently exchanged for shares of Class A Common Stock of Parent. Pursuant to
the Incentive Stock Plan, the shares of Parent held by the E-P Management Trust
were allocated to certain members of senior management of the Company (including
certain of the Named Executive Officers). The Incentive Stock Plan as originally
adopted provided that restricted stock would vest over a period of years.
However, the Plan was amended during 1998 to provide for immediate vesting such
that all shares were fully vested on or before November 19, 1998. The receipt of
such shares was taxable to the holders as income in an amount equal to the value
of the shares at the time of vesting. Pursuant to the Incentive Stock Plan, the
Company made payments in the amount of approximately $4.3 million for the
benefit of holders of the shares in connection with their tax obligations
associated with their receipt of such shares. The transfer of compensatory
property to senior management and the tax payments to the holders of the shares
will result in an income tax deduction to the Company in the amount of
approximately $8.9 million.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Parent's Class A Common Stock as of February 24, 1999, by each
person known by the Company to own beneficially 5% or more of the Parent's
voting Class A Common Stock, the Parent's only voting security.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
NUMBER OF PERCENTAGE OF
NAME CLASS A SHARES CLASS A SHARES
- ---- -------------- --------------
<S> <C> <C>
Granaria Holdings B.V....................................... 615,751 98.5%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(1)(2)(3)
Joel P. Wyler............................................... 625,001 100.0%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(4)(5)
Daniel C. Wyler............................................. 615,751 98.5%
Lange Voorhout 16
P.O. Box 233
2501 CE The Hague
The Netherlands(4)
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of February 24, 1999,
regarding management's ownership of the Parent's Class A Common Stock, the only
voting equity security issued by the Parent (with all
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<PAGE> 81
of the equity securities of the Company being held by the Parent) and the only
equity security of the Parent held by the Company's directors or executive
officers. All shares are subject both to a Voting Trust Agreement that allows
the shares to be voted by Granaria Industries B.V. and to a Shareholders
Agreement that restricts their disposition.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
NUMBER OF PERCENTAGE OF
NAME CLASS A SHARES CLASS A SHARES
- ---- -------------- --------------
<S> <C> <C>
Joel P. Wyler(4),(5)........................................ 625,001 100.0%
Daniel C. Wyler(4).......................................... 615,751 98.5%
Andries Ruijssenaars(5)..................................... 39,250 6.3%
Wayne R. Wickens............................................ 10,000 1.6%
Thomas E. Petry(5).......................................... 9,250 1.5%
Michael E. Aslanian......................................... 6,250 1.0%
Carroll D. Curless.......................................... 5,000 *
David G. Krall.............................................. 1,250 *
David N. Hall............................................... 5,000 *
Dr. Wendelin Wiedeking(6)................................... 2,500 *
All directors and executive officers as a group (seven
persons).................................................. 625,001 100.0%
</TABLE>
- ---------------
(*) Less than 1.0%.
(1) Granaria Holdings B.V. is 100% owned by Wijler Holding B.V., a Dutch
Antilles company, 50.1% of which is owned by Joel P. Wyler and 49.9% of
which is owned by Daniel C. Wyler.
(2) Includes 525,001 shares held by Granaria Industries B.V., which is majority
owned by Granaria Holdings B.V.
(3) Includes 82,750 shares held by Granaria Holdings B.V. as voting trustee for
certain members of management.
(4) Includes shares held by Granaria Holdings B.V.
(5) Includes 9,250 shares held the by E-P Management Trust, of which Messrs.
Joel P. Wyler, Andries Ruijssenaars and Thomas E. Petry are trustees.
(6) Represents shares the Parent has agreed to grant Dr. Wiedeking in March
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
In connection with the Acquisition, the Company paid Granaria Holdings B.V.
("Granaria Holdings") a transaction fee of $7.3 million (approximately 1% of the
transaction value) in consideration for advisory services related to structuring
and financing the Acquisition. Granaria Holdings was also paid $1.1 million to
reimburse them for third party costs incurred related to the Acquisition and
issuance of the 9 3/8% Senior Subordinated Notes and the 11 3/4% Cumulative
Redeemable Exchangeable Preferred Stock.
The Company has an advisory and consulting agreement with Granaria Holdings
pursuant to which the Company will pay Granaria Holdings an annual management
fee of $1.75 million annually plus out-of-pocket expenses. Fees and expenses
relating to these services amounted to $1.5 million in the nine months ended
November 30, 1998, of which $.6 million is due Granaria Holdings at November 30,
1998.
The Company adopted a Short Term Sale Program ("STSP") prior to the
Acquisition which provided for payments to certain executive officers and
members of senior management in the event of a change of control. The
Acquisition constituted such a change of control. (See Executive Compensation
- -Short Term Sale Program.) The Company recorded an expense of $10.1 million in
the year ended November 30, 1998 in connection with the STSP, of which $2.6
million remains unpaid.
In 1998, the Company paid $10.0 million to the Eagle-Picher Management
Trust ("E-P Management Trust") for the benefit of certain executive officers of
the Company. The $10.0 million payment was effectively
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<PAGE> 82
used to acquire certain restricted stock of Granaria Industries B.V. which was
later exchanged for common stock of the Parent. Certain of the shares of the
Parent held by the E-P Management Trust have been allocated to certain members
of senior management of the Company. The Company also reimbursed the holders of
the shares for their tax obligations associated with receipt of such shares.
(See Executive Compensation - Incentive Stock Plan.) The Company has recorded
compensation expense of $12.6 million for the restricted shares and related tax
reimbursements. Granaria Holdings B.V. has elected to purchase the shares of the
Company which were forfeited by former members of management for $.7 million.
This amount is due the Company at November 30, 1998.
The Company entered into employment agreements with six executive officers
("Employment Agreements") which became effective November 29, 1996. Each was
amended in August 1997. The purpose of the Employment Agreements was to provide
the Company with continuity of management following its emergence from
bankruptcy. (See Executive Compensation -- Employment Agreements Severance.)
Three of the six executive officers of the Company have received severance
benefits pursuant to the Employment Agreements. These payments, as well as
payments to another former officer, aggregated $6.0 million.
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<PAGE> 83
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<C> <S>
(a) 1. All Financial Statements:
-- Financial Statements -- Included in Item 8 in this Report
-- Independent Auditors' Report -- Included in Item 8 in
this Report
2. Financial Statement Schedules
-- None
3. Exhibits (numbers keyed to Item 601, Regulation S-K)
</TABLE>
<TABLE>
<C> <S> <C>
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher
Industries, Inc. (the "Company")(1)
2.2 -- Exhibits to Third Amended Plan of Reorganization of the
Company(1)
3.1 -- Articles of Incorporation of the Company, as amended(1)
3.2 -- Regulations of the Company(1)
3.3 -- Amended and Restated Certificate of Incorporation of
Eagle-Picher Holdings, Inc.(1)
3.4 -- Bylaws of Eagle-Picher Holdings, Inc.(1)
3.5 -- Articles of Incorporation of Daisy Parts, Inc.(2)
3.6 -- Bylaws of Daisy Parts, Inc.(2)
3.7 -- Certificate of Incorporation of Eagle-Picher Development
Company, Inc.(2)
3.8 -- Bylaws of Eagle-Picher Development Company, Inc.(2)
3.9 -- Certificate of Incorporation of Eagle-Picher Far East,
Inc.(2)
3.10 -- Bylaws of Eagle-Picher Far East, Inc.(2)
3.11 -- Articles of Incorporation of Eagle-Picher Fluid Systems,
Inc.(2)
3.12 -- Bylaws of Eagle-Picher Fluid Systems, Inc.(2)
3.13 -- Articles of Incorporation of Eagle-Picher Minerals, Inc.(2)
3.14 -- Bylaws of Eagle-Picher Minerals, Inc.(2)
3.15 -- Certificate of Formation of Eagle-Picher Technologies,
LLC(2)
3.16 -- Operating Agreement of Eagle-Picher Technologies, LLC(2)
3.16a -- Amended and Restated Limited Liability Company Agreement of
Eagle-Picher Technologies, LLC(3)
3.17 -- Articles of Incorporation of Hillsdale Tool & Manufacturing
Co.(2)
3.18 -- Bylaws of Hillsdale Tool & Manufacturing Co.(2)
3.19 -- Articles of Incorporation of Michigan Automotive Research
Corporation(2)
3.20 -- Bylaws of Michigan Automotive Research Corporation(2)
4.1 -- Indenture, dated as of February 24, 1998, between the
Company, Eagle-Picher Holdings, Inc. as a Guarantor, the
subsidiary guarantors, Daisy Parts, Inc. Eagle-Picher
Development Company, Inc., Eagle-Picher Far East, Inc.,
Eagle-Picher Fluid Systems, Inc., Eagle-Picher Minerals,
Inc., Eagle-Picher Technologies, LLC, Hillsdale Tool &
Manufacturing Co., Michigan Automotive Research Corporation
(together, the "Subsidiary Guarantors" or the "Domestic
Subsidiaries"), and The Bank of New York as Trustee (the
"Trustee")(1)
4.2 -- Cross Reference Table showing the location in the Indenture
of the provisions of Sections 310 through 318(a), inclusive,
of the Trust Indenture Act of 1939(1)
4.3 -- First Supplemental Indenture dated as of February 24, 1998,
between the Company and the Trustee(1)
4.4 -- Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)(1)
9.1 -- Voting Trust Agreement dated November 16, 1998 with owners
of Class A (Voting) Common Stock of the Parent(5)
10.1 -- Merger Agreement, dated as of December 23, 1997, among the
Company, the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust, Eagle-Picher Holdings, Inc. and E-P
Acquisition, Inc.(1)
</TABLE>
83
<PAGE> 84
<TABLE>
<C> <S> <C>
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of
February 23, 1998, among the Company, the Eagle-Picher
Industries, Inc. Personal Injury Settlement Trust,
Eagle-Picher Holdings, Inc. and E-P Acquisition, Inc.(1)
10.3 -- Supplemental Executive Retirement Plan of the Company(2)
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P
Acquisition, Inc. the Company, Eagle-Picher Holdings, SBC
Warburg Dillon Read and ABN AMRO Incorporated(1)
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated
as of February 24, 1998, between the Company and the
Subsidiary Guarantors(1)
10.6 -- Registration Rights Agreement, dated as of February 24,
1998, between E-P Acquisition, SBC Warburg Dillon Read and
ABN AMRO Incorporated(1)
10.7 -- Assumption Agreement for the Registration Rights Agreement,
dated as of February 24, 1998, of the Company(1)
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P
Acquisition, Inc. (merged with and into the Company),
Various Lenders from time to time party thereto, ABN AMRO
Bank N.V., as Agent (the "Agent"), PNC Bank, National
Association, as Documentation Agent and DLJ Capital Funding,
Inc., as Syndication Agent(1)
10.9 -- Assumption Agreement, dated as of February 24, 1998, between
the Company and the Agent(1)
10.10 -- Security Agreement, dated as of February 24, 1998, among the
Company, the Agent and the Domestic Subsidiaries(1)
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998,
between Eagle-Picher Holdings, Inc. and the Agent(1)
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of
February 24, 1998, among the Company, E-P Development, E-P
Minerals and the Agent(1)
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998,
by Eagle-Picher Holdings, Inc., accepted and agreed by the
Agent(1)
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24,
1998, by the Domestic Subsidiaries, accepted and agreed by
the Agent(1)
10.15 -- Trademark Collateral Agreement, dated February 24, 1998,
between the Company and the Agent(1)
10.16 -- Patent Collateral Agreement, dated February 24, 1998,
between the Company and the Agent(1)
10.17 -- Copyright Collateral Agreement, dated February 24, 1998,
between the Company and the Agent(1)
10.18 -- Subordination Agreement, dated as of February 24, 1998,
among E-P Acquisition, Inc., the Company and the Domestic
Subsidiaries(2)
10.19 -- Management Agreement, dated as of February 24, 1998, between
the Company and Granaria Holdings B.V.(1)
10.20 -- Eagle-Picher Management Trust made February 17, 1998, among
Granaria Industries B.V. and Thomas E. Petry, Andries
Ruijssenaars and Joel Wyler as trustees (the "E-P Management
Trust")(2)
10.21 -- Incentive Stock Plan of Eagle-Picher Industries, Inc.,
effective as of February 25, 1998(2)
10.22 -- Employment Agreements, dated November 29, 1996, between
Registrant and each Named Executive Officer as defined in
the Company's Form S-4 filed in 1998, as amended (Messrs.
Petry, Ruijssenaars, Hall, Wickens, Curless and Ralston)(2)
10.23 -- Amendments, dated August 5, 1997, to Employment Agreements
between the Company and each Named Executive Officer as
defined in the Company's Form S-4(2)
10.24 -- Sales Incentive Program of the Company(2)
10.25 -- Letter Agreements, dated August 5, 1997, between the Company
and each Named Executive Officer as defined in the Company's
Form S-4 regarding Short Term Sale Program(2)
10.26 -- Letter Agreement, dated September 12, 1997, between the
Company and Carroll D. Curless regarding Sale Incentive
Bonus(2)
10.27 -- Letter Agreements, dated February 18, 1998, between the
Company and each Named Executive Officer as defined in the
Company's Form S-4 regarding Short Term Sale Program(2)
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments
to the Short Term Sale Program(2)
</TABLE>
84
<PAGE> 85
<TABLE>
<C> <S> <C>
10.29 -- Eagle-Picher Holdings, Inc. (the "Parent") Incentive Stock
Plan for Outside Directors effective January 1, 1999(5)
10.30 -- Amended and Restated Incentive Stock Plan for Eagle-Picher
Industries, Inc. (the "Company")(5)
10.31 -- Second Amended and Restated Incentive Stock Plan for
Eagle-Picher Industries, Inc. (the "Company")(5)
10.32 -- Shareholders Agreement, dated October 15, 1998, among
Granaria Holdings B.V., Granaria Industries B.V.,
Eagle-Picher Holdings, Inc. (the "Parent") and Eagle-Picher
Industries, Inc. (the "Company")(5)
10.33 -- Share Appreciation Plan of the Company(4)
12.1 -- Ratios of Earnings to Fixed Charges
21.1 -- Subsidiaries of the Company(5)
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of KPMG LLP
27.1 -- Financial Data Schedule (submitted electronically to the SEC
for its information)(5)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Form S-4 Registration Statement
No. 333-49957 filed on April 10, 1998.
(2) Incorporated by reference to the Company's Amendment No. 1 to Form S-4
Registration Statement No. 333-49957 filed on May 20, 1998.
(3) Incorporated by reference to the Company's Amendment No. 2 to Form S-4
Registration Statement No. 333-49957 filed on June 5, 1998.
(4) Incorporated by reference to the Company's Form 10-Q filed on June 29, 1998.
(5) Incorporated by reference to the Company's Form 10-K filed on March 1, 1999.
- ---------------
<TABLE>
<C> <S> <C>
(b) 1. Reports on Form 8-K
-- None filed in the Company's fourth quarter for the period
covered by the report.
</TABLE>
85
<PAGE> 86
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER INDUSTRIES, INC.
/s/ ANDRIES RUIJSSENAARS
By:
--------------------------------------
Andries Ruijssenaars
President and Chief Executive
Officer
Date: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ ANDRIES RUIJSSENAARS Date: May 27, 1999
- -----------------------------------------------------------
Andries Ruijssenaars, President,
Chief Executive Officer and Director
/s/ CARROLL D. CURLESS Date: May 27, 1999
- -----------------------------------------------------------
Carroll D. Curless, Vice President and Controller
(Principal Financial Officer and
Principal Accounting Officer)
/s/ JOEL P. WYLER Date: May 27, 1999
- -----------------------------------------------------------
Joel P. Wyler, Director and
Chairman of the Board
/s/ DANIEL C. WYLER Date: May 27, 1999
- -----------------------------------------------------------
Daniel C. Wyler, Director
</TABLE>
<PAGE> 87
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER HOLDINGS, INC.
/s/ ANDRIES RUIJSSENAARS
By:
--------------------------------------
Andries Ruijssenaars
President and Chief Executive
Officer
(Principal Executive Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER HOLDINGS, INC., AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ ANDRIES RUIJSSENAARS Date: May 27, 1999
- -----------------------------------------------------------
Andries Ruijssenaars, President,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ CARROLL D. CURLESS Date: May 27, 1999
- -----------------------------------------------------------
Carroll D. Curless, Vice President and Controller
(Principal Financial Officer
and Principal Accounting Officer)
/s/ JOEL P. WYLER Date: May 27, 1999
- -----------------------------------------------------------
Joel P. Wyler, Director and
Chairman of the Board
/s/ DANIEL C. WYLER Date: May 27, 1999
- -----------------------------------------------------------
Daniel C. Wyler, Director
</TABLE>
<PAGE> 88
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DAISY PARTS, INC.
/s/ WILLIAM D. OETERS
By:
--------------------------------------
William D. Oeters
President
(Principal Executive Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, DAISY PARTS, INC., AND IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<C> <S>
/s/ WILLIAM D. OETERS Date: May 27, 1999
- -----------------------------------------------------------
William D. Oeters, President
(Principal Executive Officer)
/s/ GARY M. FREYTAG Date: May 27, 1999
- -----------------------------------------------------------
Gary M. Freytag, Vice President
and Treasurer
(Principal Financial Officer)
/s/ DAVID P. KELLEY Date: May 27, 1999
- -----------------------------------------------------------
David P. Kelley, Controller
(Principal Accounting Officer)
/s/ DAVID N. EVANS Date: May 27, 1999
- -----------------------------------------------------------
David N. Evans, Director
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 89
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER DEVELOPMENT CO., INC.
/s/ ANDRIES RUIJSSENAARS
By:
--------------------------------------
Andries Ruijssenaars
President
(Principal Executive Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER DEVELOPMENT CO., INC., AND IN THE CAPACITIES
AND ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ ANDRIES RUIJSSENAARS Date: May 27, 1999
- -----------------------------------------------------------
Andries Ruijssenaars, Director and President
(Principal Executive Officer)
/s/ GARY M. FREYTAG Date: May 27, 1999
- -----------------------------------------------------------
Gary M. Freytag, Vice President and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 90
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER FAR EAST, INC.
/s/ SADAO TAKAHASHI
By:
--------------------------------------
Sadao Takahashi
President
(Principal Executive Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER FAR EAST, INC., AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ SADAO TAKAHASHI Date: May 27, 1999
- -----------------------------------------------------------
Sadao Takahashi, President
(Principal Executive Officer)
/s/ GARY M. FREYTAG Date: May 27, 1999
- -----------------------------------------------------------
Gary M. Freytag, Vice President and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ DAVID N. EVANS Date: May 27, 1999
- -----------------------------------------------------------
David N. Evans, Director
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 91
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER FLUID SYSTEMS, INC.
/s/ SCOTT F. MALY
By:
--------------------------------------
Scott F. Maly
President
(Principal Executive Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER FLUID SYSTEMS, INC., AND IN THE CAPACITIES
AND ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ SCOTT F. MALY Date: May 27, 1999
- -----------------------------------------------------------
Scott F. Maly, President
(Principal Executive Officer)
/s/ GARY M. FREYTAG Date: May 27, 1999
- -----------------------------------------------------------
Gary M. Freytag, Treasurer
(Principal Financial Officer)
/s/ DANIEL T. HOAG Date: May 27, 1999
- -----------------------------------------------------------
Daniel T. Hoag, Controller
(Principal Accounting Officer)
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 92
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER MINERALS, INC.
/s/ WESLEY D. LEE
By:
--------------------------------------
Wesley D. Lee
President
(Principal Executive Officer)
Date: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER MINERALS, INC., AND IN THE CAPACITIES AND ON
THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ WESLEY D. LEE Date: May 27, 1999
- -----------------------------------------------------------
Wesley D. Lee, President
(Principal Executive Officer)
/s/ GARY M. FREYTAG Date: May 27, 1999
- -----------------------------------------------------------
Gary M. Freytag, Vice President and Treasurer
(Principal Financial Officer)
/s/ NANCY C. REED Date: May 27, 1999
- -----------------------------------------------------------
Nancy C. Reed, Controller
(Principal Accounting Officer)
/s/ DAVID N. EVANS Date: May 27, 1999
- -----------------------------------------------------------
David N. Evans, Director
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 93
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER TECHNOLOGIES, LLC
/s/ WILLIAM E. LONG
By:
--------------------------------------
William E. Long
President
(Principal Executive Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, EAGLE-PICHER TECHNOLOGIES, LLC, AND IN THE CAPACITIES AND
ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ WILLIAM E. LONG Date: May 27, 1999
- -----------------------------------------------------------
William E. Long, President and Director
(Principal Executive Officer)
/s/ R. DOUG WRIGHT Date: May 27, 1999
- -----------------------------------------------------------
R. Doug Wright, Controller
(Principal Financial Officer
and Principal Accounting Officer)
/s/ JOEL P. WYLER Date: May 27, 1999
- -----------------------------------------------------------
Joel P. Wyler, Director
/s/ ANDRIES RUIJSSENAARS Date: May 27, 1999
- -----------------------------------------------------------
Andries Ruijssenaars, Director
</TABLE>
<PAGE> 94
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HILLSDALE TOOL & MANUFACTURING CO.
/s/ WILLIAM D. OETERS
By:
--------------------------------------
William D. Oeters
President (Principal Executive
Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, HILLSDALE TOOL & MANUFACTURING CO., AND IN THE CAPACITIES
AND ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ WILLIAM D. OETERS Date: May 27, 1999
- -----------------------------------------------------------
William D. Oeters, President
(Principal Executive Officer)
/s/ GARY M. FREYTAG Date: May 27, 1999
- -----------------------------------------------------------
Gary M. Freytag, Vice President and Treasurer
(Principal Financial Officer)
/s/ DAVID P. KELLEY Date: May 27, 1999
- -----------------------------------------------------------
David P. Kelley, Controller
(Principal Accounting Officer)
/s/ DAVID N. EVANS Date: May 27, 1999
- -----------------------------------------------------------
David N. Evans, Director
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 95
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MICHIGAN AUTOMOTIVE RESEARCH
CORPORATION
/s/ MICHAEL J. BOERMA
By:
--------------------------------------
Michael J. Boerma
President (Principal Executive
Officer)
Dated: May 27, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
ADDITIONAL REGISTRANT, MICHIGAN AUTOMOTIVE RESEARCH CORPORATION, AND IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<C> <S>
/s/ MICHAEL J. BOERMA Date: May 27, 1999
- -----------------------------------------------------------
Michael J. Boerma, President and Director
(Principal Executive Officer)
/s/ TERENCE J. RHOADES Date: May 27, 1999
- -----------------------------------------------------------
Terence J. Rhoades, Secretary and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ DAVID G. KRALL Date: May 27, 1999
- -----------------------------------------------------------
David G. Krall, Director
</TABLE>
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
2.1 -- Third Amended Plan of Reorganization of Eagle-Picher
Industries, Inc. (the "Company")*
2.2 -- Exhibits to Third Amended Plan of Reorganization of the
Company*
3.1 -- Articles of Incorporation of the Company, as amended*
3.2 -- Regulations of the Company*
3.3 -- Amended and Restated Certificate of Incorporation of
Eagle-Picher Holdings, Inc.*
3.4 -- Bylaws of Eagle-Picher Holdings, Inc.*
3.5 -- Articles of Incorporation of Daisy Parts, Inc.*
3.6 -- Bylaws of Daisy Parts, Inc.*
3.7 -- Certificate of Incorporation of Eagle-Picher Development
Company, Inc.*
3.8 -- Bylaws of Eagle-Picher Development Company, Inc.*
3.9 -- Certificate of Incorporation of Eagle-Picher Far East, Inc.*
3.10 -- Bylaws of Eagle-Picher Far East, Inc.*
3.11 -- Articles of Incorporation of Eagle-Picher Fluid Systems,
Inc.*
3.12 -- Bylaws of Eagle-Picher Fluid Systems, Inc.*
3.13 -- Articles of Incorporation of Eagle-Picher Minerals, Inc.*
3.14 -- Bylaws of Eagle-Picher Minerals, Inc.*
3.15 -- Certificate of Formation of Eagle-Picher Technologies, LLC*
3.16 -- Operating Agreement of Eagle-Picher Technologies, LLC*
3.16a -- Amended and Restated Limited Liability Company Agreement of
Eagle-Picher Technologies, LLC*
3.17 -- Articles of Incorporation of Hillsdale Tool & Manufacturing
Co.*
3.18 -- Bylaws of Hillsdale Tool & Manufacturing Co.*
3.19 -- Articles of Incorporation of Michigan Automotive Research
Corporation*
3.20 -- Bylaws of Michigan Automotive Research Corporation*
4.1 -- Indenture, dated as of February 24, 1998, between E-P
Acquisition, Inc., Eagle-Picher Holdings, Inc. as a
Guarantor, the Subsidiary guarantors (Daisy Parts, Inc.
Eagle-Picher Development Company, Inc., Eagle-Picher Far
East, Inc., Eagle-Picher Fluid Systems, Inc., Eagle-Picher
Minerals, Inc., Eagle-Picher Technologies, LLC, Hillsdale
Tool & Manufacturing Co., Michigan Automotive Research
Corporation (together, the "Subsidiary Guarantors" or the
"Domestic Subsidiaries"), and The Bank of New York as
Trustee (the "Trustee")*
4.2 -- Cross Reference Table showing the location in the Indenture
of the provisions of Sections 310 through 318(a), inclusive,
of the Trust Indenture Act of 1939*
4.3 -- First Supplemental Indenture dated as of February 24, 1998,
between the Company and the Trustee*
4.4 -- Form of Global Note (attached as Exhibit A to the Indenture
filed as Exhibit 4.1 to the Registration Statement)*
9.1 -- Voting Trust Agreement dated November 16, 1998 with owners
of Class A (Voting) Common Stock of the Parent*
10.1 -- Merger Agreement, dated as of December 23, 1997, among the
Company, the Eagle-Picher Industries, Inc. Personal Injury
Settlement Trust, Eagle-Picher Holdings, Inc. and E-P
Acquisition, Inc.*
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
10.2 -- Amendment No. 1 to the Merger Agreement, dated as of
February 23, 1998, among the Company, the Eagle-Picher
Industries, Inc. Personal Injury Settlement Trust,
Eagle-Picher Holdings, Inc. and E-P Acquisition, Inc.*
10.3 -- Supplemental Executive Retirement Plan of the Company*
10.4 -- Notes Purchase Agreement, dated February 19, 1998, among E-P
Acquisition, Inc. the Company, Eagle-Picher Holdings, SBC
Warburg Dillon Read and ABN AMRO Incorporated*
10.5 -- Assumption Agreement for the Notes Purchase Agreement, dated
as of February 24, 1998, between the Company and the
Subsidiary Guarantors*
10.6 -- Registration Rights Agreement, dated as of February 24,
1998, between E-P Acquisition, SBC Warburg Dillon Read and
ABN AMRO Incorporated*
10.7 -- Assumption Agreement for the Registration Rights Agreement,
dated as of February 24, 1998, of the Company*
10.8 -- Credit Agreement, dated as of February 19, 1998, among E-P
Acquisition, Inc. (merged with and into the Company),
Various Lenders from time to time party thereto, ABN AMRO
Bank N.V., as Agent (the "Agent"), PNC Bank, National
Association, as Documentation Agent and DLJ Capital Funding,
Inc., as Syndication Agent*
10.9 -- Assumption Agreement, dated as of February 24, 1998, between
the Company and the Agent*
10.10 -- Security Agreement, dated as of February 24, 1998, among the
Company, the Agent and the Domestic Subsidiaries*
10.11 -- Holdings Pledge Agreement, dated as of February 24, 1998,
between Eagle-Picher Holdings, Inc. and the Agent*
10.12 -- Borrower and Subsidiary Pledge Agreement, dated as of
February 24, 1998, among the Company, E-P Development, E-P
Minerals and the Agent*
10.13 -- Holdings Guaranty Agreement, dated as of February 24, 1998,
by Eagle-Picher Holdings, Inc., accepted and agreed by the
Agent*
10.14 -- Subsidiary Guaranty Agreement, dated as of February 24,
1998, by the Domestic Subsidiaries, accepted and agreed by
the Agent*
10.15 -- Trademark Collateral Agreement, dated February 24, 1998,
between the Company and the Agent*
10.16 -- Patent Collateral Agreement, dated February 24, 1998,
between the Company and the Agent*
10.17 -- Copyright Collateral Agreement, dated February 24, 1998,
between the Company and the Agent*
10.18 -- Subordination Agreement, dated as of February 24, 1998,
among E-P Acquisition, Inc., the Company and the Domestic
Subsidiaries*
10.19 -- Management Agreement, dated as of February 24, 1998, between
the Company and Granaria Holdings B.V.*
10.20 -- Eagle-Picher Management Trust made February 17, 1998, among
Granaria Industries B.V. and Thomas E. Petry, Andries
Ruijssenaars and Joel Wyler as trustees (the "E-P Management
Trust")*
10.21 -- Incentive Stock Plan of Eagle-Picher Industries, Inc.,
effective as of February 25, 1998*
10.22 -- Employment Agreements, dated November 29, 1996, between
Registrant and each Named Executive Officer as defined in
the Company's Form S-4 filed in 1998, as amended (Messrs.
Petry, Ruijssenaars, Hall, Wickens, Curless and Ralston)*
10.23 -- Amendments, dated August 5, 1997, to Employment Agreements
between the Company and each Named Executive Officer as
defined in the Company's Form S-4*
10.24 -- Sales Incentive Program of the Company*
10.25 -- Letter Agreements, dated August 5, 1997, between the Company
and each Named Executive Officer as defined in the Company's
Form S-4 regarding Short Term Sale Program*
</TABLE>
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
10.26 -- Letter Agreement, dated September 12, 1997, between the
Company and Carroll D. Curless regarding Sale Incentive
Bonus*
10.27 -- Letter Agreements, dated February 18, 1998, between the
Company and each Named Executive Officer as defined in the
Company's Form S-4 regarding Short Term Sale Program*
10.28 -- Side Letter, dated February 23, 1998, regarding Amendments
to the Short Term Sale Program*
10.29 -- Eagle-Picher Holdings, Inc. (the "Parent") Industries Stock
Plan for Outside Directors effective January 1, 1999*
10.30 -- Amended and Restated Incentive Stock Plan for Eagle-Picher
Industries, Inc. (the "Company")*
10.31 -- Second Amended and Restated Incentive Stock Plan for
Eagle-Picher Industries, Inc. (the "Company")*
10.32 -- Shareholders Agreement, dated October 15, 1998, among
Granaria Holdings B.V., Granaria Industries B.V.,
Eagle-Picher Holdings, Inc. (the "Parent") Eagle-Picher
Industries, Inc. (the "Company")*
10.33 -- Share Appreciation Plan of the Company*
12.1 -- Ratios of Earnings to Fixed Charges
21.1 -- Subsidiaries of the Company*
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of KPMG LLP
27.1 -- Financial Data Schedule (submitted electronically to the SEC
for its information)*
</TABLE>
- ---------------
* Incorporated by reference. See Item 14 above.
<PAGE> 1
EXHIBIT 12.1
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED YEARS ENDED NOVEMBER 30
NOVEMBER 30, FEBRUARY 28, ------------------------------------
(DOLLARS IN THOUSANDS) 1998 1998 1997 1996 1995 1994
---------------------- ------------ ---- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes,
extraordinary items and accounting
changes........................... (19,064) 4,907 14,046 674,656 (934,871) 53,749
------- ------ ------ ------- -------- ------
Fixed Charges:
Interest.......................... 36,313 6,940 31,261 3,083 1,926 1,809
Interest factor portion of
rentals........................ 854 199 1,043 828 612 500
------- ------ ------ ------- -------- ------
Total fixed charges....... 37,167 7,139 32,304 3,911 2,538 2,309
------- ------ ------ ------- -------- ------
Earnings before income taxes and
fixed charges..................... 18,103 12,046 46,350 678,567 (932,333) 56,058
======= ====== ====== ======= ======== ======
Ratio of earnings to fixed
charges........................... 0.49 1.69 1.43 173.50 (367.35) 24.28
======= ====== ====== ======= ======== ======
Earnings inadequate to cover fixed
charges........................... (19,064) (934,871)
======= ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-49957 of Eagle-Picher Industries, Inc. on Form S-4 of our report dated
January 18, 1999, appearing in this Annual Report on Form 10-K/A of Eagle-Picher
Industries, Inc. (a wholly owned subsidiary of Eagle-Picher Holdings, Inc.) and
subsidiaries for the year ended November 30, 1998.
/s/ Deloitte & Touche LLP
Cincinnati, Ohio
June 25, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Eagle-Picher Industries, Inc.:
We consent to the use of our report included herein.
Our report dated February 5, 1997, was unqualified, except for consistency in
the application of accounting principles as a result of the Company's change in
its method of computing LIFO for certain inventories.
/s/ KPMG LLP
Cincinnati, Ohio
June 25, 1999
