-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MY2HWnZpMllQ8AIOXLzd84zEZh0O2c00ed1A2OMa9iD/CeHeYo3P+bpk9HwTUDHg 9BtYCOVTEzXWhP48G5Gj7A== 0000950152-98-007997.txt : 19981002 0000950152-98-007997.hdr.sgml : 19981002 ACCESSION NUMBER: 0000950152-98-007997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980831 FILED AS OF DATE: 19981001 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER HOLDINGS INC CENTRAL INDEX KEY: 0001059364 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 133989553 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-01 FILM NUMBER: 98719634 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: 250 E FIFTH ST STREET 2: STE 500 CITY: CINCINNATI STATE: OH ZIP: 45201-0779 10-Q 1 EAGLE-PICHER HOLDINGS, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended August 31, 1998 Commission file number 333-49971 ---------- EAGLE-PICHER HOLDINGS, INC. ------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3989553 ------------------------------ ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 250 East Fifth Street, Suite 500, Cincinnati, Ohio 45202 ------------------------------------------------------------------ (Address of principal executive offices) Zip Code Registrant's telephone number, including area code 513-721-7010 ------------------------ (Not Applicable) ---------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes____ No__X__ 625,001 shares of Class A common capital stock, $.01 par value each, were outstanding at September 26, 1998. 374,999 shares of Class B common capital stock, $.01 par value each, were outstanding at September 26, 1998. 1 2 TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements.........................................3 Condensed Consolidated Statements of Income (Loss)(Unaudited)....3 Condensed Consolidated Balance Sheets (Unaudited)................4 Condensed Consolidated Statements of Cash Flows (Unaudited)......6 Notes to Condensed Consolidated Financial Statements (Unaudited).8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................11 Item 3. Quantitative and Qualitative Disclosures About Market Risk..16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................17 Signature............................................................18 Exhibit Index........................................................19 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)(UNAUDITED) (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Three Months Nine August 31 Ended Ended Months Ended ------------------ August 31 February 28 August 31 1998 1997 1998 1998 1997 ---- ---- ---- ---- ---- Predecessor Predecessor Predecessor Net Sales $ 206,356 $ 216,756 $ 426,277 $ 205,842 $ 682,546 --------- --------- --------- --------- --------- Operating Costs and Expenses: Cost of products sold 163,518 174,103 333,093 162,796 549,082 Selling and administrative 18,042 17,503 38,329 17,141 56,846 Management compensation expense 4,395 - 21,716 2,056 - Depreciation 9,644 9,688 19,417 8,983 30,697 Amortization of intangibles 4,244 4,084 8,741 3,839 12,239 Loss on division sales - 1,803 - - 1,803 --------- --------- --------- --------- --------- 199,843 207,181 421,296 194,815 650,667 --------- --------- --------- --------- --------- Operating Income 6,513 9,575 4,981 11,027 31,879 Interest expense (12,132) (7,540) (24,686) (6,940) (24,391) Other income (expense) 681 (817) 1,007 820 539 --------- --------- --------- --------- --------- Income (Loss) Before Taxes (4,938) 1,218 (18,698) 4,907 8,027 Income Taxes (1,135) 2,337 (5,596) 4,100 9,821 --------- --------- --------- --------- --------- Net Income (Loss) $ (3,803) $ (1,119) $ (13,102) $ 807 $ (1,794) ========= ========= ========= ========= ========= Income (Loss) Applicable to Common Shareholders $ (6,338) $ (17,990) ========= ========= Income (Loss) per Common Share $ (6.34) $ (.11) $ (17.99) $ .08 $ (.18) ========= ========= ========= ========= =========
See accompanying notes to the consolidated financial statements. 3 4 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
August 31 November 30 ASSETS 1998 1997 ---- ---- Predecessor CURRENT ASSETS Cash and cash equivalents $ 21,099 $ 53,739 Receivables, less allowances 120,444 130,927 Income tax refunds receivable 1,341 3,025 Inventories: Raw materials and supplies 55,354 51,592 Work in process 17,547 25,801 Finished goods 17,712 14,803 -------- -------- 90,613 92,196 Prepaid expenses 8,440 8,290 Deferred income taxes 18,935 13,793 -------- -------- Total current assets 260,872 301,970 -------- -------- PROPERTY, PLANT AND EQUIPMENT 255,653 279,847 Less accumulated depreciation 19,505 36,309 -------- -------- Net property, plant and equipment 236,148 243,538 DEFERRED INCOME TAXES 1,144 98,991 EXCESS OF ACQUIRED NET ASSETS OVER COST NET OF ACCUMULATED AMORTIZATION OF $8,729 233,106 - REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS NET OF ACCUMULATED AMORTIZATION OF $16,284 - 48,837 OTHER ASSETS 85,162 53,545 -------- -------- Total Assets $816,432 $746,881 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 44,062 $ 52,886 Long-term debt - current portion 14,072 3,403 Income taxes 3,246 2,294 Other current liabilities 75,136 55,419 -------- -------- Total current liabilities 136,516 114,002 -------- -------- LONG-TERM DEBT - less current portion 487,209 269,994 -------- -------- OTHER LONG TERM LIABILITIES 25,676 26,768 -------- -------- SERIES A 11-3/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK; AUTHORIZED 50,000 SHARES; ISSUED AND OUTSTANDING 14,191 SHARES 84,893 - -------- --------
4 5 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
August 31 November 30 1998 1997 ---- ---- Predecessor SHAREHOLDERS' EQUITY Class A Common stock, authorized 625,001 shares, $.01 par value each; issued and outstanding 625,001 shares 6 - Class B Common stock, authorized 374,999 shares, $.01 par value each; issued and outstanding 374,999 shares 4 - Common shares -- authorized 20,000,000 shares; issued and outstanding 10,000,000 shares - 341,807 Additional paid-in capital 99,991 - Foreign currency translation 127 (1,836) Accumulated deficit (17,990) (3,854) --------- --------- Total Shareholders' Equity 82,138 336,117 --------- --------- Total Liabilities and Shareholders' Equity $ 816,432 $ 746,881 ========= =========
See accompanying notes to the consolidated financial statements. 5 6 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Six Months Three Months Nine Months Ended Ended Ended August 31 February 28 August 31 1998 1998 1997 ---- ---- ---- Predecessor Predecessor CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(13,102) $ 807 $ (1,794) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 29,522 12,822 42,936 Proceeds from insurance settlement 13,659 - - Loss on division sales - - 1,803 Changes in assets and liabilities: Receivables 15,188 (4,705) 4,072 Income tax refunds receivable 660 1,024 69,771 Inventories 4,435 (2,235) 985 Accounts payable (6,837) (2,787) 7,063 Accrued liabilities 25,205 (5,488) 8,334 Other (4,784) (8,521) 7,561 -------- -------- --------- Net cash provided by (used in) operating activities 63,946 (9,083) 140,731 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from division sales - - 38,417 Capital expenditures (16,053) (5,692) (41,476) Other 94 (1,042) (2,407) -------- -------- --------- Net cash used in investing activities (15,959) (6,734) (5,466) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - 445,000 8,000 Reduction of long-term debt (2,580) (250,000) (127,411) Borrowings under revolving credit agreement 47,825 79,100 - Repayments under revolving credit agreement (91,925) - - Redemption of common stock - (446,638) - Issuance of common stock - 100,001 - Issuance of preferred stock - 80,005 - Debt issuance cost - (26,062) - Other 824 (360) 4,876 -------- -------- --------- Net cash used in financing activities (45,856) (18,954) (114,535) -------- -------- ---------
6 7 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Six Months Three Months Nine Months Ended Ended Ended August 31 February 28 August 31 1998 1998 1997 ---- ---- ---- Predecessor Predecessor Net increase (decrease) in cash and cash equivalents 2,131 (34,771) 20,730 Cash and cash equivalents, beginning of period 18,968 53,739 32,725 ------- -------- ------- Cash and cash equivalents, end of period $21,099 $ 18,968 $53,455 ======= ======== ======= Supplemental cash flow information: 1998 1997 ---- ----- Cash paid during the nine months ending August 31: Interest paid $19,060 $ 18,052 Income taxes paid (refunded), net $ 4,446 $(66,016) Cash paid during the three months ended August 31: Interest paid $ 6,250 $ 1,551 Income taxes paid (refunded), net $ 4,141 $ 1,213
See accompanying notes to the consolidated financial statements. 7 8 EAGLE-PICHER HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and notes thereto included for the fiscal year ended November 30, 1997 and for the three months ended February 28, 1998, presented in the Company's Form S-4/A filed with the SEC on June 5, 1998. The financial statements presented herein reflect all adjustments (consisting of normal and recurring accruals) which, in the opinion of management, are necessary to fairly state the results of operations for the three and nine month periods ended August 31, 1998 and 1997. (See Note B.) Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. The six and three month periods ended August 31, 1998 and February 28, 1998 (Predecessor), respectively, included in the Condensed Consolidated Statements of Income (Loss) and of Cash Flows are presented for comparison to the nine months ended August 31, 1997 of the Predecessor Company. (See Note B.) B. ACQUISITION OF THE COMPANY On February 24, 1998 ("Closing Date"), Eagle-Picher Industries, Inc. ("Company") was acquired by a subsidiary of Granaria Industries BV, Eagle-Picher Holdings, Inc. ("Parent"), from the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust ("Trust") (the "Acquisition"). The Trust was established pursuant to the Company's Plan of Reorganization upon its emergence from bankruptcy. The unaudited condensed consolidated financial statements as of and for the three months ended February 28, 1998 include the effects of the Acquisition as of February 24, 1998. Accordingly, the condensed consolidated statement of income (loss) for the three months ended February 28, 1998 includes results of operations from (1) December 1, 1997 through February 24, 1998 of the Company prior to the consummation of the Acquisition (for clarity, sometimes referred to herein as the "Predecessor Company") and (2) February 25 through February 28, 1998 of the Company. The Acquisition was accounted for using the purchase method of accounting. The preliminary allocation of the purchase price of the Company has been determined based on estimates of fair value and are subject to change. Appraisals are currently being completed to value property, plant, equipment and identifiable intangible assets. The excess of purchase price over the assessed values of those assets will be allocated to goodwill. The Company expects to finalize the purchase price allocation by November 30, 1998. Adjustments are not expected to be material. 8 9 Upon closing of the acquisition, the Parent received $100 million equity investment from Granaria Industries BV and an equity partner. The Parent also received proceeds approximating $80 million from its offering of preferred stock. These proceeds were invested in the Company, which issued approximately $180 million of common stock to the Parent. The Company also borrowed $225 million in term loans and $79.1 million in revolving credit loans under a syndicated senior secured loan facility, and issued $220 million in senior subordinated notes ("Subordinated Notes"), the proceeds of which were used to redeem the Company's 10% Senior Unsecured Sinking Fund Debentures ("Debentures") and common stock, both held by the Trust. The Company, which is the operating entity, is a wholly-owned subsidiary of the Parent. The Parent's results of operations and cash flow approximate those of the Company. The following pro forma information for the nine months ended August 31, 1998 and 1997 gives effect to the Acquisition as if it had been consummated on December 1, 1997 and 1996, respectively. This information is not necessarily indicative of either the future results of operations or the results of operations that would have occurred if those events had been consummated on the indicated dates.
Nine Months Ended August 31 ------------------------------- 1998 1997 ---- ---- (In thousands of dollars, except per share amounts) Net Sales $ 632,119 $ 682,546 Net loss $ (16,500) $ (21,100) Accumulated dividends on preferred stock 7,382 7,382 ----------- ---------- Net loss applicable to common shareholders (23,882) (28,482) Net loss per common share $ (23.88) $ (28.48) Average number of common shares outstanding 1,000,000 1,000,000
C. BASIC AND DILUTED EARNINGS PER SHARE The calculation of net income (loss) per share is based upon the average number of common shares outstanding, which was 9,600,071 in the three months ended February 28, 1998, 10,000,000 in the three months and nine months ended August 31, 1997, and 1,000,000 in the three months and six months ended August 31, 1998. In 1998, 1,000,000 shares were outstanding after the acquisition. Prior to the acquisition, 10,000,000 shares were outstanding. The net loss applicable to common shareholders represents the net loss increased by accumulated dividends on preferred stock of $2.5 million and $4.9 million for the three and six months ended August 31, 1998, respectively. No potential common stock was outstanding during the nine months ended August 31, 1998 or 1997. D. INTANGIBLE ASSETS Excess of acquired net assets over cost is being amortized on a straight-line basis over fifteen years. The recoverability of these assets is evaluated periodically based on current and estimated future cash flows of each of the related business units over the remaining amortization period. Reorganization value in excess of amounts allocable to identifiable assets was being amortized on a straight-line basis over four years. 9 10 E. LEGAL MATTERS The Company is involved in routine litigation, environmental proceedings and claims pending with respect to matters arising out of the normal course of business. In management's opinion, the ultimate liability resulting from all claims, individually or in the aggregate, will not materially affect the Company's consolidated financial position, results of operations or cash flows. F. SUBSEQUENT EVENT On September 28, 1998, the Committee of the Incentive Stock Plan of Eagle-Picher Industries, Inc. ("Stock Plan") voted to amend the Stock Plan to accelerate the vesting of all participants, which was to take place in various increments through 2001, so that all participants will be fully vested as of November 1, 1998. This action will result in additional management expense of approximately $3.3 million in the fourth quarter over what would have been recognized if the Stock Plan had not been amended. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS As a result of the Acquisition of the Company by Granaria Industries B.V. from the Trust as of February 24, 1998, which was accounted for as a purchase, the Company's results of operations and financial position for periods after February 24, 1998 are not comparable to prior periods. The unaudited condensed consolidated statement of income (loss) as of February 28, 1998 includes results of operations from (1) December 1, 1997 through February 24, 1998 of the Predecessor Company and (2) February 25 through February 28, 1998 of the Company. In addition to the effects of the Acquisition, another factor affecting comparability of operations is the sale of the Plastics, Transicoil and Fabricon Products divisions in 1997. The Company also contributed the assets of its former Suspension Systems division to Eagle-Picher-Boge, L.L.C., a joint venture formed in 1997 in which the Company has a 45% interest. These divisions are collectively referred to as the "Divested Divisions." The following table sets forth certain sales and operating data, net of all inter-segment transactions, for the Company's businesses for the periods indicated:
Six Months Three Months Nine Months Three months ended ended ended ended August 31 August 31 February 28 August 31 ------------------ 1998 1997 1998 1998 1997 ---- ---- ---- ---- ---- (In millions of dollars) Predecessor Predecessor Predecessor Net sales by segment: Industrial $ 35.1 $ 52.4 $ 71.5 $ 37.6 $157.3 Machinery 68.0 65.8 136.8 64.4 199.4 Automotive 103.3 98.6 218.0 103.8 325.8 ------ ------ ------ ------ ------ Total $206.4 $216.8 $426.3 $205.8 $682.5 ====== ====== ====== ====== ====== EBITDA by segment: Industrial $ 7.0 $ 8.1 $ 14.1 $ 6.6 $ 23.8 Machinery 9.6 6.6 20.5 7.8 22.9 Automotive 13.5 13.1 31.3 15.2 43.1 Corporate overhead (5.3) (2.7) (11.0) (3.7) (13.2) ------ ------ ------ ------ ------ $ 24.8 $ 25.1 $ 54.9 $ 25.9 $ 76.6 ====== ====== ====== ====== ====== Total
Net Sales. The Company's net sales were $206.4 million for the third quarter ended August 31, 1998, a decrease of $10.4 million or 4.8% from the comparable period of 1997. Included in the results of the third quarter of 1997 are $13.7 million of sales of the Divested Divisions, which, if excluded, would result in an increase in the Company's quarterly net sales of approximately 1.6%. 11 12 Net sales of Industrial products, excluding net sales of the Divested Divisions, decreased 22.4% in the third quarter of 1998 from the comparable period in 1997, due primarily to decreased prices of germanium products. Germanium sales have been affected by lower market prices which have resulted from increased supplies, the completion of a major satellite project and the increased use of recycled germanium by the Company's customers in response to sharp increases in germanium prices which took place in 1996. Since the customers now supply a larger portion of the Company's raw materials, its sales volume is less as a toll refiner than as a buyer and seller of germanium. Operating margins, however, have been maintained. Net sales for the Machinery Group in the third quarter of 1998, excluding the Divested Divisions, increased 8.2% due in part to increases in demand for heavy-duty fork lift trucks and wheel tractor scrapers. Sales of special purpose batteries are comparable to those of the same period in 1997. The Automotive Group's net sales, excluding the Divested Divisions, increased 8.7% primarily due to increased market penetration of precision machined components, many of which are used in light trucks, vans and sport utility vehicles which have recently grown in popularity. Volumes of fuel systems have also increased as new programs are implemented. The Ford Motor Company ("Ford") has recently notified the Company that it will no longer purchase certain products from the Automotive Group. Sales contributed by those products in 1997 were $19.4 million. The Company anticipates that these programs will be discontinued gradually through 1999 and that this revenue will be replaced by new programs currently being implemented. The Company expects strong price pressure to continue across all product lines, particularly in the Automotive Group. The Company will continue to pursue productivity improvements and material cost reductions to mitigate such price pressure. Historically, the third quarter results of the Automotive Group are depressed as most of the automobile companies shut their plants for two weeks in July to retool for new model years. In 1998, these results were further depressed by the strike by the United Auto Workers at certain General Motors Corporation ("GM") plants and the resulting closure of other GM plants. Some of the Automotive Group operations experienced lay-offs as a result of the strike at GM. It is estimated that the Company lost approximately $7.0 million in revenue and $2.5 million in operating income during the strike. Since the 1980's, original equipment manufacturers ("OEM's") such as Ford, GM and the Chrysler Corporation have been outsourcing an increasing percentage of their production requirements. OEM's benefit from outsourcing because outside suppliers generally have significantly lower cost structures and can assist in shortening development periods for new products. The Company expects to continue to benefit from the trend toward outsourcing. Historically, sales to certain Asian markets have been insignificant to the Company's total net sales; therefore, the current economic conditions in Asia have not had, nor are they expected to have, a material adverse effect on the Company's operations. The Company believes that despite these conditions, the Asian region has solid long-term growth opportunities and will continue to explore these opportunities. Cost of Products Sold. Cost of products sold, excluding depreciation expense, decreased by $10.6 million or 6.1% from the third quarter of 1997 compared to the comparable period in 1998. Excluding the results of Divested Divisions, as a percentage of sales, cost of products sold declined from 79.7% in the third quarter of 1997 to 79.2% in the third quarter of 1998. Reasons for this decline include improved performance at certain start-up operations, increased operating efficiencies, and changes in product mix in certain operations in the Machinery Group. 12 13 Selling and Administrative. Selling and administrative expenses increased by $.6 million or 3.1% in the quarter ended August 31, 1998 from the quarter ended August 31, 1997. Excluding results of Divested Divisions, these expenses increased $1.3 million or 7.9% over the same time frame. Besides a general increase due to activity relating to increased sales volumes, items contributing to this increase include management fees now payable to Granaria Industries B.V. and a retention program for mid-level management. Depreciation and Amortization. Depreciation and amortization are not comparable for the three months ended August 31, 1998 and 1997 due to the differences in asset bases as a result of the Acquisition on February 24, 1998. EBITDA. The Company defines EBITDA as earnings before interest, taxes, depreciation, amortization and management expenses. Due to the differences in the asset bases, it is preferable to compare EBITDA rather than operating income. EBITDA decreased from $25.1 million in the three months ended August 31, 1997 to $24.8 million for the same period in 1998 or 1.2%. After excluding the results of Divested Divisions, EBITDA increased .8%. In the third quarter of 1998, EBITDA for the Industrial Group declined to $7.0 million from $8.1 million in the comparable period of 1997. Excluding the results of Divested Divisions, this decline was $.5 million or 6.7% on a 22.4% decrease in sales. As previously mentioned, although lower germanium prices have contributed to reduced sales, EBITDA has remained relatively consistent for these operations as did results at other Industrial Group operations. In the Machinery Group, EBITDA increased from $6.6 million in the third quarter of 1997 to $9.6 million in the same period of 1998. Excluding results of the Divested Divisions, the increase was $3.2 million. Reasons for this increase include improved efficiencies at operations manufacturing special-purpose batteries and at the aluminum foundry, and a shift in product mix at operations manufacturing construction and other industrial equipment. EBITDA for the Automotive Group increased to $13.5 million in the third quarter of 1998 from $13.1 million in the same period in the prior year. Excluding the results of Divested Divisions, the increase was .7%. Any increases in EBITDA resulting from the increased volumes previously discussed have been offset by losses related to the GM strike situation. Interest Expense. Interest expense for the three months ended August 31, 1998 and 1997 was $12.1 million and $7.5 million, respectively. In 1997, interest expense included interest on the $250 million Subordinated Debentures held by the Trust which were retired upon the Acquisition and the $50 million Divestiture Notes retired in August 1997. In 1998, the increase in interest was attributable to the borrowings against the new credit facility totaling $304.1 million, the issuance of $220 million in Subordinated Notes and the issuance of an additional $8 million industrial revenue bond in June 1997. FINANCIAL CONDITION Since the Acquisition, the Company has generated cash from operations of $63.9 million which has enabled it to repay a net amount of $46.7 million in debt and expend $16.1 million for capital. Significant factors contributing to cash provided by operations include: 1) the receipt of $13.7 million from an insurance company in settlement of certain claims relating primary to environmental remediation expenses; 2) a $15.2 million reduction of accounts receivable balances from what were considered high levels at February 28, 1998 to more normal levels at August 31, 1998; 3) the funding of approximately $8.0 million of employee health care expenses from a trust that had been earmarked for this purpose rather than from Company funds; and 4) the accrual of $10.3 million in interest (which was paid September 1, 1998) relating to the Senior Subordinated Notes. 13 14 The Company's liquidity needs are primarily for capital maintenance and debt service. With the exception of an expansion at a plant manufacturing industrial machinery, capital expenditures in the six months ended August 31, 1998 have been primarily for capital maintenance. The Company anticipates that capital spending will be approximately $9.0 to $11.0 million in the fourth quarter of 1998. The Company has scheduled debt payments of $2.7 million in the fourth quarter of 1998 and $10.4 million in 1999. The Company 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. The Company has entered into a letter of intent for the sale of its Trim Division for $14.5 million in cash. The transaction is conditioned on, among other things, the buyer's due diligence investigation and the buyer obtaining financing. There is no assurance that this transaction will be completed on these terms. If consummated, the transaction is not expected to result in a material gain or loss. YEAR 2000 The Year 2000 problem arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20." If not corrected, many computer programs could fail or cause erroneous results. Failures of this nature could cause interruptions to manufacturing processes, business and financial functions and communications with customers and suppliers. Due to the diverse nature of the Company's operations, each operating division has its own discrete computer systems. The Company is performing a comprehensive review to identify the systems affected by the Year 2000 issue. The Company is assessing its information technology systems such as business computing systems, end user computer systems and technical infrastructure, as well as embedded systems commonly found in manufacturing and service equipment, testing equipment and environmental operations. The assessments also include the Company's products and evaluation of the readiness of its suppliers and service providers. The review of each of the systems involves a five step process. The Company first inventories areas of potential risk based on comparison to published industry guidelines. Each component identified in the inventory is then evaluated for its risk of failure and the impact of potential failure to the Company's operations and its customers. Once the risks are assessed, remediation is commenced. Options for remediation may include replacement, modification or continued use depending on information gathered during the inventory and assessment stages. The remediated system is then tested and reviewed before the determination is made as to the readiness of the system. A project committee meets regularly to review the status of the investigation into and resolution of Year 2000 issues. Most of the Company's divisions have completed the inventory and assessment phases and are working on remediation and testing. The remaining divisions have the inventory and assessment phases underway. The Company expects that all divisions will have completed the inventory and assessment phases by February 28, 1999 and will have implemented initial remediation attempts and testing thereof by June 30, 1999. The Company's remaining costs to remediate the Year 2000 problem are not expected to exceed $4.0 million. Of this amount, approximately $1.5 million will be spent in the form of capital for systems replacement and approximately $1.0 million will be incremental costs. The remaining costs relate to the redeployment of the Company's existing resources to assess and remediate the Year 2000 problem. Projects being deferred by this issue include items such as system enhancements that would improve performance or functionality. The impact on net income (loss) to date has not been material. 14 15 The Company suspects its greatest risk lies within its financial computer systems and Electronic Data Interchange ("EDI") capabilities with its customers and suppliers. The Company relies on customer requirements and outside services for most of its EDI capabilities and therefore is dependent on such parties addressing Year 2000 issues. If these systems were to fail, the Company would encounter difficulty performing functions such as compiling financial data, invoicing customers, accepting electronic customer orders or informing customers of shipments 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 limited control. The Company is presently working on contingency plans to address issues related to potential failures of critical systems due to Year 2000 problems, and it expects to have those plans in place by May 31, 1999. The Company presently believes that through the planned modification to existing systems and conversion to new systems, as well as ongoing correspondence with suppliers and customers, the Year 2000 issue will not materially impair the Company's ability to conduct business. EURO CONVERSION The Company has both operating divisions and domestic export customers located in Europe. In 1997, combined revenues from these sources was approximately 13% of total revenues. Revenues involving countries participating in the Euro conversion were somewhat lower. The Company is currently assessing the impact of the Euro conversion on its operations. The Company's European operations are taking steps to ensure their capability of entering Euro transactions as of January 1, 1999. It is not anticipated that changes to information technology and other systems which are necessary to enter these transactions will be material. The affected operations plan to make the Euro the functional currency sometime during the transition period. It is difficult to assess the competitive impact of the Euro Conversion on the Company's operations. In some markets, where customers already appear to be considering the exchange rates when considering prices, this process may be accelerated. In other markets, where sales are made in U.S. dollars, there may be pressures to denominate sales in the Euro, however, exchange risks resulting from these transactions would be hedged. FORWARD-LOOKING STATEMENTS This Form 10-Q contains statements which, to the extent that they are not recitations of historical fact, constitute "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. The words "estimate," "anticipate," "project," "intend," "believe," "expect," and similar expressions are intended to identify forward looking statements. Such forward-looking information involves important risks and uncertainties that could materially alter results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, the ability of the Company to maintain existing relationships with customers, the ability of the Company to successfully implement productivity improvements, cost reduction initiatives, facilities expansion and the ability of the Company to develop, market and sell new products and to continue to comply with environmental laws, rules and regulations. Other risks and uncertainties include uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, technological developments and changes in the competitive environment in which the Company operates. Persons reading this Form 10-Q are cautioned that such forward-looking statements are only predictions and that actual events or results may differ materially. In evaluating such statements, readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements. 15 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's $225 million term loan facility (the "Term Loan Facility") bears interest at a variable rate equal to either (a) the average daily rate on overnight U.S. federal funds transactions ("Federal Funds Rate"), or (b) the London Interbank Offered Rate shown on Telerate Page 3750 for the applicable interest period ("LIBOR"), plus, in either case, an applicable spread. On February 26, 1998, the Company entered into a three year interest rate swap agreement with its lead bank to partially hedge its interest rate risk on the Term Loan Facility. Under this agreement the Company pays a fixed rate of 5.805% on a notional amount of $150 million and receives LIBOR on that amount. This swap transaction effectively fixes the interest rate on $150 million of the Term Loan Facility at 5.805% plus the applicable spread for the duration of the interest rate swap. The remaining $75 million of the Term Loan Facility bears interest at the variable rates described above. In addition, the Company has a revolving loan facility that had a balance of $35 million at August 31, 1998, which also bears interest at the variable rates described above. Accordingly, a 1% increase in an application index rate would result in additional interest expense of $1.1 million per year assuming no change in the level of borrowing under the revolving loan facility. 16 17 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) Reports on Form 8-K--None 17 18 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER HOLDINGS, INC. /s/ CARROLL D. CURLESS ------------------------------ Carroll D. Curless Vice President and Controller DATE October 1, 1998 ----------------------- 18 19 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 27.1 Financial Data Schedule (submitted electronically to the Securities and Exchange Commission for its information) 19 EX-27.1 2 EX-27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND THE CONDENSED CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS NOV-30-1998 DEC-01-1997 AUG-31-1998 1 21,099 0 122,167 1,723 90,613 260,872 255,653 19,505 816,432 136,516 487,209 84,893 0 10 82,128 816,432 206,356 206,356 163,518 163,518 36,325 0 12,132 (4,938) (1,135) (3,803) 0 0 0 (3,803) (6.34) (6.34)
EX-27.2 3 EX-27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS) AND THE CONDENSED CONSOLIDATED BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 9-MOS NOV-30-1997 DEC-01-1996 AUG-31-1997 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 682,546 682,546 549,082 549,082 101,585 0 24,391 8,027 9,821 (1,794) 0 0 0 (1,794) (.18) (.18)
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