-----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, A8dDSLrYNFMxCc2uk3pRKcXe1IxQhltrb+GhK4RUIqHzyMu5ZsvAQ091AQK52TvR eWzg5WpZSt4PLScZ0JusmQ== 0000950152-01-503240.txt : 20010717 0000950152-01-503240.hdr.sgml : 20010717 ACCESSION NUMBER: 0000950152-01-503240 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010531 FILED AS OF DATE: 20010716 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: 333-49971 FILM NUMBER: 1682561 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER INDUSTRIES INC CENTRAL INDEX KEY: 0000030927 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 310268670 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957 FILM NUMBER: 1682562 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: P O BOX 779 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 FORMER COMPANY: FORMER CONFORMED NAME: EAGLE PICHER CO DATE OF NAME CHANGE: 19660921 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAISY PARTS INC CENTRAL INDEX KEY: 0001059567 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 381406772 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-02 FILM NUMBER: 1682563 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: C/O EAGLE PICHER INDUSTRIES INC STREET 2: P O BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER DEVELOPMENT CO INC CENTRAL INDEX KEY: 0001059568 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 311215706 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-03 FILM NUMBER: 1682564 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: C/O EAGLE PICHER INDUSTRIES INC STREET 2: P O BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER FAR EAST INC CENTRAL INDEX KEY: 0001059570 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 311235685 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-04 FILM NUMBER: 1682565 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: C/O EAGLE PICHER INDUSTRIES INC STREET 2: P O BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER MINERALS INC CENTRAL INDEX KEY: 0001059572 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 311188662 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-06 FILM NUMBER: 1682566 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: C/O EAGLE PICHER INDUSTRIES INC STREET 2: P O BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLSDALE TOOL & MANUFACTURING CO CENTRAL INDEX KEY: 0001059573 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 380946293 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-07 FILM NUMBER: 1682567 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC 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: 45202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EPMR CORP CENTRAL INDEX KEY: 0001059575 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 382185909 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-08 FILM NUMBER: 1682568 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: C/O EAGLE PICHER INDUSTRIES INC STREET 2: 250 E FIFTH ST ST CITY: CINCINNATI STATE: OH ZIP: 45202 FORMER COMPANY: FORMER CONFORMED NAME: MICHIGAN AUTOMOTIVE RESEARCH CORP DATE OF NAME CHANGE: 19980410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EAGLE PICHER TECHNOLOGIES LLC CENTRAL INDEX KEY: 0001059576 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 311587660 STATE OF INCORPORATION: OH FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-49957-09 FILM NUMBER: 1682569 BUSINESS ADDRESS: STREET 1: 250 EAST FIFTH STREET, SUITE 500 STREET 2: C/O EAGLE PICHER INDUSTRIES INC CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137217010 MAIL ADDRESS: STREET 1: C/O EAGLE PICHER INDUSTRIES INC STREET 2: P O BOX 779 CITY: CINCINNATI STATE: OH ZIP: 45202 10-Q 1 l89399ae10-q.txt EAGLE PICHER HOLDINGS, INC. FORM 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 May 31, 2001 Commission file number 333-49957-01 ------------- 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 EAGLE-PICHER HOLDINGS, INC. IS FILING THIS REPORT VOLUNTARILY IN ORDER TO COMPLY WITH THE REQUIREMENTS OF THE TERMS OF ITS 9 3/8% SENIOR SUBORDINATED NOTES AND 11 3/4% SERIES B CUMULATIVE EXCHANGEABLE PREFERRED STOCK AND IS NOT REQUIRED TO FILE THIS REPORT PURSUANT TO EITHER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. 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. (See explanatory note immediately above.) Yes X No --- --- Indicate by check mark whether the additional registrant, Eagle-Picher Industries, Inc., 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 --- --- 625,001 shares of Class A common capital stock, $.01 par value each, were outstanding at July 12, 2001. 374,999 shares of Class B common capital stock, $.01 par value each, were outstanding at July 12, 2001. 2 TABLE OF ADDITIONAL REGISTRANTS
Jurisdiction of IRS Employer Incorporation or Commission File Identification Name Organization Number Number ---- ---------------- --------------- -------------- Eagle-Picher Industries, Inc. Ohio 333-49957 31-0268670 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 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 EPMR Corporation (f/k/a Michigan Automotive Research Corp.) Michigan 333-49957-08 38-2185909
2 3 TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements.......................................... 4 Condensed Consolidated Statements of Income (Loss)(Unaudited)..... 4 Condensed Consolidated Balance Sheets (Unaudited)................. 5 Condensed Consolidated Statements of Cash Flows (Unaudited)....... 7 Notes to Condensed Consolidated Financial Statements (Unaudited).. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 29 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 31 Item 6. Exhibits and Reports on Form 8-K.............................. 31 Signatures............................................................. 32 Exhibit Index.......................................................... 41 3 4 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 Ended May 31 May 31 ------------------- ---------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net Sales $ 184,127 $ 197,851 $ 348,156 $ 400,116 Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) 147,499 156,091 277,627 316,259 Selling and administrative 13,611 17,438 24,871 34,949 Depreciation 11,379 10,562 21,632 21,581 Amortization of intangibles 4,149 4,097 8,105 8,208 Proceeds from insurance settlement -- -- -- (16,000) Divestitures 500 (4,333) 500 (14,309) Management compensation - special 1,889 1,560 1,889 1,560 Other (62) (226) (269) (388) --------- --------- --------- --------- 178,965 185,189 334,355 351,860 --------- --------- --------- --------- Operating Income 5,162 12,662 13,801 48,256 Interest expense (10,078) (10,932) (20,250) (23,024) Other income(expense) (66) (246) 839 (377) --------- --------- --------- --------- Income(Loss)from Continuing Operations Before Taxes (4,982) 1,484 (5,610) 24,855 Income Taxes (Benefit) (1,645) 3,000 (1,775) 14,900 --------- --------- --------- --------- Income (Loss) from Continuing Operations (3,337) (1,516) (3,835) 9,955 Discontinued Operations: Loss from operations of discontinued segment, net of income taxes (benefit) of $ - , ($250), $(900) and $(1,150) -- 87 (1,657) (787) Loss on disposal of business segment including provisions of $682 and $1,768 for operating losses during phase-out periods, net of income tax benefits of $1,575 and $9,800 (2,925) -- (18,200) -- --------- --------- --------- --------- Net Income (Loss) $ (6,262) $ (1,429) $ (23,692) $ 9,168 ========= ========= ========= ========= Income (Loss) Applicable to Common Shareholders $ (9,580) $ (4,224) $ (30,144) $ 3,413 ========= ========= ========= ========= Comprehensive Income (Loss) $ (7,082) $ (1,847) $ (24,589) $ 7,732 ========= ========= ========= ========= Earnings per Share: Income (loss) from continuing operations $ (6.77) $ (4.31) $ (10.45) $ 4.20 Discontinued operations net income (loss) (2.97) .09 (20.17) (.79) --------- --------- --------- --------- Net Income (loss) $ (9.74) $ (4.22) $ (30.62) $ 3.41 ========= ========= ========= =========
See accompanying notes to the condensed consolidated financial statements. 4 5 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
May 31 November 30 ASSETS 2001 2000 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 8,310 $ 7,467 Receivables, less allowances 119,354 104,875 Inventories: Raw materials and supplies 25,863 32,664 Work in process 35,000 37,034 Finished goods 17,110 13,821 -------- -------- 77,973 83,519 Net assets of discontinued operations 14,540 44,080 Prepaid expenses 6,186 7,141 Deferred income taxes 22,326 12,860 -------- -------- Total current assets 248,689 259,942 -------- -------- PROPERTY, PLANT AND EQUIPMENT 340,909 316,981 Less accumulated depreciation 114,080 90,977 -------- -------- Net property, plant and equipment 226,829 226,004 -------- -------- EXCESS OF ACQUIRED NET ASSETS OVER COST, net of accumulated amortization of $49,878 and $41,798, respectively 187,582 195,575 -------- -------- OTHER ASSETS 84,329 86,178 -------- -------- Total Assets $747,429 $767,699 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 65,661 $ 57,865 Long-term debt - current portion 65,416 65,358 Income taxes 2,161 2,682 Other current liabilities 63,945 65,235 -------- -------- Total current liabilities 197,183 191,140 LONG-TERM DEBT - less current portion 394,318 392,573 DEFERRED INCOME TAXES 6,272 10,278 OTHER LONG-TERM LIABILITIES 26,347 24,707 -------- -------- Total Liabilities 624,120 618,698 -------- -------- 11-3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK; authorized 50,000 shares; issued and outstanding 14,191 shares 116,256 109,804 -------- --------
5 6 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
May 31 November 30 2001 2000 ---- ---- SHAREHOLDERS' EQUITY Class A Common stock, authorized 625,001 shares, $.01 par value each; issued and outstanding 625,001 shares 6 6 Class B Common stock, authorized 374,999 shares, $.01 par value each; issued and outstanding 374,999 shares 4 4 Additional paid-in capital 99,991 99,991 Deficit (86,284) (56,140) Other comprehensive income (3,190) (2,293) --------- --------- 10,527 41,568 Treasury Stock, at cost: 16,500 and 11,500 shares (3,474) (2,371) --------- --------- Total Shareholders' Equity 7,053 39,197 --------- --------- Total Liabilities and Shareholders' Equity $ 747,429 $ 767,699 ========= =========
See accompanying notes to the condensed consolidated financial statements. 6 7 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) Six Months Ended May 31 ------------------ 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(23,692) $ 9,168 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 31,360 31,405 Provision for discontinued operations 18,200 -- Divestitures 500 (14,309) Changes in assets and liabilities, net of effect of acquisitions and divestitures: Receivables (14,492) 7,979 Inventories 5,546 (2,420) Accounts payable 7,796 5,657 Accrued liabilities (1,790) (11,298) Other (1,562) 8,137 -------- -------- Net cash provided by operating activities 21,866 34,319 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of divisions -- 83,880 Acquisitions -- (6,839) Capital expenditures (22,344) (17,522) Other (2,022) 1,012 -------- -------- Net cash provided by (used in) investing activities (24,366) 60,531 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term debt (9,548) (7,315) Net borrowings (repayments) under revolving credit agreements 11,556 (82,398) Other (205) (779) -------- -------- Net cash provided by (used in) financing activities 1,803 (90,492) -------- -------- NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 1,540 (3,147) -------- -------- 7 8 EAGLE-PICHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands) Six Months Ended May 31 ---------------- 2001 2000 ---- ---- Net increase in cash and cash equivalents 843 1,211 Cash and cash equivalents, beginning of period 7,467 10,071 ------- ------- Cash and cash equivalents, end of period $ 8,310 $11,282 ======= ======= Supplemental cash flow information: 2001 2000 ---- ---- Cash paid during the three months ended May 31: Interest paid $ 14,468 $ 15,976 Income taxes paid (refunded), net $ (135) $ 2,984 Cash paid during the six months ended May 31: Interest paid $ 18,704 $ 23,361 Income taxes paid (refunded), net $ (1,902) $ 3,255 See accompanying notes to the condensed consolidated financial statements. 8 9 EAGLE-PICHER HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF REPORTING FOR INTERIM FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements of Eagle-Picher Holdings, Inc. (the "Company") 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 accounting principles generally accepted in the United States of America 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 for the fiscal year ended November 30, 2000 presented in the Company's Form 10-K filed with the SEC on February 28, 2001, as amended on March 8, 2001. 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 months and six months ended May 31, 2001 and May 31, 2000. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. B. BASIC EARNINGS PER SHARE The calculation of net income (loss) per share is based upon the average number of common shares outstanding, which was 983,500 in the three months ended May 31, 2001, 984,333 in the six months ended May 31, 2001 and 1,000,000 in the three months and six months ended May 31,2000. The net loss applicable to common shareholders represents the net income reduced by, or the net loss increased by, accreted dividends on preferred stock of $3,318 and $6,452 for the three and six months ended May 31, 2001, respectively and $2,795 and $5,755 for the three and six months ended May 31, 2000, respectively. No potential common stock was outstanding during the three months ended May 31, 2001 or 2000. C. DISCONTINUED OPERATIONS The Board of Directors authorized Management to sell the assets and business of the Construction Equipment Division, which comprises the Machinery Segment. The Company has engaged Seale & Associates, LLC to assist the Company in selling the Segment. The sale is expected to be completed by September 1, 2001. Sales were $18,102 and $23,629 in the Machinery Segment in the three months ended May 31, 2001 and May 31, 2000, respectively, and $31,891 and $43,207 in the six months ended May 31, 2001 and 2000, respectively. The Company recorded provisions of $15,275 and $2,925, net of income tax benefits of $8,225 and $1,575, in the first and second quarters of 2001, respectively. These provisions include estimated losses and costs to be incurred in connection with the disposition of the Machinery Segment, including an aggregate of $2,450 of expected losses during the phase-out period through September 1, 2001. An operating loss of $1,657, net of tax, was incurred in the first quarter of 2001. The results of the Machinery Segment's operations have been reported separately as discontinued operations in the consolidated statement of income (loss). Prior year amounts have been restated to present the operations of the Machinery Segment as a discontinued operation. 9 10 The net assets of the discontinued operations have been recorded at their estimated net realizable value under the caption "Net assets of discontinued operations" in the accompanying Consolidated Balance Sheets at May 31, 2001 and November 30, 2000. At May 31, 2001, total assets of the Machinery Segment, which consisted primarily of accounts receivable, inventory, property, plant and equipment and goodwill, were $49,186. Total liabilities of the Machinery Segment were $34,646 and consisted of accounts payable and accrued liabilities. D. LEGAL MATTERS For other information on legal proceedings, see Item 3 of the Company's Annual Report on Form 10-K/A for the fiscal year ended November 30, 2000 and Item 1 of the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 2001. On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit against the Company's wholly owned subsidiary, Eagle-Picher Industries, Inc. ("EPI") 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 an amount believed to be in excess of $10 million. In June 1997, EPI filed a Motion with the United States Bankruptcy Court for the Southern District of Ohio, Western Division, ("Bankruptcy Court") seeking an order enforcing EPI's plan of reorganization as confirmed by the Bankruptcy Court in November 1996 (the "Plan") 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 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. On January 5, 2001, EPI filed a Motion for Summary Judgment on the issue of whether Caradon was afforded notice of the Plan and the hearing when the Plan was confirmed, a motion which was denied by the Bankruptcy Court on April 5, 2001 based on the Bankruptcy Court's finding that factual issues remain in dispute. EPI intends to contest this suit vigorously. EPI does not believe that resolution of this suit will have a material adverse effect on EPI's financial condition, results of operations or cash flows. On December 1, 1999, Eagle-Picher Technologies, LLC ("EPT") acquired the depleted zinc distribution business (the "DZ Business") of Isonics Corporation ("Isonics") for approximately $8.2 million, payable $6.7 million at closing and $1.5 million in three installments of $500,000 each payable on the first three anniversaries of the closing. At the time of the acquisition, a single customer represented approximately 55% of the DZ Business. Following the completion of the acquisition, this customer informed EPT that it would no longer be purchasing depleted zinc from an outside supplier. EPT initiated binding arbitration against Isonics on March 26, 2001 with the American Arbitration Association in Dallas, Texas pursuant to contractual dispute resolution procedures. EPT'S arbitration demand is based on breach of representations and warranties in the purchase and sale agreement for the DZ Business as well as fraud and negligent misrepresentation, and seeks to recover damages in excess of $10 million and other remedies. While the company believes it has a meritorious claim against Isonics, there can be no assurance that the company will obtain any recovery as a result of this claim. In connection with the sale of the DZ Business, EPT agreed to sell 200 kg of isotopically purified silicon-28 to Isonics. Due to various factors, EPT has not yet 10 11 delivered any silicon-28 to Isonics. Isonics has asserted a counterclaim against EPT in the DZ Business arbitration described above for failure to deliver silicon-28, seeking damages in excess of $10 million. EPT believes that any obligation to deliver silicon-28 has been excused by, among other things, a force majeure clause in the purchase and sale agreement for the DZ Business. Contemporaneously with the purchase and sale of the DZ Business, EPT and Isonics entered into a supply agreement (the "Supply Agreement") pursuant to which EPT agreed that, commencing upon delivery of 200 kg of silicon-28, EPT would devote the capacity of a pilot plant used to produce such material to producing silicon-28 and sell all silicon-28 produced in such pilot plant and meeting certain specifications, as well as any silicon-29 or silicon-30 actually produced as a byproduct, to Isonics for a ten year term. Isonics amended its counterclaim in the DZ Business arbitration to assert a claim that the Supply Agreement requires EPT to produce a certain amount of silicon-28, silicon-29 and silicon-30 and alleging damages of not less than $75 million for anticipatory breach of such alleged obligation. EPT believes that the terms of the Supply Agreement and applicable law clearly establish that the Supply Agreement does not impose any obligation to produce any quantity of silicon-28, silicon-29 or silicon-30 and that Isonics' claims are without merit. Isonics also amended its counterclaim to allege that EPT's parent company, Eagle-Picher Industries, Inc. ("EPI") is liable for any damages of EPT under an "alter ego" theory, a claim which EPI and EPT believe is also without merit. EPT and EPI intend to assert other defenses as well and to defend this counterclaim vigorously. EPT continues to explore alternative processes that may enable it to produce silicon-28, but there is no assurance that such efforts will be successful. In addition, 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. E. SEGMENT REPORTING The Company has the following reportable segments: Automotive, Technologies, Machinery and Minerals. Please see discussion in Note C regarding the discontinuance of the Machinery Segment. The method for determining what information to report is based on the way management organizes the operating segments within the company for making operational decisions and assessing performance. The operations in the Automotive Segment provide mechanical and structural parts and raw materials for passenger cars, vans, trucks and sport utility vehicles for original equipment manufacturers and replacement markets. The operations in the Technologies Segment produce a variety of products for the aerospace, nuclear, telecommunications, electronics, and other industrial markets. The operations in the Minerals Segment mine and refine diatomaceous earth products. The accounting policies used to develop segment information correspond to those disclosed in the Company's consolidated financial statements for the year ended November 30, 2000 included in Form 10-K/A. Sales between segments are not material. The Company does not allocate certain corporate expenses to its segments. 11 12 Information about reported segment income or loss is as follows for the three months ended May 31, 2001 and 2000:
Three Months Ended Six Months Ended May 31 May 31 ------------------ ----------------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands of dollars) Net Sales Automotive $ 114,751 $ 122,800 $ 215,538 $ 237,487 Technologies 52,460 46,813 100,327 88,602 Minerals 16,916 17,467 32,291 32,853 Divested Divisions -- 10,771 -- 41,174 --------- --------- --------- --------- Total $ 184,127 $ 197,851 $ 348,156 $ 400,116 ========= ========= ========= ========= Income (Loss) from Continuing Operations Before Taxes: Automotive $ (2,054) $ 1,073 $ (2,410) $ 4,066 Technologies (788) (649) (207) (270) Minerals 126 929 (432) 542 Divested Divisions (500) 3,028 (500) 9,777 Corporate (1,766) (2,897) (2,061) 10,740 --------- --------- --------- --------- $ (4,982) $ 1,484 $ (5,610) $ 24,855 ========= ========= ========= ========= Total Depreciation and Amortization: Automotive $ 10,133 $ 8,807 $ 19,383 $ 17,092 Technologies 3,776 3,482 7,363 6,958 Minerals 1,390 1,488 2,740 2,977 Divested Divisions -- 685 -- 2,370 Corporate 229 197 251 392 --------- --------- --------- --------- Total $ 15,528 $ 14,659 $ 29,737 $ 29,789 ========= ========= ========= ========= Interest Expense: Automotive $ 5,308 $ 6,174 $ 10,856 $ 9,780 Technologies 3,787 3,301 7,528 6,233 Minerals 1,060 678 2,131 1,593 Divested Divisions -- 1,080 -- 2,669 Corporate/Intersegment (77) (301) (265) 2,749 --------- --------- --------- --------- Total $ 10,078 $ 10,932 $ 20,250 $ 23,024 ========= ========= ========= =========
The Company sold its Ross Aluminum, MARCO and Fluid Systems Divisions in the first quarter of 2000. The Rubber Molding Division was sold in the second quarter of 2000 and the Cincinnati Industrial Machinery Division was sold in the third quarter of 2000. These divisions are referred to collectively herein as the "Divested Divisions." F. FINANCIAL INSTRUMENTS Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133." Under this guidance, all derivatives, including foreign currency exchange contracts and interest rate swaps, are recognized in the consolidated balance sheet at fair value. On the date the derivative contract is entered into, the company designates the derivative as either a hedge of the fair value of a recognized asset or liability (fair value hedge), a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge) or hedge of a 12 13 net investment in a foreign operation (net investment hedge). Changes in the fair value of derivatives that are designed as fair value hedges are recorded in the consolidated statement of income along with the loss or gain on the hedged asset or liability. Changes in the fair value of derivatives that are designated as cash flow hedges are recorded in other comprehensive income, until the underlying transactions occur. Changes in the fair value of derivatives that are designated as net investment hedges are recorded as a component of other comprehensive income. The ineffective portion of derivatives that are hedges are recorded in the consolidated statement of income. Upon initial application of SFAS 133, the Company recorded the fair value of existing foreign currency exchange contracts and interest rate swaps on the consolidated balance sheet and a corresponding unrecognized gain of $327, net of tax, as a cumulative effect adjustment of accumulated other comprehensive income. G. SUPPLEMENTAL GUARANTOR INFORMATION The indebtedness of the Company's wholly-owned subsidiary, EPI, includes a syndicated secured loan facility ("Credit Agreement") and $220.0 million in senior subordinated notes ("Subordinated Notes"). Both the Credit Agreement and the Subordinated Notes are guaranteed on a full, unconditional and joint and several basis by the Company and certain of EPI'S wholly-owned domestic subsidiaries ("Subsidiary Guarantors") including Carpenter Enterprises Ltd., which was acquired in 1999, and Eagle-Picher Acceptance Corporation, which was formed in 1999. Management has determined that full financial statements and other disclosures concerning EPI or the Subsidiary Guarantors would not be material to investors and such financial statements are not presented. The following supplemental condensed combining financial statements present information regarding EPI, the Subsidiary Guarantors and the subsidiaries that did not guarantee the debt. EPI and the Subsidiary Guarantors are subject to restrictions on the payment of dividends under the terms of both the Credit Agreement and the Indenture supporting the Subordinated Notes, both of which were filed with the Company's Form S-4 Registration Statement No. 333-49957-01 filed on April 11, 1998 and amended on May 20, 1998 and June 5, 1998, and both of which were incorporated by reference to the Company's Form 10-K which was filed on February 28, 2001 and amended on March 8, 2001. 13 14 EAGLE-PICHER HOLDINGS,INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) THREE MONTHS ENDED MAY 31, 2001
GUARANTORS -------------------------------------------- EAGLE-PICHER SUBSIDIARY ISSUER HOLDINGS, INC. GUARANTORS ------------------ ------------------- ----------------------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 11,914 $ -- $ 149,951 Intercompany 3,520 -- 3,652 Operating Costs and Expenses: Cost of products sold 9,123 -- 128,043 Selling administrative 5,979 -- 5,647 Intercompany charges (1,792) -- 1,753 Depreciation 1,029 -- 9,389 Amortization of intangibles 930 -- 2,860 Other 2,378 -- (44) --------- --------- --------- Total 17,647 -- 147,648 --------- --------- --------- Operating Income (2,213) -- 5,955 Other Income (Expense) Interest expense (2,717) -- (8,872) Other income (expense) 943 -- 1,607 Equity in earnings of consolidated subsidiaries (809) (6,261) 40 --------- --------- --------- Income (Loss) from Continuting (4,796) (6,261) (1,270) Operations Before Taxes Income Taxes (Benefit) (2,512) -- (16) --------- --------- --------- Net Income (Loss) from Continuing Operations (2,284) (6,261) (1,254) Discontinued Operations (2,925) -- -- --------- --------- --------- Net Income (Loss) $ (5,209) $ (6,261) $ (1,254) ========= ========= =========
NON-GUARANTORS FOREIGN SUBSIDIARIES ELIMINATIONS TOTAL --------------------- ----------------- ---------------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 22,262 $ -- $ 184,127 Intercompany -- (7,172) -- Operating Costs and Expenses: Cost of products sold 17,712 (7,379) 147,499 Selling administrative 2,072 (87) 13,611 Intercompany charges (48) 87 -- Depreciation 961 -- 11,379 Amortization of intangibles 359 -- 4,149 Other (7) -- 2,327 --------- --------- --------- Total 21,049 (7,379) 178,965 --------- --------- --------- Operating Income 1,213 207 5,162 Other Income (Expense) Interest expense (480) 1,991 (10,078) Other income (expense) (56) (2,560) (66) Equity in earnings of consolidated subsidiaries -- 7,030 -- --------- --------- --------- Income (Loss) from Continuting 677 6,668 (4,982) Operations Before Taxes Income Taxes (Benefit) 883 -- (1,645) --------- --------- --------- Net Income (Loss) from Continuing Operations (206) 6,668 (3,337) Discontinued Operations (10) 10 (2,925) --------- --------- --------- Net Income (Loss) $ (216) $ 6,678 $ (6,262) ========= ========= =========
14 15 EAGLE-PICHER HOLDINGS,INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) SIX MONTHS ENDED MAY 31, 2001
GUARANTORS -------------------------------------------- EAGLE-PICHER SUBSIDIARY ISSUER HOLDINGS, INC. GUARANTORS ------------------ ------------------- ----------------------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 24,784 $ -- $ 277,381 Intercompany 7,370 -- 7,521 Operating Costs and Expenses: Cost of products sold 18,563 -- 237,212 Selling administrative 10,813 -- 10,085 Intercompany charges (3,321) -- 3,243 Depreciation 2,155 -- 17,693 Amortization of intangibles 1,864 -- 5,526 Other 2,237 -- (100) --------- --------- --------- Total 32,311 -- 273,659 --------- --------- --------- Operating Income (157) -- 11,243 Other Income (Expense) Interest expense (4,960) -- (18,181) Other income (expense) 905 -- 3,486 Equity in earnings of consolidated subsidiaries (1,817) (23,692) 701 --------- --------- --------- Income (Loss) from Continuting (6,029) (23,692) (2,751) Operations Before Taxes Income Taxes (Benefit) (3,283) -- (15) --------- --------- --------- Net Income (Loss) from Continuing Operations (2,746) (23,692) (2,736) Discontinued Operations (19,857) -- -- --------- --------- --------- Net Income (Loss) $ (22,603) $ (23,692) $ (2,736) ========= ========= =========
NON-GUARANTORS FOREIGN SUBSIDIARIES ELIMINATIONS TOTAL --------------------- ----------------- ---------------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 45,991 $ -- $ 348,156 Intercompany 1 (14,892) -- Operating Costs and Expenses: Cost of products sold 36,952 (15,100) 277,627 Selling administrative 4,148 (175) 24,871 Intercompany charges (97) 175 -- Depreciation 1,784 -- 21,632 Amortization of intangibles 715 -- 8,105 Other (17) -- 2,120 --------- --------- --------- Total 43,485 (15,100) 334,355 --------- --------- --------- Operating Income 2,507 208 13,801 Other Income (Expense) Interest expense (1,031) 3,922 (20,250) Other income (expense) 939 (4,491) 839 Equity in earnings of consolidated subsidiaries -- 24,808 -- --------- --------- --------- Income (Loss) from Continuting 2,415 24,447 (5,610) Operations Before Taxes Income Taxes (Benefit) 1,523 -- (1,775) --------- --------- --------- Net Income (Loss) from Continuing Operations 892 24,447 (3,835) Discontinued Operations 27 (27) (19,857) --------- --------- --------- Net Income (Loss) $ 919 $ 24,420 $ (23,692) ========= ========= =========
15 16 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED MAY 31, 2001
GUARANTORS ------------------------------------------------ EAGLE-PICHER SUBSIDIARY ISSUER HOLDINGS, INC. GUARANTORS --------------- ------------------------ ---------------- (IN THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $(22,603) $(23,692) $ (2,736) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Equity in earnings of consolidated subsidiaries 1,817 23,692 (701) Depreciation and amortization 5,432 -- 23,429 Provision for discontinued operations 18,200 -- -- Divestitures 500 -- -- Changes in assets and liabilities, net of effects of acquisitions and divestitures 3,525 -- (12,712) -------- -------- -------- Net cash provided by operating activities 6,871 -- 7,280 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,739) -- (12,492) Other (1,116) (1,103) -- -------- -------- -------- Net cash used in investing activities (5,855) (1,103) (12,492) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term debt (9,548) -- -- Borrowings (repayments) on revolving credit agreements 11,340 -- 1,000 Other -- -- -- -------- -------- -------- Net cash provided by (used in) financing activities 1,792 -- 1,000 -------- -------- -------- Net cash provided by (used in) discontinued operations 1,540 -- -- -------- -------- -------- Increase (decrease) in cash and cash equivalents 4,348 (1,103) (4,212) Intercompany accounts (3,657) 1,103 4,195 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,297 1 539 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,988 $ 1 $ 522 ======== ======== ========
NON-GUARANTORS FOREIGN SUBSIDIARIES ELIMINATIONS TOTAL ------------------ ---------------- ----------- (IN THOUSANDS OF DOLLARS) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 919 $ 24,420 $(23,692) Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Equity in earnings of consolidated subsidiaries -- (24,808) -- Depreciation and amortization 2,499 -- 31,360 Provision for discontinued operations -- -- 18,200 Divestitures -- -- 500 Changes in assets and liabilities, net of effects of acquisitions and divestitures 1,706 2,979 (4,502) -------- -------- -------- Net cash provided by operating activities 5,124 2,591 21,866 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (5,113) -- (22,344) Other 197 -- (2,022) -------- -------- -------- -- Net cash used in investing activities (4,916) -- (24,366) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Reduction of long-term debt -- -- (9,548) Borrowings (repayments) on revolving credit agreements (784) -- 11,556 Other (205) -- (205) -------- -------- -------- Net cash provided by (used in) financing activities (989) -- 1,803 -------- -------- -------- Net cash provided by (used in) discontinued operations -- -- 1,540 -------- -------- -------- Increase (decrease) in cash and cash equivalents (781) 2,591 843 Intercompany accounts 1,992 (3,633) -- CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,313 1,317 7,467 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,524 $ 275 $ 8,310 ======== ======== ========
16 17 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED) AS OF MAY 31, 2001
GUARANTORS -------------------------------------------- EAGLE-PICHER SUBSIDIARY ISSUER HOLDINGS, INC. GUARANTORS ----------- --------------------- ---------------- (IN THOUSANDS OF DOLLARS) ASSETS Cash and cash equivalents $ 1,988 $ 1 $ 522 Receivables, net (11,496) -- 115,301 Intercompany accounts receivable 4,496 -- 4,904 Inventories 3,963 -- 63,012 Net assets of discontinued operations 14,380 -- -- Prepaid expenses 1,367 -- 2,759 Deferred income taxes 22,660 -- -- --------- --------- --------- Total current assets 37,358 1 186,498 Property, Plant & Equipment, net 24,755 -- 177,042 Investment in Subsidiaries 81,874 126,506 12,301 Excess of Acquired Net Assets Over Cost, net 43,807 -- 126,304 Other Assets 102,677 -- 13,340 --------- --------- --------- Total Assets $ 290,471 $ 126,507 $ 515,485 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 8,068 $ -- $ 50,947 Intercompany accounts payable 504 -- -- Long-term debt - current portion 20,795 -- 43,750 Income taxes 1,611 -- -- Other current liabilities 42,609 -- 18,161 --------- --------- --------- Total current liabilities 73,587 -- 112,858 Long-term Debt - less current portion 392,191 -- 32,562 Deferred Income Taxes 8,450 -- -- Other Long-Term Liabilities 23,694 14 1,000 --------- --------- --------- Total Liabilities 497,922 14 146,420 Intercompany Accounts (320,726) -- 281,778 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock -- 116,256 -- Shareholders' Equity 113,275 10,237 87,287 --------- --------- --------- Total Liabilities and Shareholders' Equity $ 290,471 $ 126,507 $ 515,485 ========= ========= =========
NON-GUARANTORS FOREIGN SUBSIDIARIES ELIMINATIONS TOTAL ---------------- -------------- --------- (IN THOUSANDS OF DOLLARS) ASSETS Cash and cash equivalents $ 5,524 $ 275 $ 8,310 Receivables, net 15,549 -- 119,354 Intercompany accounts receivable 128 (9,528) -- Inventories 12,257 (1,259) 77,973 Net assets of discontinued operations 6,484 (6,324) 14,540 Prepaid expenses 2,597 (537) 6,186 Deferred income taxes -- (334) 22,326 --------- --------- --------- Total current assets 42,539 (17,707) 248,689 Property, Plant & Equipment, net 25,075 (43) 226,829 Investment in Subsidiaries 10,857 (231,538) -0- Excess of Acquired Net Assets Over Cost, net 20,611 (3,140) 187,582 Other Assets 669 (32,357) 84,329 --------- --------- --------- Total Assets $ 99,751 $(284,785) $ 747,429 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 6,646 $ -- $ 65,661 Intercompany accounts payable 8,301 (8,805) -- Long-term debt - current portion 4,050 (3,179) 65,416 Income taxes 550 -- 2,161 Other current liabilities 3,175 -- 63,945 --------- --------- --------- Total current liabilities 22,722 (11,984) 197,183 Long-term Debt - less current portion 2,127 (32,562) 394,318 Deferred Income Taxes -- (2,178) 6,272 Other Long-Term Liabilities 1,639 -- 26,347 --------- --------- --------- Total Liabilities 26,488 (46,724) 624,120 Intercompany Accounts 37,262 1,686 -- 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock -- -- 116,256 Shareholders' Equity 36,001 (239,747) 7,053 --------- --------- --------- Total Liabilities and Shareholders' Equity $ 99,751 $(284,785) $ 747,429 ========= ========= =========
17 18 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) THREE MONTHS ENDED MAY 31, 2000
GUARANTORS -------------------------------------------- EAGLE-PICHER SUBSIDIARY ISSUER HOLDINGS, INC. GUARANTORS ---------- -------------------------------------------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 22,351 $ -- $ 153,068 Intercompany 3,963 -- 4,493 Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) 18,335 -- 127,984 Selling and administrative 9,519 2 5,496 Management compensation 1,560 -- -- Intercompany charges (3,298) -- 3,298 Depreciation 1,450 -- 8,282 Amortization of intangibles 1,077 -- 2,780 (Gain) loss on sales of divisions (1,100) -- -- (Gain) loss on sales of assets (34) -- (202) --------- --------- --------- Total 27,509 2 147,638 --------- --------- --------- Operating Income (Loss) (1,195) (2) 9,923 Other Income (Expense) Interest expense (1,950) -- (8,347) Other income (expense) 174 -- 532 Equity in earnings of consolidated subsidiaries 2,198 (1,427) 419 --------- --------- --------- Income (Loss) Before Taxes (773) (1,429) 2,527 Income Taxes (Benefit) 296 -- 3,180 --------- --------- --------- Net Income (Loss) from Continuing Operations (1,069) (1,429) (653) Discontinued Operations 87 -- -- --------- --------- --------- Net Income (Loss) $ (982) $ (1,429) $ (653) ========= ========= =========
NON-GUARANTORS FOREIGN SUBSIDIARIES ELIMINATIONS TOTAL ---------------- --------------- ----------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 22,432 $ -- $ 197,851 Intercompany (1) (8,455) -- Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) 18,227 (8,455) 156,091 Selling and administrative 2,421 -- 17,438 Management compensation -- -- 1,560 Intercompany charges -- -- -- Depreciation 830 -- 10,562 Amortization of intangibles 240 -- 4,097 (Gain) loss on sales of divisions (3,233) -- (4,333) (Gain) loss on sales of assets 10 -- (226) --------- --------- --------- Total 18,495 (8,455) 185,189 --------- --------- --------- Operating Income (Loss) 3,936 -- 12,662 Other Income (Expense) Interest expense (1,132) 497 (10,932) Other income (expense) (455) (497) (246) Equity in earnings of consolidated subsidiaries -- (1,190) -- --------- --------- --------- Income (Loss) Before Taxes 2,349 (1,190) 1,484 Income Taxes (Benefit) (476) -- 3,000 --------- --------- --------- Net Income (Loss) from Continuing Operations 2,825 (1,190) (1,516) Discontinued Operations 26 (26) 87 --------- --------- --------- Net Income (Loss) $ 2,851 $ (1,216) $ (1,429) ========= ========= =========
18 19 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) SIX MONTHS ENDED MAY 31, 2000
GUARANTORS ------------------------------------------ NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ---------- -------------------- ---------------- -------------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ 46,939 $ -- $ 295,039 $ 58,138 Intercompany 8,128 -- 7,048 -- Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) 37,762 -- 244,065 49,608 Selling and administrative 17,824 7 11,672 5,484 Management compensation 1,560 -- -- -- Intercompany charges (6,692) -- 6,691 (37) Depreciation 3,053 -- 16,322 2,206 Amortization of intangibles 2,206 -- 5,522 480 Proceeds from insurance settlement (16,000) -- -- -- (Gain) loss on sales of subsidiaries 1,260 -- (3,976) (11,593) (Gain) loss on sales of assets (34) -- (394) 7 --------- --------- --------- --------- Total 40,939 7 279,902 46,155 --------- --------- --------- --------- Operating Income (Loss) 14,128 (7) 22,185 11,983 Other Income (Expense) Interest expense (5,689) -- (15,799) (2,639) Other income (expense) 403 -- 1,058 (735) Equity in earnings of consolidated subsidiaries 11,312 9,175 770 -- --------- --------- --------- --------- Income (Loss) Before Taxes 20,154 9,168 8,214 8,609 Income Taxes 9,314 -- 5,465 121 --------- --------- --------- --------- Net Income (Loss) from Continuing Operations 10,840 9,168 2,749 8,488 Dicontinued Operations (787) -- -- 78 --------- --------- --------- --------- Net Income (Loss) $ 10,053 $ 9,168 $ 2,749 $ 8,566 ========= ========= ========= =========
ELIMINATIONS TOTAL -------------- --------- (IN THOUSANDS OF DOLLARS) Net Sales Customers $ -- $ 400,116 Intercompany (15,176) -- Operating Costs and Expenses: Cost of products sold (exclusive of depreciation) (15,176) 316,259 Selling and administrative (38) 34,949 Management compensation -- 1,560 Intercompany charges 38 -- Depreciation -- 21,581 Amortization of intangibles -- 8,208 Proceeds from insurance settlement -- (16,000) (Gain) loss on sales of subsidiaries -- (14,309) (Gain) loss on sales of assets 33 (388) --------- --------- Total (15,143) 351,860 --------- --------- Operating Income (Loss) (33) 48,256 Other Income (Expense) Interest expense 1,103 (23,024) Other income (expense) (1,103) (377) Equity in earnings of consolidated subsidiaries (21,257) -- --------- --------- Income (Loss) Before Taxes (21,290) 24,855 Income Taxes -- 14,900 --------- --------- Net Income (Loss) from Continuing Operations (21,290) 9,955 Dicontinued Operations (78) (787) --------- --------- Net Income (Loss) $ (21,368) $ 9,168 ========= =========
19 20 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED MAY 31, 2000
GUARANTORS ----------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------- ----------------- ----------- --------------- ------------ -------- (IN THOUSANDS OF DOLLARS) Cash Flows From Operating Activities: Net Income (Loss) 10,053 9,168 2,749 8,566 (21,368) 9,168 Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: Equity in earnings (loss) of consolidated subsidiaries (11,312) (9,175) (770) -- 21,257 -- Depreciation and amortization 6,669 -- 22,050 2,686 -- 31,405 (Gain) loss on sales of divisions 1,260 -- (3,976) (11,593) -- (14,309) Changes in assets and liabilities, net of effect of acquisitions and divestitures 20,469 7 5,290 (11,517) (6,194) 8,055 -------- ------- ------- -------- ------- ------- Net cash provided by (used in) operating activities 27,139 -- 25,343 (11,858) (6,305) 34,319 -------- ------- ------- -------- ------- ------- Cash Flows From Investing Activities: Proceeds from sales of divisions 45,834 -- 10,430 27,616 -- 83,880 Acquisition of division -- -- (6,839) -- -- (6,839) Capital expenditures (653) -- (13,666) (3,203) -- (17,522) Other 2,269 -- 372 (559) (1,070) 1,012 -------- ------- ------- -------- ------- ------- Net cash provided by (used in) investing activities 47,450 -- (9,703) 23,854 (1,070) 60,531 -------- ------- ------- -------- ------- ------- Cash Flows From Financing Activities: Reduction of long-term debt (7,315) -- -- -- -- (7,315) Net borrowings(repayments)under revolving credit agreements (63,000) -- (9,250) (10,148) -- (82,398) Other (6) -- -- (773) -- (779) -------- ------- ------- -------- ------- ------- Net cash financing activities (70,321) -- (9,250) (10,921) -- (90,492) -------- ------- ------- -------- ------- ------- Net Cash Used in Discontinued Operations (3,147) -- -- -- -- (3,147) Increase (decrease) in cash 1,121 -- 6,390 1,075 (7,375) 1,211 Intercompany accounts (776) -- (6,517) (220) 7,513 -- Cash and cash equivalents, beginning of period 4,064 1 870 5,088 48 10,071 -------- ------- ------- -------- ------- ------- Cash and cash equivalents, end of period 4,409 1 743 5,943 186 11,282 ======== ======= ======= ======== ======= =======
20 21 EAGLE-PICHER HOLDINGS, INC. SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED) AS OF NOVEMBER 30, 2000
GUARANTORS --------------------------- NON-GUARANTORS EAGLE-PICHER SUBSIDIARY FOREIGN ISSUER HOLDINGS, INC. GUARANTORS SUBSIDIARIES ELIMINATIONS TOTAL ------ -------------- ---------- ------------ ------------ ----- (IN THOUSANDS OF DOLLARS) ASSETS Cash and cash equivalents $ 1,297 $ 1 $ 539 $ 4,313 $ 1,317 $ 7,467 Receivables, net 3,140 -- 84,004 17,731 -- 104,875 Intercompany accounts receivable 22,266 -- 9,768 980 (33,014) -- Inventories 4,919 -- 67,299 12,630 (1,329) 83,519 Net assets of discontinued operations 43,793 -- -- 6,256 (5,969) 44,080 Prepaid expenses 906 -- 4,999 1,503 (267) 7,141 Deferred income taxes 12,860 -- -- -- -- 12,860 --------- --------- --------- --------- --------- --------- Total current assets 89,181 1 166,609 43,413 (39,262) 259,942 Property, Plant & Equipment, net 22,191 -- 181,898 21,958 (43) 226,004 Investment in Subsidiaries 118,526 151,302 12,377 -- (282,205) -- Excess of Acquired Net Assets Over Cost, net 45,673 -- 131,637 21,404 (3,139) 195,575 Other Assets 70,021 -- 17,799 8,472 (10,114) 86,178 --------- --------- --------- --------- --------- --------- Total Assets $ 345,592 $ 151,303 $ 510,320 $ 95,247 $(334,763) $ 767,699 ========= ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 10,987 $ -- $ 42,119 $ 4,759 $ -- $ 57,865 Intercompany accounts payable 92 -- -- 9,327 (9,419) -- Long-term debt - current portion 20,795 -- 42,750 1,813 -- 65,358 Income taxes 2,162 -- -- 520 -- 2,682 Other current liabilities 41,092 -- 22,046 2,364 (267) 65,235 --------- --------- --------- --------- --------- --------- Total current liabilities 75,128 -- 106,915 18,783 (9,686) 191,140 Long-Term Debt - less current portion 390,398 -- 22,266 2,175 (22,266) 392,573 Deferred Income Taxes 11,512 -- -- -- (1,234) 10,278 Other Long-Term Liabilities 22,075 14 1,000 1,618 -- 24,707 --------- --------- --------- --------- --------- --------- Total Liabilities 499,113 14 130,181 22,576 (33,186) 618,698 Intercompany Accounts (290,399) -- 290,081 36,777 (36,459) -- 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock -- 109,804 -- -- -- 109,804 Shareholders' Equity 136,878 41,485 90,058 35,894 (265,118) 39,197 --------- --------- --------- --------- --------- --------- Total Liabilities and Shareholders' Equity $ 345,592 $ 151,303 $ 510,320 $ 95,247 $(334,763) $ 767,699 ========= ========= ========= ========= ========= =========
21 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Please refer to Note E. regarding Segment Reporting contained in Item 1. of this report. The Automotive Segment Sales of the Automotive Segment declined 6.6% from $122.8 million in the second quarter of 2000 to $114.8 million in the comparable period of 2001. In the first six months of 2001, net sales were $215.5 million compared to $237.5 million in the same period of 2000. The loss from continuing operations before taxes was $2.1 million and $2.4 million in the quarter and six months ended May 31, 2001 compared to income from continuing operations before taxes of $1.1 million and $4.1 million for the comparable periods in 2000, respectively. The general economic slowdown in the United States has continued to have a negative impact on volumes and operating results, throughout 2001. Automotive Segment Outlook Sales in the third quarter of the fiscal year are expected to be somewhat lower than those of the second quarter, which is typical in the automotive industry, due to shut-downs in the automotive industry for model changeovers and retooling. Income before taxes is expected to be somewhat lower in the third quarter compared to the second quarter of fiscal year 2001 due to inefficiencies arising out of product-launch activities relating to the record amount of new business achieved in fiscal year 2000 and the effects of the automotive shut-downs. The outlook for the Automotive Segment for fiscal year 2001 provided in the Company's Annual Report on Form 10-K/A continues to represent Management's view of the Automotive Segment. The Technologies Segment Sales of the Technologies Segment increased 12.1% from $46.8 million in the second quarter of 2000 to $52.5 million in the comparable period of 2001. For the six months ended May 31, 2001 and 2000, net sales were $100.3 million and $88.6 million, respectively. Approximately half of the increase in both periods is attributable to the sales of Eagle-Picher Energy Products Corporation, which was acquired in June 2000. Other factors contributing to the increase in sales include increased sales of special purpose batteries for certain aerospace and defense programs and increased sales of bulk pharmaceutical products resulting from increased capacity from a recent plant expansion. Additionally, in the second quarter of 2001, the Technologies Segment sold a large amount of gallium raw material to a customer at little or no margin. The gallium raw material will be refined for the customer by the Technologies Segment at a later date. These increases in sales have been partially offset by lower demand in 2001 for enriched boron products used by the semi-conductor industry and commercial batteries used in toys compared to the same periods in 2000. Losses from continuing operations before taxes were $.8 million and .2 Million in the three and six months ended May 31, 2001 compared to losses from continuing operations before taxes of $.6 million and $.3 million in the comparable periods of 2000, respectively. Although sales were higher, margins have not improved comparably for several reasons. First, a portion of the increase in sales is attributable to the sale of gallium raw material at little or no margin as described above. Additionally, a less favorable product mix of special-purpose batteries and lower sales of boron products throughout 2001 have decreased margins. Also pressuring profits were adverse workers' compensation and medical claim experience and increased interest expense increased due in part to the acquisition of Eagle-Picher Energy Products Corporation in June 2000. 22 23 Technologies Segment Outlook Sales in the Technologies segment are expected to be flat in the third quarter compared to the second quarter, but improve slightly over the third quarter for fiscal year 2000. Income before taxes is expected to be flat to slightly lower in the third quarter, as the unfavorable product mix described above is expected to continue and the Technologies Segment is expected to focus additional efforts on developing new products and commercializing existing products. The outlook for fiscal year 2001 for the Technologies Segment provided in the Company's Annual Report on Form 10-K/A continues to represent Management's view of the Technologies Segment. The Minerals Segment Sales of the Minerals Segment decreased approximately 3.2%, from $17.5 million in the second quarter of 2000 to $16.9 million in the same period of 2001. Sales were $32.3 million and $32.9 million in the six months ended May 31, 2001 and 2000, respectively. Sales decreases were due to the soft economic conditions. Energy prices and currency losses combined to cause a decline in income from continuing operations before taxes of $.8 million in the second quarter of 2001 when compared to the second quarter of 2000. Loss from continuing operations before taxes was $.4 million in the six months ended May 31, 2001 compared to income from continuing operations before taxes of $.5 million in the same period of 2000, for a total decline of $.9 million. During this same six month period, energy costs in the Minerals Segment have increased more than $2.5 million over the same period a year earlier. On a year-to-date basis, the effect of the higher energy costs on results was significantly mitigated by cost savings from production efficiencies, energy surcharges to customers and a reduction of general and administrative expenses. Minerals Segment Outlook Sales in the Minerals Segment for the third quarter of fiscal year 2001 are expected to be flat to slightly lower than sales for the second quarter and approximately even with sales for the same period of fiscal year 2000. Similarly, income before taxes for the Minerals Segment is expected to be flat compared to income before taxes for the second quarter of fiscal year 2001 and the third quarter of fiscal year 2000. The outlook for the Minerals Segment for fiscal year 2001 set forth in the Company's Annual Report on Form 10-K/A continues to represent Management's view with respect to the Minerals Segment. SUMMARY OF THE COMPANY Net Sales. The Company's net sales were $184.1 million and $197.9 million in the second quarters of 2001 and 2000, respectively, a decrease of 6.9%. However, after excluding the sales of the Divested Divisions in the second quarter of 2000 and the sales of Eagle-Picher Energy Products Corporation, which was acquired in June 2000 in 2001, sales decreased 3.3%. Increased sales of the Technologies Segment were more than offset by declines in the Automotive Segment. 23 24 Cost of Products Sold. Cost of products sold, excluding that of the Divested Divisions and Eagle-Picher Energy Products Corporation, increased as a percentage of net sales from 78.7% in the second quarter of 2000 to 80.0% in the comparable period of 2001. This increase is attributable to the increased energy costs in the Minerals Segment, the change in product mix that occurred in the Technologies Segment and higher costs related to starting new programs and lower volumes in the Automotive Segment. Selling and Administrative. Selling and administrative expenses, excluding those of the Divested Divisions and Eagle-Picher Energy Products Corporation, declined to $13.6 million in the second quarter of 2001 from $16.3 million in the comparable period of 2000. On a year-to-date basis, selling and administrative expenses, excluding those of Eagle-Picher Energy Products Corporation and the Divested Divisions, were $24.8 million and $30.5 million in 2001 and 2000, respectively. Selling and administrative expenses have decreased largely as a result of programs implemented by the Company that were aimed at reducing these costs. Depreciation and Amortization. Depreciation and amortization expense, excluding those of the Divested Divisions and Eagle-Picher Energy Products, was $15.4 million and $14.0 million in the second quarters of 2001 and 2000, respectively, and $29.5 million and $27.4 million in the six months ended May 31, 2001 and 2000, respectively. The increase is attributable to recent expenditures made in the Automotive Segment for new business achieved in 2000 and 2001. Insurance Settlement. The Company settled claims against a former insurer regarding environmental remediation costs for $16.0 million and received such proceeds in the first quarter of 2000. Divestitures. In 2000, as part of the Company's previously announced program to focus management, technical and financial resources on core businesses, the Company completed the sale of its Ross Aluminum Foundries, Fluid Systems, MARCO and Rubber Molding Divisions resulting in an aggregate gain of $14.3 million. Amounts in 2001 are for additional expenses related to sales of businesses in prior years. Management Compensation - Special. Management compensation expenses of $1.9 million and $1.6 million in the second quarters of 2001 and 2000, respectively, relate to compensation to senior officers upon their separation from the Company. Interest Expense. Interest expense was $10.1 million in the second quarter of 2001 and $10.9 million in the second quarter of 2000. Interest expense was $20.3 million and $23.0 million for the six months ended May 31, 2001 and 2000, respectively. The decrease in interest expense is due to lower debt levels throughout 2001 than in the same periods of 2000. In addition, interest rates have been lower in 2001 on variable rate debt. Other Income (Expense). Other expense was $.1 million and $.2 million in the second quarters of 2001 and 2000, respectively. Other income for the six months ended May 31, 2001 was $.8 million compared to other expense of $.4 million in the comparable period of 2000. The difference is attributable to the Company experiencing currency gains in the first quarter of 2001 versus currency losses in the first quarter of 2000. 24 25 Income (Loss) from Continuing Operations Before Taxes. Income (loss) from continuing operations before taxes was $(5.0) million and $1.5 million in the second quarters of 2001 and 2000, respectively. The difference is due primarily to: - - Divestiture of the Rubber Molding Division in the second quarter of 2000 which resulted in a gain of $4.3 million; - - The effects of the economic downturn in 2001; - - Reduced interest expense in 2001; and - - Decreases in selling and administrative expenses throughout the Company. Income Taxes (Benefit). Income taxes (benefit) were $(1.6) million and $3.0 million in the second quarters of 2001 and 2000, respectively, and $(1.8) million and $14.9 million in the six months ended May 31, 2001 and 2000, respectively. The divestitures in 2000 affect comparability of income taxes and the effective tax rates due to taxable gains resulting from the divestitures. Discontinued Operations. As previously reported, the Board of Directors has authorized Management to sell the assets and business of the Machinery Segment. The Company has engaged Seale & Associates, LLC to assist the Company in selling the Segment. At the same time, the Company continues to implement a plan which initially focuses on improving the efficiency of its operations to achieve a lower cost structure rather than achieving new business. This segment was has been adversely impacted by general economic conditions in 2001. Sales of the Machinery Segment declined 26.2% from $43.2 million in the six months ended May 31, 2000 to $31.9 million in the comparable period in 2001. Sales of both wheel-tractor scrapers and fork-lift trucks were down significantly, while sales of component parts for construction and agricultural machinery were flat. The lower volumes resulted in lower margins which were mitigated somewhat by both improvements in efficiency and reductions in general and administrative costs. The results of the Machinery Segment's operations have been reported separately as discontinued operations in the Statement of Operations. The Company estimates the disposition of the Machinery Segment will take place by September 1, 2001 and has recorded an aggregate provision, net of tax, of $2.9 million and $18.2 million in the three months and six months ended May 31, 2001, respectively for estimated losses and costs to be incurred in connection with the disposition of the Machinery Segment, including expected losses during the phase-out period. Net Income (Loss). Net income (loss) for the second quarters of 2001 and 2000 were $(6.3) million and $(1.4) million, respectively. The net loss in 2001 was significantly impacted by the provision for discontinued operations of $2.9 million as well as the factors discussed under Income (Loss) from Continuing Operations Before Taxes above. Dividends accreted of $3.3 million and $2.8 million in the second quarters of 2001 and 2000, respectively, on the 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock ("Preferred Stock") increased the loss applicable to common shareholders to $9.6 million and $4.2 million, respectively. Company Outlook Excluding sales of the Machinery Segment, which is being treated as a discontinued operation, the Company's sales for fiscal year 2001 are expected to be approximately $705 million. Excluding EBITDA, as defined under Financial Condition below, of the Machinery Segment, the Company expects its EBITDA for fiscal year 2001 to be approximately $93 million. These estimates are consistent with the outlook for the Company set forth in its fiscal year 2000 Annual Report on Form 10-K/A. 25 26 FINANCIAL CONDITION The following are certain financial data regarding EBITDA, as defined below, cash flows and earnings to fixed charges and preferred stock dividends (excluding the Machinery Segment): Six Months Ended May 31 ---------------- 2001 2000 ---- ---- (In millions of dollars) EBITDA $46.8 $48.9 Cash provided by operating activities 21.9 34.3 Cash provided by (used in)investing activities (24.4) 60.5 Cash provided by (used in) financing activities 1.8 (90.5) Cash provided by (used in)discontinued operations 1.5 (3.1) Preferred stock dividends accreted 6.5 5.8 Earnings/fixed charges and preferred stock dividends .56X 1.65X EBITDA The Company's EBITDA is defined for purposes hereof as earnings before interest expense, income taxes, depreciation and amortization, certain special management compensation expenses, insurance proceeds and other non-cash items, such as gains and losses from divestitures. 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 accounting principles generally accepted in the United States of America, 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. The Company's EBITDA for the six months ended May 31, 2001 and 2000, excluding the Machinery Segment, was $46.8 million and $48.9 million, respectively. EBITDA gains in the Technologies Segment were offset by reduced EBITDA in the Automotive and Minerals Segments. 26 27 Operating Activities Cash provided by operating activities was $21.9 million and $34.3 million for the six months ended May 31, 2001 and 2000, respectively, and consisted of the following: Six Months Ended May 31 ----------------------- 2001 2000 ---- ---- (in millions of dollars) Income (Loss) from continuing operations before taxes $ (5.6) $ 24.8 Depreciation and amortization, excluding amortization of deferred financing costs 29.7 29.8 Divestitures .5 (14.3) Excess of interest expense over interest paid 1.5 (.3) Income taxes refunded (paid), net 1.9 (3.3) Working capital and other (6.1) (2.4) ----- ----- $ 21.9 $ 34.3 ===== ===== See "Results of Operations" for discussions concerning income (loss) before taxes, depreciation and amortization, divestitures and interest expense. The excess of interest expense over interest paid results primarily from two items. First, interest expense includes amortization of deferred financing costs, which does not affect cash. Secondly, the Company's revolving credit facility consists of numerous notes with varying maturities. In 2001, certain of the notes matured after May 31, so less interest was paid in the first six months of 2001 compared to 2000. The Company received a "quick refund" in the first quarter of 2001 of some of the income tax payments made in 2000. The Company has made a concerted effort to improve its working capital position by monitoring receivables, managing inventory levels and seeking longer payment terms. However, in the second quarter of 2001, a change at a major customer from which the Company purchases raw materials resulted in a large one-time payment for raw materials which had been previously offset against the Company's receivables from such customer. This one-time change offset any improvements made in working capital. Investing Activities Capital expenditures were $22.3 million in the six months ended May 31, 2001. The majority of the capital expenditures were made in the Automotive Segment. These expenditures related to new product launches for precision-machined products and a new rubber-to-metal coating line. Investing activities provided $60.5 million in cash in the comparable period of 2000. The Company sold the Ross Aluminum Foundries, MARCO, Fluid Systems and Rubber Molding Divisions during the first six months of 2000 which resulted in aggregate net proceeds of $83.9 million. Also in the first six months of 2000, the Company also invested $17.5 million in capital expenditures, primarily in the Automotive Segment, and $6.8 million in the assets of the depleted zinc business of Isonics Corporation. Financing Activities The Company had a net increase in borrowing of $2.0 million in the first six months of 2001, related to the working capital situation described above. In the first six months of 2000, the Company applied the proceeds from the divestitures and the insurance proceeds to debt, reducing the balances on revolving credit facilities by $82.4 million, in addition to regularly scheduled debt payments of $7.3 million. Earnings to Fixed Charges and Preferred Stock Dividends The ratio of earnings from continuing operations to fixed charges and preferred stock dividends for the six months ended 2001 and 2000 was .56x and 1.65x, respectively. In 2001, earnings were insufficient to cover fixed charges and preferred stock dividends by $12.1 million. In 2000, the ratio was significantly impacted by the insurance proceeds of $16.0 million and gains resulting from divestitures of $14.3 million. If these items were excluded from the calculation in 2000, the ratio of earnings from continuing operations to fixed charges and preferred stock dividends would be .62x and earnings would not have been sufficient to cover fixed charges and preferred stock dividends by $11.2 million. On that basis, 2001 and 2000 are fairly comparable. 27 28 LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operations and available credit facilities are considered adequate to fund both the short-term and long-term capital needs of the Company. As of May 31, 2001, the company had $60.4 million available to be drawn under its revolving credit facility and an amount up to $6.3 million available to be drawn under its Receivables Loan Agreement, based on a formula of total receivables outstanding as of a certain date. In addition, the Company's European operations had several unsecured lines of credit on which $3.7 million was available to draw as of May 31, 2001. The Company was in compliance with the covenants of its Credit Agreement, Subordinated Notes and the European credit agreements as of May 31, 2001. The Company enters into interest rate swap agreements to manage its variable interest rate exposure. Per the terms of the swap agreement, the Company exchanges, at specified intervals, the difference between fixed and variable interest amounts based on a certain notional amount. During the first quarter of 2001, the Company entered into various swap agreements effectively fixing the base interest rate (i.e. before the applicable spread) on $90 million of the Company's debt under the Credit Agreement at a weighted average interest rate of 5.678%. These swap agreements mature December 15, 2003. The second and final bankruptcy distribution from EPI's Chapter 11 reorganization of approximately $10.6 million was made June 25, 2001. This was financed from the Company's revolving credit facility. Although the Company was in compliance with the covenants in its Credit Agreement at May 31, 2001, the Company amended the financial covenants in the Credit Agreement effective as of May 31, 2001 as reported in the Company's Current Report on Form 8-K filed July 9, 2001 (the "July 9 8-K"). The Company paid total fees to the lenders of approximately $.8 million in connection with the amendment. The amendment provides for an increase of .50% (.75% if the Company's leverage ratio exceeds 5.00:1.00) in the interest rate spreads that the Company pays over the applicable base rates. The amendment also limits the use of proceeds of certain asset sales to retirement of debt and requires approval of a majority of lenders for acquisitions. For a more detailed description of the amendment and the full text of the amendment, please see the July 9 8-K. The Company's Receivables Loan Agreement, which was renewed through May 15, 2002, has a term of 364 days and it is expected to be renewed for an additional 364 days upon maturity. In connection with the renewal of the Receivables Loan Agreement, the program fee payable by the Company on the program limit of $50 million was increased by .5% to 1.25%. For a more detailed description of the renewal of the Receivables Loan Agreement and the full text of the amendment for such extension, please see the July 9 8-K. 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 are no longer be computed directly from one local currency to another, but are converted from one local currency into an amount denominated in euro, then are 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. 28 29 The Company has both operating divisions and domestic export customers located in Europe. In 2000, combined revenues from these sources were approximately 13% of total revenues. The Company has operations in Germany, which is participating in the euro conversion, and the United Kingdom, which has elected not to participate at this time. The Company's operations in Germany have adopted the euro as their reporting currency, although many transactions, such as payroll, some billing and vendor invoicing, still occur in local currencies. The costs associated with the conversion to date have not been material. The Company is currently assessing 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 euros 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 cost competitiveness of those operations. NEW ACCOUNTING STANDARDS In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125" ("SFAS 140"). SFAS 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS 125's provisions without reconsideration. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This Statement is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The Company is currently analyzing this new standard. RESTRICTIONS ON PAYMENT OF DIVIDENDS EPI and the Subsidiary Guarantors are subject to restrictions on the payment of dividends and other forms of payment in both the Credit Agreement and the Indenture for the Subordinated Notes. Those restrictions generally prohibit the payment of dividends to the Company either directly by EPI or indirectly through any Subsidiary Guarantor. Certain limited exceptions are provided allowing for payments to the Company. Specifically, EPI is authorized to make payments to the Company in amounts not in excess of any amounts the Company is required to pay to meet its consolidated income tax obligations. Additional payments from EPI to the Company are permitted commencing September 1, 2003 in amounts not in excess of the Company's obligations to make any cash dividend payments required to be paid under the Company's Preferred Stock and to make any cash interest payments required to be paid under any debentures issued by the Company in exchange for the Company's Preferred Stock ("Exchange Debentures"). FORWARD-LOOKING STATEMENTS This report contains statements which, to the extent that they are not statements of historical fact, constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, 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. Forward-looking statements include, but are not limited to, statements under the headings "Automotive 29 30 Segment Outlook," "Technologies Segment Outlook," "Minerals Segment Outlook," and "Company Outlook." Such forward-looking information involves risks and uncertainties that could cause actual results to differ materially from those expressed in any such forward-looking statements. These risks and uncertainties include, but are not limited to, the ability of the Company to maintain existing relationships with customers, demand for the Company's products, the ability of the Company to successfully implement productivity improvements and/or cost reduction initiatives, the ability of the Company to develop, market and sell new products, the ability of the Company to obtain raw materials, increased government regulation or changing regulatory policies resulting in higher costs and/or restricting output, increased price competition, currency fluctuations, general economic conditions, acquisitions and divestitures, technological developments and changes in the competitive environment in which the Company operates. Persons reading this report are cautioned that such forward-looking statements are only predictions and that actual events or results may differ materially. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company enters into interest rate swap agreements ("Swap Agreements") to manage interest rate costs and risks associated with changing interest rates. The differential to be paid or received under these agreements is accrued and recognized as adjustments to interest expense. During the first quarter ended February 28, 2001, the Company entered into various interest rate swap agreements with a commercial bank having a total notional amount of $90 million. The effective dates of these agreements were March 5, 2001 and March 15, 2001 and they mature December 5, 2003 and December 15, 2003, respectively. These agreements effectively change the interest rate exposure on $90 million of the Company's floating debt to a fixed rate of 5.678% plus the applicable spread. The Company anticipates entering into additional interest rate swap agreements through the maturity date of the Credit Agreement. The remaining amount of loans outstanding under the Credit Agreement bear interest at the floating rates as described in Note G to the Company's Consolidated Financial Statements as of November 30, 2000. Loans under the Company's accounts receivable loan agreement ("Receivables Agreement") bear interest at a variable rate equal to market rates on commercial paper having a term similar to the applicable interest period. The Company's industrial revenue bonds ("IRB's") bear interest at variable rates based on the market for similar issues. Loans under the Receivables Agreement and the IRB's are not covered by the Swap Agreements. As of May 31, 2001, $174.3 million of revolving and term loans were outstanding under the Credit Agreement, of which interest on $90.0 million is essentially fixed by the Swap Agreements. The interest rate risk on the debt outstanding under the Receivables Agreement and the IRB's, which in the aggregate totals $62.5 million, has not been hedged. Accordingly, a 1% increase in the applicable index rates would result in additional interest expenses of $1.5 million per year, assuming no change in the level of borrowing. Based on the fair value of the Swap Agreements held at May 31, 2001, the Company has recorded a loss of $1.5 million in Other Comprehensive Income. The Company also enters into various foreign currency forward contracts to hedge a portion of its forecasted sales, generally within the next 12 months. The Company manages most of these exposures on a consolidated basis, which allows for netting certain exposures to take advantage of any natural offsets. The Company's principal areas of exposure are related to sales denominated in the currencies of Europe, Mexico and Canada with the majority of this exposure in European currencies. As of May 31, 2001, the Company had outstanding foreign exchange forward contracts with aggregate notional amounts of $14.4 million. Based on the fair value of the futures contracts being held as of May 31, 2001, the Company has recorded a net gain of $1.5 million in the second quarter in Other Comprehensive Income. 30 31 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Please refer to Note D regarding Legal Matters contained in Item 1 of this report, which is incorporated by reference in this Part II, as its Item 1. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.58 - Resignation Agreement effective July 6, 2001 between EPI and Michael E. Aslanian. (b) Reports on Form 8-K Form 8-K was filed on July 9, 2001 which contained amendments to the Company's Credit Agreement and Receivables Loan Agreement. 31 32 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER HOLDINGS, INC. /s/ Philip F. Schultz ---------------------------- Philip F. Schultz Senior Vice President and Chief Financial Officer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 32 33 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER INDUSTRIES, INC. /s/ Philip F. Schultz ------------------------------ Philip F. Schultz Senior Vice President and Chief Financial Officer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 33 34 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAISY PARTS, INC. /s/ Tom B. Scherpenberg ----------------------------- Tom B. Scherpenberg Treasurer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 34 35 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER DEVELOPMENT COMPANY, INC. /s/ Tom B. Scherpenberg -------------------------------------- Tom B. Scherpenberg Treasurer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 35 36 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER FAR EAST, INC. /s/ Tom B. Scherpenberg ----------------------------- Tom B. Scherpenberg Treasurer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 36 37 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER MINERALS, INC. /s/ Tom B. Scherpenberg ------------------------------ Tom B. Scherpenberg Treasurer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 37 38 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EAGLE-PICHER TECHNOLOGIES, LLC /s/ R. Doug Wright ------------------------------- R. Doug Wright Vice President, Controller and Chief Financial Officer DATE July 13, 2001 ----------------------- 38 39 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HILLSDALE TOOL & MANUFACTURING CO. /s/ Tom B. Scherpenberg ---------------------------------- Tom B. Scherpenberg Treasurer (Principal Financial Officer) DATE JULY 13, 2001 -------------------- 39 40 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. EPMR CORPORATION (F/K/A MICHIGAN AUTOMOTIVE RESEARCH CORPORATION) /S/ Tom B. Scherpenberg ---------------------------------- Tom B. Scherpenberg Treasurer (Principal Financial Officer) DATE July 13, 2001 ----------------------- 40 41 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 10.58 Resignation Agreement effective July 6, 2001 between EPI and Michael E. Aslanian. 41 EX-10.58 2 l89399aex10-58.txt EXHIBIT 10.58 1 Exhibit 10.58 RESIGNATION AGREEMENT - -------------------------------------------------------------------------------- Michael E. Aslanian ("Employee"), an employee of Eagle-Picher Industries, Inc., an Ohio corporation ("Employer"), desires to voluntarily resign from employment with Employer and, in exchange for the payments provided herein, the mutual undertakings, and other good and valuable consideration, further agrees to resolve all claims arising out of his employment or the termination of that employment. Accordingly, the parties agree as follows: 1. Employee agrees to resign from employment with Employer, including all positions as an officer or director of Employer or any of its affiliates, effective as of July 6, 2001 (the "Resignation Date"). Employer shall pay Employee according to Employer's ordinary payroll practices for all wages due up to and including Resignation Date. Employer shall also compensate Employee on the Resignation Date for 13 unused vacation days. No vacation pay will be due for any subsequent calendar year. Payments under this Agreement are contingent upon Employee continuing to perform Employer's typical services required by Employer up to the Resignation Date. 2. Employee agrees to provide consulting services at the request of Employer during the first three months of the Severance Period set forth in paragraph 3 below for purposes of transition and in connection with the sale of Employer's Construction Equipment Division ("CED"). For the avoidance of doubt, Employee's severance pay pursuant to paragraph 3 below will survive any sale of CED. 2 - -------------------------------------------------------------------------------- 3. Employer shall pay or provide to Employee: a) SEVERANCE PAY: Employer agrees to continue to pay Employee's current base salary of $330,000 per year in accordance with its normal payroll practices for one year following the Resignation Date (the "Severance Period"). For avoidance of doubt, no bonuses will be due to Employee. b) MEDICAL BENEFITS: Employer will provide Employee and his spouse with medical benefits under the Employer's Group Medical Plan until (A) the end of the Severance Period, or (B) Employee obtains employment with an employer that offers medical coverage for Employee and his spouse (regardless of any co-pay or contribution requirements for such medical coverage) and is eligible for such coverage ("New Coverage"), whichever is sooner. Employee shall give Employer notice of New Coverage. While covered by the Employer's Group Medical Plan, Employee will also be entitled to participate in Employer's Dental Plan. The Employee will be afforded medical and dental benefits under the same plans and terms as active Senior Vice Presidents of Employer. c) LIFE INSURANCE: Employer will continue to provide Employee with company paid life insurance in the amount of $250,000 during the Severance Period. Following the Severance Period Employee's life insurance coverage under any plan sponsored by the Employer will terminate subject to the Employee's right, if any, to convert the coverage to individual coverage under the terms of the insurance policy or policies. d) COMPANY CAR: Within thirty (30) days of the Resignation Date, Employer, at its cost, shall cause outright ownership of Employee's leased vehicle to be transferred to Employee. 2 3 The continuation of salary, medical benefits and life insurance and the transfer of ownership of the leased vehicle and the purchase of Employee's stock in Eagle-Picher Holdings, Inc. under paragraph 7 below constitute a special severance allowance. Employee acknowledges that the payments and benefits under this special severance allowance constitute payments to which he would not be entitled but for the existence of this Agreement. Employee further acknowledges that this Agreement provides for payments and benefits not contemplated under the terms and conditions applicable to his employment. All lump sum and periodic payments and other benefits and distributions under this Agreement shall be subject to any withholding and employment taxes consistent with the character of the payments in accordance with law. Employee shall pay the income tax costs for the car being transferred and all other payments and benefits under this Agreement. 4. If Employee dies or becomes disabled before the Resignation Date, the provisions of this Agreement will be void and of no effect and Employee will be entitled to only such benefits as he would have received as an employee of the Employer absent the creation of this Agreement. If Employee dies after the Resignation Date, the payments and benefits provided under paragraph 3 shall be provided to his surviving spouse. If Employee is not survived by a spouse or if Employee and his spouse die in a common accident, the payments and benefits provided under paragraph 3 shall be payable to Employee's estate. 5. Employee releases, holds harmless, and covenants not to sue or bring any charge or other claim against Employer and it affiliates and the officers, directors, shareholders, owners, employees and agents of Employer and its affiliates (collectively, the "Released Parties") in connection with any matter relating to, connected with, or arising out of his employment by 3 4 Employer (other than personal injury) or the termination of that employment. Further, Employee expressly waives any rights under any Employer severance plan, or, except as expressly provided herein, any other Employer benefit plan. Specifically, but without limitation, Employee releases Employer and the Released Parties from, and agrees that he will not bring any action against Employer or any of the Released Parties based on, any claim or denial of equal employment opportunity or discrimination in violation of any statute or regulation governing employment practices and specifically releases any such claim or action relating to age discrimination, including any claim under the federal Age Discrimination in Employment Act. Further, also without limitation, Employee agrees that he will not bring any action or other claim against Employer or any Released Party based on any theory of wrongful termination, intentional or negligent infliction of mental distress or other tort, breach of express or implied contract, or promissory estoppel. Any rights Employee is entitled to under his employment with Employer that are not specifically enumerated in this Agreement are canceled upon the Resignation Date. This paragraph shall not preclude Employee from bringing an action to enforce the terms of this Agreement. 6. Employee will be entitled to benefits under the Eagle-Picher Salaried Plan, the Eagle-Picher Supplemental Executive Retirement Plan ("SERP"), and the Eagle-Picher Salaried 401(k) Plan in accordance with the terms of those plans. Benefits under each of those plans will be calculated utilizing the Resignation Date as the date of the Employee's termination of employment. Employee specifically acknowledges and accepts the amendments to the SERP made as of March 27, 2001. For the avoidance of doubt, the severance pay provided in paragraph 3.a above constitutes "Salary" under Section 2.15(c) of the SERP. If Employer 4 5 takes action generally with respect to active employees who are SERP participants to set aside amounts for payment of vested benefits under the SERP or otherwise secure or fund payment of vested SERP benefits, then to the extent permitted under then applicable laws and regulations Employee shall be included in such action, but Employee shall not in any event be entitled to receive a benefit as a result of such action that is greater than that received by active employees or that prefers Employee over active employees. 7. Within thirty (30) days of the date that this Agreement becomes irrevocable, Employee shall sell and Employer shall purchase 6,250 shares of Class A Common Stock of Eagle-Picher Holdings, Inc. (the "Shares") awarded to him under the Second Amended and Restated Incentive Stock Plan of Eagle-Picher Industries, Inc. (the "Stock Plan") at the current share price of $94.06 for a total purchase price of $587,875. The Shares shall be sold free and clear of any and all liens, pledges or encumbrances of any kind. Employee shall deliver to EPI the voting trust certificate representing the Shares duly endorsed for transfer. Employee acknowledges and agrees that such payment is all that is due to him under the Stock Plan and satisfies in full any and all obligations of Employer under the Stock Plan. 8. Employee shall hold all Confidential Information (as defined below) in strict confidence and not disclose any Confidential Information except as expressly provided herein and shall not use any Confidential Information for his own benefit or otherwise against the best interests of Employer. As used herein, "Confidential Information" shall mean any information regarding Employer and/or its affiliates (whether written, oral or otherwise), received or obtained before, on or after the date hereof, including without limitation any product design, specification or other technical information, manufacturing or other process information, 5 6 financial information, customer information, general business information, or market information, WHETHER OR NOT marked or designated as "Confidential," "Proprietary" or the like, in any form, including electronic or optical data storage and retrieval mechanisms, and including all forms of communication, including but not limited to physical demonstrations, in-person conversations and telephone conversations, email and other means of information transfer such as facility tours, regardless of whether any such information is protected by applicable trade secret or similar laws. The term "Confidential Information" shall not include information which: (i) is or becomes generally available to the public other than as a result of the disclosure by Employee or another person bound by a confidentiality agreement with, or other legal or fiduciary or other obligation of secrecy or confidentiality to, Employer or another party with respect to such information; or (ii) becomes available to Employee from a source other than Employer or any of its directors, officers, employees, agents, affiliates, representatives, or advisors, provided that such source is not bound by a confidentiality agreement with, or other legal or fiduciary or other obligation of secrecy or confidentiality to, Employer or another party with respect to such information. The term "Confidential Information" shall also not include (i) general know-how of Employee regarding manufacturing processes and procedures that is not unique or proprietary to Employer, or (ii) the identity of contact persons at customers of Employer's Hillsdale Tool & Manufacturing Company subsidiary or Wolverine Gasket division. If Employee shall be required by subpoena or similar government order or other legal process ("Legal Process") to disclose any Confidential Information, then Employee shall provide Employer with prompt written notice of such requirement and cooperate if requested with Employer in efforts to resist 6 7 disclosure or to obtain a protective order or similar remedy. Subject to the foregoing, if Confidential Information is required by Legal Process to be disclosed, then Employee may disclose such Confidential Information but shall not disclose any Confidential Information for a reasonable period of time, unless compelled under imminent threat of penalty, sanction, contempt citation or other violation of law, in order to allow Employer time to resist disclosure or to obtain a protective order or similar remedy. If Employee discloses any Confidential Information, then Employee shall disclose only that portion of the Confidential Information which, in the opinion of counsel, is required by such Legal Process to be disclosed. Employee represents and warrants to Employer that as of the date this Agreement becomes irrevocable, Employee will not have in his possession or in the possession of any of his family members any Confidential Information in tangible form (including electronic computer files). Employee also agrees not to disparage Employer or any of its shareholders, directors, officers or employees and Employer agrees not to disparage Employee. 9. If Employee brings an action or other claim against Employer or any Released Party in violation of paragraph 5 or otherwise materially breaches this Agreement, in addition to any and all damages to which Employer or a Released Party may be entitled, all payments and benefits to Employee set forth in paragraph 3 above shall cease (excepting any benefit received in accordance with the requirements of C.O.B.R.A.). Employer shall give Employee notice of a claim that Employee has materially breached this Agreement and Employee shall have a period of thirty (30) days to cure such breach if it is capable of cure (provided that Employer may seek immediate injunctive relief for a breach or threatened breach of this Agreement). Employee acknowledges and agrees that in the event of any 7 8 breach or threatened breach of this Agreement by Employee, then Employer shall be entitled to specific performance and injunctive relief as a remedy for any such breach or threatened breach hereof without necessity of posting bond or other security, the requirement for which is expressly waived. Employee agrees not to raise and hereby waives any defense to injunctive relief based on lack of irreparable harm or sufficiency of monetary damages. Such remedy shall not be deemed to be the exclusive remedy for any breach of this Agreement, but shall be in addition to all other remedies available to Employer at law or in equity. 10. Employee recognizes that the release and waiver provisions of this Agreement may surrender valuable legal rights. He acknowledges full awareness of the extinguishment of such rights in exchange for the consideration provided under this Agreement. Employee further acknowledges that he has been advised by Employer to consult an attorney with respect to this Agreement prior to executing it. Further, Employee acknowledges that he has been given twenty-one (21) calendar days from initial presentation of this Agreement on June 29, 2001 in order to consult an attorney. 11. This Agreement shall be binding upon Employer as of the date of its execution and presentation by Employer if it is executed by the Employee within twenty-one (21) calendar days of presentation by Employer and not later rescinded as provided herein. If Employee does not execute this Agreement and deliver it to Employer within twenty-one (21) calendar days of presentation by Employer, it shall be voidable at the option of Employer. Employee, at his sole election and option, shall be entitled to rescind and withdraw from this Agreement without further obligation at anytime within seven (7) calendar days from the date Employee executes the Agreement. Employee shall evidence any withdrawal and rescission by giving 8 9 written notice to Employer's Senior Vice President and General Counsel, 250 E. 5th Street, 5th Floor, Cincinnati, Ohio 45202, telecopy (513) 629-2571, with a written notice stating that Employee rescinds the Agreement and withdraws from it. If Employee has not given Employer such written notice on or before the expiration of such seven (7) calendar days from the date Employee executes the Agreement, this Agreement shall be irrevocable. Executed and presented as of the 29th day of June 2001. EAGLE-PICHER INDUSTRIES, INC. By: -------------------------------- Name: David G. Krall -------------------------------- Title: Senior Vice President -------------------------------- Executed and agreed to this _____ day of July, 2001. By: -------------------------------- Michael E. Aslanian WITNESSED BY: -------------------------------------- - ------------- 9 -----END PRIVACY-ENHANCED MESSAGE-----