ITEM 1. BUSINESS.
General Development of Business
Eagle-Picher Holdings, Inc. (the "Company") was incorporated in 1997 by Granaria Industries B.V. under the laws of the State of Delaware as a vehicle to acquire Eagle-Picher Industries, Inc. (the "Subsidiary"), an Ohio corporation, on February 24, 1998 from the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust (the "PI Trust") for $702.5 million (the "Acquisition").
On November 18, 1996, the U.S. Bankruptcy Court together with the U.S. District Court for the Southern District of Ohio issued an order confirming the Third Amended Plan of Reorganization ("Plan") of the Subsidiary and seven of its domestic subsidiaries, which became effective November 29, 1996. The Subsidiary had filed for protection under chapter 11 of the U.S. Bankruptcy Code in 1991 as a consequence of a cash shortfall resulting from its inability to satisfy certain immediate asbestos litigation liabilities. The order confirming the Plan contains a permanent injunction which precludes holders of present and future asbestos-related or lead-related personal injury claims from pursuing their claims against the reorganized Subsidiary and the Subsidiary has no further liability in connection with such claims. Those claims will be channeled to the PI Trust, which is an independently administered qualified settlement trust which was established to resolve and satisfy those claims. Under the terms of the Plan, all of the then outstanding common stock of the Subsidiary was canceled and all of the newly issued common stock of the reorganized Subsidiary was contributed to the PI Trust, together with certain notes and cash.
The Company conducts its business through the Subsidiary, a diversified manufacturing, mining and technology company. The Subsidiary conducts its business through both unincorporated divisions and separately incorporated subsidiaries, both of which are referred to herein as divisions. The Subsidiary is the Company's only subsidiary, therefore, the Company's results of operations and cash flow approximate those of the Subsidiary. References herein will be to the Company, except for instances where it is more appropriate to specifically refer to the Subsidiary.
As of March 1, 1999, the Company acquired the stock of Charterhouse Automotive Group, Inc., a holding company whose only operating subsidiary was Carpenter Enterprises, Ltd. ("Carpenter"), a supplier of precision-machined components to the automotive industry for approximately $41.0 million in cash and $31.0 million of existing indebtedness of Carpenter. Approximately $18.6 million of this debt was refinanced from the Company's revolving credit facility. Immediately following the transaction Charterhouse was merged into Carpenter.
On December 1, 1999, the Company acquired the assets of the isotopically depleted zinc business of Isonics Corporation for $8.2 million, $6.7 million in cash and contingent cash payments of $.5 million annually for three years. Isotopically depleted zinc is used as a corrosion-inhibiting additive to water in nuclear reactors.
On September 1, 1999, the Board of Directors approved a plan to explore the sale of several smaller divisions in order to focus management, technical and financial resources on core businesses. The sale of the Ross Aluminum Foundries Division was completed January 28, 2000. The sale of the assets of Michigan Automotive Research Corporation was completed February 25, 2000. The other divestitures are expected to occur in 2000.
Financial Information About Industry Segments.
The Company's major industry segments are:
1. Automotive; and 2. Industrial Products.
Industry Segment Data is included in Item 8 below, the Company's Consolidated Financial Statements for the years ended November 30, 1999 and 1997, the nine months ended November 30, 1998 and the three months ended February 28, 1998. (See Note Q to the Consolidated Financial Statements contained in Item 8.)
Narrative Description of Business
THE AUTOMOTIVE GROUP
The Automotive Group is primarily engaged in the production and sale of mechanical parts for passenger cars, trucks, vans and sport utility vehicles primarily to the major automotive manufacturers and their suppliers in North America, Europe and Asia. The Automotive Group is composed of the following product groups: Precision Machined Components, Rubber Coated Metal Products and Other Automotive Products and Services which consists of Fluid Systems Products, Molded Rubber Products, Aluminum Casting Products and Automotive Services. The following table sets forth the percentage of the Company's revenue contributed by each product line:
Precision Machined Components. The Hillsdale Tool Division specializes in the design, manufacture and distribution of precision-machined aluminum and steel parts. Typical machined parts would include transmission pump assemblies, vibration dampening devices and a variety of other precision machined castings and forgings which are designed and engineered for engine, transmission and driveline applications. These parts are also produced in Mexico and the United Kingdom. The acquisition of Carpenter has expanded both the Company's product lines and customer base for precision-machined components. The market for precision machined components tends to have a few strong and well-positioned competitors, including the original equipment manufacturers ("OEM's") themselves. The Automotive Group competes in this market primarily on the basis of price, delivery, quality and service.
Rubber Coated Metal Products. The Wolverine Gasket Division coats steel and aluminum with elastomeric compounds and produces materials that are particularly suitable for high compression and high temperature applications. These materials are typically used in sealing and insulating products such as compressor gaskets for air conditioning units, brake noise insulators and powertrain applications such as head gaskets. Many of these parts are also manufactured in Germany. The market for rubber coated metal products is highly fragmented. While the Automotive Group competes against a variety of different companies in the geographical areas it supplies, it has no primary competitor in this market.
Other Automotive Products and Services. The Fluid Systems Divisions, located both in the United States and the United Kingdom, employ the elastomeric extrusion process to produce multi-layered tubing and hose assemblies for fuel, emission, brake, clutch and suspension systems. The Company is developing new products to meet new environmental fuel, fluid and emission requirements. Customers include some of the world's major OEM's and Tier I suppliers.
The Rubber Molding Division manufactures small precision injection molded rubber parts used in sealing shock absorbing and noise reduction applications. Similar parts are manufactured at a plant in Spain. Although the Company is one of the top three suppliers for many of the seals it produces, the market for these products is highly fragmented. In niche markets in which the Company competes, it competes primarily on the basis of quality and cost. This division also manufactures injection molded rubber parts used in sealing components for fuel systems and rubber parts used in plumbing and packaging applications.
The Ross Aluminum Foundries Division produced aluminum turbocharger components, primarily for diesel engines, and other engine and specialty automotive components. The Company believes it is a relatively small participant in the market for automotive castings in aluminum. This division also produced complex castings for other industrial markets. Ross Aluminum was sold effective January 1, 2000 for approximately $24.6 million.
Michigan Automotive Research Corporation ("MARCO") offered vehicle and vehicle system manufacturers a comprehensive range of testing programs for engines, powertrains and powertrain components. Its customers included the OEM's, their suppliers and manufacturers of other types of vehicles. The assets of MARCO were sold on February 25, 2000 for approximately $10.0 million.
The Automotive Group distributes its products primarily through internal sales personnel. The Group also has sales and engineering offices in Japan and Europe to serve those markets. Generally, competitive conditions for this Group are characterized by a decreasing amount of competitors, an increasing amount of foreign competition, an increased emphasis on quality and intense pricing pressures from major customers.
Consolidated sales to the Ford Motor Company amounted to $137.8 million in 1999, $160.8 million in 1998 and $170.5 million in 1997. No other customer of the Automotive Group or the Industrial Products Group accounted for 10% or more of consolidated net sales.
THE INDUSTRIAL PRODUCTS GROUP
The Industrial Products Group manufactures products for various global industrial markets. Certain of its products are used in defense applications as well. Its products can be segregated into the following product lines: Special Purpose Batteries, Specialty Materials, Construction and Material Handling Equipment, and Diatomaceous Earth Products. The following table sets forth the percentage of the Company's total net sales contributed by each product line:
Special Purpose Batteries. The Industrial Products Group designs, manufactures and tests special purpose batteries for telecommunications, aerospace and defense applications, such as satellites, launch vehicles and missiles. Major customers for these batteries include satellite builders, aircraft manufacturers and the U.S. Government. The Company bids competitively for numerous fixed price government contracts for special purpose batteries and competes primarily on the basis of quality, performance and cost. It has a few competitors for some highly technological products, but many large and small competitors for its other products such as lead-acid batteries, which are used in toys and emergency lighting systems.
Specialty Materials. The Company manufactures and tests high-purity specialty material compounds for a wide range of services and products. The Company is a major source for high purity isotopically enriched boron compounds used in nuclear applications. The boron isotope that is produced by the Company is a material that absorbs neutrons and is used as a moderator in nuclear reactors. Following its acquisition of the isotopically, depleted zinc business of Isonics Corporation, the Company also distributes isotopically purified zinc for nuclear reactors. There are few competitors in this market, but there is competition from products made from alternate materials. These operations also refine rare metals, such as high purity germanium compounds. Germanium is used in satellite applications such as substrates for solar cells which are used to power satellites. The major customers for germanium products include satellite builders and other aerospace companies. The Industrial Products Group also manufactures bulk pharmaceutical products and industrial chemicals, and produces a wide range of super-clean containers, which meet strict EPA protocols, for environmental sampling.
Construction and Material Handling Equipment. The Construction Equipment Division manufactures primarily three construction equipment products: wheel tractor scrapers, heavy-duty industrial forklift trucks and component parts for construction machinery. The Company is the exclusive source of certain models of wheel tractor scrapers to Caterpillar, Inc. The Company sells its own branded line of heavy-duty industrial forklift
trucks, which are primarily sold to independent rental fleets and also to paper and automotive manufacturers. The industrial forklift market is highly fragmented, however, the Company participates in niche markets, such as the rough terrain market.
Diatomaceous Earth Products. The Minerals Division mines and refines diatomaceous earth products and perlite filter aid products, which are used in high purity filtration applications, primarily by the food and beverage industry, and as industrial absorbents. The Minerals Division is second to Allegheny Corporation in the sale of certain filter aid products that are sold both directly and through distributors to many large and small customers. In the North American market for industrial absorbents, the Company has a variety of competitors due to a number of other materials, such as clay, which are also used for this purpose.
Other Industrial Products. The Cincinnati Industrial Machinery Division produces high-volume metal cleaning and finishing systems for industrial applications, including specialized high-volume can washing and coating machinery for the manufacture of two-piece cans for the food and beverage industry.
DIVESTED DIVISIONS
During the fiscal year ended November 30, 1997, the Company sold a number of divisions to fund repayment of notes issued during the reorganization process. These divisions were the Plastics Division, the Fabricon Products Division and the Transicoil Division. In June 1997, the assets of the former Suspension Systems Division were contributed to a joint venture ("E-P-Boge") with Fichtel & Sachs Industries, Inc. ("F & S"). F & S then exercised its option to purchase the Company's interest in E-P-Boge in November 1998. The Company sold its Trim Division as of October 31, 1998. The Company did not sell any divisions in its 1999 fiscal year. All of the divisions sold in the Company's 1997 and 1998 fiscal years are referred to collectively as the "Divested Divisions".
OTHER INFORMATION
Raw Materials. The prices of raw materials are subject to volatility. The Company's principal raw materials are rubber, steel, zinc, nickel, germanium, boron and aluminum. These raw materials are commodities that are widely available. Although the Company has alternate sources for most of its raw materials, the Company's policy is to establish arrangements with select vendors, based upon price, quality and delivery terms. By limiting the number of its suppliers, the Company believes that it obtains materials of consistently high quality at favorable prices. In 1999, the Company initiated a program to leverage its corporate purchasing power. This program covers direct materials and operations and business support items.
Intellectual Property. The Company holds more than 50 patents, primarily in the United States. Many of the Company's products incorporate a wide variety of technological innovations, some of which are protected by individual patents. Many of these innovations are treated as trade secrets with programs in place to protect these trade secrets. Accordingly, no one patent or group of related patents is material to the Company's business. The Company also has numerous trademarks, including the Eagle-Picher name, and considers the Eagle-Picher name to be material to its business.
Backlog. At November 30, 1999 and 1998, the Company's order backlog was approximately $184.6 million and $200.0 million, respectively. The decline in backlog is due primarily to softness in the satellite market after the completion of a major satellite project in 1998. The Company expects the order backlog outstanding at November 30, 1999 to be filled within the 2000 fiscal year. As is customary in the automotive industry, the Company enters into blanket purchase orders with its customers with respect to specific product orders. From time to time, the customer, depending on its needs, will provide the Company with releases on a blanket purchase order for a specified amount of products. As a result, the backlog for the Automotive Group is not significant.
Government Contracts. The Company's Industrial Products Group has contracts with the U.S. Government that have standard termination provisions. The U.S. Government retains the right to terminate the contracts at its convenience. However, if contracts are terminated, the Company is entitled to be reimbursed for allowable costs and profits to the date of the termination relating to authorized work performed to such date. U.S. Government
contracts are also subject to reduction or modification in the event of changes in Government requirements or budgetary constraints.
Research and Development. The Company spent approximately $13.3 million on research and development activities, primarily for the development of new products or the improvement of existing products in 1999. Comparable costs were $14.1 million in 1998 and $14.8 million in 1997.
Environmental Regulatory Compliance. The Company had capital expenditures of $.3 million and operating expenses (excluding depreciation) of approximately $9.6 million in the year ended November 30, 1999 for environmental matters. The Company estimates that its capital expenditures and operating expenses, including expenses for remedial activities, will be approximately $.7 million and $13.8 million, respectively, in 2000. As of November 30, 1999, the Company has reserved $8.8 million in connection with environmental matters, and believes such reserves to be adequate under the circumstances. See Item 3.(c) for information with respect to various other environmental proceedings.
Employees. As of November 30, 1999, the Company employed approximately 6,925 persons in its operations, of whom approximately 1,725 were salaried employees and 5,200 were hourly employees. Approximately 19% of the Company's hourly employees are represented by one of six labor organizations. The Company believes that its relations with its employees are generally good.
Financial Information about Foreign and Domestic Operations and Export Sales
Financial information about Foreign and Domestic Operations and Export Sales is included in Item 8 below, the Company's Consolidated Financial Statements for the years ended November 30, 1999 and 1997, the nine months ended November 30, 1998 and the three months ended February 28, 1998. (See Note Q.)
ITEM 2.
ITEM 2. PROPERTIES.
The principal fixed assets of the Company consist of its manufacturing, processing and storage facilities and its transportation and plant vehicles. Substantially all of the Company's owned properties and assets are pledged as collateral under its syndicated senior loan facility. The following sets forth selected information regarding the Company's active manufacturing and processing facilities:
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(1) The Company will become owner of each property upon payment in full of all existing industrial revenue bond obligations in connection with such property.
(2) The Company sold the property in the divestiture of either its Ross Aluminum Foundries Division in January 2000 or its Michigan Automotive Research Corporation Division in February 2000.
(3) In addition to the facilities listed, the Company's Minerals Group has mining locations and numerous claims in Nevada, Oregon and California.
The Company owns or leases additional office space, including its corporate headquarters in Cincinnati, Ohio and sales offices in Europe and Asia, and warehouse space for certain of its operations. The Company's
properties are adequate and suitable for its business and generally have capacity for expansion of existing buildings on owned real estate. Plants range in size from 420,000 square feet of floor space to under 50,000 square feet and generally are located away from large urban centers. Substantially all of its buildings have been well maintained and are in sound operating condition and regular use.
Mining. The Industrial Group's Minerals division owns and leases diatomaceous earth and perlite mining locations as well as numerous claims in Nevada, Oregon and California (collectively, "mining properties"). The Company's owned and leased mining properties, including those not currently being mined, comprise a total of approximately 7,000 acres in Storey, Lyon, Pershing and Churchill Counties in Nevada and 3,600 acres in Malhuer and Harney Counties in Oregon, as well as rights on 1,040 acres not currently being mined in Siskiyou County in California. The Company continually evaluates potential mining properties, and additional mining properties may be acquired in the future. The Minerals division extracts diatomaceous earth and perlite through open-pit mining using bulldozers and wheel type tractor scrapers. The extracted materials are carried by truck to separate processing facilities. A total of approximately 494,000 tons of diatomaceous earth and perlite were extracted from the Company's mining properties in Nevada and Oregon in Fiscal 1999. On average, the Company has extracted a total of approximately 433,000 tons of diatomaceous earth and perlite from its Nevada and Oregon properties each year for the past four years. As ore deposits are depleted, the Company reclaims the land in accordance with plans approved by the relevant federal, state and local regulators. The following mining properties are of major significance to the Company's mining operations:
Nevada. The Company's diatomaceous earth mining operations in Nevada commenced 55 years ago in Storey County. The Company commenced perlite-mining operations in Churchill County in 1993. The Company extracted a total of approximately 279,000 tons of diatomaceous earth and perlite from its Nevada mining properties in Fiscal 1999 and, on average, extracted a total of approximately 290,000 tons of diatomaceous earth and perlite from its Nevada mining properties each year for the past four years, or approximately 67% of the Company's total diatomaceous earth and perlite production (and including 100% of its perlite production). Approximately 265 acres in Storey County, where active mining activities commenced 55 years ago, and approximately 62 acres in the Counties of Lyon and Churchill are actively being mined by the Company for diatomaceous earth. Diatomaceous earth from Storey, Churchill and Lyon mining properties is processed at the Clark Station, Nevada facility. The Company believes its diatomaceous earth reserves in the Counties of Storey, Churchill and Lyon, including mining properties not actively being mined, are in excess of 40 years at current levels of extraction based upon estimates prepared by its mining and exploration personnel. Diatomaceous earth extractions from the Pershing mining properties, which commenced more than 40 years ago, are processed at the Lovelock, Nevada facility. Approximately 975 acres are actively being mined for diatomaceous earth in Pershing. The Company believes its diatomaceous earth reserves in Pershing, including mining properties not actively being mined, to be in excess of 15 years at the current level of extraction based on estimates prepared by its mining and exploration personnel. Beginning in 1993, the Company has actively mined approximately 25 acres in Churchill County for perlite, which is processed at the Lovelock, Nevada facility. The Company believes its perlite reserves in Churchill County, including mining properties not actively mined, are in excess of 50 years at the current level of extraction based upon estimates prepared by its mining and exploration personnel.
Oregon. The Company commenced mining diatomaceous earth in Oregon approximately 14 years ago at its mining properties in Harney and Malhuer Counties. Approximately 88 acres in Harney County and 80 acres in Malhuer County are actively being mined. Diatomaceous earth extracted from these mines is processed at the Company's Vale, Oregon facility. The Company extracted approximately 215,000 tons of diatomaceous earth from the Harney County and Malhuer County mining properties during Fiscal 1999 and, on average, has extracted approximately 143,000 tons of diatomaceous earth each year for the past four years from these mining properties, or approximately 33% of the Company's total diatomaceous earth and perlite production. The Company believes its diatomaceous earth reserves in Harney County and Malhuer
County, including mining properties not actively being mined, are in excess of 75 years at the current level of extraction based on estimates prepared by its mining and exploration personnel.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
(A) Chapter 11 Proceedings.
On January 7, 1991 ("Petition Date"), the Subsidiary and seven of its domestic subsidiaries each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Ohio, Western Division, in Cincinnati, Ohio ("Bankruptcy Court"). All of the chapter 11 cases were consolidated for procedural purposes only under the caption: "In re Eagle-Picher Industries, Inc., et al.," Consolidated Case No. 1-91-00100, before the Honorable Burton Perlman, United States Bankruptcy Judge.
In August 1996, the Subsidiary, together with the Injury Claimants' Committee and the Representative for Future Claimants who was appointed by the Bankruptcy Court, proposed a plan of reorganization to the Bankruptcy Court (the "Plan"). The Bankruptcy Court and the United States District Court for the Southern District of Ohio (the "Ohio District Court") jointly issued the Order confirming the Plan on November 18, 1996 (the "Confirmation Date"), and the Plan was consummated on November 29, 1996 (the "Consummation Date"). The major component of the Plan was a settlement of the Subsidiary's liability for present and future asbestos-related personal injury claims arising out of business operations prior to the petition date under which it was agreed that these claims had a total value of $2 billion. Pursuant to the Plan, (i) the Eagle-Picher Personal Injury Settlement Trust (the "PI Trust") was established and the Subsidiary contributed assets to the PI Trust valued at approximately $730 million in the aggregate (representing the approximately 37% distribution upon the $2 billion allowed claim of the asbestos claimants, as unsecured creditors), consisting of $51.3 million in cash, $250 million in the 10% Debentures, $69.1 million in Tax Refund Notes, $18.1 million in Divestiture Notes and 10,000,000 shares of Common Stock (representing all outstanding shares of Common Stock), and (ii) the PD Trust was established in 1999 and was funded by the Subsidiary with $3 million in cash plus interest that had accrued since the Subsidiary had funded this obligation and set aside the $3 million pending establishment of the PD Trust. Pursuant to the Plan, the asbestos-related claims are discharged and the Subsidiary has no further liability in connection with such claims.
Pursuant to the Plan, the Subsidiary is discharged of the burden of defending more than 150,000 asbestos-related, as well as any lead-related, claims that had been, as well as any such claims that may in the future be, filed against the Subsidiary. This relief has been accomplished through the establishment of the independent trusts under the Plan to assume, administer, settle and pay such claims. In addition, the Order includes an injunction (the "Injunction"), which prohibits claimants with asbestos-related or lead-related claims from bringing actions against the Subsidiary, and instead requires these claimants to assert such claims only against the PI Trust or, as to asbestos-related property damage claims, against the PD Trust, each of which was funded by the Subsidiary pursuant to the Plan. Under the Plan the PI Trust assumed all liability and responsibility for asbestos-related and lead-related personal injury claims against the Subsidiary, and the PD Trust will assume all liability and responsibility for asbestos-related property damage claims. The Subsidiary believes that the Plan, the Injunction and the Bankruptcy Code together will enjoin any claims against the Subsidiary with respect to any past, present, or future asbestos-related or lead-related liabilities arising from or based upon business operations prior to the Petition Date.
Following confirmation of the Plan, notices of appeal of the Order were filed by one general unsecured creditor (the "Creditor Appellant") and the Unofficial Committee of Co-Defendants (the "Co-Defendants"), a group of former manufacturers and distributors of asbestos-containing products that have been named as co-defendants with one or more members of the Subsidiary in asbestos personal injury lawsuits and have asserted claims against the Subsidiary for contribution, indemnity and subrogation. The allowance of contribution claims against the Subsidiary is subject to Section 502(e) of the Bankruptcy Code which states that a claim for contribution asserted by an entity that is liable with a chapter 11 debtor shall be disallowed to the extent such contribution claim is contingent as of the time of allowance or disallowance of such claim. Neither the Creditor Appellant nor the Co-Defendants requested that the Order be stayed pending appeal. The Creditor Appellant withdrew its notice of appeal by a stipulation dated January 24, 1997.
The Co-Defendants appealed the Order directly to the United States Circuit Court of Appeals for the Sixth Circuit (the "Sixth Circuit") (the "Confirmation Order Appeal"), raising a variety of objections to the Plan and to the Trust's procedures for processing, allowing and paying the Co-Defendants' claims. The Co-Defendants also asserted, among other things, that Section 524(g) of the Bankruptcy Code, which authorizes courts to issue injunctions to channel asbestos claims away from a reorganized Subsidiary to a personal injury trust established by such Subsidiary is unconstitutional. The Sixth Circuit in a decision and order issued December 21, 1998, affirmed the Confirmation Order and dismissed the subject appeal as moot. As a result, the Confirmation Order became final and nonappealable as of March 23, 1999.
The Bankruptcy Court and the Ohio District Court entered the Injunction pursuant to Section 524(g) of the Bankruptcy Code. Section 524(g) of the Bankruptcy Code was enacted by Congress in 1994 to provide a statutory safe-harbor for asbestos manufacturing companies faced with numerous asbestos-related personal injury claims. Section 524(g) grants bankruptcy courts express statutory authority to issue injunctions that prohibit present and future asbestos claimants from suing a reorganized debtor; provided that a trust is established and funded to pay asbestos-related claims through procedures that reasonably assure that claimants with similar injuries will receive similar payments and other specific statutory requirements are satisfied.
Under Section 524(g), if the injunction is issued or affirmed by a district court with jurisdiction over the reorganization, the injunction will be permanent and not subject to modification by any court once the injunction becomes final and nonappealable. In confirming the Plan and issuing the Injunction, the Bankruptcy Court and the Ohio District Court determined that the PI Trust and the PD Trust each satisfied the requirements of Section 524(g) and that they had jurisdiction to issue the Injunction under both Section 524(g) of the Bankruptcy Code and their more general powers under the Bankruptcy Code to issue orders that are necessary or appropriate in bankruptcy cases.
While Section 524(g) specifically addresses trusts created to resolve asbestos-related litigation and injunctions issued in connection therewith, it does not specifically address whether an injunction directing claims to a trust that will pay both asbestos-related and non-asbestos-related claims, as in this case, is protected under Section 524(g). While there is a risk that the Injunction would not apply to future lead-related claimants because lead-related claims are not addressed in Section 524(g), the Subsidiary believes that the Injunction would be upheld and enforced against lead-related claimants if challenged. That belief is based on the fact that the Bankruptcy Court and Ohio District Court, in confirming the Plan and entering the Injunction, specifically ruled that Section 524(g) does not prohibit channeling of non-asbestos related claims along with asbestos-related claims. In the event that Section 524(g) does not operate to protect the Injunction's channeling of lead-related claims, such channeling could be upheld as a necessary or appropriate order under Section 105(a) of the Bankruptcy Code. Although the filing of future lead-related lawsuits cannot be predicted, the Subsidiary believes that this risk is limited because to date, only approximately 125 lead-related claims have been asserted against the Subsidiary (as compared to the tens of thousands of asbestos-related claims asserted against the Subsidiary).
On and shortly after the Consummation Date, the Subsidiary made distributions (the "Initial Distribution") under the Plan totaling approximately $800 million in cash, common stock and debt securities (including the approximately $730 million contributed to the PI Trust, $3.0 million set aside for the PD Trust and the remainder in connection with various other allowed claims including the environmental claims described below). Final distributions under the Plan will not be made until all remaining unresolved claims (other than asbestos-related and lead-related claims) are resolved (the "Final Distribution"). One environmental claim asserted during the chapter 11 proceeding is the only claim that remains unresolved. As of November 30, 1999, the Subsidiary has a reserve on its balance sheet in the amount of approximately $11.3 million for the Final Distribution (the "Final Distribution Reserve"). Although there can be no assurance as to the amount required to resolve the remaining claims, the Subsidiary expects those claims, together with any other claims not paid in the Initial Distribution, to be resolved, exclusive of administrative expenses, for an amount not in excess of the Final Distribution Reserve.
Although a bankruptcy plan of reorganization generally serves to resolve all claims that arose prior to the chapter 11 proceedings, courts in a number of cases have limited the types of environmental obligations that can be discharged by bankruptcy (concluding, for example, that an order to conduct an environmental clean-up of a site may not be a "claim" or that an environmental claim did not "arise" before the bankruptcy). The Subsidiary
has entered into the Environmental Settlement, discussed below, which is intended to relieve the Subsidiary of the burden of defending against certain claims asserted under Environmental Laws relating to conditions occurring prior to the date of the bankruptcy petition and governs certain environmentally related claims that have been or may yet be asserted against the Subsidiary after the Consummation Date relating to conditions occurring prior to the date of the bankruptcy petition. See "-- Environmental Matters." Nevertheless, due to the limitations on the types of environmental obligations that can be discharged by bankruptcy, the Subsidiary may have obligations relating to historical noncompliance with environmental laws with respect to sites owned by the Subsidiary as of the Confirmation Date that were not asserted in the chapter 11 proceedings. See "-- Environmental Matters."
(b) Other.
On January 25, 1996, Richard Darrell Peoples, a former employee of the Subsidiary, filed a Qui Tam suit under seal in the United States District Court for the Western District of Missouri (the "Missouri Court"). A Qui Tam suit is a lawsuit brought by a private individual pursuant to federal statute, allegedly on behalf of the U.S. Government. The U.S. Government has declined the opportunity to intervene or take control of this Qui Tam suit. The Subsidiary became aware of the suit on October 20, 1997, when it was served on the Subsidiary, after it had been unsealed. The suit involves allegations of irregularities in testing procedures in connection with certain U.S. Government contracts. The allegations are similar to allegations made by the former employee, and investigated by outside counsel for the Subsidiary, prior to the filing of the Qui Tam suit. Outside counsel's investigation found no evidence to support any of the employee's allegations, except for some inconsequential expense account matters. The Subsidiary, which believes that the U.S. Government did not incur any expense as a result of those matters, reported to the U.S. Government the employee's allegations and the results of outside counsel's investigation. The employee also initiated a different action against the Subsidiary in 1996 for wrongful termination, in which he alleged many of the same acts complained of in the Qui Tam suit. That action was dismissed with prejudice by the Missouri Court in October 1996. On June 16, 1998, the Missouri Court granted the Subsidiary's Motion to Dismiss the Qui Tam suit. The Court, however, allowed Mr. Peoples to amend his complaint. Mr. Peoples filed an amended complaint, and the Subsidiary's Motion to Dismiss the Amended Complaint was denied on January 20, 1999. The Subsidiary intends to contest this suit vigorously. The Subsidiary does not believe that resolution of this suit will have a material adverse effect on the Subsidiary's financial condition, results of operations or cash flows.
On May 8, 1997, Caradon Doors and Windows, Inc. ("Caradon"), filed suit against the Subsidiary in the United States District Court for the Northern District of Georgia (the "Georgia Court") alleging breach of contract, negligent misrepresentation, and contributory infringement and seeking contribution and indemnification in an amount not less than $10 million (the "Caradon suit"). The Caradon suit arose out of patent infringement litigation between Caradon and Therma-Tru Corporation extending over the 1989-1996 time period, the result of which was for Caradon to be held liable for patent infringement in amount believed to be approximately $10 million. In June 1997, the Subsidiary filed a Motion with the Bankruptcy Court seeking an order enforcing the Plan and the Confirmation Order against Caradon, and enjoining the Caradon suit from going forward. The Bankruptcy Court in a decision entered on December 24, 1997, held that the Caradon suit did violate the Plan and the Confirmation Order and enjoined Caradon from pursuing the Caradon suit. Caradon appealed the Bankruptcy Court's decision to the United States District Court for the Southern District of Ohio (the "District Court"), and in a decision entered on February 3, 1999, the District Court reversed and remanded the matter back to the Bankruptcy Court. The Subsidiary intends to contest this suit vigorously. The Subsidiary does not believe that resolution of this suit will have a material adverse effect on the Subsidiary's financial condition, results of operations or cash flows.
The Subsidiary is also involved in various other proceedings incidental to the ordinary conduct of its business. The Subsidiary believes that none of these other proceedings will have a material adverse effect on the Subsidiary's financial condition, results of operations or cash flows.
(c) Environmental Matters.
During the pendency of the chapter 11 proceedings, the Subsidiary entered into a settlement agreement (the "Environmental Settlement") with the United States Environmental Protection Agency (the "EPA"), the United States Department of the Interior and the states of Arizona, Michigan and Oklahoma (together, the "Settling
Parties"), addressing all known and unknown environmentally-related claims that were or could have been asserted by those entities against the Subsidiary in the bankruptcy proceeding. The Environmental Settlement resolved the majority of the approximately 1,100 environmental liability-related claims filed against the Subsidiary in the chapter 11 proceedings. In addition to resolving those claims filed in the chapter 11 proceedings, the Environmental Settlement provided that any additional claims by the Settling Parties against the Subsidiary in connection with pre-petition activities at any site not owned by the Subsidiary (the "Additional Sites"), shall be resolved as if they had been asserted during the chapter 11 proceedings. Accordingly, if the Subsidiary is found liable or settles any Additional Site claim, such liability is limited to approximately 37% of the liability or settlement amount.
Since entering into the Environmental Settlement, the Subsidiary has received notice from one or more of the Settling Parties that the Subsidiary may have liability in connection with 19 Additional Sites. The Subsidiary may be insured for a portion of these claims. The Subsidiary believes that its potential liability at 17 of these Additional Sites is not material to the Subsidiary's financial condition, results of operations or cash flows. The remaining two Additional Sites are the Henryetta Smelter Site at Henryetta, Oklahoma and the RSR Smelter Site at Dallas, Texas.
Henryetta Smelter Site. The Subsidiary received a notice from the EPA in 1997, alleging liability for remediation expenses at the site of a former zinc smelting facility owned and operated by the Subsidiary at Henryetta, Oklahoma, and for the removal and disposal from surrounding residential locations of contaminated soil and gravel that originated from the facility and from other companies operating in the area. The Subsidiary operated the facility for approximately 50 years, until it was shut down in 1968. The EPA performed remedial activities at the site at a cost of approximately $6.3 million. The Subsidiary has agreed to settle this claim with the EPA by giving EPA a total allowed claim in this matter of $5.2 million.
RSR Smelter Site. The Subsidiary received a notice from the EPA in 1996, alleging that it may be a Potentially Responsible Party ("PRP") regarding liability for remediation expenses at a secondary lead smelting facility in Dallas, Texas. The Subsidiary allegedly leased the facility, which was in operation until a date in or about 1984, for a period of at least one year in the early 1950s. The EPA has conducted and continues to conduct extensive remedial activities at this site, and the EPA's total expenses may amount to $60 million or more. The Subsidiary and the EPA have settled this claim by giving EPA a total allowed claim in this matter of $2.1 million.
The Subsidiary does not expect that its total costs associated with these two sites will have a material adverse effect on the Subsidiary's financial condition, results of operations or cash flows. Because each site is an Additional Site under the Environmental Settlement, the Subsidiary will be required to pay only approximately 37% of any amount for which it may be found liable or settle the claim. The payment of these two claims will be a deduction from the Final Distribution.
The Subsidiary is undertaking remedial actions at a number of its current and former facilities and properties which are not covered under the Environmental Settlement Agreement. In connection with certain sales of its assets, including the Plastics and Transicoil Divisions sold in 1997 and the Bearings Division sold in 1989, the Subsidiary has agreed to undertake remedial actions or to indemnify the respective purchasers of particular assets for certain liabilities under the Environmental Laws relating to that asset's operations or activities prior to the sale. The Subsidiary believes that neither these remedial actions nor any claims under these indemnity provisions will have a material adverse effect on the Subsidiary's financial condition, results of operations or cash flows.
The Subsidiary is undertaking closure and corrective actions under RCRA at two of its current permitted hazardous waste facilities. At the Joplin, Missouri, facility, consistent with the requirements of its RCRA permit, the Subsidiary is investigating the nature and extent of contamination from two closed hazardous waste impoundments and over 100 former solid waste management units formerly in use during the 130-year operating history of this property. The Subsidiary's investigation has identified areas of soil and groundwater contamination or suspected contamination, certain of which likely will require the Subsidiary to undertake remedial activities. Following completion of its investigation, the Subsidiary, in conjunction with federal and state regulators, will determine what, if any, corrective actions are appropriate at this property. At the Colorado Springs, Colorado, facility, the Subsidiary has entered into a Compliance Order on Consent with the State of Colorado's Department
of Public Health and Environment effective January 28, 1999 (the "Consent Order"). Pursuant to the Consent Order, the Subsidiary will complete the closure of four former hazardous waste impoundments and evaluate appropriate remedial actions to address contaminated groundwater and soil at and around the facility. The Subsidiary does not believe that it will be assessed any penalty in connection with the remediation of these sites, although there can be no assurance that one will not be imposed.
The Subsidiary owned and operated a lead and zinc smelting facility, which was dismantled in 1982, on the Galena property. The Galena property is located within the Tri-State mining district, formerly one of the largest lead and zinc fields in the world. The Tri-State mining district was actively worked from the mid-1800s until the 1960s and, as a result, soil, groundwater and surface waters have been significantly and adversely impacted. In the 1980s and early 1990s, the EPA addressed both surface contamination (including residential soil contamination) and groundwater contamination issues in the Tri-State mining district in the immediate vicinity of the Galena property. Under the Environmental Settlement, while the Subsidiary resolved all of its other liability under the Comprehensive Environmental Response, Compensation, and Liability Act associated with the Tri-State mining district, it specifically retained liability for the Galena property. Environmental impacts are likely at the Galena property as a result of the former smelter operation and from historic materials management practices on the Galena property. The EPA has not required remediation of the Galena property, and the Subsidiary has no current expenses in connection with remedial activities at this property. The Subsidiary, however, anticipates that certain investigations and remediation may be required at some point in the future. The Subsidiary does not believe that it will be assessed any penalty in connection with the remediation of this site, although there can be no assurance that one will not be imposed.
The Subsidiary does not believe, based on current information and taking into account reserves established for environmental matters, that costs associated with compliance with and remediation under Environmental Laws will have a material adverse effect on its financial condition, results of operations or cash flows.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
[NOT APPLICABLE]
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
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(A) Includes net sales attributed to Divested Divisions of $18,600 in the nine months ended November 30, 1998, $7,076 in the three months ended February 28, 1998, $111,294 in 1997, $159,777 in 1996, and $166,082 in 1995.
(B) Operating income is not indicative of trends as the results for the nine months ended November 30, 1998 (subsequent to the Acquisition) and those of both Predecessor A (subsequent to the Reorganization, but before the Acquisition) and Predecessor B (prior to the Reorganization) were derived using different bases. (See Management's Discussion and Analysis -- Effects of the Acquisition and Reorganization on Operations and Financial Condition.)
(C) Fresh-start revaluation gain of $118,684 reflects transactions related to emergence from bankruptcy and reorganization in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7").
(D) In accordance with SOP 90-7, interest was not accrued on debt that was unsecured or undersecured during the period during which the Subsidiary was in bankruptcy. Contractual interest was $9,889 in 1996 and $8,897 in 1995.
(E) Reflects a gain of $1,525,540 in 1996 related to emergence from bankruptcy and reorganization in accordance with SOP 90-7 and a loss of $1,235 in 1996 due to an accounting change of the method used for computing LIFO inventories of boron, germanium and other rare metals.
(F) Includes 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock ("Preferred Stock") of $97,956 in 1999 and $87,387 in 1998, which was issued in conjunction with the Acquisition. In 1995, long-term debt does not include $62,000 of under-secured or unsecured debt that was included in liabilities subject to compromise.
(G) For purposes hereof, EBITDA is defined as earnings before interest expense, income taxes, depreciation and amortization, certain one-time management compensation expenses, gain (loss) on sale of divisions, reorganization items and certain other non-cash items. EBITDA is presented because management believes it is an indicator of a company's ability to service and incur debt. EBITDA, as defined herein, may not be comparable to similarly titled measures reported by other companies and should not be construed as an alternative to operating income, as determined by generally accepted accounting principles ("GAAP"), as an indicator of the Company's operating performance, or to cash flows from operating activities, as determined by GAAP, as a measure of liquidity. Funds depicted by EBITDA are not available for management's discretionary use to the extent they are required for debt service and other commitments. Includes EBITDA attributable to Divested Divisions of $446 in the nine months ended November 30, 1998, $(185) in the three months ended February 28, 1998, $4,302 in 1997, $5,543 in 1996 and $11,252 in 1995.
(H) For purposes of determining the ratio of earnings to fixed charges and preferred stock dividends, "earnings" consist of income before provision (benefit) for income taxes, extraordinary items and accounting changes and fixed charges. "Fixed charges" consist of interest expense (including amortization of deferred financing costs) and approximately 30% of rental expense, representing that portion of rental expense deemed representative of the interest factor. Earnings were insufficient to cover fixed charges and preferred stock dividends in 1999 by $30,956 and in the nine months ended November 30, 1998 by $26,446. Such earnings to fixed charges and preferred stock dividends is not meaningful for 1996 because of significant reversals of asbestos litigation reserves and fresh start revaluation and is not meaningful for 1995 because of significant charges for asbestos litigation. Earnings were insufficient to cover fixed charges by $934,871 for the year ended November 30, 1995.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EFFECTS OF THE ACQUISITION AND REORGANIZATION ON OPERATIONS AND FINANCIAL CONDITION
The Acquisition of the Subsidiary by the Company was accounted for as a purchase. The purchase price has been allocated to the assets and liabilities of the Company based on their respective fair values as determined primarily by independent appraisals. The excess of the purchase price over the assessed values of the net assets acquired is being amortized over 15 years. The reorganization value in excess of amounts allocable to identifiable assets, which was the intangible asset created during the Subsidiary's emergence from bankruptcy (described below), was assigned no value. Consequently, the results of operations after the Acquisition are not comparable to those in the three months ended February 28, 1998 and in 1997 (the "Predecessor") primarily due to depreciation being calculated on an increased asset base and the difference in amortization of the intangible assets.
Upon emergence from bankruptcy on November 29, 1996 (the "Reorganization"), the Subsidiary applied the "fresh-start" provisions of the American Institute of Certified Public Accountants Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). In accordance with SOP 90-7, the assets and liabilities of the Subsidiary were restated at their fair value and a valuation of equity was made based on the appraised reorganization value of the business. The reorganization value in excess of amounts allocable to identifiable assets was capitalized and amortized using a four year life.
Interest expense increased substantially in 1998, after the Acquisition, due to the issuance of debt totaling $524.1 million related to the Acquisition. Immediately prior to the Acquisition, there was $271.3 million of outstanding debt. Any of the debt that had been issued when the Subsidiary emerged from bankruptcy that was still outstanding at that time was repaid at the time of the Acquisition.
In 1997, the Company received Federal tax refunds totaling $69.1 million resulting from net operating losses ("NOL's") carried back to recover taxes paid in prior years. The majority of the NOL's were created when the Subsidiary contributed cash and securities to the PI Trust in the Reorganization. Losses remaining after the carryback were carried forward to reduce taxable income in future years and were capitalized at the statutory rates as deferred tax assets. Other items that were deductible in the future, such as the debt issued in conjunction with the Subsidiary's Reorganization which was deductible when it was repaid, were also included in deferred tax assets which totaled $128.5 million at November 30, 1996. These deferred tax benefits were used to reduce taxable income (and, as a result, income taxes paid) in 1997 and the period in 1998 prior to the Acquisition. They were also used to offset the tax gain resulting from the sale of the Subsidiary. Any of the deferred tax benefits that were not offset by the Predecessor in 1997, the period in 1998 prior to the Acquisition or by the tax gain on the transaction itself were lost and are not available to reduce taxable income of the Company going forward.
In addition to the effects of the Acquisition and the Reorganization, other factors affecting comparability of operations is the acquisition of Carpenter in 1999 and the sale of the Trim Division in 1998 and the Plastics, Transicoil and Fabricon Products Divisions in 1997. The Company also contributed the assets of its former Suspension Systems Division to Eagle-Picher-Boge, L.L.C., a joint venture in which the Company had a 45% interest, in 1997. In 1998, the majority partner exercised its option to purchase the Company's interest in the joint venture.
RESULTS OF OPERATIONS
The following table sets forth certain sales and operating data, net of all inter-segment transactions for the Company's businesses for the periods indicated. However, operating income amounts are not comparable, primarily due to the effects of the Acquisition on the asset bases and depreciation and amortization. In addition,
the results of the Divested Divisions and certain one-time management compensation expenses related to the Acquisition totaling $28.9 million in 1998 also affect comparability.
1999 Compared to 1998
Net Sales. Sales in 1999 were $913.3 million, a 7.2% increase over 1998 sales which totaled $851.8 million. However, after excluding Carpenter in 1999 and the Trim Division in 1998, sales decreased 1.9%. Net sales for the Automotive Group, excluding the effects of Carpenter and the Trim Division, increased 4.5%. The North American automotive industry experienced another year of a strong automotive build; however, the growth of the Company's automotive component sales was tempered primarily by the discontinuation of certain programs with a major customer. Over the past four years, the Company estimates it has lost approximately $50.0 million of business with this customer due to re-sourcing decisions. At the same time, the Company has replaced this business with different customers, thus diversifying its customer base. In the Automotive Group, the Company is under constant pressure from its customers to reduce prices. In addition, the products it manufactures become obsolete from time to time as its customers change product designs and the Company must compete for replacement business. The acquisition of Carpenter is expected to further diversify the Company's customer base and expand its precision-machined automotive product lines. Another factor that contributed to flat sales was the weakening of the European currencies during the year, which caused the increases in sales of the European divisions in dollars to be less than increases in local currencies.
In the Industrial Products Group, sales declined 8.9%. The decline is primarily due to a 50% reduction in shipment of heavy-duty forklift trucks resulting from a decline in demand coupled with increased competition and slower than expected market penetration of new specialty forklift products. In addition, the IRIDIUM satellite program, a 66 satellite constellation for which the Company supplied nickel-hydrogen batteries was completed in 1998.
Cost of Products Sold. Cost of products sold (excluding depreciation expense) was $725.8 million in 1999, $503.0 million in the nine months ended November 30, 1998 and $162.8 million in the three months ended February 28, 1998 (a total of $665.8 million). As a percentage of sales, excluding the effects of Carpenter and the Trim Division, cost of products sold was 78.5% in 1999 and 77.8% in 1998. This increase was caused in part by the decline in shipments of heavy-duty forklift trucks, which resulted in poor absorption of fixed overhead. In addition, the Company experienced inefficiencies and heavy start-up costs in manufacturing new multi-layer fuel transfer systems programs in Europe.
Selling and Administrative. Selling and administrative expenses were $75.2 million in 1999 and $58.5 million and $17.1 million in the nine months ended November 30, 1998 and the three months ended February 28, 1998, respectively (a total of $75.6 million). Excluding the effects of Carpenter and the Trim Division, these expenses increased 2.2% in 1999.
Depreciation. Depreciation was $48.3 million in 1999, $29.9 million in the nine months ended November 30, 1998 and $9.0 million in the three months ended February 28, 1998. Amounts after February 28, 1998 are not comparable to amounts prior to the Acquisition due to the differences in asset bases. According to purchase accounting, the basis of the property, plant and equipment was adjusted to the fair value of such assets as of the date of the Acquisition. Excluding the effects of Carpenter and the Trim Division, depreciation increased $3.8 million in 1999. The increase in depreciation in 1999 is due to different asset bases after the Acquisition in 1998 and increased depreciation resulting from capital spending in recent years to implement new automotive programs (primarily precision machining and multi-layer fuel systems) and expand facilities manufacturing material handling equipment.
Amortization. Amortization was $16.9 million in 1999, $12.3 million in the nine months ended November 30, 1998 and $3.8 million in the three months ended February 28, 1998. Although the amounts are similar from year to year, they are not comparable for two reasons. Prior to the Acquisition, the Company was amortizing reorganization value in excess of amounts allocable to identifiable assets of $65.1 million over four years. In accordance with purchase accounting, this asset was not allocated a fair value in the Acquisition. The excess of acquired net assets over cost (goodwill) of $241.2 million, which resulted from the Acquisition, is being amortized over 15 years. Secondly, the acquisition of Carpenter as of March 1, 1999, which was accounted for as a purchase, resulted in goodwill of $16.2 million, which is also being amortized over 15 years.
Impairment of Net Assets of Operations to be Sold. The Company recorded a non-cash provision of $21.4 million, primarily related to the impairment of recorded asset values (including goodwill) of certain of the divisions held for sale, which was recognized because the expected net realizable value of these divisions was estimated to be insufficient to recover their carrying value. The majority of the assets to be sold are in the Automotive Group. These divisions had aggregate sales and income (loss) before taxes, respectively, of $130,008 and $(6,144) in 1999, $94,051 and $(743) in the nine months ended November 30, 1999, $30,009 and $861 in the three months ended February 28, 1998 and $117,066 and $2,560 in 1997. These divisions have continued to operate. The assets of two of these divisions, Ross Aluminum Foundries and MARCO, were sold effective January 1, 2000 and February 25, 2000, respectively.
Interest Expense. Interest expense was $49.1 million in 1999, $36.3 million in the nine months ended November 30, 1998 and $6.9 million in the three months ended February 28, 1998 (a total of $43.2 million). The increase is due to the increased debt related to the Acquisition as discussed above and to the acquisition of Carpenter in 1999.
Income (Loss) Before Taxes. Income (loss) before taxes was $(20.4) million in 1999 and $(19.1) million and $4.9 million in the nine months ended November 30, 1998 and the three months ended February 28, 1998, respectively. Excluding the results of Carpenter and the Trim Division, income (loss) before taxes declined $9.0 million in 1999. In addition to weaker operating results of similar divisions in 1999, three items contributed to the decrease in income (loss) before taxes and affect comparability between 1999 and 1998:
- A provision for impaired assets held for sale of $21.4 million in 1999;
- Special management compensation expenses relating to the Acquisition of $28.9 million in 1998; and
- An increase in interest expense of approximately $5.8 million, which related primarily to the increased debt resulting from the acquisition of Carpenter in 1999 and lower debt in the period prior to the Acquisition in 1998.
Income (loss) before taxes for the Automotive Group, after excluding the results of Carpenter and the Trim Division, was $(4.0) million in 1999 compared to $14.0 million in 1998. The primary reason for the decline is that $13.3 million of the provision for impairment of net assets of operations to be sold relates to operations in the Automotive Group. The Company experienced operating gains in divisions manufacturing precision-machined products as start-up operations in Europe mature, and in rubber-coated metal products due to a change in product mix toward more value-added products. These operating gains were more than offset by heavy start-up costs and inefficiencies experienced in manufacturing new multi-layer fuel transfer programs in Europe. In addition, divisions in the Automotive Group experienced heavier depreciation as described above.
Income (loss) before taxes for the Industrial Products Group, was $(7.1) million in 1999 compared to $12.3 million in 1998. $8.1 million of the provision for impairment of net assets of operations to be sold relates to operations in the Industrial Products Group. Operations manufacturing material handling equipment experienced losses due to lower volumes, which resulted in poor absorption of overhead, and inefficiencies related to moving production to another facility.
The net loss before taxes for the Corporate office was $10.0 million in 1999, $36.0 million in the nine months ended November 30, 1998 and $2.4 million in the three months ended February 28, 1998. In 1998, these amounts included special management compensation expenses related to the Acquisition of $28.9 million.
Income Taxes (Benefit). Income taxes (benefit) in 1999, the nine months ended November 30, 1998 and the three months ended February 28, 1998 were $(2.8) million, $(4.7) million and $4.1 million, respectively. However, the Acquisition affects the comparability of income taxes and the effective tax rates. In the first quarter of 1998, the amortization of the reorganization value in excess of amounts allocable to identifiable assets was not deductible for tax purposes. Due to the election to treat the sale of stock in the Acquisition as the sale of assets, a substantial portion of the amortization of the excess of acquired net assets over cost is deductible for tax purposes. However, that portion changes over time as liabilities, which were contingent for tax purposes at the time of the Acquisition, are resolved. In addition, the impairment of goodwill in 1999 resulted in a reduced tax benefit.
Net Income (Loss). Net income (loss) in 1999, the nine months ended November 30, 1998 and the three months ended February 28, 1998 was $(17.6) million, $(14.4) million and $0.8 million, respectively. However, in 1999, net income has been significantly impacted by the effects of a non-cash provision of $21.4 million, primarily related to the impairment of net asset of operations to be sold. In 1998, net income was similarly impacted by the effects of the Acquisition on management compensation -- special. The comparability of depreciation, amortization, interest expense and income taxes has been affected by the Acquisition on February 24, 1998, as the financial statements for the first quarter of 1998 were prepared on a different basis.
The net loss applicable to common shareholders was increased by $10.6 million in 1999 and $7.4 million in the nine months ended November 30, 1998 for preferred stock dividends accreted. Since the Preferred Stock was issued upon the Acquisition, net income (loss) for the three months ended February 28, 1998 was not impacted.
1998 Compared to 1997
Net Sales. Sales in the twelve month period ended November 30, 1998 totaled $851.8 million. compared to $906.1 million in the year ended November 30, 1997, a decrease of 6.0% for the year. However, sales increased 3.9% in 1998, after excluding the Divested Divisions.
Net sales for the Automotive Group, excluding those of Divested Divisions, increased 11.3%. The increase in sales was due to a strong automotive build in North America and increased market penetration of precision-machined transmission and drive train components and multi-layer fuel transfer systems.
In the Industrial Products Group, net sales decreased 3.0%, excluding net sales of Divested Divisions. Increases in demand for construction equipment and parts and material handling equipment were offset by declines in demand for special purpose batteries and satellite components due to the completion of a major satellite project. In addition, the Company experienced decreased sales of germanium. Sales of germanium products were affected by lower market prices which resulted from increased supplies, the completion of a major satellite project and the increased use of recycled germanium by the Company's customers. Customers increased their recycling of germanium in response to sharp increases in germanium prices which took place in 1996. Revenues declined since the Company has shifted more toward being a toll refiner of germanium rather than a buyer and seller of the material.
Cost of Products Sold. Cost of products sold (excluding depreciation expense) was $503.0 million in the nine months ended November 30, 1998 and $162.8 million in the three months ended February 28, 1998 (a total of $665.8 million) compared to $725.0 million in 1997. Excluding the cost of products sold of Divested Divisions, cost of products sold as a percentage of net sales was 77.8% in 1998 and 78.7% in 1997. Reasons for
the decline include improved performance at certain start-up operations, increased efficiencies and changes in product mix involving the special purpose batteries.
Selling and Administrative. Selling and administrative expenses were $58.5 million and $17.1 million in the nine months ended November 30, 1998 and the three months ended February 28, 1998, respectively (a total of $75.6 million), compared to $77.1 million in 1997. Excluding the Divested Divisions, these expenses increased 5.1%. Besides a general increase due to activity relating to increased sales volumes, items contributing to the increase of selling and administrative expenses include management fees payable to Granaria Holdings B.V. and a long-term incentive program for managers, both of which commenced after the Acquisition.
Management Compensation -- Special. The special management compensation expense is a one-time item related to the Acquisition in 1998. See Note L to the Consolidated Financial Statements contained in Item 8.
Depreciation. Depreciation was $29.9 million in the nine months ended November 30, 1998, $9.0 million in the three months ended February 28, 1998 and $39.7 million in the year ended November 30, 1997. The 1998 and 1997 amounts are not comparable due to the differences in asset bases as a result of the Acquisition on February 24, 1998. According to purchase accounting, the basis of the property, plant and equipment was adjusted to the fair value of such assets as of the date of the Acquisition. This adjustment resulted in depreciation of approximately $1.2 million greater in the nine months following the Acquisition than the Company would have incurred if the Acquisition had not taken place, $1.4 million greater excluding the effect of the Divested Divisions.
Amortization. Amortization was $12.3 million in the nine months ended November 30, 1998, $3.8 million in the three months ended February 28, 1998 and $16.3 million in the year ended November 30, 1997. However, the 1998 and 1997 amounts are not comparable. Prior to the Acquisition, the Company was amortizing reorganization value in excess of amounts allocable to identifiable assets of $65.1 million over four years. In accordance with purchase accounting, this asset was not allocated a fair value in the Acquisition. The excess of acquired net assets over cost of $241.2 million, which resulted from the Acquisition, is being amortized over 15 years.
Interest Expense. Interest expense was $36.3 million in the nine months ended November 30, 1998 and $6.9 million in the three months ended February 28, 1998 (a total of $43.2 million) as compared to $31.3 million in 1997. The increase is due to the increased debt related to the Acquisition as discussed above.
Income (Loss) Before Taxes. Income (loss) before taxes was $(19.1) million and $4.9 million in the nine months ended November 30, 1998 and the three months ended February 28, 1998, respectively, and $14.0 million in 1997. Excluding the results of the Divested Divisions and the gain (loss) on the sales of those divisions, income (loss) before taxes declined $34.2 million in 1998. Three items offset increases in operating results and contributed to the decrease in income (loss) before taxes and affect comparability between 1998 and 1997:
- An increase in depreciation of $1.4 million in 1998 resulting solely from the difference in asset bases;
- Special management compensation expenses relating to the Acquisition of $28.9 million in 1998; and
- An increase in interest expense of approximately $11.9 million, which related primarily to the increased debt resulting from the Acquisition.
Income before taxes for the Automotive Group, after excluding the results of the Divested Divisions and the gain (loss) on the sales of those divisions, increased 6.1%. The increased sales volumes described above resulted in better absorption of fixed costs and operating results increased accordingly. These increases were slightly offset by the impact on divisions in the Automotive Group of the strike against General Motors ("GM") in 1998. The Trim Division, which is one of the Divested Divisions, was impacted the most significantly by the strike. The increases in operating results in the Automotive Group were somewhat offset by increased interest costs relating to the Acquisition of approximately $5.3 million.
Income before taxes for the Industrial Products Group, after excluding the results of the Divested Divisions and the gain (loss) on the sales of those divisions, decreased 17.4%. Although volumes of special-purpose batteries declined in 1998 as a large satellite program neared completion, a shift in product mix contributed to an
increase in operating results. However, $1.2 million of the increased depreciation relating to the change in asset bases and $6.5 million of increased interest costs relating to the Acquisition adversely affected results in the Industrial Products Group.
The net loss before taxes for the Corporate office was $36.0 million in the nine months ended November 30, 1998, $2.4 million in the three months ended February 28, 1998 and $5.9 million in 1997. The increase in 1998 was due to items resulting from the Acquisition: 1) special management compensation expenses related to the Acquisition of $28.9 million; 2) management fees payable to Granaria Holdings B.V.; 3) a long-term incentive program for managers; and 4) decreased investment income.
Income Taxes (Benefit). Income taxes (benefit) in the nine months ended November 30, 1998, the three months ended February 28, 1998 and 1997 were $(4.7) million, $4.1 million and $17.9 million, respectively. However, these amounts and the effective tax rates are not comparable due to the impact of the Acquisition. The amortization of the reorganization value in excess of amounts allocable to identifiable assets was not deductible for tax purposes. Due to the election to treat the sale of stock in the Acquisition as the sale of assets, a substantial portion of the amortization of the excess of acquired net assets over cost is deductible for tax purposes.
Net Income (Loss). Net income (loss) in the nine months ended November 30, 1998, the three months ended February 28, 1998 and 1997 was $(14.4) million, $0.8 million and $(3.9) million, respectively. However, in 1998, net income has been significantly impacted by the effects of the Acquisition on management compensation -- special, depreciation, amortization, interest expense and income taxes. Net income before depreciation and amortization, management compensation -- special, interest expense and income taxes (benefit) was $113.0 million in 1998 and $101.3 million in 1997.
The net loss applicable to common shareholders was increased by $7.4 million in the nine months ended for preferred stock dividends accreted. Since the Preferred Stock was issued upon the Acquisition, net income (loss) for the three months ended February 28, 1998 and 1997 was not impacted.
FINANCIAL CONDITION
EBITDA
The Company's EBITDA is defined for purposes hereof as earnings before interest expense, income taxes, depreciation and amortization, certain one-time management compensation items and certain other non-cash items, such as gains and losses on the sale of divisions. EBITDA, as defined herein, may not be comparable to similarly titled measures reported by other companies and should not be construed as an alternative to operating income or to cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of the Company's operating performance or liquidity, respectively. Funds depicted by EBITDA are not available for management's discretionary use to the extent they are required for debt service and other commitments.
EBITDA was $115.4 million, $114.4 million and $104.1 million in 1999, 1998 and 1997, respectively. Excluding the Divested Divisions, EBITDA was $114.1 million and $99.8 million, in 1998 and 1997, respectively. The increase in EBITDA in 1999 resulting from the acquisition of Carpenter was offset by operating declines in operations manufacturing material handling equipment and multi-layer fuel transfer programs. The increase in EBITDA of 14.3% (excluding the Divested Divisions) from 1997 to 1998 was due primarily to better sales volumes of certain automotive products and construction and material handling equipment and a better product mix in the operation manufacturing special-purpose batteries.
Operating Activities
Cash flows provided by operations in 1999 were $46.9 million. Net cash flows provided by operations in 1998 were $66.4 million, $75.5 million was provided in the nine months ended November 30, 1998 and $9.1 million was used in operations in the three months ended February 28, 1998. Cash provided by operations was $147.9 million in 1997.
The following table sets forth a reconciliation of income (loss) before taxes to cash provided by (used in) operations for the years ended November 30:
See Results of Operations for discussions about income (loss) before taxes, depreciation, amortization, impairment of net assets of operations to be sold, loss on sale of divisions and interest expense. Interest paid increased in 1999 due to the acquisition of Carpenter and in 1998 due to the Acquisition as previously discussed in Results of Operations. Differences in interest paid and interest expense result primarily from amortization of deferred financing costs, which are non-cash charges, except in 1998 where there was a $5.7 million difference in the beginning and ending accrual of interest due to the differences in the payment schedules of the debt existing before and after the Acquisition.
Income taxes paid increased in 1999 due to the following: 1) a refund of foreign income taxes received early in 1998; 2) the Predecessor Company had net operating loss carryforwards and as a result, there were no Federal income taxes payable for income earned prior to the Acquisition (approximately the first three months of 1998); and 3) a portion of the tax liability associated with the tax period ended November 30, 1998 was paid in fiscal year 1999 while all of the anticipated liability for 1999 has been paid in 1999. In 1997, The Company received a tax refund of $69.1 million due to NOL carrybacks generated during the Reorganization.
The proceeds from insurance settlements in 1998 related to pre-Acquisition contingencies. See Note L to the Consolidated Financial Statements contained in Item 8 for discussion about the management trust in 1998.
The decrease in cash in 1999 due to working capital increases resulted primarily from increases in minerals inventories relating to a longer season of mining activities because of favorable weather, changes in distribution methods and customer service for commercial batteries, a large new contract for special purpose batteries and Year 2000 preparedness. Additionally, there were payments made for special management compensation items in 1999, which reduced accruals, and bonus accruals were lower in 1999. In 1998, in addition to the increase in accrued interest previously mentioned, the increase in cash provided by operating activities attributable to working capital was also due to the use of cash in an employee benefits trust to pay for such benefits, rather than using the Company's cash. This resulted in an increase in cash provided by operations to the Company of approximately $8.0 million. In 1997, the increase in cash provided by operating activities attributable to working capital was due to certain divisions being able to negotiate better terms on their accounts payable after emerging from bankruptcy.
On February 24, 2000, the Company settled claims against a former insurer regarding environmental remediation costs for $16.0 million. The Company received payment of this amount on February 28, 2000.
Investing Activities
Capital expenditures totaled $47.0 million in 1999. Major projects included completion of a manufacturing plant which was acquired but in-progress when the Company acquired Carpenter and purchase of equipment required for new automotive programs, particularly those involving precision-machined parts. Capital expendi-
tures in the year ended November 30, 1998 which totaled $32.0 million, included small expansions to plants that manufacture material handling equipment and bulk pharmaceuticals and equipment needed for new programs in the Automotive Group. Capital expenditures were $51.3 million in 1997. Major additions included two new plants to manufacture precision-machined parts, one in Manchester, Tennessee and the other in Tamworth, England. Construction on the new diatomaceous earth processing unit in Vale, Oregon, which commenced in 1996, was completed in 1997.
The Company anticipates that capital expenditures will be approximately $45-50 million in 2000, principally for equipment to manufacture precision-machined automotive parts. These capital expenditures will be financed from cash provided by operations or borrowings under the Company's revolving credit facility.
The Company's cash requirements for the acquisition of Carpenter were $60.2 million, including transaction costs: $37.9 million was paid for the stock of Charterhouse, a $3.1 million payment was made to the former president of Carpenter under a phantom stock plan triggered by the transaction, and $18.6 million of debt assumed in the transaction was repaid with proceeds from the Company's revolving credit facility. The Company also assumed $12.4 million in debt which was not refinanced.
The Company sold its Trim Division as of October 31, 1998, however the transaction remained in escrow until certain conditions were met in December 1998. At that time, the Company received $12.4 million cash and a $2.1 million note due in 2000 which is secured by a first mortgage on the real estate. In 1997, The Company contributed the assets of its former Suspension Systems Division to Eagle-Picher-Boge, L.L.C., a joint venture in which the Company had a 45% interest, and received a note from the joint venture in the amount of $2.8 million. In 1998, the majority partner exercised its option to purchase the Company's interest in the joint venture. At that time, the note was also repaid resulting in proceeds totaling $7.9 million. The Company sold the Plastics, Fabricon Products and the Transicoil Divisions in 1997. The net cash proceeds of these transactions totaled $39.0 million.
Financing Activities
In May 1999, the Company amended its syndicated senior bank credit loan facility ("Credit Agreement") to provide for: 1) an accounts receivable loan agreement ("Receivables Agreement") with a separate revolving credit facility of up to $75.0 million; 2) an increase in its revolving credit facility ("Revolving Facility") from $160.0 million to $220.0 million; and 3) repayment of $120.5 million in term loans under the Credit Agreement.
In addition to its regularly scheduled payments on the remaining term loan, the Company was required to make a prepayment of $8.5 million to the term loans in the first quarter, which represented 60% of annual excess cash flow in 1998 as defined by the Company's credit agreement. The Company's net borrowings of $46.8 million in 1999 resulted primarily from the acquisition of Carpenter. In addition to the borrowings, the Company assumed a $12.4 million industrial revenue bond, which has payments due annually through 2005.
To finance the Acquisition in 1998, the Company issued $100.0 million in common stock and $80.0 million in publicly traded redeemable preferred stock. The Subsidiary issued $220.0 million of publicly traded senior subordinated notes ("Subordinated Notes") and borrowed $225.0 million in term loans and $79.1 million in revolving loans under the Credit Agreement. At the time of the Acquisition, the Company repaid the $250.0 million Senior Sinking Fund Debentures that had been issued to the PI Trust when the Subsidiary emerged from bankruptcy. The Company was able to repay $64.9 million in debt from the time of the Acquisition through the end of 1998 from cash generated from operations.
The Company used the proceeds of the tax refunds totaling $69.1 million received in 1997 to redeem the $69.1 million Tax Refund Notes which were issued to the PI Trust in connection with the Reorganization. The $50.0 million of Divestiture Notes, which were issued to the PI Trust and other unsecured creditors in connection with the bankruptcy, were also repaid in 1997, primarily with the proceeds from the divestiture of divisions. In addition, secured notes totaling $6.8 million at November 30, 1996 were repaid in full in 1997 due, in certain cases, to the sale of the assets which secured the notes. The Company issued an $8.0 million Industrial Revenue Bond to finance the new facility in Manchester, Tennessee and incurred $5.0 million debt in Europe to finance expansion activities.
Earnings to Fixed Charges and Preferred Stock Dividends
Earnings to fixed charges and preferred stock dividends were .49x in 1999, .41x in the nine months ended November 30, 1998, 1.69x in the three months ended February 28, 1998 and 1.43x in 1997. Earnings were insufficient to cover fixed charges and preferred stock dividends by $31.0 million in 1999. Excluding the impairment of net assets of operations held for sale, the ratio would be .84x and earnings would not be sufficient to cover fixed charges and preferred stock dividends by $9.5 million. Earnings were insufficient to cover fixed charges and preferred stock dividends by $26.4 million in the nine months ended November 30, 1998. However, the management compensation -- special of $26.8 million in that period is a non-recurring item related to the Acquisition. If this item were excluded, earnings to fixed charges and preferred stock dividends would have been 1.01x in that period.
Liquidity and Capital Resources
The Revolving Facility under the Credit Agreement is $220.0 million and is available for both borrowings and the issuance of letters of credit. At November 30, 1999, the Company had outstanding borrowings and letters of credit under the Facility of $136.0 million and $51.8 million, respectively, leaving the Company with available borrowing capacity of $32.2 million. In addition, the Company's European operations also have several lines of credit totaling $21.4 million at November 30, 1999, of which $14.4 million was borrowed, leaving $7.0 million in borrowing capacity at that date. These credit agreements contain various financial covenants. Certain of the Company's European subsidiaries did not meet the minimum financial requirement of one of the European credit agreements as of November 30, 1999; however, the Company has obtained the necessary waivers from the lender. The Company was in compliance with the covenants of its Credit Agreement and Subordinated Notes.
The Receivables Agreement has a term of 364 days; but it is expected to be renewed over the term of the Credit Agreement. Excluding the Receivables Agreement scheduled debt repayments are $16.0 million in 2000. The Credit Agreement, as amended, requires the Company to make mandatory prepayments of 50% of annual cash flow as defined by the Credit Agreement, the net proceeds from sales of assets (subject to certain conditions), the proceeds of new debt issued and 50% of the net proceeds of any equity issued. No excess cash flow payment is due in 2000 for the year ended November 30, 1999. Scheduled debt payments under the Credit Agreement and the industrial revenue bonds for 2001 and 2002 are $20.8 million and $25.6 million, respectively.
On December 1, 1999, the Company acquired the assets of the depleted zinc business of Isonics Corporation for $8.2 million; $6.7 million of which was paid upon closing and $1.5 million of which consists of contingent cash payments over three years. In addition, the Company has negotiated a warrant to acquire common stock of Isonics Corporation in exchange for materials to be delivered in 2000. This acquisition was financed from the Revolving Facility.
The proceeds of the sales of the Ross Aluminum Foundries Division and MARCO were used to repay debt. In addition, any other proceeds resulting from the eventual sales of the other divisions to be sold will be applied to reduce debt.
Cash and cash equivalents were $10.0 million at November 30, 1999. The Company estimates that it needs approximately $10.0 million to $12.0 million in cash for operations. The Company's liquidity needs are primarily for debt service and capital maintenance. The Company believes that its cash flows from operations and available borrowings under its bank credit facilities will be sufficient to fund its anticipated liquidity requirements for the next twelve months. In the event that the foregoing sources are not sufficient to fund the Company's expenditures and service its indebtedness, the Company would be required to raise additional funds.
YEAR 2000 READINESS DISCLOSURE
The Company completed its Year 2000 readiness project as scheduled, including addressing leap year calendar date calculation concerns. The Company did not experience any significant disruptions in its operating or business systems during the transition from 1999 to 2000. Based on operations since January 1, 2000, the Company does not expect any impact to its ongoing business as a result of the Year 2000 issue. The Company has
spent approximately $5.2 million (including capital and internal resources that were redeployed) to assess, remediate and test its computer hardware, software and embedded systems.
EURO CONVERSION
On January 1, 1999, eleven members of the European Union adopted the euro as their common legal currency and established fixed conversion rates between their existing local currencies and the euro. During the transition period, which runs from January 1, 1999 through December 31, 2002, transactions may take place using either the euro or a local currency. However, conversion rates will no longer be computed directly from one local currency to another, but be converted from one local currency into an amount denominated in euro, then be converted from the euro denominated amount into the second local currency. On July 1, 2002, the local currencies will no longer be legal tender for any transactions.
The Company has both operating divisions and domestic export customers located in Europe. In 1999, combined revenues from these sources were approximately 11% of total revenues. The Company has operations in Germany, the Netherlands and Spain, which are participating in the euro conversion, and the United Kingdom, which has elected not to participate at this time. Certain of our European operations 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 remaining operations located in the participating countries plan to make the euro the functional currency sometime during the transition period. 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 euro may be more urgent for operations located in the United Kingdom, particularly in the automotive industry, as the European automotive industry is somewhat dominated by German companies. The currency risk to the operations located in the United Kingdom could also be hedged, however the risk is greater on a regional level that the hedging could result in additional costs that could harm the cost competitiveness of those operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The accounting for gains and losses resulting from changes in the fair value of a derivative depends on the its intended use and the resulting designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." Based on the new effective date, the Company will adopt the provisions of this statement in the first quarter of the fiscal year ending November 30, 2001. The Company has not yet determined the impact this statement will have on its financial position or the results of its operations.
Other accounting standards issued by the FASB since June 1998 are not applicable to the Company.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains statements which, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934. The words "estimate," "anticipate," "project," "intend," "believe," "expect," and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this report include, but are not limited to (1) statements regarding future divestitures of divisions under "Item 1. Business -- General Development of Business;" (2) statements regarding competitive conditions in the Automotive Group under "Item 1. Business -- Narrative Description of Business -- The Automotive Group;" (3) statements regarding the quality and pricing of raw materials under "Item 1. Business -- Narrative Description of Business -- Other
Information;" (4) statements regarding diatomaceous earth and perlite reserves under "Item 2. Properties -- Mining -- Nevada" and " --Oregon;" (5) statements regarding the effect of the Plan and the Injunction on future asbestos-related or lead-related liabilities of the Company and "Item 3. Legal Proceedings -- Chapter 11 Proceedings;" (6) statements regarding the effect of the Peoples or Caradon litigation on the Subsidiary's financial condition, results of operations or cash flows under "Item 3. Legal Proceedings -- Other;" (7) statements regarding the effect of the Henryetta Smelter Site or the RSR Smelter Site on the Subsidiary's financial condition, results of operations or cash flows under "Item 3. Legal Proceedings -- Environmental Matters;" (8) statements regarding the effect of certain environmental remediation actions and compliance with environmental laws on the financial condition, results of operations or cash flows of the Subsidiary or the assessment of penalties in connection with certain sites under "Item 3. Legal Proceedings -- Environmental Matters;" (9) statements regarding the effect of the acquisition of Carpenter under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- 1999 Compared to 1998;" (10) statements regarding estimated capital expenditures in 2000 under "Item 7. Management's Discussion and Analysis of Results of Financial Conditions and Operations -- Financial Condition -- Investing Activities;" (11) statements regarding the ability of the Company to fund its anticipated liquidity requirements for the next twelve months under "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources;" (12) statements regarding future loss and replacement of sales under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- 1999 compared to 1998;" and (13) statements regarding the future impact of the Year 2000 issues under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness Disclosure." Such forward looking information involves important risks and uncertainties that could materially alter results in the future from those expressed in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, the ability of the Company to maintain existing relationships with customers; the ability of the Company to successfully implement productivity improvements, cost reduction initiatives and facilities expansion; the ability of the Company to develop, market and sell new products and the ability of the Company to continue to comply with environmental laws, rules and regulations. Other risks and uncertainties include uncertainties relating to economic conditions, acquisitions and divestitures, government and regulatory policies, technological develop ments and changes in the competitive environment in which the Company operates. Persons reading this Form 10-K are cautioned that such forward-looking statements are only predictions and that actual events or results may differ materially. In evaluating such statements, readers should specifically consider the various factors which could cause actual events or results to differ materially from those indicated by such forward-looking statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT ACTIVITIES
The Company is exposed to market risk, including changes in interest rates, currency exchange rates, and commodity prices. To manage the volatility relating to these exposures, the Company enters into hedging instruments pursuant to the Company's policies. The financial impacts of these instruments are offset by corresponding changes in the underlying exposures being hedged. The Company does not hold or issue derivative financial instruments for trading purposes.
Interest Rate Management
The Company's policy is to manage interest cost using a mix of fixed and variable rate debt. To manage this mix in a cost-efficient manner, the Company has entered into an interest rate swap, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to a notional principal amount of $150.0 million. This swap is designated to hedge a majority of the loans outstanding under the Credit Agreement ($217.2 million current balance). For all interest rate hedges, the rate differential is reflected in current interest expense over the life of the swaps.
The remaining $67.2 million of the loans outstanding under the Credit Agreement bear interest at the variable rates described in Note G to the Consolidated Financial Statements contained in Item 8.
ITEM 8. FINANCIAL STATEMENTS
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
See accompanying notes to consolidated financial statements.
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30
See accompanying notes to consolidated financial statements.
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30
See accompanying notes to consolidated financial statements.
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
See accompanying notes to consolidated financial statements.
EAGLE-PICHER HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED NOVEMBER 30, 1999 AND 1997, NINE MONTHS ENDED NOVEMBER 30, 1998 AND THREE MONTHS ENDED FEBRUARY 28, 1998
See accompanying notes to consolidated financial statements.
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1999 AND 1997, NINE MONTHS ENDED NOVEMBER 30, 1998 AND THREE MONTHS ENDED FEBRUARY 28, 1998
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
A. SIGNIFICANT ACCOUNTING POLICIES
Purchase Accounting
Eagle-Picher Holdings, Inc. ("Company") acquired Eagle-Picher Industries, Inc. ("Subsidiary") on February 24, 1998 ("Acquisition") (See Note B). The Subsidiary, which is the operating entity, is a wholly-owned subsidiary of the Company, which was formed as an acquisition vehicle. The Company's results of operations and cash flows approximate those of the Subsidiary. References will be to the Company, except for instances where it is more appropriate to specifically refer to the Subsidiary.
The Acquisition was accounted for as a purchase. The purchase price has been allocated to the assets and liabilities of the Company based on their respective fair values as determined primarily by independent appraisals. The excess of the purchase price over the assessed values of the net assets was allocated to Excess of Acquired Net Assets Over Cost and is being amortized over 15 years. As a result, the consolidated financial statements relating to operations after the Acquisition are not comparable to those prior to the Acquisition. Accordingly, the periods prior the Acquisition have been labeled "Predecessor."
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company's subsidiaries which are more than 50% owned and controlled. Intercompany accounts and transactions have been eliminated. Investments in unconsolidated affiliates which are at least 20% owned and over which the Company exercises significant influence are accounted for using the equity method.
Revenue Recognition
Sales are recognized primarily upon shipment of products except for a division of the Company that sells products under contracts and subcontracts with various United States Government agencies and aerospace and defense contractors. On cost-reimbursable contracts, sales are recognized as costs are incurred and include a portion of the total estimated earnings to be realized in the ratio that costs incurred relate to total estimated costs. On fixed-price contracts, sales are recognized using the percentage of completion method, when deliveries are made or upon completion of specified tasks. Contract losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
Marketable securities with original maturities of three months or less are considered to be cash equivalents.
Financial Instruments
The Company's financial instruments consist primarily of investments in cash and cash equivalents, receivables and certain other assets as well as obligations under accounts payable, long-term debt and preferred
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock. The carrying values of these financial instruments, with the exception of long-term debt and preferred stock, approximate fair value (See Notes G and I).
Financial instruments, which potentially expose the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and trade accounts receivable. The Company conducts periodic credit evaluations of its customers' financial condition and generally does not require collateral. The Company's customer base includes all significant automotive manufacturers and their first tier suppliers in North America and Europe. Although the Company is directly affected by the well-being of the automotive industry, management does not believe significant credit risk existed at November 30, 1999.
Inventories
Inventories are valued at the lower of cost or market, which approximates current replacement cost. A substantial portion of domestic inventories are valued using the last-in first-out ("LIFO") method while the balance of the Company's inventories are valued using the first-in first-out method.
Property, Plant and Equipment
The Company records its investment in property, plant and equipment at cost. The Company provides for depreciation of plant and equipment using the straight-line method over the estimated lives of the assets which are generally 20 to 40 years for buildings and 3 to 10 years for machinery and equipment. Improvements which extend the useful life of property are capitalized, while repair and maintenance costs are charged to operations as incurred. In accordance with purchase accounting, property, plant and equipment acquired in the acquisition of a business, including property, plant and equipment in service at February 24, 1998, are stated at fair value, based on independent appraisals, as of the date of the acquisition.
Intangible Assets
The excess of acquired net assets over cost is being amortized on a straight-line basis over 15 years. The recoverability of the asset is evaluated periodically as events or circumstances indicate a possible inability to recover its carrying amount. The reorganization value in excess of amounts allocable to identifiable assets was being amortized using the straight-line method over four years.
Accounting for Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when impairment indicators are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of such assets.
Environmental Remediation Costs
The Company accrues for environmental expenses resulting from existing conditions relating to past operations when the costs are probable and reasonably estimable. The estimated liabilities are not discounted or reduced for possible recoveries from insurance carriers.
Income Taxes
Income taxes are provided based upon income for financial statement purposes. Deferred tax assets and liabilities are established based on the difference between the financial statement and income tax bases of assets and liabilities using existing tax rates.
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at current exchange rates, and income and expenses are translated using weighted average exchange rates. Adjustments resulting from translation of financial statements stated in local currencies generally are excluded from the results of operations and included in Accumulated Other Comprehensive Income. Gains and losses from foreign currency transactions are included in the determination of net income (loss) and were not material.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1999 consolidated financial statement presentation.
New Accounting Standards
The following three new accounting standards were adopted in the fiscal year ended November 30, 1999; however, the Company's previously reported earnings were not affected by their adoption.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," established standards for reporting and display of comprehensive income and its components. This statement requires the Company to report, for each period presented, the components of comprehensive income, a measure of performance that includes all non-owner sources of changes in equity. In addition to net income, comprehensive income includes unrealized gains and losses on securities available for sale and foreign currency translation adjustments.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" requires the Company to disclose "operating segments" based on the way management disaggregates the company for making internal operating decisions, regardless of how a company defines its operating segments. Accordingly, the Company's operating segments and presentation of their reported profit and loss have been realigned to conform. (See Note Q).
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" standardizes disclosure requirements for such plans. This standard does not change the measurement or recognition of those plans.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133." Based on the new effective date, the Company will adopt the provisions of this statement in the first quarter of the fiscal year ending November 30, 2001. The Company has not yet determined the effects this standard will have on its financial position or the results of its operations.
Other accounting standards issued by the FASB since June 1998 are not applicable to the Company.
B. ACQUISITION OF EAGLE-PICHER INDUSTRIES, INC.
On February 24, 1998 ("Closing Date"), the Company, which is a majority-owned subsidiary of Granaria Industries B.V. ("Granaria Industries"), acquired the Subsidiary from the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust ("PI Trust"). The PI Trust was established pursuant to the Subsidiary's Plan of Reorganization upon its emergence from bankruptcy (See Note C). EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The PI Trust was paid $702,500 in consideration, of which $255,900 was for repayment of the Senior Sinking Fund Debentures ("Debentures"), held by the PI Trust, including interest. The Acquisition was funded with the issuance of 625,001 shares of Class A Common Stock and 374,999 shares of Class B Common Stock to Granaria Industries and its equity partner, the proceeds of which totaled $100,000. The Company also issued 14,191 shares of 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock ("Preferred Stock"), the total proceeds of which were $80,000 (See Note I). The Subsidiary issued $220,000 of 9 3/8% Senior Subordinated Notes ("Subordinated Notes") and borrowed $225,000 in term loans and $79,100 in revolving loans under a syndicated senior loan facility (See Note G).
Fees and expenses related to the Acquisition and the related financing transactions were approximately $27,500, including fees paid to Granaria Holdings B.V. ("Granaria Holdings"), which owns a majority of the outstanding common stock of Granaria Industries (See Note P). Shortly after the Acquisition, the Company also funded a trust established for the benefit of certain members of Senior Management (See Note L).
The consolidated financial statements as of and for the three months ended February 28, 1998 include the effects of the Acquisition as of February 24, 1998. Accordingly, the consolidated statement of income (loss) for the three months ended February 28, 1998 includes results of operations from (1) December 1, 1997 through February 24, 1998 of the Subsidiary prior to the consummation of the Acquisition (for clarity, sometimes referred to herein as the "Predecessor Company ") and (2) the four days ended February 28, 1998 of the Company, which have been reflected as Predecessor Company due to their immaterial impact on the results of operations and cash flows.
C. REORGANIZATION AND EMERGENCE FROM CHAPTER 11
On November 18, 1996, the U.S. Bankruptcy Court for the Southern District of Ohio, Western Division ("Bankruptcy Court"), together with the U.S. District Court for the Southern District of Ohio, Western Division issued an order ("Confirmation Order") confirming the Third Amended Consolidated Plan of Reorganization (as confirmed, the "Plan") of the Subsidiary and seven of its domestic subsidiaries, which became effective on November 29, 1996 ("Effective Date"). Pursuant to the Plan, all of the common stock of the Subsidiary was transferred to the Eagle-Picher Industries, Inc. Personal Injury Settlement Trust (the "PI Trust"), which subsequently sold the stock of the Subsidiary to the Company. The Confirmation Order, which was affirmed by an appellate court in December 1998, contains a permanent injunction which precludes holders of present and future asbestos or lead-related personal injury claims from pursuing their claims against the reorganized Subsidiary. Those claims are being channeled to the PI Trust, which is an independently administered qualified settlement trust which was established to resolve and satisfy those claims. The Company expects that the channeling injunction provided by Section 524 of the Bankruptcy Code will prevent any such claimants from prosecuting such claims against the reorganized Subsidiary. The Company is not aware of any attempt by any asbestos or lead-related personal injury claimant to nullify the channeling injunction.
The Plan resulted in the discharge of pre-petition liabilities through the distribution of cash and securities to the PI Trust and the other creditors. It is anticipated that a final distribution of approximately $11,300 will be made to the PI Trust and all other unsecured claimants, other than those holding convenience claims ("Final Distribution"), when all claims asserted in the chapter 11 cases prior to the Confirmation Order (other than those channeled to the PI Trust and the separate trust established to resolve property damage claims) are resolved. Based on certain assumptions, the Company anticipates that holders of general unsecured claims will ultimately receive consideration having value equal to approximately 37% of their allowed claims.
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
D. INVENTORIES
Inventories consisted of:
The percentage of inventories valued using the LIFO method was 82% in 1999 and 81% in 1998. In conjunction with purchase accounting, new LIFO base layers were established based on inventory levels at March 1, 1998. The effects of liquidations of LIFO inventory quantities carried at lower costs prevailing in prior years were not material.
E. NET ASSETS OF OPERATIONS TO BE SOLD
On September 1, 1999, the Board of Directors approved a plan to explore the sale of several smaller divisions in addition to the Ross Aluminum Division, which the Company was already in the process of selling, in order to focus on core businesses. The sale of the Ross Aluminum Division was completed January 28, 2000 (See Note O). The other divestitures are expected to occur in 2000. The Company recorded a non-cash provision of $21,407 primarily related to the impairment of the recorded asset values (including goodwill) of these divisions which have continued to operate. The impairment was recognized because the expected net realizable value of certain of the divisions for sale was estimated to be insufficient to recover the related carrying values of the assets of those divisions.
The majority of these assets are included in the Automotive segment. These divisions had aggregate sales of $130,008 in 1999, $94,051 in the nine months ended November 30, 1998, $30,009 in the three months ended February 28, 1998 and $117,066 in 1997, and aggregate income (loss) before taxes of $(6,144) in 1999, $(743) in the nine months ended November 30, 1998, $861 in the three months ended February 28, 1998, and $2,560 in 1997. The components of the net assets of operations to be sold as of November 30, 1999 were as follows:
F. OTHER ASSETS
Other assets consisted of:
The debt issuance costs are being amortized on a straight-line basis over the term of the related debt.
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
G. LONG-TERM DEBT, SHORT TERM BORROWINGS AND LEASE COMMITMENTS
In conjunction with the Acquisition, the Company opened a syndicated senior secured loan facility ("Credit Agreement") providing $225,000 in term loans ("Term Loans") and a $160,000 revolving credit facility ("Facility"), which is also available for issuance of letters of credit. In 1999, the Company amended its Credit Agreement to provide for a) an accounts receivable loan agreement ("Receivables Agreement"); b) an increase in the Facility; and c) the repayment and cancellation of a portion of the Term Loans. In connection with the Receivables Agreement, the Company sells its domestic trade receivables on an ongoing basis to a wholly-owned, consolidated subsidiary, Eagle-Picher Acceptance Corporation. The receivables are then used as security for loans made under a separate revolving credit facility providing up to $75,000. The Receivables Agreement has a maturity of 364 days, but is expected to be renewed over the term of the Credit Agreement. In addition, the Credit Agreement was amended to increase the amount available for borrowings and letters of credit under the Facility from $160,000 to $220,000 and allow the Company to repay two of the Term Loans outstanding totaling approximately $120,500 without requiring that the third Term Loan be ratably reduced. At November 30, 1999, letters of credit totaling $51,812 were outstanding, which together with borrowings of $136,000, left the Company with $32,188 of borrowing capacity on the Facility.
The Credit Agreement is guaranteed by the Company and the United States subsidiaries of the Subsidiary. It is secured by the capital stock of the Subsidiary and the United States subsidiaries of the Subsidiary, up to 65% of the capital stock of certain foreign subsidiaries and substantially all other property of the Subsidiary and its United States subsidiaries. The Credit Agreement contains covenants which restrict or limit the Subsidiary's ability to declare dividends or redeem capital stock, incur additional debt or liens, alter existing debt agreements, make loans or investments, form joint ventures, undergo a change in control or engage in mergers, acquisitions or asset sales. These covenants also limit the annual amount of capital expenditures and require the Company to meet certain minimum financial coverages. The Company was in compliance with all covenants at November 30, 1999.
Long-term debt consisted of:
The Facility and the remaining Term Loan bear interest, at the Company's option, of an adjusted LIBOR rate plus 2 1/2% or the bank's prime rate plus 1 1/2%. There is a commitment fee on the Facility equal to 1/2% per annum
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on the undrawn portion of the Facility and fees for letters of credit are equal to 2 1/2% per annum. If the Company meets certain financial benchmarks, the interest rate spreads and commitment fees may be reduced. Loans outstanding under the Receivables Agreement are at variable rates equal to market rates on commercial paper with fees of 3/4% on the maximum amount available.
In addition to regularly scheduled payments on the Term Loan, the Company is required to make mandatory prepayments, of 50% of annual excess cash flow as defined in the Credit Agreement, the net proceeds from the sale of assets (subject to certain conditions), the net proceeds of new debt issued and 50% of the net proceeds of any equity securities issued. No excess cash flow payment is due for the year ended November 30, 1999.
In 1998, the Company entered into a three year interest rate swap agreement ("Swap Agreement") 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 notional principal amount of $150,000. The Swap Agreement effectively fixes the interest rate on $150,000 of the debt under the Credit Agreement at 5.805% plus the applicable spread for the duration of the interest rate swap. The difference between the amount of interest to be paid and the amount of interest to be received under the Swap Agreement due to changing interest rates is charged or credited to interest expense over the life of the agreement. The fair value of the Swap Agreement, which was determined using discounted cash flow analysis based on current rates offered for similar issues of debt, is approximately $700. As of November 30, 1999, $217,156 in debt was outstanding under the Credit Agreement, of which interest on $150,000 is essentially fixed by the Swap Agreement. Loans under the Receivables Agreement bear interest at a variable rate equal to market rates on commercial paper having a term similar to applicable interest periods. $130,906 of debt outstanding bears interest at variable rates under either the Credit Agreement or Receivables Agreement. Accordingly, the effect of a one percent increase in the applicable index rates would result in additional interest expense of approximately $1,309 annually, assuming no change in the level of borrowing.
The Subordinated Notes, which are unsecured, are redeemable at the option of the Company, in whole or in part, any time after February 28, 2003 at set redemption prices. The Company may also redeem up to 35% of the aggregate principal amount of the Subordinated Notes prior to March 1, 2001 at a set redemption price provided certain conditions are met. The Company is also required to offer to purchase the Subordinated Notes at a set redemption price should there be a change in control. The Indenture for the Subordinated Notes contains covenants which restrict or limit the Subsidiary's ability to declare or pay dividends, incur additional debt or liens, issue stock, engage in affiliate transactions, undergo a change in control or sell assets. The Company is in compliance with these covenants at November 30, 1999. The Subordinated Notes are also guaranteed by the Company and the United States subsidiaries of the Subsidiary.
The Company's industrial revenue bonds bear interest at variable rates based on the market for similar issues and are secured by letters of credit.
Several of the Company's foreign subsidiaries have entered into agreements with various banks which provide lines of credit totaling approximately $21,460 at November 30, 1999. At November 30, 1999, $14,420 of borrowings were outstanding leaving $7,040 in borrowing capacity. These agreements, which are unsecured, are either committed lines of credit expiring in 2002 or short-term money market or overdraft facilities, generally due on demand or within a year. The annual rates of interest on these lines of credit generally range from .75% to 1.5% over the banks' base rates. The commitment fees range from .35% to .5% per annum on the unused portion of the committed facilities. These agreements also contain covenants which include minimum financial requirements. Certain of the Company's foreign subsidiaries did not meet the minimum financial requirement covenant of one of these credit facilities as of November 30, 1999; however, the Company has received the necessary waivers from the lender.
Long term debt had an estimated fair value of approximately $518,000 and $471,000 at November 30, 1999 and 1998, respectively. The estimated fair value of long-term debt was calculated based on market prices for
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
publicly traded issues and was calculated using discounted cash flow analysis based on current rates offered for similar issues for all other long-term debt.
The Company paid interest of $46,931 in 1999, $28,886 in the nine months ended November 30, 1998, $6,390, which included the interest paid on the Debentures at the time of the Acquisition, in the three months ended February 28, 1998 and $31,044 in 1997.
Long-term debt is scheduled to mature over the next five years as follows: $86,318 in 2000, $20,795 in 2001, $33,797 in 2002, $25,569 in 2003, and $137,800 in 2004.
LEASE COMMITMENTS
Future minimum rental commitments over the next five years as of November 30, 1999 under noncancellable operating leases, which expire at various dates, are as follows: $4,250 in 2000, $2,050 in 2001, $800 in 2002, $475 in 2003 and $200 in 2004. Rental expense was approximately $5,200 in 1999, $3,700 in the nine months ended November 30, 1998, $1,200 in the three months ended February 28, 1998 and $4,900 in 1997.
H. SUPPLEMENTAL GUARANTOR INFORMATION (UNAUDITED)
Both the Credit Agreement and the Subordinated Notes, which were issued by the Subsidiary ("Issuer"), are guaranteed on a full, unconditional, and joint and several basis by the Company and certain of the Subsidiary's wholly-owned domestic subsidiaries ("Subsidiary Guarantors") including Eagle-Picher Acceptance Corporation and Carpenter Enterprises, Ltd. Management has determined that full financial statements and other disclosures concerning the Subsidiary or the Subsidiary Guarantors would not be material to investors and such financial statements are not presented. The following unaudited supplemental condensed combining financial statements present information regarding the Subsidiary, the Subsidiary Guarantors and the subsidiaries that did not guarantee the debt.
The Subsidiary 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED) YEAR ENDED NOVEMBER 30, 1999
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1999
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOW (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1999
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
NINE MONTHS ENDED NOVEMBER 30, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
AS OF NOVEMBER 30, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED NOVEMBER 30, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THREE MONTHS ENDED FEBRUARY 28, 1998
PREDECESSOR
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF INCOME (LOSS) (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1997
PREDECESSOR
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CONDENSED COMBINING STATEMENTS OF CASH FLOWS (UNAUDITED)
YEAR ENDED NOVEMBER 30, 1997
PREDECESSOR
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. 11 3/4% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
In conjunction with the Acquisition, the Company issued 14,191 shares of 11 3/4% Cumulative Redeemable Exchangeable Preferred Stock. The Preferred Stock had an initial liquidation preference of $5,637.70 per share which accretes during the first five years after issuance at 11 3/4% per annum, compounded semiannually, ultimately reaching $10,000 per share on March 1, 2003. No dividends will accrue prior to March 1, 2003, but will be cumulative at 11 3/4% per annum thereafter. The Preferred Stock is mandatorily redeemable by the Company on March 1, 2008 or earlier under certain circumstances, but may be redeemed at the option of the Company, in whole or in part, at any time after February 28, 2003 at set redemption prices. At that time, the Company may also exchange all of the Preferred Stock for 11 3/4% Exchange Debentures with similar terms. The Company may also redeem up to 35% of the shares of Preferred Stock outstanding prior to March 1, 2001 at a set redemption price provided certain conditions are met. The Company is also required to offer to purchase the Preferred Stock should there be a change in control of the Company. Holders of Preferred Stock have no voting rights except in certain circumstances. The terms of the Preferred Stock contain covenants similar to the covenants in the Subordinated Notes. The Company is in compliance with these covenants as of November 30, 1999. The Preferred Stock had an estimated fair value of $72,374 at November 30, 1999. The estimated fair value was calculated based on the market price as this is a publicly traded issue.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
J. INCOME TAXES
The following is a summary of the components of income taxes (benefit) from operations:
The sources of income (loss) before income taxes (benefit) are as follows:
The differences between the total income tax expense from operations and the income tax expense computed using the Federal income tax rate were as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of deferred tax balances as of November 30 are as follows:
A tax election to treat the purchase of stock as a purchase of assets ("Election") was made in connection with the acquisition of the Subsidiary on February 24, 1998. Accordingly, a deemed final tax return of the Predecessor Company was filed for the tax period ended on the date of the Acquisition. On this tax return, the total purchase price, for tax purposes, was allocated to the assets of the Subsidiary to the extent of each asset's fair market value, and gain was recognized on each asset as if sold at that price. As a result, going forward, the assets were assigned the same value for book and tax purposes as of the date of the Acquisition. The net operating loss carryforward existing at the time of the Acquisition and the deduction resulting from the redemption of the Subordinated Notes were absorbed by the resulting transaction gain or were lost and are not available to the Company. Additionally, tax credit carryforwards existing at the time of the Acquisition were lost as a result of the transaction and are not available to the Company. As of November 30, 1999 the Company has net operating loss carryforwards of $20,300 and alternative minimum tax credit carryforwards of $3,675 available to offset future taxable income or tax liability, respectively. The net operating loss carryforwards will expire in 2014. The alternative minimum tax credit carryforwards have no expiration date.
The net operating loss carryforward at November 30, 1997 resulted from the distribution of cash and stock to the PI Trust and other creditors on the Effective Date and the redemption of notes, which were also distributed to the PI Trust and other creditors on the Effective Date, in 1997. A portion of the net operating loss generated on the Effective Date had been applied to prior years' taxable income to generate a Federal tax refund of $69,146 which was received in 1997.
As a result of the Acquisition, tax goodwill was established for the amount by which the purchase price for tax purposes exceeded the fair market value of the assets at the date of the Acquisition. The tax goodwill, the net amount of which was $144,100 at November 30, 1999, is being amortized and deducted over fifteen years, the same period over which the Excess of Acquired Net Assets over Cost is being amortized in the Consolidated Financial Statements. Certain liabilities assumed by the Company in the Acquisition, which are contingent for tax purposes, will result in additional tax goodwill as they are paid. This additional goodwill will also be amortized and deducted over the same period as the Excess of Acquired Net Assets over Cost. The potential additional tax goodwill, resulting from these liabilities, totaled $39,700 at November 30, 1999.
Based on its history of prior years' operations and its expectations for the future, the Company has determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax benefits recorded. Although the Automotive Segment is susceptible to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
economic cycles and recessions, the Industrial Products Segment of the Company consists of certain businesses which are not impacted as significantly by economic downturns.
The Company paid income taxes (net of refunds received) of $10,000 in 1999, $5,400 in the nine months ended November 30, 1998 and $4,300 in 1997 (with the exception of the Federal tax refund received of $69,146). The Company received refunds (net of taxes paid) of $2,300 in the three months ended February 28, 1998.
K. BASIC AND DILUTED INCOME (LOSS) PER SHARE
The calculation of net income (loss) per share is based upon the average number of common shares outstanding which was 1,000,000 for the year ended November 30, 1999 and the nine months ended November 30, 1998, 9,600,071 for the three months ended February 28, 1998 and 10,000,000 in 1997. No potential common stock was outstanding during the three year period ended November 30, 1999.
L. MANAGEMENT COMPENSATION -- SPECIAL
Management compensation expense consisted of the following items:
The Subsidiary adopted a Short Term Sale Program ("STSP") pursuant to the terms of which it would make payments to certain members of senior management ("Eligible Individuals"), in connection with a change in control of the Subsidiary. The consummation of the Acquisition constituted such a change in control. The STSP provided for a "stay-put" bonus equal to an eligible individual's fiscal 1997 base salary and a sales incentive bonus based on a multiple (ranging from 50% to 200%) of an eligible individual's fiscal 1997 base salary. The "stay-put" bonus was payable in two equal parts, the first portion was paid in March 1998, after the Acquisition, and the second is payable shortly following the second anniversary of such change in control, provided that the individual has remained an employee of the Subsidiary or, if the individual was terminated by the Subsidiary other than for cause, payable upon such termination. The Company provided a total of $4,066 in 1998 in connection with the "stay put" bonus, of which $1,547 remains unpaid as of November 30, 1999. The Company also provided $6,064 in 1998 for a sales incentive bonus, the final installment of which was paid in 1999 when the determination of the after-tax proceeds to the PI Trust, on which it was based, was final.
In 1998, the Company paid $10,000 to the Eagle-Picher Management Trust ("E-P Management Trust") for the benefit of certain senior management of the Company. The $10,000 payment was effectively used by the E-P Management Trust to acquire certain restricted stock of Granaria Industries. Subsequently, the stock of Granaria Industries was later exchanged for the common stock of the Company. The shares of the Company held by the E-P Management Trust were allocated to certain members of senior management of the Company. The receipt of such shares was taxable to the holders as income in an amount equal to the value of the shares at the time of vesting. The Company also reimbursed the holders of the shares for their tax obligations associated with the receipt of such shares. The Company has recorded as compensation expense $359 in 1999 and $12,580 in 1998 for the restricted shares and related tax reimbursements.
The Subsidiary entered into employment agreements with six executive officers ("Employment Agreements") which became effective on November 29, 1996. Each was amended in August 1997. The purpose of the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employment Agreements was to provide the Subsidiary with continuity of management following its emergence from bankruptcy. The Employment Agreements terminate on February 24, 2000. The consummation of the Acquisition did constitute a change of control under the Employment Agreements. Three of the six executive officers of the Subsidiary have received severance benefits pursuant to the Employment Agreements. These payments, as well as severance payments to another former officer, aggregated $5,989 in 1998.
M. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Substantially all employees of the Company and its subsidiaries are covered by various pension or profit sharing retirement plans, including a supplemental executive retirement plan to provide senior management with benefits in excess of normal pension benefits.
The Company's funding policy for defined benefit plans is to fund amounts on an actuarial basis to provide for current and future benefits in accordance with the funding guidelines of ERISA. Under the supplemental executive retirement plan, annuities are purchased by the Company and distributed to participants on an annual basis.
Plan benefits for salaried employees are based primarily on employees' highest five consecutive years' earnings during the last ten years of employment. Plan benefits for hourly employees typically are based on a dollar unit multiplied by the number of service years.
In addition to providing pension retirement benefits, the Company makes health care and life insurance benefits available to certain retired employees on a limited basis. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverages. Eligible employees may elect to be covered by these health and life insurance benefits if they reach early or normal retirement age while working for the Company. In most cases, a retiree contribution for health insurance coverage is required. The Company funds these benefit costs primarily on a pay-as-you-go basis.
Net periodic pension and postretirement benefit cost included the following components:
In addition, in 1997, the Company recognized curtailment gains of $1,662 and $564 due to the reduction in active participants in the Company's pension plans and eligible employees in the Company's postretirement plans, respectively, that resulted primarily from the divestiture of divisions.
The pension plans' assets consist primarily of listed equity securities and publicly traded notes and bonds. The actual net return on plan assets was 8.9% in 1999, 8.6% in 1998 and 15.3% in 1997.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the plans' changes in benefit obligation, plan assets and funded status on the measurement dates, November 30, 1999 and 1998, and amounts recognized in the Company's Consolidated Balance Sheets as of those dates.
Weighted average assumptions as of November 30:
Postretirement benefit costs were estimated assuming retiree health care costs would initially increase at a 7% annual rate which decreases to an ultimate rate of 5.75% in 3 years. If this annual trend rate would increase by 1%, the accumulated postretirement obligation as of November 30, 1999 would increase by $1,955 with a corresponding increase of $262 in the postretirement benefit expense in 1999. A 1% decrease in this annual trend rate would decrease the accumulated postretirement benefit obligation by $1,587 and the postretirement benefit expense by $207 in 1999.
The effect of the changes in the discount rate and the ultimate health care trend rate was to decrease the projected benefit obligation by $12,897 for the pension plans and $1,180 for the other postretirement plans.
Upon the Acquisition, all unrecognized reconciling items as of February 24, 1998 were recognized and recorded on the Company's Consolidated Balance Sheet in accordance with purchase accounting. The effect of the Acquisition was to increase the prepaid pension cost recognized by $3,714 and decrease the accrued postretirement benefit cost by $4,718 at February 24, 1998.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also offers 401(k) savings plans to its employees in the United States. In most cases, the participants may contribute up to 15% of their compensation of which 50% of their contribution up to 6% of their compensation is matched by the Company. The cost of these plans to the Company was $ 2,250 in 1999, $2,181 in the twelve months ended November 30, 1998 and $2,344 in 1997.
In May 1998, the Company adopted a Stock Appreciation Rights Plan ("SAR Plan") to reward those executives and managers whose individual performance and effort will have a direct impact on achieving the Company's profit and growth objectives. Shares of stock are not actually awarded, however participants are awarded units on which appreciation is calculated based on the Company's equity position.
The units vest over five years and are payable any time during the sixth through tenth year following the date of award. There was no expense related to the SAR Plan in 1999; the expense for the nine months ended November 30,1998 was $640.
N. ENVIRONMENTAL AND OTHER LITIGATION CLAIMS
Most of the pre-petition claims against the Subsidiary alleging a right to payment due to environmental and litigation matters were resolved prior to the Effective Date. The holders of those claims which were allowed have received a proportionate distribution of the assets of the estate based on the amount of their claims to the total liabilities of the Subsidiary.
In addition to the items discussed below, the Company is involved in routine litigation, environmental proceedings and claims pending with respect to matters arising out of the normal course of business. As of November 30, 1999, the Company has reserved $8,830 associated with environmental remediation activities at some of its current and former sites. In management's opinion, the ultimate liability resulting from all claims, individually or in the aggregate, will not materially affect the Company's consolidated financial position, results of operations or cash flows.
ENVIRONMENTAL
The settlement agreement among the Subsidiary, the United States Environmental Protection Agency ("US EPA") and the United States Department of Interior ("EPA Settlement Agreement") which resolved the majority of the 1,102 proofs of claim timely filed alleging a right to payment because of environmental matters, was approved by the Bankruptcy Court in June 1996. Certain parties that may be liable at certain of the sites resolved by the settlement appealed such approval. In August 1997, the District Court affirmed the Bankruptcy Court's approval of the settlement. The time within which such affirmance may be appealed has expired without any further appeal having been taken. Thus, the settlement has become final and binding on all parties.
One of the significant features of the EPA Settlement Agreement is with respect to "Additional Sites." Additional Sites are those superfund sites, not owned by the Subsidiary, for which the Subsidiary's liability allegedly arises as a result of pre-petition waste disposal or recycling. The Subsidiary retains all of its defenses, legal or factual, at such sites. However, if the Subsidiary is found liable at any Additional Sites or settles any claims for any Additional Sites, the Subsidiary is required to pay as if such claims had been resolved in the reorganization under chapter 11 of the bankruptcy code. Thus, the Subsidiary's liability at Additional Sites will be paid at approximately 37% of any amount due.
As of November 30, 1999, the Subsidiary had received notice that it may have liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 at a number of Additional Sites. The Company believes, after an investigation of these claims, that the Subsidiary has only de minimis liability at all but three of these sites described in the following three paragraphs.
The Subsidiary received notice from the US EPA in 1997 alleging liability for remediation expenses at the site of a former zinc smelting facility owned and operated by the Subsidiary at Henryetta, Oklahoma, and for the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
removal and disposal from surrounding residential locations of contaminated soil and gravel that originated from the facility and from other companies operating in the area. The Subsidiary operated the facility for approximately 50 years until it was shut down in 1968. The US EPA and the State of Oklahoma performed remedial activities at the site at a cost of approximately $5,000 to $6,000. Claims for this site have been settled for $5,211 (payable at approximately 37%).
The Subsidiary received a notice from the US EPA in 1996 alleging that it may be a Potentially Responsible Party ("PRP") regarding liability for remediation expenses at a secondary lead smelting facility in Dallas, Texas ("RSR"). The Subsidiary allegedly leased the facility, which was in operation until about 1984, for a period of several years in the early 1950s. The US EPA has conducted and continues to conduct extensive remedial activities at this site, the total expenses of which are estimated at approximately $55,000. The Subsidiary has been identified by the US EPA as a PRP in connection with this site with liability for remediation expenses in connection with this site. This claim has been settled for $2,100 (payable at approximately 37%).
The Subsidiary received a notice from the US EPA in 1999 alleging liability for remediation costs expended by the US EPA at the Witter site in Missouri. The Subsidiary allegedly was the only PRP to send drums to the Witter Drum Company in the 1950's and 1960's. This claim has been settled for $797 (payable at approximately 37%).
The settlements for the RSR, Henryetta and Witter sites will be a deduction from the Final Distribution.
In addition to the Additional Sites described above, the Subsidiary is involved with the following environmental matters not covered by the EPA Settlement Agreement.
The Subsidiary is undertaking corrective actions under the Resource Conservation and Recovery Act ("RCRA") at its Joplin, Missouri facility. Consistent with the terms of its RCRA permit, the Subsidiary has been investigating the nature and extent of contamination present as a result of manufacturing activities during the 130-year operating history of this property. These investigations have identified areas of soil and groundwater contamination, certain of which will likely require the Subsidiary to undertake remedial activities. The US EPA has indicated that these actions will likely be required to take place over the next two years. Based on available information, the Subsidiary anticipates that these actions will cost between $1,000 and $2,600.
At the Subsidiary's Colorado Springs, Colorado facility the closure of four former hazardous waste surface impoundments is being completed. Materials formerly stored in these impoundments have contaminated groundwater and soils at and around the facility. A groundwater remediation system was placed in service in 1995 and continues in operation. The Subsidiary entered into an Order on Consent with the State of Colorado in 1999 to evaluate residual groundwater contamination and soil contamination associated with the site, and to undertake additional remedial actions as appropriate to remediate the contamination. Based on available information, the Company anticipates that these actions will cost between $1,400 and $2,500.
In 1998, the Subsidiary received $14,784 from insurance companies in settlement of certain claims relating primarily to environmental remediation, with the offset to the Excess of Acquired Net Assets Over Cost because the claim represented a pre-acquisition contingency.
OTHER LITIGATION CLAIMS
In May 1997, Caradon Doors and Windows, Inc. ("Caradon") filed a suit against the Subsidiary in the U.S. District Court in Atlanta, Georgia alleging breach of contract and asserting contribution rights against the Subsidiary. Prior to this suit, Caradon had been found liable to Therma-Tru Corporation ("Therma-Tru") in the amount of approximately $8,800 for infringing a Therma-Tru patent for plastic door components manufactured by the Company's now divested Plastics Division. Caradon settled the litigation with Therma-Tru and was seeking to recover some or all of its liability from the Company. The Company estimates that the total damages that Caradon is seeking to recover from the Subsidiary in this suit are in excess of $10,000. The Subsidiary
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
asserted, in a separate motion filed to dismiss Caradon's claims, that all of Caradon's claims had been discharged in the Subsidiary's reorganization under chapter 11. This issue continues to be litigated after an appeal to the District Court and a remand to the Bankruptcy Court for future findings. The Company believes that it has valid legal and factual defenses and intends to contest vigorously all such claims.
O. ACQUISITIONS AND DIVESTITURES
In 1999, the Company acquired the stock of Charterhouse Automotive Group, Inc., a holding company whose only operating subsidiary was Carpenter Enterprises, Ltd. ("Carpenter"), a supplier of precision-machined components to the automotive industry, for approximately $41,000 in cash and $31,000 of existing indebtedness of Carpenter. Approximately $18,600 of this debt was refinanced from the Facility. The total cash requirements of the Acquisition were $60,251, which includes transaction costs. Immediately following the transaction, Charterhouse was merged into Carpenter. The results of Carpenter's operations have been included in the Company's Consolidated Statements of Income (Loss) since March 1, 1999.
The acquisition was accounted for as a purchase. The purchase price has been allocated to the assets and liabilities of Carpenter based on their respective fair values as determined by independent appraisals. The excess of the purchase price over the assessed values of the net assets of $16,200 was allocated to Excess of Acquired Net Assets Over Cost and is being amortized over 15 years. If it becomes apparent that additional purchase price allocations are necessary, such adjustments would be made before March 1, 2000. It is not expected that additional adjustments would be material.
The following proforma information for the years ended November 30, 1999 and 1998 gives effect to the acquisition of Carpenter as if it had been consummated on December 1, 1998 and 1997, respectively. This information is not necessarily indicative of either the future results of operations or the results of operations that would have occurred if those events had been consummated on the indicated dates.
On December 1, 1999, the Company acquired the assets of the depleted zinc business of Isonics Corporation for $8,200; $6,700 cash at closing and contingent cash payments of $500 annually for three years. The Acquisition will be accounted for as a purchase. In addition, the Company has negotiated a warrant to acquire common stock of the Isonics Corporation in exchange for materials to be delivered in 2000.
Effective January 1, 2000, the Company sold the assets of the Ross Aluminum Foundries Division for approximately $24,600 in cash. The impact of this transaction on net income will not be material.
The Company sold its Trim Division in November 1998. The transaction was held in escrow until certain conditions were met in December 1998. The Company received a $2,100 note due in 2000 which is secured by a first mortgage on the real estate and the remainder of the proceeds, totaling $12,400, in cash. The impact of this transaction on consolidated net income (loss) was not material. The Company is guarantor of tooling receivables due from both original equipment manufacturers and their suppliers. The Company believes the likelihood of customer default of these receivables to be remote.
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Plan, in 1997, the Company sold its Plastics, Transicoil and Fabricon Divisions to fund the repayment of the Divestiture Notes. The Company received net cash proceeds of $39,007. The aggregate loss on these transactions was $2,411.
The Company received a note for $3,719 from the buyer of the Fabricon Division. The note bears interest of 8% per annum, is secured by accounts receivable and inventory and is due October 31, 2000.
The Company remains as guarantor on the lease of the building in which the former Transicoil Division is located, and is liable should the buyer not perform on the lease. The remaining lease payments total approximately $7,900 over the lease term which expires in 2005. The Company believes the likelihood of being liable for the lease to be remote.
In 1997, the Company contributed certain of the assets of the former Suspension Systems Division to a joint venture in which the Company retained a 45% interest. On November 30, 1998, the majority partner exercised its option to purchase the Company's interest in the joint venture. The impact of this transaction on the consolidated net loss was not material.
Included in the Consolidated Statements of Income (Loss) are the following results of the divisions which were divested in 1997 and 1998, excluding the aggregate net loss on the sale of those divisions:
P. TRANSACTIONS WITH RELATED PARTIES
In connection with the Acquisition, the Company paid Granaria Holdings a transaction fee of $7,300 (approximately 1% of the transaction value) in consideration for advisory services related to structuring and financing the Acquisition. Granaria Holdings was also reimbursed for other costs incurred related to the Acquisition, issuance of the Subordinated Notes and Preferred Stock offering.
Q. INDUSTRY SEGMENT INFORMATION
The Company is a diversified manufacturer serving global markets and many industries.
United States net sales include export sales to non-affiliated customers of $89,600 in 1999, $70,800 in the nine months ended November 30, 1998, $23,600 in the three months ended February 28, 1998 and $113,600 in 1997.
A general description of the products manufactured and the markets served by the Company's industry segments (listed in order of the magnitude of net sales) is:
AUTOMOTIVE
The operations in the Automotive Segment provide mechanical and structural parts for passenger cars, trucks, vans and sport utility vehicles for the original equipment manufacturers and replacement markets. Resources are concentrated in serving the North American, European and Pacific Rim markets.
Sales and income (loss) before taxes (excluding net loss on sale of divisions), respectively, of divested operations and operations contributed to a joint venture, which were included in the Automotive Segment, were
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$18,600 and $(1,879) in the nine months ended November 30, 1998, $7,076 and $(240) in the 3 months ended February 28, 1998 and $98,507 and $(5,753) in 1997.
Consolidated sales to Ford Motor Company amounted to $137,800 in 1999, $121,100 in the nine months ended November 30, 1998, $39,800 in the three months ended February 28, 1998 and $170,500 in 1997. No other customer accounted for 10% or more of consolidated sales.
INDUSTRIAL PRODUCTS
The operations in the Industrial Products Segment produce special purpose batteries and components, high-purity specialty material compounds and rare metals, industrial chemicals, diatomaceous earth products, bulk pharmaceuticals, super-clean containers, construction and material handling equipment and metal cleaning and finishing systems. It serves the commercial aerospace, nuclear, telecommunication electronics, food and beverage and other industrial markets globally, and the construction industry in the United States. Some of these products are also used in defense applications.
Divested operations in this segment had sales and pretax income (excluding net loss on sale of divisions), respectively, of $12,788 and $28 in 1997.
Sales between segments were not material.
The Company's foreign operations are located primarily in Europe and also in Mexico. Intercompany transactions with foreign operations are made at established transfer prices. Information regarding the Company's domestic and foreign sales, operating income and identifiable assets follows:
EAGLE-PICHER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT INFORMATION
REPORT OF MANAGEMENT
The Company's management is responsible for the preparation and presentation of the consolidated financial statements. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles and as such include amounts based on judgements and estimates made by management.
The Company's system of internal accounting controls is designed to provide reasonable assurance at reasonable cost that assets are safeguarded from loss or unauthorized use, and that the financial records may be relied upon for the preparation of the consolidated financial statements.
The consolidated financial statements have been audited by our independent auditors, Deloitte and Touche LLP. Their audit is conducted in accordance with generally accepted auditing standards and provides an independent assessment as to the fair presentation, in all material respects, of the Company's consolidated financial statements.
The Audit Committee of the Board of Directors meets periodically with management and the independent auditors to review internal accounting controls and the quality of financial reporting. Financial management and the independent auditors have full and free access to the Audit Committee.
/s/ Andries Ruijssenaars President and Chief Executive Officer
/s/ Philip F. Schultz Senior Vice President and Chief Financial Officer
/s/ Carroll D. Curless Vice President and Controller
Cincinnati, Ohio January 28, 2000
INDEPENDENT AUDITORS' REPORT
The Board of Directors Eagle-Picher Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Eagle-Picher Holdings, Inc. and subsidiaries as of November 30, 1999 and 1998, and the related consolidated statements of income (loss), shareholders' equity, and cash flows for the year ended November 30, 1999 and for the nine-month period ended November 30, 1998 (Successor Company operations). In addition, we have audited the accompanying consolidated statements of income (loss), shareholders' equity, and cash flows of Eagle-Picher Industries, Inc. and subsidiaries for the three-month period ended February 28, 1998 and for the year ended November 30, 1997 (Predecessor Company operations under fresh-start accounting). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Successor Company consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Successor Company as of November 30, 1999 and 1998, and the results of its operations and its cash flows for the year ended November 30, 1999 and for the nine-month period ended November 30, 1998, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company consolidated financial statements under fresh-start accounting referred to above present fairly, in all material respects, the results of operations and cash flows of the Predecessor Company for the three-month period ended February 28, 1998 and for the year ended November 30, 1997, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Notes A and B to the consolidated financial statements, Eagle-Picher Industries, Inc. was acquired on February 24, 1998 by Eagle-Picher Holdings, Inc., a majority-owned subsidiary of Granaria Industries B.V. As a result, the consolidated financial statements for the three-month period ended February 28, 1998 include the effects of such acquisition as of February 24, 1998 and, therefore, are not comparable to consolidated financial statements prepared subsequent to February 28, 1998.
/s/ DELOITTE & TOUCHE LLP Cincinnati, Ohio January 28, 2000
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name, age and position with the Company of the individuals who serve as directors and executive officers of the Company. Directors will hold their positions until the annual meeting of the stockholders at which their term expires or until their respective successors are elected and qualified. Executive officers will hold their positions until the annual meeting of the Board of Directors or until their respective successors are elected and qualified.
Mr. Joel P. Wyler has been a Director of the Company and Chairman of its Board since the Company was formed in December 1997. He also has been a Director and Chairman of the Board of the Subsidiary since the Acquisition. Mr. Wyler has been the Chairman of the Board of Directors of Granaria Holdings B.V. since 1982.
Mr. Daniel C. Wyler was appointed as a Director of the Company and the Subsidiary in January 1999. He has been the Chief Executive Officer of Granaria Holdings B.V. since 1989.
Dr. Wiedeking was appointed as a Director of the Company and the Subsidiary in January 1999. He has been the Chairman of the Board of Porsche AG since 1993 where he is also President and Chief Executive Officer.
Mr. Ruijssenaars has been President and Chief Executive Officer and a Director of the Company since the Acquisition and has been President and a Director of the Subsidiary since 1994. Upon consummation of the Acquisition, he also became the Subsidiary's Chief Executive Officer. He was Senior Vice President of the Subsidiary from 1989 until December 1994. Mr. Ruijssenaars was first employed by the Subsidiary in 1980 as General Manager of Eagle-Picher Industries GmbH in Ohringen, Germany, and has also served as Executive Vice President and then President of the Subsidiary's former Ohio Rubber Company Division.
Mr. Wickens has been Senior Vice President of the Company since the Acquisition and has been Senior Vice President of the Subsidiary since September 1998. Prior to that time, beginning in December 1994, he was the Subsidiary's Senior Vice President-Automotive. From 1990 until December 1994, he was Division President of the Subsidiary's Hillsdale Tool & Manufacturing Co. Mr. Wickens joined the Subsidiary in 1976 as a management trainee with the Subsidiary's former Fabricon Automotive Division, and was promoted to Plant Manager, Vice President and then President of Fabricon Automotive. Subsequently, Mr. Wickens served as President of the Subsidiary's Wolverine Gasket Division and then as Vice President of the Subsidiary's Automotive Group.
Mr. Schultz joined the Company as Senior Vice President and Chief Financial Officer in October 1999. Prior to coming to the Company, he had been with Taft, Stettinius & Hollister LLP, a legal firm based in Cincinnati,
Ohio, since 1986 and had been a partner there since 1994. From 1984 to 1986, Mr. Schultz was with the accounting firm of Touche, Ross & Company, and he has been a certified public accountant since 1983.
Mr. Aslanian has been Group Vice President of the Company since the Acquisition and has been Group Vice President of the Subsidiary since September 1998. From 1994 until September 1998, he was Division President of the Subsidiary's Hillsdale Tool & Manufacturing Co. Mr. Aslanian joined the Subsidiary in 1974 with the Subsidiary's former Fabricon Automotive Division where he was Production Manager, Plant Manager, and ultimately in 1989 Division Manager of the then newly-formed Trim Division. In 1990, he moved to the Subsidiary's Hillsdale Tool & Manufacturing Co. as Vice President of Manufacturing and became President there in 1994.
Mr. Curless has been Vice President and Controller since the Acquisition. Mr. Curless was first employed by the Subsidiary in 1964. He became the Subsidiary's Assistant Controller in 1978 and Controller in 1984. He has been the Subsidiary's Vice President and Controller since 1986.
Mr. Krall joined the Company as Vice President, General Counsel and Secretary in June 1998. Prior to coming to the Company, he had been with Taft, Stettinius & Hollister LLP, a legal firm based in Cincinnati, Ohio since 1986 and had been a partner there since 1994.
Mr. Joel P. Wyler and Mr. Daniel C. Wyler are brothers.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth the compensation for the last three fiscal years of (i) Mr. Ruijssenaars, the Company's Chief Executive Officer, and (ii) the Company's four most highly compensated executive officers other than the Chief Executive Officer during fiscal 1999 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
- ---------------
(1) This column includes nothing for perquisites since in no case did perquisites exceed the reporting thresholds (the lesser of 10% of salary plus bonus or $50,000). For each fiscal year, the column is comprised of amounts for the payment of taxes on purchases of annuities under the Company's Supplemental Executive Retirement Plan (the "SERP") for participating Named Executive Officers. For fiscal 1998, the column also includes
amounts for the payment of taxes on shares awarded under the Company's Incentive Stock Plan (described below).
(2) The amounts in this column represent the dollar value of restricted stock awards of shares of the Company's Class A Common Stock granted to the Named Executive Officers during fiscal 1998 under the Incentive Stock Plan. Awards were originally subject to vesting over time but, pursuant to an amendment to the Incentive Stock Plan, all of the awards were fully vested on or before November 19, 1998. The amounts shown comprise the entire restricted stock holdings of each Named Executive Officer and represent the following numbers of shares: Mr. Ruijssenaars, 30,000 shares; Mr. Wickens, 10,000 shares; Mr. Aslanian, 6,250 shares; Mr. Curless, 5,000 shares; and Mr. Krall, 1,250 shares. Dividends, if any are declared, would be payable on the restricted stock. The Company, however, has no obligation to declare dividends and, pursuant to the terms of the Company's Preferred Stock, certain restrictions exist on the Company's ability to declare dividends on the Class A Common Stock.
(3) For fiscal 1999 this column includes the following amounts:
Additionally, in fiscal 1999, Mr. Aslanian was paid $8,960 in connection with a relocation.
(4) Mr. Krall was first employed by the Company on June 1, 1998.
RETIREMENT BENEFITS
The following table shows the estimated total combined annual benefits payable to the Named Executive Officers upon retirement at age 62 under Social Security, the Salaried Plan and the SERP, computed on the basis of a straight-life annuity:
PENSION PLAN TABLE
The Eagle-Picher Salaried Plan (the "Salaried Plan" and, together with the SERP, the "Retirement Plans") is a non-contributory defined benefit pension plan in which the Named Executive Officers are participants. The SERP, in which the Named Executive Officers are also participants, provides retirement benefits in addition to the benefits available under the Salaried Plan. The Retirement Plans provide benefits after retirement based on the highest average monthly compensation during five consecutive years of the last ten years preceding retirement. For purposes of the Retirement Plans, compensation includes base salary, bonuses, commissions and severance payments. Salary and bonus payments that would be included in the Retirement Plans are as reported in the Summary Compensation Table, and commissions or severance payments, if there had been any, also would have been included in that Table. The payments pursuant to the Short Term Sale Program (discussed below) are not included in such compensation.
The estimated credited years of service for the Named Executive Officers at age 62 will be:
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive an annual retainer of $50,000, payable quarterly, with no additional fees for attendance or committee membership. Directors who are also employees of the Company receive no fees for their services as Directors.
Effective January 1, 1999, the Company adopted an Incentive Stock Plan for Outside Directors. Under the Plan, nonemployee directors of the Company who also are directors of the Subsidiary may be awarded shares of the Company's Class A Common Stock in lieu of directors' fees for a period of years. The right to receive the shares is conditioned on the participant's execution of a shareholders' agreement which, among other things, governs the transferability of the shares, and a voting trust agreement under which the shares are held of record and voted by Granaria Holdings B.V. In connection with his becoming a director, Dr. Wendelin Wiedeking was awarded 2,500 shares, valued at $441,175, as of April 12, 1999. All or a portion of the shares will be forfeited, in accordance with a declining scale of 20% per year, if Dr. Wiedeking leaves either Board prior to April 12, 2004 (i.e., all are forfeited prior to April 12, 2000, 80% are forfeited prior to April 12, 2001, etc.). The forfeiture provisions terminate in the event of Dr. Wiedeking's death or incapacity or if a change of control occurs or an initial public offering is made. If Dr. Wiedeking is involuntarily removed from the Boards, other than for cause, the Subsidiary will reimburse him for his tax liability relating to any forfeited shares.
Joel P. Wyler and Daniel C. Wyler, as named Directors of the Company and Subsidiary, provide services on behalf of and pursuant to their employment by Granaria Holdings B.V. All directors' fees due as a result of their services as named Directors are paid to Granaria Holdings B.V.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On March 25, 1999, the Board of Directors of the Company established a Compensation Committee comprised of Joel P. Wyler, Chairman of Granaria Holdings B.V. and Chairman of the Company and Subsidiary, Daniel C. Wyler, CEO of Granaria Holdings B.V., Dr. Wendelin Wiedeking, Chairman, President and CEO of Porsche AG and Andries Ruijssenaars, President and Chief Executive Officer of the Company and Subsidiary.
Prior to the formation of the Committee, decisions regarding compensation were passed upon by the Board of Directors as a whole.
EMPLOYMENT AGREEMENTS; SEVERANCE
The Subsidiary had employment agreements, which became effective on November 29, 1996 and expired on February 24, 2000, with Messrs. Ruijssenaars, Wickens and Curless. The employment agreements provided for base annual salaries and for salary increases and bonuses, as determined from time to time by the Board of Directors of the Subsidiary. Fiscal 1999 amounts are shown in the Summary Compensation Table, above. In addition, the employment agreements provided that each officer would participate in the Company's employee and executive benefit and short and long-term incentive plans as in effect from time to time.
Effective November 18, 1996, the Subsidiary adopted the Eagle-Picher Industries, Inc. Officer Severance Plan (the "Severance Plan") covering all officers of the Subsidiary, including the Named Executive Officers, other than those with employment agreements. Mr. Aslanian and Mr. Krall have been and will continue to participate in the Severance Plan. Effective with the expiration of their employment agreements, Mr. Ruijssenaars, Mr. Wickens and Mr. Curless also are participants.
Under the terms of the Severance Plan, if a participant is terminated by the Subsidiary other than for cause, he will be entitled to:
(a) a "supplemental severance" benefit equal to one year's base pay (at the then-current base salary),
(b) a "base severance" benefit equal to one week's pay for each completed year of service with the Subsidiary, and
(c) continued group medical and group life insurance benefits for the same period as set forth in (b).
Benefits will not be paid if a participant voluntarily leaves the employ of the Subsidiary or remains employed by the Subsidiary following a change of control. If a participant is employed by another company while receiving benefits under this Plan, the base severance benefit will be reduced by all wages received from the new employer. Similarly, continued insurance benefits will be discontinued if comparable benefits are offered by the new employer.
SHORT TERM SALE PROGRAM
Prior to the Acquisition, the Subsidiary adopted a Short Term Sale Program (the "STSP") pursuant to which the Subsidiary was obligated to make payments to certain members of senior management (the "eligible individuals") in connection with the consummation of the Acquisition. The STSP provided for (i) a stay-put bonus equal to an eligible individual's fiscal 1997 base salary ("Stay-Put") and (ii) a sales incentive bonus based on a multiple (ranging from 50% to 200%) of an eligible individual's fiscal 1997 base salary ("Sales Incentive").
The Stay-Put bonus is payable in two equal parts: the first was paid shortly after the Acquisition, and the second is payable shortly following the second anniversary of the Acquisition, provided that the individual has remained employed by the Subsidiary. The second Stay-Put to be paid to each of the Named Executive Officers is as follows: Mr. Ruijssenaars, $262,500; Mr. Wickens, $162,500; Mr. Aslanian, $90,000; and Mr. Curless, $120,000. Mr. Krall is not a participant in the STSP.
The Sales Incentive bonus, which was payable only if the present value of the after-tax proceeds to the Trust in connection with the Acquisition met a threshold amount set forth in the STSP, increased on a straight-line basis in the event that the Trust's after-tax proceeds exceeded a specified target amount. Based upon an estimate of the amount that would be payable, the Subsidiary made initial Sales Incentive bonus payments to each of the Named Executive Officers, other than Mr. Krall, in fiscal 1998. During fiscal 1999, when the determination of the present value of the after-tax proceeds to the Trust became final, the Subsidiary completed the Sales Incentive bonus payments. Amounts paid to the Named Executive Officers in fiscal 1999 are shown in footnote 3 to the Summary Compensation Table.
INCENTIVE STOCK PLAN
The Subsidiary has an Incentive Stock Plan pursuant to which restricted shares of the Company's Class A Common Stock have been and may be allocated to members of the Subsidiary's senior management. The right to receive the shares is conditioned on the participant's execution of a shareholders' agreement which, among other things, governs the transferability of the shares, and a voting trust agreement under which the shares are held of record and voted by Granaria Holdings B.V. However, shares awarded are beneficially owned by the recipient and generally are immediately vested. Under the terms of the Plan, the Subsidiary is obligated to reimburse Plan participants for any tax obligations associated with their receipt of the shares.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial ownership of the Company's Class A Common Stock as of February 24, 2000, by each person known by the Company to own beneficially 5% or more of the Class A Common Stock, the Company's only voting security.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of February 24, 2000, regarding the ownership of the Company's Class A Common Stock, the Company's only voting security and the only equity security held by the Company's directors or executive officers. All shares are subject both to a Voting Trust Agreement that allows all of the shares owned by the Company's management to be voted by Granaria Holdings B.V. and to a Shareholders Agreement that restricts their disposition.
- --------------- (*) Less than 1.0%.
(1) Granaria Holdings B.V. is 100% owned by Wijler Holding B.V., a Dutch Antilles company, 50.1% of which is owned by Joel P. Wyler and 49.9% of which is owned by Daniel C. Wyler.
(2) Includes 525,001 shares held by Granaria Industries B.V., which is majority owned by Granaria Holdings B.V.
(3) Includes 83,500 shares held by Granaria Holdings B.V. as voting trustee for certain members of management.
(4) Includes 11,000 shares held by Granaria Holdings B.V.
(5) Includes 5,500 shares held by the E-P Management Trust, of which Messrs. Joel P. Wyler and Andries Ruijssenaars are trustees.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
The Company has an advisory and consulting agreement with Granaria Holdings B.V. ("Granaria Holdings") pursuant to which the Company pays Granaria Holdings an annual management fee of $1.75 million annually plus out-of-pocket expenses. Fees and expenses relating to these services amounted to $2.0 million in 1999. At November 30, 1999, $.4 million relating to these fees and expenses is due Granaria Holdings.
The Subsidiary adopted a Short Term Sale Program ("STSP") prior to the Acquisition which provided for payments to the executive officers and members of senior management in the event of a change of control. The Acquisition constituted such a change of control. (See Executive Compensation -- Short Term Sale Program.) The Company recorded an expense of $10.1 million in the year ended November 30, 1998 in connection with the STSP, of which $1.5 million remains unpaid as of November 30, 1999.
In 1998, the Company paid $10.0 million to the Eagle-Picher Management Trust ("E-P Management Trust") for the benefit of certain executive officers of the Company. The $10.0 million payment was effectively used to acquire certain restricted stock of Granaria Industries B.V. which was later exchanged for common stock of the Company. Certain of the shares of the Company held by the E-P Management Trust have been allocated to certain members of senior management of the Company. The Company also reimbursed the holders of the shares for their tax obligations associated with receipt of such shares. (See Executive Compensation -- Incentive Stock Plan.) The Company has recorded compensation expense of $.4 million in 1999 for the restricted shares and related tax reimbursements.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- ---------------
(1) Incorporated by reference to the Company's Form S-4 Registration Statement No. 333-49957-01 filed on April 11, 1998.
(2) Incorporated by reference to the Subsidiary's Amendment No. 1 to Form S-4 Registration Statement No. 333-49957 filed on May 20, 1998.
(3) Incorporated by reference to the Subsidiary's Amendment No. 2 to Form S-4 Registration Statement No. 333-49957 filed on June 5, 1998.
(4) Incorporated by reference to the Company's Form 10-K filed on March 1, 1999.
(5) Incorporated by reference to the Company's Form 10-Q filed on June 30, 1999.
(6) Incorporated by reference to the Company's Form 8-K filed on April 21, 1999.
(7) Incorporated by reference to the Subsidiary's Form 10-Q filed on June 29, 1998. - ---------------
(b)1. Reports on Form 8-K -- None filed in the Company's fourth quarter for the period covered by the report.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER HOLDINGS, INC.
By /s/ ANDRIES RUIJSSENAARS ------------------------------------ Andries Ruijssenaars President and Chief Executive Officer
Dated: February 28, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER INDUSTRIES, INC.
By /s/ ANDRIES RUIJSSENAARS ------------------------------------ Andries Ruijssenaars President and Chief Executive Officer
Dated: February 28, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, EAGLE-PICHER INDUSTRIES, INC., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
DAISY PARTS, INC.
By /s/ WILLIAM D. OETERS ------------------------------------ William D. Oeters President (Principal Executive Officer)
Dated: February 24, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, DAISY PARTS, INC., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER DEVELOPMENT CO., INC.
By /s/ ANDRIES RUIJSSENAARS ------------------------------------ Andries Ruijssenaars President (Principal Executive Officer)
Dated: February 28, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, EAGLE-PICHER DEVELOPMENT CO., INC., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER FAR EAST, INC.
By /s/ SADAO TAKAHASHI ------------------------------------ Sadao Takahashi President (Principal Executive Officer)
Dated: February 25, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, EAGLE-PICHER FAR EAST, INC., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER FLUID SYSTEMS, INC.
By /s/ SCOTT F. MALY ------------------------------------ Scott F. Maly President (Principal Executive Officer)
Dated: February 25, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, EAGLE-PICHER FLUID SYSTEMS, INC., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER MINERALS, INC.
By /s/ RICHARD B. TENENHOLTZ ------------------------------------ Richard B. Tenenholtz President (Principal Executive Officer)
Dated: February 25, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, EAGLE-PICHER MINERALS, INC., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EAGLE-PICHER TECHNOLOGIES, LLC
By /s/ WILLIAM E. LONG ------------------------------------ William E. Long President (Principal Executive Officer)
Dated: February 25, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, EAGLE-PICHER TECHNOLOGIES, LLC, AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
HILLSDALE TOOL & MANUFACTURING CO.
By /s/ WILLIAM D. OETERS ------------------------------------ William D. Oeters President (Principal Executive Officer)
Dated: February 24, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, HILLSDALE TOOL & MANUFACTURING CO., AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE ADDITIONAL REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MICHIGAN AUTOMOTIVE RESEARCH CORPORATION
By /s/ MICHAEL E. ASLANIAN ------------------------------------ Michael E. Aslanian President (Principal Executive Officer)
Dated: February 25, 2000
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE ADDITIONAL REGISTRANT, MICHIGAN AUTOMOTIVE RESEARCH CORPORATION, AND IN THE CAPACITIES AND ON THE DATES INDICATED.
EXHIBIT INDEX
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* Incorporated by reference. See Item 14 above.